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 June 30, 2004

                                       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 June 30, 2004,  there were issued and  outstanding  821,503  shares of the
common stock of the issuer.

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

<PAGE>
                    Cornerstone Ministries Investments, Inc.

                                      Index

                                                                            Page
                                                                            ----

Form 10-QSB Title Page                                                        1

Index                                                                         2

PART I. FINANCIAL INFORMATION
-----------------------------

         Item 1. Financial Statements

                  Accountant's Review Report                                 F-1

                  Balance Sheets as of June 30, 2004 and 2003                F-2

                  Statements of Operations for the Three and
                  Six Months ended June 30, 2004 and 2003                    F-3

                  Statements of Changes in Shareholders' Equity
                  for the Six Months ended June 30, 2004 and 2003            F-4

                  Statements of Cash Flows
                  for the Six Months ended June 30, 2004 and 2003            F-5

                  Notes to Financial Statements                              F-6

         Item 2. Management's Discussion and Analysis of
                  Financial Condition and Results of Operation                3

         Item 3. Controls and Procedures                                      9

PART II. OTHER INFORMATION
--------------------------

         Item 1. Legal Proceedings                                            9

         Item 2. Changes in Securities and Use of Proceeds                    9

         Item 3. Defaults on Senior Securities                                9

         Item 4. Submission of Matters to a Vote of Security Holders          9

         Item 5. Other Information                                            9

         Item 6. Exhibits and Reports on Form 8-K                             9

Signatures                                                                    9

Certifications                                                               10



                                                                               2
<PAGE>
                           ROBERT N. CLEMONS, CPA, PA
                                   PO BOX 1670
                           DELAND, FLORIDA 32721-1670


To The Board of Directors
Cornerstone Ministries Investments, Inc.

We have  reviewed the  accompanying  balance  sheets of  Cornerstone  Ministries
Investments,  Inc. as of June 30, 2004 and 2003 and the  related  statements  of
operations,  changes in shareholder's equity, and cash flows for the three-month
and six-month  periods then ended.  These interim  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,  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 U.S. generally accepted accounting principles.

The financial  statements  for the year ended  December 31, 2003,  including the
balance  sheet as of December  31, 2003 was  audited by us and we  expressed  an
unqualified  opinion on them in our report dated March 18, 2004, but we have not
performed any auditing procedures since that date.


/s/ Robert N. Clemons, CPA, PA
-------------------------------
DeLand, Florida
August 16, 2004


                                      F-1
<PAGE>
CORNERSTONE MINISTRIES INVESTMENTS, INC.
BALANCE SHEETS
As of June 30, 2004, June 30, 2003 and December 31, 2003
(Unaudited)
<TABLE>
<CAPTION>
                                                                                                      (Consolidated - See Note 18)
                                                                                   Unaudited        Unaudited            Audited
                                                                                  6/30/2004         6/30/2003           12/31/2003
                                                                                ------------       ------------        ------------
<S>                                                                             <C>                <C>                 <C>
ASSETS
Cash and cash equivalents                                                       $ 15,773,663       $  6,773,656        $  4,389,851
Loan guarantee receivable                                                             60,000               --                  --
Loans in process                                                                     162,172            824,227             118,504
Real estate loans, net                                                            47,338,654         45,628,618          47,877,277
Real estate joint venture investments, net                                        45,096,128         31,563,227          34,846,223
Bond holdings and accrued interest                                                 4,014,667          2,701,600           4,001,333
Property and equipment, net                                                          847,758            900,998             873,101
Refundable income taxes                                                                3,522               --                42,617
Deferred tax asset, net                                                                 --              538,443                --
Goodwill                                                                             450,997            450,997             450,997
Unamortized debt issue costs                                                       2,328,558          1,694,439           1,772,631
Real estate held for investment                                                      340,000            340,000             340,000
Other assets                                                                          16,434             45,376              15,813
                                                                                ------------       ------------        ------------
TOTAL ASSETS                                                                    $116,432,553       $ 91,461,581        $ 94,728,347
                                                                                ============       ============        ============

LIABILITIES
Investor certificates and accrued interest                                      $104,263,625       $ 83,946,739        $ 84,562,645
Mortgage participations and accrued interest                                       6,212,142          4,183,323           6,132,809
Accounts and other payables                                                          230,759            305,870             267,806
Loan guarantee obligation                                                             60,000               --                  --
Common dividends payable                                                             155,066            169,085             169,087
Building mortgage                                                                    175,442            184,660             180,194
Capital lease obligation                                                              10,904             16,146              13,632
Deferred taxes payable                                                               161,701               --               171,443
                                                                                ------------       ------------        ------------
TOTAL LIABILITIES                                                                111,269,639         88,805,823          91,497,616
                                                                                ------------       ------------        ------------

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; 10 million shares authorized;
  821,503, 531,532 and 531,532 shares issued and outstanding                           8,215              5,315               5,315
Paid in capital                                                                    5,145,797          3,297,435           3,297,435
Retained earnings (deficit)                                                            8,902           (573,744)              1,229
Treasury stock                                                                          --              (73,248)            (73,248)
                                                                                ------------       ------------        ------------
TOTAL SHAREHOLDERS' EQUITY                                                         5,162,914          2,655,758           3,230,731
                                                                                ------------       ------------        ------------
TOTAL LIABILITIES AND
 SHAREHOLDERS' EQUITY                                                           $116,432,553       $ 91,461,581        $ 94,728,347
                                                                                ============       ============        ============

<FN>
SEE ACCOMPANYING NOTES AND ACCOUNTANT'S REVIEW REPORT                                                                            F-2
</FN>
</TABLE>

<PAGE>
CORNERSTONE MINISTRIES INVESTMENTS, INC.
STATEMENTS OF OPERATIONS
For the three and six months ended June 30, 2004 and 2003
(Unaudited)
<TABLE>
<CAPTION>

                                                                                    (Consolidated -                  (Consolidated -
                                                                                     See Note 18)                      See Note 18)
                                                                   3 Mo. Ended       3 Mo. Ended       6 Mo. Ended      6 Mo. Ended
                                                                    6/30/2004         6/30/2003         6/30/2004        6/30/2003
                                                                   -----------       -----------       -----------      -----------
<S>                                                                <C>               <C>               <C>              <C>
REVENUES
Real estate loan and joint venture interest and fees               $ 2,900,850       $ 2,049,844       $ 5,598,347      $ 3,908,037
Loan participation and other income                                    112,212            93,944           210,968          174,233
                                                                   -----------       -----------       -----------      -----------

TOTAL REVENUES                                                       3,013,062         2,143,788         5,809,315        4,082,270
                                                                   -----------       -----------       -----------      -----------

EXPENSES
Investor interest expense                                            2,162,665         1,797,058         4,125,155        3,354,375
Loan loss expense                                                       10,000              --              30,000             --
Marketing expenses                                                     256,178           144,579           460,714          251,066
Salaries, payroll taxes, and benefits                                  308,876           256,714           629,096          471,215
Operating expenses                                                     231,884           178,436           390,048          492,545
                                                                   -----------       -----------       -----------      -----------

TOTAL EXPENSES                                                       2,969,603         2,376,787         5,635,013        4,569,201
                                                                   -----------       -----------       -----------      -----------

Income (Loss) Before Provision For Income Taxes                         43,459          (232,999)          174,302         (486,931)

Income Tax Provision (Benefit)                                         (10,558)         (107,805)           11,563         (221,751)
                                                                   -----------       -----------       -----------      -----------

NET INCOME (LOSS)                                                  $    54,017       $  (125,194)      $   162,739      $  (265,180)
                                                                   ===========       ===========       ===========      ===========

Basic and Diluted Earnings (Loss)
 per Common Share                                                  $      0.07       $     (0.24)      $      0.27      $     (0.51)
<FN>
SEE ACCOMPANYING NOTES AND ACCOUNTANT'S REVIEW REPORT                                                                            F-3
</FN>
</TABLE>
<PAGE>

CORNERSTONE MINISTRIES INVESTMENTS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the six months ended June 30, 2004 and 2003
(Unaudited)

The statement for the six months ended June 30, 2003 was part of a  consolidated
financial statement - see Note 18.
<TABLE>
<CAPTION>
                                                                                 RETAINED
                                 COMMON STOCK:        PAID-IN       PREFERRED    EARNINGS          TREASURY STOCK:         TOTAL
                               SHARES    AMOUNT       CAPITAL         STOCK      (DEFICIT)       SHARES       STOCK        EQUITY
                              -------   ---------   ------------   -----------   ----------    ----------   ----------   -----------
<S>                           <C>       <C>         <C>             <C>          <C>           <C>          <C>          <C>
BALANCE, DECEMBER 31, 2002    530,947   $  5,309    $ 3,293,641     $     --     $ (139,479)                $     --     $3,159,471
Net income (loss)                                                                 (265,180)                                (265,180)
Common stock issued               585          6          3,794                                                               3,800
Dividend declared                                                                 (169,085)                                (169,085)
Treasury stock acquired                                                                          (11,269)     (73,248)      (73,248)
                              -------   ---------   ------------   -----------   ----------    ----------   ----------   -----------

BALANCE, JUNE 30, 2003        531,532   $  5,315    $ 3,297,435    $      --     $ (573,744)     (11,269)   $ (73,248)   $2,655,758
                              =======   =========   ============   ===========   ==========    ==========   ==========   ===========

BALANCE, DECEMBER 31, 2003    531,532   $  5,315    $ 3,297,435    $      --     $   1,229       (11,269)   $ (73,248)   $3,230,731
Net income (loss)                                                                  162,739                                  162,739
Common stock issued           289,971      2,900      1,881,911                                                           1,884,811
Common stock issuance costs                             (33,549)                                                            (33,549)
Dividend declared                                                                 (155,066)                                (155,066)
Treasury stock sold                                                                               11,269       73,248        73,248
                              -------   ---------   ------------   -----------   ----------    ----------   ----------   -----------

BALANCE, JUNE 30, 2004        821,503   $  8,215    $ 5,145,797    $      --     $   8,902            --    $     --     $5,162,914
                              =======   =========   ============   ===========   ==========    ==========   ==========   ===========


<FN>
SEE ACCOMPANYING NOTES AND ACCOUNTANT'S REVIEW REPORT                                                                            F-4
</FN>
</TABLE>
<PAGE>
CORNERSTONE MINISTRIES INVESTMENTS, INC.
STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2004 and 2003
(Unaudited)
<TABLE>
<CAPTION>
                                                                                                                     (Consolidated -
                                                                                                                       See Note 18)
                                                                                                     2004                  2003
                                                                                                 ------------          ------------
<S>                                                                                              <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                                                $    162,739          $   (265,180)
Adjustments to reconcile net income (loss) to
 cash from operations-
Depreciation and amortization                                                                         398,644               227,699
Changes in-
Loans in process                                                                                      (43,668)             (465,207)
Accrued bond interest, net                                                                            (13,334)                1,312
Accrued real estate loan/joint venture interest and deferred loan fees                             (1,947,868)             (444,888)
Allowance for loan losses                                                                              30,000                  --
Refundable income taxes                                                                                39,095                  --
Deferred taxes                                                                                         (9,742)             (264,210)
Investor and mortgage participation interest payable                                                1,819,141             1,006,288
Accounts and other payables                                                                           (37,047)               23,747
Other assets                                                                                             (621)               (7,185)
                                                                                                 ------------          ------------

NET CASH PROVIDED (USED) BY OPERATIONS                                                                397,339              (187,624)
                                                                                                 ------------          ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate loans made                                                                             (4,496,366)          (11,786,045)
Real estate loan principal payments received                                                        5,509,656             6,066,195
Real estate joint venture investments made                                                         (8,806,704)           (8,152,409)
Real estate joint venture payments received                                                              --               1,880,000
Bonds redeemed or sold                                                                                   --                  31,250
Property and equipment purchased                                                                       (6,940)             (587,326)
                                                                                                 ------------          ------------

NET CASH USED BY INVESTING ACTIVITIES                                                              (7,800,354)          (12,548,335)
                                                                                                 ------------          ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Investor certificates sold                                                                         19,646,214            17,975,412
Investor certificates redeemed                                                                     (1,763,292)           (2,844,132)
Mortgage participation agreements sold                                                                 78,250             4,015,112
Debt issue costs paid                                                                                (922,288)             (893,058)
Building mortgage principal payments                                                                   (4,752)               (4,566)
Capital lease principal payments                                                                       (2,728)               (1,564)
Common stock issued, net of issuance costs                                                          1,851,262                 3,800
Dividends paid                                                                                       (169,087)             (168,640)
Treasury stock sold (acquired)                                                                         73,248               (73,248)
                                                                                                 ------------          ------------

NET CASH PROVIDED BY FINANCING ACTIVITIES                                                          18,786,827            18,009,116
                                                                                                 ------------          ------------

Net change in cash and cash equivalents                                                            11,383,812             5,273,157
Cash and cash equivalents at beginning of period                                                    4,389,851             1,500,499
                                                                                                 ------------          ------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                       $ 15,773,663          $  6,773,656
                                                                                                 ============          ============

Supplemental Information-
  Interest paid during the period                                                                $  2,314,706          $  2,299,445
  Income taxes paid during the period                                                            $     62,500          $       --
Non-cash transactions-
  Investor certificates matured and re-invested                                                  $       --            $  3,702,912
  Loan interest financed and included in loan principal                                          $    782,529          $    297,360
  Fixed asset lease financing                                                                    $       --            $     17,710

<FN>
SEE ACCOMPANYING NOTES AND ACCOUNTANT'S REVIEW REPORT                                                                            F-5
</FN>
</TABLE>
<PAGE>
                    CORNERSTONE MINISTRIES INVESTMENTS, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The  accompanying  financial  statements  include the  accounts  of  Cornerstone
Ministries Investments, Inc (the "Company"). Previously, the Company's financial
statements  included the accounts of two  wholly-owned  subsidiaries,  Wellstone
Communities,  Inc. and Wellstone Financial Group, LLC. In June 2004, the Company
dissolved both subsidiaries. See Note 18 for additional disclosures.

The  Company  originates  and  purchases  mortgage  loans  made  to  faith-based
organizations.  The Company  offers  specialized  programs  for churches and for
non-profit  sponsors of senior  housing and  affordable  housing  programs.  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 Southeast and Southwestern United States.

Cash and cash  equivalents  include bank accounts and 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 is  considered  remote.  If the  possibility  of future loss is not
remote,  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 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:
     o   Family  housing loans may finance  interest while the project is in the
         development and pre-sales  phase,  which normally lasts 12 to 24 months
         depending on the size of the project. The Company receives the financed
         interest as the borrower sells homes in the development.
     o   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.
     o   Senior    housing    loans   may    finance    interest    during   the
         construction/renovation  stage of the borrower's operations. This takes
         two to six  months,  depending  on the  size of the  project.  When the
         facility   is   operational,    the   financed    interest   from   the
         construction/renovation  stage  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:
     o   The borrower has title but not a substantial  equity  investment in the
         property.
     o   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.
     o   There is no take-out  commitment for the full amount of the loan from a
         creditworthy, independent third-party.
     o   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 earn 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

                                                                             F-6
<PAGE>
recognized  when the borrower's sale or refinancing is completed and the Company
receives payment from the borrower.

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 and Mortgage Participation Agreements. These costs
are amortized on a  straight-line  basis over the term of the  associated  debt,
principally 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.

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 recorded at cost and 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.

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.

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 as  required  by SFAS No.  144,  "Accounting  for
Impairment or Disposal of Long-Lived  Assets".  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  Certificates  is  accrued  from  the  date of  issuance.
Certificate  holders  choose,  at the time of purchase,  to have  interest  paid
semi-annually or upon redemption.  Investors  holding five year  certificates 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.

                                                                             F-7
<PAGE>

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 senior  housing  facilities
which are owned by non-profit entities. Loan guarantees that originated prior to
January 1, 2003 have no obligation recognized in the financial  statements.  For
loan  guarantees that were originated or modified on or after January 1, 2003, a
loan guarantee obligation is recognized based on the loan guarantee's  estimated
fair  value.  The  Company  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 loan  guarantee's  origination  or  modification
date.  Unpaid  amounts are  classified as "Loan  guarantee  receivables"  in the
accompanying balance sheets. Loan guarantee  obligations are analyzed at the end
of each fiscal year and if the fair value of a loan guarantee has declined,  the
carrying  amount of the loan  guarantee  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.

Basic earnings  (loss) per common share are calculated by dividing net income or
net loss 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.

Management   uses  estimates  and   assumptions  in  preparing  these  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 the reported revenues
and expenses. Actual results could vary from the estimates that are used.

Certain report classifications used in prior year financial statements have been
reclassified to conform to current year presentation.

New Accounting Pronouncements:
In January 2003, the FASB issued  Interpretation No. 46 (FIN 46),  Consolidation
of Variable Interest  Entities,  an  interpretation of ARB (Accounting  Research
Bulletin) No. 51. This interpretation  requires the consolidation of entities in
which an enterprise absorbs a majority of the entities expected losses, receives
a majority of the expected  residual  gains,  or both, as a result of ownership,
contractual  or other  financial  interests in the entity.  In October 2003, the
FASB delayed the effective date of FIN 46 for variable interest entities (VIE's)
or potential VIE's created before February 2003. In December,  the FASB issued a
revised  version of FIN 46, which delayed the  effective  date of FIN 46 for all
VIE's until March 2004. FIN 46 and its various  interpretations are not expected
to have a material  impact on the  Company's  financial  position  or results of
operations.

In December  2002,  the FASB issued SFAS No.  148,  Accounting  for  Stock-Based
Compensation  -  Transition  and  Disclosure.  This  standard,  which amends the
transition and disclosure  issues associated with SFAS No. 123, became effective
for the years ending after December 31, 2002. The  requirements of this standard
do not impact the Company's financial position or results of operations.

                                                                             F-8
<PAGE>

During  the  last  three  years,  the FASB has  issued  a number  of  accounting
pronouncements   with  various   effective   dates:   SFAS  No.  141,   Business
Combinations;  SFAS No. 142, Goodwill and Other Intangible Assets; SFAS No. 143,
Accounting for Asset Retirement  Obligations;  SFAS No. 144,  Accounting for the
Impairment or Disposal of Long-Lived  Assets;  SFAS No. 145,  Rescission of SFAS
No. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections; SFAS No.
146, Accounting for Costs Associated with Exit or Disposal Activities;  SFAS No.
147, Acquisition of Certain Financial Institutions - an Amendment of SFAS No. 72
and 144 and FASB  Interpretation  No. 9; SFAS No. 149, Amendment of SFAS No. 133
on Derivative  Instruments and Hedging Activities;  SFAS No. 150, Accounting for
Certain  Financial  Instruments  with  Characteristics  of both  Liabilities and
Equity;  and  Interpretation  No.  45,  Guarantor's  Accounting  and  Disclosure
Requirements for Guarantees,  Including  Indirect  Guarantees of Indebtedness of
Others.  These  pronouncements  do not have a material  effect of the  Company's
financial statements.

NOTE 2 - PROPERTY AND EQUIPMENT At June 30, property and equipment is composed
of:
                                                       2004              2003
                                                    ---------         ---------
Office Condominiums                                 $ 792,659         $ 792,659
Office Computers, Furnishings,
   Software & Equipment                               121,437           116,054
Vehicles                                               37,730            37,730
Capital lease - phone system                           17,710            17,710
Less: Accumulated Depreciation                       (121,778)          (63,155)
                                                    ---------         ---------
Property and equipment, net                         $ 847,758         $ 900,998

Depreciation expense-
       Current Quarter                              $  16,262         $  15,073
       Year-to-Date                                 $  32,282         $  24,375

NOTE 3 - COMMITMENTS AND RELATED PARTY TRANSACTIONS
Leases:
During 2003, the Company entered into a capital lease for a new telephone system
at the Company's headquarters.  The lease was recorded at the asset's fair value
and is being amortized over three years using the straight-line method. Interest
expense is calculated based on the implied interest rate in the lease. The lease
payment,  including  principal,  interest  and  sales  tax,  is $672 per  month.
Amortization  expense was $1,476 and $1,476 for the three months, and $2,952 and
$1,968 for the six months ended June 30, 2004 and 2003,  respectively.  Interest
expense was $491 and $701 for the three months,  and $1,037 and $946 for the six
months ended June 30, 2004 and 2003,  respectively.  Future yearly minimum lease
payments as of June 30, 2004:

Year                                    Amount
----                                   -------
2004                                    $3,765
2005                                     7,531
2006                                     1,256
                                       -------
 Total                                  12,552
Less interest portion                   (1,648)
                                       -------
Capital lease obligation               $10,904

Related Party Transactions:
Effective July 1, 2003, the Company entered into a Personnel  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;   and
bookkeeping and accounting  after June 30, 2003. The Company is obligated to pay
directly  or  reimburse  actual  expenses to be billed  bi-weekly.  CCA can earn
incentive compensation of up to 10% of the actual expenses billed to the Company
for the prior 12 months. The base for good performance includes being current on
all bond interest and other obligations,  and that the common stock shareholders
have  received  dividends  equal to an annual  rate of at least 10% on the price
paid in a public offering for all the time the shares were outstanding.  Factors
above the base and the exact amount of incentive compensation will be determined
by the Board of Director's  judgment on the extent to which CCA's  services have


                                                                             F-9
<PAGE>

contributed to the results. The agreement is for renewable one-year terms and it
may be terminated by either party upon 60 days' written notice. The Company does
not have any employees of its own and CCA is subject to the  supervision  of the
Board of  Directors.  Two of the  Company's  directors  serve on CCA's  Board of
Directors.  For the three and six months ended June 30,  2004,  the Company paid
$335,271 and $659,493, respectively, to CCA for personnel services.

During 2003, the Company and Wellstone Communities,  Inc. (a formerly 100%-owned
subsidiary) each entered into a service agreement with Cornerstone Direct Public
Offerings,  LLC ("CDPO") to provide  legal and  administrative  services for the
filing  of  SB-2  Registration  Statements  with  the  Securities  and  Exchange
Commission.  Two of the Company's  directors  serve on the Board of Directors of
CDPO's majority  owner,  Cornerstone  Group  Holdings,  Inc. The service fee was
$75,000  per filing  payable in  installments  during  the filing  process.  All
amounts due under these agreements were paid in the third and fourth quarters of
2003. In 2004, the Company amended its service  agreement and paid an additional
$25,000 to CDPO for cost over-runs  related to the length of time needed for the
registration  statement  to  become  effective.   See  Note  12  for  additional
disclosures on the Company's  registration  statement and Note 18 for additional
disclosures on Wellstone Communities, Inc.'s registration statement.

NOTE 4 - REAL ESTATE LOANS
At June 30, the  Company had Real  Estate  Loans on church and other  non-profit
properties as follows:

                                                    2004               2003
                                                ------------       ------------
Family housing development loans                $ 27,822,341       $ 21,932,715
Church mortgage loans                             10,460,444         15,028,121
Senior housing mortgage loans                      9,219,836          8,305,455
                                                ------------       ------------
   Total principal                                47,502,621         45,266,291
   Accrued Interest                                  390,570            431,860
   Unearned Loan Fees                               (149,537)           (69,533)
   Allowance for loan losses                        (405,000)               -0-
                                                ------------       ------------
   Total Real Estate Loans                      $ 47,338,654       $ 45,628,618

These loans mature as follow: 2004 - $28,131,326; 2005 - $15,442,125; 2006 - $0;
2007 - $0;  2008 - $106,497;  beyond 2008 -  $3,822,673.  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.

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 six months ended June 30, the net interest payments financed
were:

                                                         2004           2003
                                                       ---------      ---------
Current year interest financed                         $ 543,737      $ 386,947
Previous years' financed interest received                (8,054)      (456,861)
                                                       ---------      ---------
Net financed interest                                  $ 535,683      ($ 69,914)

On June 30, 2004, the Company had significant credit risk concentrations in the
following states:

Georgia       $25,210,649
Florida       $ 9,464,518
Texas         $ 6,782,963

Impaired loan disclosures for the six months ended June 30 are as follows:

                                                            2004          2003
                                                        ----------    ----------
Number of impaired loans                                         1             1
Carrying amount at June 30                              $1,646,353    $  137,526
Weighted average investment - year-to-date              $1,615,304    $  134,694
Impaired loan interest income - current quarter         $   38,849    $    2,832
Impaired loan interest income - year-to-date            $   77,697    $    5,664

                                                                            F-10
<PAGE>

No  allowance  for specific  impaired  loan loss has been  recorded  because the
carrying amount of the impaired loans as of June 30, 2004 and 2003 was less than
the present value of the loan's expected future cash flows.

NOTE 5 - REAL ESTATE JOINT VENTURE INVESTMENTS

As of June  30,  certain  of the  Company's  mortgage  loans on  senior  housing
facilities are classified as real estate joint venture investments, as follows:

Location                                              2004             2003
                                                  ------------     ------------
McKinney, TX                                      $  3,883,476     $  2,952,482
Largo, FL                                                  -0-        3,416,623
St. Petersburg, FL                                   3,943,320        4,295,910
Lewisville, TX                                      10,533,304        9,264,233
Garland, TX                                          6,110,256        4,400,000
Chattanooga, TN                                      4,439,918        2,892,648
Winter Haven, FL                                     5,505,751              -0-
San Antonio, TX                                     10,970,238        5,772,025
                                                  ------------     ------------
Total principal outstanding                         45,386,263       32,993,921
Accrued interest                                       371,123          210,973
     Unearned loan fees                               (661,258)      (1,641,667)
Allowance for loan losses                                  -0-              -0-
                                                  ------------     ------------
Real estate joint venture investments, net        $ 45,096,128     $ 31,563,227

The loans  mature as  follows:  2004 -  $20,363,880;  2005 -  $25,022,383.  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 these  properties  through
loan participation agreements, which enable the Company to receive income from a
borrower  when a property in 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 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.

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 six months ended June 30, the net interest payments
financed were as follows:

                                                            2004          2003
                                                          --------      --------
Current year interest financed                            $246,846      $367,274
Previous years' financed interest received                     -0-           -0-
                                                          --------      --------
Net financed interest                                     $246,846      $367,274

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.  No real estate joint venture  investments were considered
impaired as of June 30, 2004 and 2003.

                                                                            F-11
<PAGE>
NOTE 6 - ALLOWANCE FOR LOAN LOSSES

<TABLE>
For the six months ended June 30,  2004,  a summary of changes in the  allowance
for loan losses by loan type was:
<CAPTION>
                                                                               Real Estate
                                                Family          Senior        Joint Venture
                                  Church        Housing         Housing         Investments          Total
                                ----------    ------------    -----------     --------------     -------------
<S>                             <C>              <C>             <C>                <C>             <C>
Balance - beginning of year     $  -0-           $375,000        $   -0-            $   -0-         $375,000
Loan loss expense                  -0-             30,000            -0-                -0-           30,000
Charge-offs                        -0-               -0-             -0-                -0-             -0-
Recoveries                         -0-               -0-             -0-                -0-             -0-
                                ----------    ------------    -----------     --------------     -------------
Balance - end of quarter        $  -0-           $405,000        $   -0-            $   -0-         $405,000
</TABLE>

Components of allowance for loan losses at June 30, 2004:

Collective loan losses-
  Historical experience               $     -0-
  Current credit risk assessment       405,000
                                      --------
  Total collective loan losses         405,000
Specific impaired loan losses               -0-
                                      ---------
Total allowance for loan losses       $405,000

Prior to 2003,  the  Company had no  allowance  for loan loss  activity.  In the
fourth  quarter of 2003, as part of the Company's  regular loan grading and risk
assessment  process,  it was determined that the family housing loan portfolio's
credit risk had increased over  historical  levels.  This increase was caused by
slower than  expected new home sales.  The slow down in new home sales is due to
slower than expected  growth in the U.S.  economy.  This increase in credit risk
resulted  in a $375,000  charge to loan loss  expense  in the fourth  quarter of
2003.  In the  first  and  second  quarters  of 2004,  the  Company  charged  an
additional $20,000 and $10,000 to loan loss expense, respectively. These charges
were due to an increase in the family housing loan portfolio's  outstanding loan
principal. The Company has never incurred a loan charge-off; therefore, there is
no  collective  loan  loss  allowance   related  to  the  Company's   historical
experience.

NOTE 7 - GOODWILL
The Company  uses SFAS 142  "Goodwill  and Other  Intangible  Assets".  Goodwill
associated with the Company's acquisition of Presbyterian  Investor's Fund, Inc.
during the fourth  quarter of 2000, is carried at $450,997 and is not subject to
further amortization.  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,  2003 and 2002,  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  quarters  presented in these
financial statements.

NOTE 8 - UNAMORTIZED DEBT ISSUE COSTS
Unamortized  debt issue costs  consist of legal,  accounting,  and filing  costs
incurred to register the  Company's  debt  securities  and  commissions  paid or
accrued  on the  sale  of  debt  securities.  These  costs  are  amortized  on a
straight-line  basis  over  the  period  the  associated  debt  is  outstanding,
generally five years. At June 30, 2004, unamortized debt issue costs consist of:

Costs incurred to register debt securities           $   594,591
Commissions paid on the sale of debt securities        3,152,617
Less: Accumulated Amortization                        (1,418,650)
                                                     -----------
                                                      $2,328,558

Amortization  expense  was  $203,633  and  $109,643  for the three  months,  and
$366,361  and  $203,324  for the six  months  ended  June  30,  2004  and  2003,
respectively,  and  is  included  in  marketing  expenses  in  the  accompanying
Statements of Operations.

                                                                            F-12
<PAGE>
Estimated amortization expense for the next five years:

7/2004 - 6/2005   $746,404             7/2007 - 6/2008   $302,435
7/2005 - 6/2006   $583,230             7/2008 - 6/2009   $144,924
7/2006 - 6/2007   $551,565

NOTE 9 - BOND HOLDINGS

Bond holdings at June 30 consist of-                    2004           2003
                                                     -----------    -----------
St. Lucie Co., FL Subordinated Revenue Bonds:
         Maturity 7/1/2036                           $ 2,325,000    $ 2,325,000
         Maturity 10/1/2036                            2,700,000      2,700,000
Undivided 50% interest sold to investor               (2,512,500)    (2,512,500)
                                                     -----------    -----------
Net investment in St.Lucie Co., FL bonds               2,512,500      2,512,500
                                                     -----------    -----------
Largo, FL Subordinated Revenue bonds:
            Matures 10/1/2033                          2,500,000            -0-

Undivided interest sold to investors                  (1,225,000)           -0-
                                                     -----------    -----------
Net investment in Largo, FL bonds                      1,275,000            -0-
                                                     -----------    -----------
Local Church Bonds, maturing 2002 & 2003                     -0-         27,500
                                                     -----------    -----------
Cost and fair value of bond holdings                   3,787,500      2,540,000

Accrued interest receivable                              227,167        161,600
                                                     -----------    -----------
                                                     $ 4,014,667    $ 2,701,600


The bonds are not traded on an exchange; however, management estimates, based on
discounted expected cash flows, that the fair value of the individual securities
approximates  their original cost.  Accordingly,  no unrealized holding gains or
losses have been recorded in 2004 or 2003.

Proceeds from the maturity of bonds were $0 and $31,250 for the six months ended
June 30,  2004  and  2003,  respectively.  No  realized  gains  or  losses  were
recognized  in either  quarter.  The Company  uses the  specific  identification
method to determine realized gains and losses.

Tax-free  interest  income was $82,500 and  $59,056  for the three  months,  and
$165,556  and  $115,038  for the six  months  ended  June  30,  2004  and  2003,
respectively.

NOTE 10 - INCOME TAXES
The net  deferred  tax  (liability)  asset in the  accompanying  Balance  Sheets
includes the following components as of June 30:

                                                      2004              2003
                                                    ---------         ---------

Deferred tax assets                                 $ 208,753         $ 673,566
Deferred tax liabilities                             (370,454)         (135,123)
                                                    ---------         ---------
Net deferred tax (liability) asset                  ($161,701)        $ 538,443

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 and from  differences in
the  amortization of debt issue and start-up costs.  The Company  estimates that
future  taxable  income will be  sufficient  to realize the deferred tax assets;
therefore, no valuation allowance was provided for as of June 30, 2004 and 2003.

During the third quarter of 2003,  the Company's  request with the Department of
the Treasury to change its tax  accounting  method for loan fees to  approximate
its book treatment  under SFAS Nos. 65 and 91 was approved.  As a result of this
change, the Company was able to amend and request refunds from its 2000 and 2001
federal  and state tax returns  totaling  $286,953.  $244,336  of the  requested
refunds was received in the fourth quarter of 2003 and the remaining $42,617 was
received in the second  quarter of 2004.  In  addition,  the amended tax returns
created a $481,154 federal net operating loss  carryforward and an $82,025 state
net operating loss  carryforward that the Company used to reduce its 2003 income
tax liability.


                                                                            F-13
<PAGE>


Components of the income tax provision (benefit) for the three and six months
ended June 30:

                                    Three Months                Six Months
                               ----------------------    ----------------------
                                  2004         2003         2004         2003
                               ---------    ---------    ---------    ---------
         Current:   Federal    $  (8,159)   $  45,083    $  13,676    $  36,090
                    State          2,157        8,203        7,629        6,369
         Deferred:  Federal       (4,131)    (136,927)      (8,830)    (224,578)
                    State           (425)     (24,164)        (912)     (39,672)
                               ---------    ---------    ---------    ---------
                               $ (10,558)   $(107,805)   $  11,563    $(221,751)

Reconciliation of the Company's income tax provision (benefit) rate to statutory
federal rates for the three and six months ended June 30:

                                             Three Months         Six Months
                                           ----------------    ----------------
                                            2004      2003      2004      2003
                                           ------    ------    ------    ------
Statutory federal rate                      35.0%    (35.0%)    35.0%    (35.0%)
Effect of graduated federal rates           (1.0%)     1.0%     (1.0%)     1.0%
State taxes, net of federal benefit          3.7%     (3.7%)     3.7%     (3.7%)
Effect of tax-free bond interest income    (64.5%)    (8.7%)   (32.3%)    (8.0%)
Other, net                                   2.5%       .1%      1.2%       .2%
                                           ------    ------    ------    ------
Effective tax provision (benefit) rate     (24.3%)   (46.3%)     6.6%    (45.5%)

NOTE 11 - CASH CONCENTRATION
A cash  concentration  risk arises when the Company has more cash in a financial
institution than is covered by federal deposit insurance.  At June 30, 2004, the
Company had cash in excess of insured limits totaling $15,416,147.

NOTE 12 - INVESTOR CERTIFICATES
The Company has three types of certificates outstanding:
Access  certificates 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  certificates  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  certificate  is  outstanding.   For
certificates sold prior to 2004 the rate starts at 7% and increases .5% for each
year the certificate is outstanding with a 9% maximum rate. Certificates (Series
E) sold in 2004 have an initial interest rate of 6.25% and increase .5% for each
year the certificate is outstanding with an 8.25% maximum rate.

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

The certificates are not  collateralized and no sinking fund is required to fund
redemptions at maturity.  All of the certificates  have been registered with the
Securities and Exchange  Commission  under the Securities Act of 1933. Five year
schedule of principal maturities for certificates outstanding at June 30:

Years to Maturity                               2004                   2003
-----------------                           ------------           ------------
On demand & 1 year                          $ 15,606,131           $ 10,744,701
2                                             10,803,667             10,291,648
3                                             15,415,539             23,194,607
4                                             38,404,494             17,765,879
5                                             16,882,292             18,198,729
                                            ------------           ------------
Total Principal                             $ 97,112,123           $ 80,195,564


At June  30,  2004  and  2003,  accrued  interest  payable  was  $7,151,502  and
$3,751,175,  respectively.  Interest rates for certificates  outstanding at June
30, 2004 are:

   5.0%        $ 2,186,871
   6.25%         2,274,702
   7.0%            327,953
   7.5%          3,810,482
   8.0%          2,471,155
   8.25%        16,882,292
   9.0%         69,158,668

                                                                            F-14
<PAGE>

On April 29, 2003  Cornerstone  Ministries  Investments,  Inc. filed a Form SB-2
Registration  Statement under the Securities Act of 1933 with the Securities and
Exchange  Commission to sell up to $40,000,000  of its Series E Certificates  of
Indebtedness  along with  $11,375,000  of its  Common  Stock.  The  Registration
Statement was approved by the  Securities  and Exchange  Commission on March 26,
2004. The Company issued $19,152,825 in new Investor Certificates and $1,884,811
in Common Stock (289,971 shares) during the second quarter of 2004.

NOTE 13 - MORTGAGE PARTICIPATION AGREEMENTS
In the second quarter of 2003, the Company began selling Mortgage  Participation
("MP") Agreements. The MP Agreements have not been registered and therefore, are
only available to accredited  investors.  The agreements are  collateralized  by
specific senior housing loans owned by the Company and entitle the investor to a
proportionate  share of the interest earned on the collateral.  Interest is paid
monthly to the MP  investor  after the  Company  receives  interest  payments on
related the  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
$154,062 and $27,020 for the three months ended and $307,817 and $27,020 for the
six months ended June 30, 2004. MP Agreement principal and interest  outstanding
and related collateral as of June 30, 2004:
<TABLE>
<CAPTION>

                                                             MP Amount       Total Collateral
                                                            Outstanding      Carrying Amount
                                                            -----------      ---------------
<S>                                                        <C>                 <C>
Lewisville, TX senior housing loan; matures 10/1/04
   with a one year extension at the Company's option       $ 3,766,000         $10,506,229
Garland, TX senior housing loan; matures 12/1/04
   with a one year extension at the Company's option         2,396,500         $ 6,087,652
                                                           -----------
Total principal outstanding                                  6,162,500
Accrued interest payable                                        49,642
                                                           -----------
                                                           $ 6,212,142
</TABLE>

The loans which  collateralize  the MP agreements  are classified as real estate
joint venture investments in the accompanying Balance Sheets. The total carrying
amount is equal to the loan's outstanding principal, plus accrued interest, less
deferred loan fees.

NOTE 14 - LOAN GUARANTEES

The Company is  guarantor  on four loans  secured by senior  housing  facilities
owned by  unrelated  non-profit  entities.  Certain  real estate  joint  venture
investments  and real  estate  acquisition  and  development  loans in which the
borrower chooses to secure outside  financing may require a Company guarantee as
a condition  of the  extension  of the loan by the  financial  institution.  The
guarantee is solely  limited to amounts drawn under credit  facilities  and only
covers  outstanding  principal and accrued interest and terminates upon maturity
and principal repayment. 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 June
30,  2004,  all loans which had a  guarantee  were  current  based on their loan
terms. Loan guarantees as of June 30, 2004:

<TABLE>
<CAPTION>
                                                                          Current             Loan
                       Origination      Maturity         Maximum         Principal          Guarantee
Location                   Date           Date          Guarantee       Outstanding        Obligation
--------                   ----           ----          ---------       -----------        ----------
<S>                      <C>            <C>            <C>               <C>               <C>
Fort Pierce, FL          5/31/04        11/30/04       $ 6,000,000       $ 6,000,000       $ 60,000
Fort Pierce, FL          7/18/01        8/15/04          4,445,000         4,445,000          -0-
Palm Bay, FL             12/31/02       12/31/05        13,800,000        12,241,293          -0-
St. Petersburg, FL       12/18/01       12/18/04         7,347,300         7,113,692          -0-
                                                       -----------       -----------       --------
                                                       $31,592,300       $29,799,985       $ 60,000

</TABLE>

As of June 30, 2004,  $60,000 was due from the borrower for the Fort Pierce,  FL
loan  guarantee.  The Company  received full payment for this guarantee prior to
the issuance of these financial statements.

                                                                            F-15
<PAGE>

NOTE 15 - PROFIT SHARING PLAN
During 2001,  the Company  established a profit  sharing plan for its employees.
The plan allows for entry into the plan after one year of service, and immediate
vesting  of  contributed  amounts.  All  contributions  are  to be  made  at the
discretion of the Company after approval by the Board of Directors.  For the six
months ended June 30, 2004 and 2003,  the Company has not elected to  contribute
to the plan.

NOTE 16 - BUILDING MORTGAGE
In  connection  with the  acquisition  of office space,  the Company  obtained a
mortgage  and pledged  the real  estate as  collateral.  The  mortgage  requires
monthly  principal and interest  payments of $2,068 with an annual interest rate
of 8.5%.  The loan matures on March 1, 2006, at which time a balloon  payment of
$158,637 will be required.  Estimated annual principle payments:  2004 - $5,071;
2005 - $10,733; 2006 - $159,638.

NOTE 17 - 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 an
adjustable formula.

During 2001, as part of the Company's  formation and initial  capitalization  of
Wellstone  Financial  Group,  LLC ("WFG"),  500 preferred shares with a value of
$500,000 were issued to WFG in return for a 100%  ownership  interest in WFG. In
June 2004,  WFG was  dissolved and all of the  outstanding  Series A Convertible
Preferred  Stock was redeemed from WFG in exchange for the  Company's  ownership
interest in WFG. See Note 18 for additional disclosures on this transaction.

NOTE 18 - DISSOLUTION OF SUBSIDIARIES
In June 2004, the Company's Board of Directors approved an agreement to dissolve
Wellstone Financial Group, LLC ("WFG"), a 100%-owned subsidiary. In exchange for
the  Company's  ownership  interest  in WFG,  the  Company  redeemed  all of the
Company's Series A Preferred Stock owned by WFG. The fair value of the Preferred
Stock  and the  Company's  ownership  interest  in WFG were  both  estimated  at
$500,000;  therefore,  no cash was  exchanged.  As of June 30,  2004,  WFG is no
longer included in the Company's  financial  statements.  The transaction had no
effect on the Company's assets, liabilities, net income and earning per share of
common stock.  WFG was  dissolved  because the Company has been unable to retain
the type of specialized  employees  necessary to develop WFG's operations into a
long-term profitable venture.

In June 2004, the Company's Board of Directors approved an agreement to dissolve
Wellstone  Communities,  Inc.  ("WCI"),  a  100%-owned  subsidiary.  The Company
received all of WCI's  assets in exchange  for its 362,500  shares of WCI Common
Stock. The fair value of this transaction was $1,265,268.  WCI's assets included
$1,046,340  in cash and a real estate  mortgage  loan with a carrying  amount of
$218,928.  The transaction had no effect on the Company's  assets,  liabilities,
net income,  and earnings per common share.  WCI filed a Form SB-2  Registration
Statement in 2003 and planned to issue preferred stock to expand its specialized
loan operations and possibly purchase a bank. The Company determined that it was
not feasible to go forward with the  registration  statement  given the proposed
financial structure; therefore, WCI was dissolved.

NOTE 19 - EARNINGS PER SHARE
Basic  earnings  (loss) per share for the three and six month periods ended June
30 have been calculated as follows:

                                                     Three Months     Six Months
                                                     ------------     ----------
2004     Net Income                                   $  54,017       $ 162,739
         Average Common Shares Outstanding              709,902         603,085
         Earnings per Common Share                    $    0.07       $    0.27
2003     Net Loss                                     ($125,194)      ($265,180)
         Average Common Shares Outstanding              519,965         523,088
         Loss per Common Share                        ($   0.24)      ($   0.51)


                                                                            F-16
<PAGE>

Diluted  earnings  per share are the same as basic  earnings  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 20 - MAJOR CUSTOMERS
The Company  received  more than 10% of its total  revenue for the three and six
months ended June 30, 2004 from the following customers:
<TABLE>
<CAPTION>
                                    Three Months
                                 ------------------
                                  Amount        %        Amount        %        Description of Revenue Received
                                 ----------   ----     ----------    ----       -------------------------------
<S>                              <C>          <C>      <C>           <C>        <C>
Senior Housing Services, Inc.    $1,440,889   47.8%    $2,665,631    45.9%      Interest and fees from real
                                                                                estate joint venture investments
Wellstone Housing Corp.             539,803   17.9%     1,051,547    18.1%      Interest and fees from
                                 ----------   ----     ----------    ----       family housing development loans
                                 $1,980,692   65.7%    $3,717,178    64.0%
</TABLE>

The major customers are not related parties.  Neither  organization  directly or
indirectly  controls,  is  controlled  by,  or 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 these customers.

NOTE 21 - 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  certificates  and  mortgage  participations  - Fair value is estimated
based on the present  value of expected  future cash flows,  which  approximates
their carrying amount.

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.

The estimated  fair values of the Company's  financial  instruments  at June 30,
2004 are:

                                                Carrying Amount       Fair Value
                                                ---------------       ----------
Financial assets:
  Cash and cash equivalents                       $15,773,663        $15,773,663
  Bond holdings                                   $ 3,787,500        $ 3,787,500
  Loan guarantee receivable                       $    60,000        $    60,000
Financial liabilities:
  Investor certificates                           $97,112,123        $97,112,123
  Mortgage participations                         $ 6,162,500        $ 6,162,500
  Building mortgage                               $   175,442        $   175,442
  Capital lease obligation                        $    10,904        $    10,904
  Loan guarantee obligation                       $    60,000        $    60,000


                                                                            F-17

<PAGE>

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 of Financial Condition and Results
of  Operation"  and with our  financial  statements  and  related  notes in this
filing.

                                                         Six months ended
                                                             June 30,
                                                  -----------------------------
                                                       2004             2003
                                                  -----------       -----------
Revenues                                          $ 5,809,315       $ 4,082,270
                                                  -----------       -----------

Investor interest expense                           4,125,155         3,354,375
Loan loss expense                                      30,000               -0-
Marketing expenses                                    460,714           251,066
Salaries, payroll taxes, benefits                     629,096           471,215
Operating expenses                                    390,058           492,545
                                                  -----------       -----------
   Total expenses                                   5,635,013         4,569,201
                                                  -----------       -----------
Operating income (loss)                               174,302          (486,931)
Income tax provision (benefit)                         11,563          (221,751)
                                                  -----------       -----------
   Net income (loss)                              $   162,739       ($  265,180)

Overview of operations.
We have  always  focused  on  serving  only  faith-based  organizations,  mostly
churches  and their  related  schools.  We also offer  specialized  programs for
church and other non-profit  sponsors of senior housing and  affordable/moderate
income  housing  programs.  Nearly  all of our  earnings  in the past  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.  We generate  revenue from:
o    interest on loans
o    origination and renewal fees on loans
o    loan participation income
o    interest on securities
o    consulting fees

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%. Some loans are
participating  loans,  which enable us to receive  income from the borrower when
the borrower sells or refinances  (with another lender) the property in which we
provided the financing.  The participation percentage varies between 25% and 33%
of the borrower's gain.

Participating loans (all related to senior housing facilities) are classified as
real estate  joint  venture  investments  if all of the  following  exist at the
inception of the loan:
o    The borrower does not have a substantial equity investment in the property.
o    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.
o    There is no  take-out  commitment  for the full  amount  of the loan from a
     creditworthy, independent third-party.
o    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 June 30, 2003 and June 30, 2004
General.  Assets  increased from $91,461,581 at June 30, 2003 to $116,432,553 at
June 30, 2004 for an increase of  $24,970,972 or 27%. This increase was a result
of the  sale  of  Investor  Certificates  and  Mortgage  Participations,  net of
redemptions of $20,316,886,  new common stock issuances of $1,851,262,  and cash
generated from  operations  since June 30, 2003,  decreased by dividends paid to
shareholders.  With the  additional  net cash  from  these  items  and from cash
already on hand, we invested in real estate loans and joint venture investments,
net of principal payments  received,  of $15,242,937 and purchased an additional
$1,275,000 in bond holdings.  Total revenue increased for the three months ended
June 30, 2004 by $869,274 or 41% from  $2,143,788 in 2003 to $3,013,062 in 2004.
Total revenue  increased for the six months ended June 30, 2004 by $1,727,045 or
42% from  $4,082,270 in 2003 to  $5,809,315  in 2004.  Net income (loss) for the
three and six months  ended June 30, 2004 was $52,017 and  $162,739  compared to
($125,194) and ($265,180) for the same periods ended June 30, 2003.

Total real estate loans and joint venture  investments  outstanding  on June 30,
2004 was $92,434,782 compared to $77,191,845 on June 30, 2003 for an increase of
$15,242,937 or 20%. This increase is due to sales of Investor  Certificates  and
Mortgage Participation  Agreements and the subsequent origination or refinancing
of real estate loans and joint venture investments, as follows:

                                                                               3

<PAGE>

New real estate loans made                                         $  3,229,710
Decrease in existing loans, net of principal received                (1,519,674)
New real estate joint venture investments made                        5,505,752
Increase in existing real estate joint venture investments            8,027,149
                                                                   ------------
                                                                   $ 15,242,937

All other  assets  composed  primarily  of cash,  bond  holdings,  property  and
equipment,  and  unamortized  debt issue costs were  $23,997,771  as of June 30,
2004.

Our cash  balance  increased  $9,000,007  from  $6,773,656  on June 30,  2003 to
$15,773,663  on June 30,  2004.  This  increase  is due to the  large  amount of
Investor  Certificates  sold in May and June of 2004. There is normally a lag of
one to three  months  between  the  receipt  of cash  from  these  sales and the
investment in new real estate loans and joint venture investments. We expect our
cash on hand to decrease  from its current  level  before the end of the current
year as we are  able to find  suitable  real  estate  loans  and  joint  venture
investments to invest our cash.

Principal   and  interest   payable  on  Investor   Certificates   and  Mortgage
Participation ("MP") Agreements increased $22,345,705 or 25% from $88,130,062 as
of June 30, 2003 to $110,475,767 as of June 30, 2004. In 2003, the Company filed
a registration  statement with the Securities and Exchange Commission to sell up
to $40,000,000 in additional  Investor  Certificates  and  $11,375,000 in Common
Stock. The  registration  statement was approved on March 26, 2004 which allowed
us to start selling new Investor  Certificates in the second quarter of 2004 and
continue the substantial increase in outstanding certificates and the subsequent
investment in new real estate loans and joint venture investments.

On May 31, 2004, a loan that we guaranteed on a senior housing  facility in Fort
Pierce,  FL was  modified and the  maturity  date was extended six months.  This
modification  triggered the  recognition of a loan  guarantee  obligation on our
balance  sheet.  The loan  guarantee  obligation  is carried at the  guarantee's
estimated fair value of $60,000. We have billed the loan guarantee obligation to
the respective  borrower as  compensation  for our risk. At June 30, this amount
had not been paid;  therefore,  we also have a loan guarantee  receivable on our
balance sheet.  We received full payment from the borrower prior to the issuance
of these financial  statements.  We have two additional loan guarantees that may
be modified and extended  prior to the end of the current  fiscal year.  If this
occurs, we will recognize additional loan guarantee obligations and we will bill
these obligations to the respective  borrowers as compensation for the risk that
we have taken on related to the  guarantees.  Please see Note 14 of the Notes to
Financial Statements for additional information related to loan guarantees.

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 and six
months ended June 30 is as follows:

                               2004           2003         Increase        %
                            ----------     ----------     ----------     -----
Three months ended          $2,900,850     $2,049,844     $  851,066      42%
Six months ended            $5,598,347     $3,908,037     $1,690,310      43%


<TABLE>
The increases were due to the following:
<CAPTION>
                                                                 Three months       Six months
                                                                 ------------       ----------
<S>                                                              <C>               <C>
Increase in average outstanding principal                        $  401,362        $  824,461
   (Three months: $89,725,937 - 2004; $72,507,546 - 2003)
   (Six months: $87,127,531 - 2004; $70,272,776 - 2003)
Increase in weighted average interest rate                           83,867           133,318
   (Three months: 9.85% - 2004; 9.47% - 2003)
   (Six months: 9.81% - 2004; 9.45% - 2003)
Increase in loan fees recognized                                    365,837           732,531
                                                                 ----------        ----------
                                                                 $  851,066        $1,690,310
</TABLE>

The  increase in average  outstanding  principal is due to the addition of 6 new
real estate loans and joint venture  investments with  outstanding  principal of
$8,735,462 and an increase in existing loan principal (net of principal payments
received) with an average net outstanding principal increase of $8,119,293.

<TABLE>
Loan participation and other income. For the three and six months ended June 30,
2004, loan participation and other income increased as follows:
<CAPTION>
                                             Three Months Ended               Six Months Ended
                                      ------------------------------   ------------------------------
                                       2004        2003      Change      2004       2003       Change
                                      --------   --------   --------   --------   --------   --------
<S>                                   <C>        <C>        <C>        <C>        <C>        <C>
Investment income                     $104,887   $ 87,344   $ 17,543   $196,318   $159,797   $ 36,521
Loan participation and other income      7,325      6,600         25     14,650     14,436        214
                                      --------   --------   --------   --------   --------   --------
   Total                              $112,212   $ 93,944   $ 18,268   $210,968   $174,233   $ 36,735

</TABLE>

                                                                               4
<PAGE>

The Company's  investment  income is from the purchase of tax-free bonds used as
permanent financing for projects the Company funded during their development and
initial  operations and from interest  income on the Company's  excess cash. The
increase in  investment  income is due to the  September,  2003  purchase of new
tax-free bonds, which increased the balance in our bond holdings portfolio.

<TABLE>
Investor interest expense. Investor interest expense for the three months ended
June 30, 2004 was $2,162,665, an increase of $365,607 or 20% compared to 2003.
Investor interest expense for the six months ended June 30, 2004 was $4,125,155,
an increase of $770,780 or 23% compared to 2003. The increases are due to:
<CAPTION>
                                                                       Three Months       Six Months
                                                                       ------------       ----------
<S>                                                                     <C>               <C>
Increase in average outstanding certificate principal, including        $ 246,919         $ 482,329

 interest payable subject to compounding
   (Three Months: $91,311,352 - 2004; $81,033,022 - 2003)
   (Six Months: $86,547,482 - 2004; $76,542,002 - 2003)
Change in weighted average interest percentage                             (8,354)            7,654
   (Three Months: 8.80% - 2004; 8.81% - 2003)
   (Six Months: 8.82% - 2004; 8.80% - 2003)
Increase in average outstanding Mortgage Participation principal
   (Three Months: $6,162,500 - 2004; $1,083,769 - 2003)
   (Six Months: $6,156,340 - 2004; $544,878 - 2003)                       127,042           280,797
                                                                        ---------         ---------
                                                                        $ 365,607         $ 770,780
</TABLE>

Loan loss expense and allowance for loan losses.  In the fourth quarter of 2003,
as part of our regular  loan  grading and risk  assessment  process,  we charged
$375,000 to loan loss expense and  increased  our allowance for real estate loan
losses to $375,000  from $0 as of  December  31,  2002.  In the first and second
quarters of 2004, we charged an additional $20,000 and $10,000,  respectively to
loan loss expense.  Prior to the fourth quarter of 2003, we had never recognized
an allowance for loan loss.  Even though we have not incurred a loan  write-off,
we increased our loan loss allowance in the fourth quarter of 2003 because of an
increase in our family housing  development  loan  portfolio's  relative  credit
risk.  The  increased  credit risk was caused by slower than  expected  new home
sales in the fourth  quarter of 2003,  which is a result of slower than expected
growth in the U.S. economy. The loan loss expense in 2004 was due to an increase
in the family housing development loan portfolio's outstanding principal.

The  allowance  for  loan  loss  increases  that we made in 2003  and  2004  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 will be made based on the results of these reviews.

As of June 30, 2004,  one church loan with a carrying  amount of $1,646,353  was
considered impaired. As of June 30, 2003, one church loan with a carrying amount
of $134,458 was considered  impaired.  No specific  impaired loan loss allowance
has been  recorded  because the  carrying  amount of the loans are less than the
loan's  collateral  and the  present  value of the loan's  expected  future cash
flows.

As of June 30, 2004,  allowance for loan losses as a percent of outstanding loan
principal by loan type:

                                         Loan Loss    Outstanding
                                         Allowance     Principal          %
                                        -----------   -----------   -----------
Family Housing Development Loans        $   405,000   $27,822,341       1.5%
Church Mortgage Loans                           -0-    10,460,444         0%
Senior Housing Mortgage Loans                   -0-     9,219,836         0%
Real Estate Joint Venture Investments           -0-    45,386,263         0%
                                        -----------   -----------   -----------
  Total                                 $   405,000   $92,888,884        .4%

<TABLE>
Marketing  expenses.  Total expenses for the marketing of investor  certificates
for the three and six months  ended June 30,  2004 were  $256,178  and  $460,714
compared to $144,579 and $251,066  for the same periods in 2003.  The  increases
are due to:
<CAPTION>
                                         Three Months                     Six Months
                               ------------------------------   ------------------------------
                                 2004       2003      Change      2004       2003      Change
                               --------   --------   --------   --------   --------   --------
<S>                            <C>        <C>        <C>        <C>        <C>        <C>
Debt issue cost amortization   $203,633   $110,518   $ 93,115   $366,361   $204,199   $162,162
Management &                     19,750      7,981     11,769     39,499      7,981     31,518
Consulting
Printing                          8,378      4,586      3,792     15,645      6,748      8,897

Other marketing costs            24,417     21,494      2,923     39,209     32,138      7,071
                               --------   --------   --------   --------   --------   --------
       Total                   $256,178   $144,579   $111,599   $460,714   $251,066   $209,648
</TABLE>


                                                                               5
<PAGE>

Debt issue cost amortization expense increased due to Investor  Certificates and
Mortgage  Participations sold since June 30, 2003. This expense will continue to
increase as new  Investor  Certificates  and Mortgage  Participations  are sold.
Consulting expense is up due to the hiring of a full-time  marketing manager who
is  designing  and  implementing  new  marketing  strategies  for  our  Investor
Certificates, new investments and general corporate programs. Printing costs are
up due to the  printing of  prospectuses  and  marketing  brochures  for our new
certificates, which we began to sell in the second quarter of 2004.

Selling  commissions  paid to brokers  for  selling  Investor  Certificates  and
Mortgage Participations and costs incurred to register Investor Certificates are
paid in cash and charged as an expense  over the term of the related  debt.  The
unamortized  balance  is  classified  as  an  asset  on  the  Balance  Sheet  as
"Unamortized debt issue costs".  The balance was $2,328,558 and $1,694,439 as of
June 30, 2004 and 2003, respectively.

Operating and personnel expenses.  Personnel expenses (salaries,  payroll taxes,
and benefits)  for the three months ended June 30 increased  $52,162 or 20% from
$256,714  in 2003 to  $308,876  in  2004.  For the six  months  ended  June  30,
personnel  expenses  increased $157,881 or 33% from $471,215 in 2003 to $629,096
in 2004.  The  increase  is due to  additional  employees  hired to  handle  the
Company's growth in operations.

Starting in July 2003, the Company contracted with Cornerstone  Capital Advisors
("CCA") to provide all administrative  personnel services. The Company is paying
CCA for its expenses  (estimated at $1,300,000  over the next 12 months),  which
are  expected  to be similar to the  expenses  incurred  by the  Company  had it
continued its personnel  support under  previous  arrangements.  There is no fee
schedule  but the Company may elect to pay fees for good  performance,  which if
paid,  would be no more than 10% of the reimbursed  expenses for the previous 12
months.  The Company paid $335,271 to CCA during the three months ended June 30,
2004, of which $308,876 is included in personnel expense, $12,645 is included in
operating  expenses and $13,750 is included in marketing  expenses.  The Company
paid  $659,493  to CCA  during  the six months  ended  June 30,  2004,  of which
$619,348 is included in  personnel  expenses,  $12,645 is included in  operating
expenses and $27,500 is included in marketing  expenses.  Prior to July 1, 2003,
the employees were paid directly by the Company.  On July 1, 2003, CCA hired all
of our employees and has billed us for the time spent on Company operations.

<TABLE>
For the three and six months ended June 30, 2004 and 2003, operating expenses
were as follows:
<CAPTION>
                                                 Three Months                          Six Months
                                      ---------------------------------    ---------------------------------
                                         2004       2003       Change        2004        2003        Change
                                      ---------   ---------   ---------    ---------   ---------   ---------

<S>                                   <C>         <C>         <C>          <C>         <C>         <C>
a) Trust service/paying agent fees    $  47,890   $  35,818   $  12,072    $  74,193   $  72,263   $   1,930
b) Consulting fees                       43,096      28,410      14,686       49,296      91,610     (42,314)
c) Audit, accounting & tax services       8,915      12,705      (3,790)      28,787      44,311     (15,524)
d) Employee recruiting costs                -0-       6,682      (6,682)         -0-      46,335     (46,335)
e) Depreciation & amortization           16,262      15,073       1,189       32,282      24,375       7,907
f) Office expenses                       28,118      28,670        (552)      43,585      52,833      (9,248)
g) Legal expenses                         5,568      12,496      (6,928)      30,854      34,430      (3,576)
h) Appraisal costs                       26,208         -0-      26,208       26,208         -0-      26,208
i) Other operating expenses              55,827      38,582      17,245      104,843     126,388     (21,545)
                                      ---------   ---------   ---------    ---------   ---------   ---------
Total operating expenses              $ 231,884   $ 178,436   $  53,448    $ 390,048   $ 492,545   ($102,497)
</TABLE>

The changes are due to the following:
     a)  Trust  service/paying agent fees - increased in the current quarter due
         to an increase in  transaction  activity for our Investor  Certificates
         related to the new registration statement.
     b)  Consulting fees - In the second quarter of 2004, we used consultants to
         identify  new  business  markets  in  the  African  American  community
         (churches,   affordable   senior  housing  and  family  housing)  which
         increased costs over the second quarter of 2003. Year-to-date,  we have
         spent  less than last year  because in the first  quarter  of 2003,  we
         hired  financial  consultants  to  set up  the  mortgage  participation
         program,  set-up cash flow and  financing  models which we are using to
         manage  our cash and loan  investments,  and to  explore  possible  new
         industries  and  strategies  for  our  loan  business.  We did  not use
         consultants for any material projects in the first quarter of 2004.
     c)  Audit,  accounting  & tax  services - Decreased  due to the hiring of a
         full-time accountant in the middle of 2003 which has decreased our need
         for outside accounting services.
     d)  Employee  recruiting costs - decreased in 2004 because we are no longer
         using outside recruiting firms to hire our employees.
     e)  Depreciation  &  amortization  - The six month  increase  is due to the
         purchase of an office  building,  office  furnishings  and computers in
         late February, 2003.
     f)  Office expenses - In late February,  2003, we moved into our new office
         building  and  incurred a number of one-time  moving and set-up  costs.
         Since we have not incurred similar costs this year, our office expenses
         have decreased for the six months ended June 30, 2004.
     g)  Legal expenses - We have used outside  attorneys  slightly less in 2004
         than in 2003.
     h)  Appraisal  costs - Increased  in the second  quarter of 2003 due to new
         appraisals being  commissioned on a number of properties which serve as
         collateral on senior housing and church loans.


                                                                               6

<PAGE>

     i)  Other  operating  expenses -  increased  in the second  quarter  due to
         travel costs and Board of Directors expenses.  Board of Directors costs
         increased because our annual meeting was held during the second quarter
         of 2004 versus the first quarter in 2003. For the six months ended June
         30, 2004,  other  operating  costs have  decreased  due to economies of
         scale that we have benefited from as our operations have increased.

Income tax provision (benefit). The income tax provision (benefit) for the three
and six months  ended June 30,  2004 was  ($10,558)  and  $11,563,  compared  to
($107,805)  and  ($221,751)  for the same periods  ended June 30, 2003.  The net
increase  in income  taxes is due to an increase  in pre-tax  income,  partially
offset by an increase in tax-exempt bond interest.  The Company's  effective tax
provision (benefit) rate for 2004 and 2003 is as follows:

                   2004       2003
                  ------     ------
Three Months      (24.3%)    (46.3%)
Six Months          6.6%     (45.5%)

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 10).

Dividends. Dividends of $155,066 and $169,085 were declared on June 30, 2004 and
2003 and paid on July 15, 2004 and 2003, respectively.

Liquidity and Capital Resources
Cash flows from  operations.  Net cash provided by the Company's  operations for
the six months ended June 30, 2004 was $397,339,  which  compares to $187,624 in
net cash  used by  operations  for the six  months  ended  June 30,  2003 for an
increase in net cash  provided by operations of $584,963.  This  difference  was
driven by  increases  in net  income,  depreciation  and  amortization  expense,
deferred   taxes,   allowance  for  loan  losses,   and  investor  and  mortgage
participation  interest payable,  partially offset by a decrease in accounts and
other  payables  and  changes  in accrued  real  estate  loan and joint  venture
interest and deferred loan fees.

Investor and mortgage participation interest payable increased $1,819,141 in the
first six months of 2004 due to an  increase  in  outstanding  debt and  because
approximately 25% of the Investor Certificate holders who purchased certificates
in 2003 and 2004 have elected to reinvest the interest due to them each year and
not receive the interest in cash until maturity.

Included  in the 2004 and 2003  changes in accrued  real  estate  loan and joint
venture  interest  and  deferred  loan fee amounts is $782,529  and  $297,360 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 six months ended June 30, 2004 and 2003 is as follows:

                                                       2004              2003
                                                    ---------         ---------
Family Housing Development                          $ 496,082         ($ 78,504)
Church Construction                                    39,601             8,590
Real Estate Joint Venture                             246,846           367,274
                                                    ---------         ---------
                                                    $ 782,529         $ 297,360

The amount for 2004  represents  interest  accrued and financed in 2004,  net of
payments  received in 2004 that were financed in previous  years.  2003's amount
represents  interest  accrued and financed in 2003, net of payments  received in
2003 that were financed in previous years.

The increase in the family housing net financed  interest in 2004 as compared to
2003 is due to: 1) the Company  receiving  $453,938 in financed interest in 2003
that was  originally  financed in 2002 on a major  project in  Mableton,  GA, 2)
increased loan balances on six projects which are now in the  development  phase
and are financing their monthly interest,  and 3) the addition of four new loans
since June 30, 2003 which are in the development phase of construction.

The  decrease in real estate joint  venture net financed  interest is due to the
origination of the  Lewisville,  TX loan in the latter part of 2002. We financed
as part of the loan's principal the first three months' interest in 2003 because
the facility was being renovated.  We have received  monthly  interest  payments
thereafter.  The McKinney,  TX loan is in the pre-development phase and financed
its interest  payments during the first six months of 2004.  Since the McKinney,
TX loan balance is significantly less than the Lewisville,  TX loan balance, the
financed  interest  amount  decreased in 2004.  Also,  the San Antonio,  TX loan
financed  one  months'  interest in the first  quarter of 2004 while  undergoing
renovations to its facility.

The McKinney  loan is  collateralized  by raw land that is being  developed  for
senior housing whereas the other Real Estate Joint Venture  Investment loans are
collateralized  by  existing  facilities  that  only  needed  to  be  remodeled.
Therefore,  the period in which the  interest is being  financed on the McKinney
loan is longer than the other Real Estate Joint Venture Investment loans.

                                                                               7

<PAGE>

Cash flows from  investing  activities.  For the six months ended June 30, 2004,
the  Company  used  $7,800,354  in cash  from  investing  activities  which is a
decrease of $4,747,981 from  $12,548,335 for the six months ended June 30, 2003.
The decrease was due to the following:

Decrease in real estate loans and joint venture investments made    ($6,635,384)
Decrease in real estate loan and joint venture investment
   principal payments received                                        2,436,539
Decrease in bonds redeemed or sold                                       31,250
Decrease in fixed asset and real estate purchases                      (580,386)
                                                                    -----------
                                                                    ($4,747,981)

The decrease in real estate loans and joint venture  investments made in 2004 is
due to the new  registration  statement not becoming  effective  until March 26,
2004.  We did not have as much time in 2004 to originate  new loans as we did in
2003.  This  should turn around in the second half of 2004 as we invest the cash
that we have received from new investor certificates and stock issuances.

The decrease in real estate loan and joint venture investment principal payments
received is due to a large principal  pay-down received in 2003 on a real estate
joint venture investment in Largo, FL.

During the six months  ended June 30,  2003,  the  Company  purchased  an office
condominium  for  $532,040  to  house  its  corporate  offices  and  to  provide
additional office space for future growth.

Cash flows from  financing  activities.  For the six months ended June 30, 2004,
the  Company  raised  $19,724,464  from the sale of  Investor  Certificates  and
Mortgage Participation Agreements. This represents a decrease of $2,266,060 from
new Investor Certificate and Mortgage Participation sales of $21,990,524 for the
six months ended June 30, 2003.  Registered Investor Certificates were available
for sale for three  months in 2004 versus four months in 2003,  which caused the
decrease in 2004's sales.

In  early  May,  2003,  we  sold  out  of  all  available   registered  Investor
Certificates;  therefore,  no new  certificates  were available to sell while we
were  getting  a new  registration  statement  approved  by the  Securities  and
Exchange Commission. The new registration statement was not approved until March
26,  2004,  which caused the decrease in the amount of time that we were able to
issue new certificates in 2004.

Investor  Certificates  redeemed  decreased  from  $2,844,132 for the six months
ended June 30, 2003 to  $1,763,292  for the six months ended June 30,  2004.  In
2003, we called  certificates  related to the church bond fund,  which increased
2003's redemptions as compared to 2004.

We have  $15,606,131  in Investor  Certificates  coming due or  redeemable  upon
demand  in the  next 12  months.  $8,556,338  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 20% of the  graduated  certificates  will be redeemed  for
cash in 2004. Also,  $4,534,968 million in five year bonds will mature in March,
2005. Our historical  experience  indicates that over 80% of the maturities will
be reinvested  into new Investor  Certificates,  but there is no guarantee  that
this will  happen.  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:
o    Maintain a minimum cash balance, normally no less than $3,000,000.
o    Have readily marketable loans that can be sold for par or a premium.
o    Asking investors about their intentions at least 30 days before their bonds
     mature.
o    Have a bank willing to extend credit lines if needed.
o    Spread maturity dates throughout the year.
o    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.

                                                                               8

<PAGE>

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 June 30,
2004,  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

         Not Applicable

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)  Exhibit   99.1,   Certifications   pursuant  to  Section  906  of  the
     Sarbanes-Oxley  Act of 2002.  (2) Exhibit 15, Letter on un-audited  interim
     financial information.

(b)  No reports on Form 8-K were filed  during the quarter for which this report
     is filed.

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: August 12, 2004          Cornerstone Ministries Investments, Inc.
                                             (Registrant)


                                By: /S/ John T. Ottinger
                                    --------------------------------------------
                                    John T. Ottinger
                                    Vice President and Chief Financial Officer


                                                                               9