UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-K








[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934


FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2009





or





[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934


FOR
THE TRANSITION PERIOD FROM ------------TO------------








Commission
File Number 000-25919





American
Church Mortgage Company


(Exact
name of registrant as specified in its charter)





Minnesota                                                                                        
                                                                              41-1793975


(State or
other jurisdiction of incorporation or
organization)                                                                                                             (I.R.S.
Employer Identification No.)





10237 Yellow Circle Drive Minnetonka,
MN                                                                                                 
                                                      55343


(Address
of principal executive
offices)                                                                                                                                         
                 (Zip
Code)





(952)
945-9455


(Registrant’s
telephone number, including area code)





Securities
registered pursuant to Section 12(b) of the Act:


Title
      of each class:
            
            Name
      of each exchange on
              which
      registered:None
            
            None


Securities
registered pursuant to Section 12(g) of the Act:


Common
Shares, par value $.01 per share





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yeso  Nox


Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.


Yeso  Nox





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes x     No
o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405
of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.o





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








Large
      accelerated filer o
            Accelerated
      filer                  oNon-accelerated
      filer   o
              (Do
      not check if a smaller reporting company)
            Smaller
      reporting company  x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes o   No
x





The
aggregate market value of the common stock of the registrant held by
non-affiliates on June 30, 2009 (the last business day of the registrant’s most
recently completed second fiscal quarter) was $4,871,000, based upon the closing
sales price of the registrant’s common stock on such date as quoted by the Pink
OTC Markets Inc. (the “Pink Sheets”).  Such over-the counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.  On June 30,
2009, there were 2,472,081 shares of the registrant’s common stock
outstanding.





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.


Class
            
            Outstanding
      at March 31, 2010Common
      Stock, $0.01 par value per share
            
            2,472,081
      shares





Documents
Incorporated by Reference





Portions
of the Company’s Proxy Statement to be delivered to its shareholders in
connection with the Company’s 2010 Annual Meeting of Shareholders, which the
Company plans to file with the Securities and Exchange Commission within 120
days of the end of the fiscal year covered by this report, are incorporated by
reference in Part III of this report (Items 10, 11, 12, 13 and 14).








INDEX


Page


No.


PART
I





Item
1.                 Business............................................................................................................................................................................................................................................     5




Item
1A.              Risk
Factors..................................................................................................................................................................................................................................... 
   13





Item
1B.               Unresolved
Staff
Comments........................................................................................................................................................................................................      19





Item
2.                 Properties.........................................................................................................................................................................................................................................     19





Item
3.                 Legal
Proceedings...........................................................................................................................................................................................................................    20





Item
4.                 RESERVED........................................................................................................................................................................................................................................    20





PART
II





Item
5.                 Market
for Registrant’s Common Equity, Related Stockholder Matters,


and Issuer
Purchases of Equity
Securities..................................................................................................................................................................................    20





Item
6.                 Selected
Financial
Data...................................................................................................................................................................................................................    22





Item
7.                 Management’s
Discussion and Analysis of Financial Condition


and
Results of
Operations.............................................................................................................................................................................................................     23





Item
7A.              Quantitative
and Qualitative Disclosures About Market
Risk................................................................................................................................................     27





Item
8.                 Financial
Statements and Supplementary
Data...........................................................................................................................................................................    27





Report of Independent Registered Public
Accounting
Firm.....................................................................................................................................................   F-1


Balance Sheets as of December 31, 2009
and
2008......................................................................................................................................................................  F-2


Statements of Operations for the years
ended December 31, 2009 and
2008..........................................................................................................................   F-4


Statements of Stockholders’ Equity for
the years ended


December
31, 2009 and
2008...........................................................................................................................................................................................................   F-5


Statements of Cash Flows for the years
ended December 31, 2009 and
2008.........................................................................................................................   F-6


Notes to Financial
Statements.......................................................................................................................................................................................................    F-8





Item
9.                 Changes
in and Disagreements With


Accountants on
Accounting and Financial
Disclosure............................................................................................................................................................    27





Item
9A(T).         Controls and
Procedures...............................................................................................................................................................................................................     27





Item
9B.                 Other
Information..........................................................................................................................................................................................................................    29





PART
III





Item
10.                 Directors,
Executive Officers and Corporate
Governance.......................................................................................................................................................     29





Item
11.                 Executive
Compensation..............................................................................................................................................................................................................      29





Item
12.                 Security
Ownership of Certain Beneficial Owners and


Management and Related Stockholder
Matters........................................................................................................................................................................      29





Item
13.                 Certain
Relationships and Related Transactions, and Director
Independence...................................................................................................................       29





Item
14.                 Principal
Accounting Fees and
Services...................................................................................................................................................................................       29











PART
IV





Item
15.                 Exhibits,
Financial Statement
Schedules....................................................................................................................................................................................      30





Signatures......................................................................................................................................................................................................................................................................      
31





PART I








In connection with the “safe harbor”
provisions of the Private Securities Litigation Reform Act of 1995, readers of
this document and any document incorporated by reference herein, are advised
that this document and documents incorporated by reference into this document
contain both statements of historical facts and forward looking
statements.  Forward looking statements are subject to certain risks
and uncertainties, which could cause actual results to differ materially from
those indicated by the forward looking statements.  Examples of
forward looking statements include, but are not limited to (i) projections of
revenues, income or loss, earning or loss per share, capital expenditures,
dividends, capital structure and other financial items; (ii) statements of plans
and objectives of ours or our management or Board of Directors, including any
public sale of our securities, or estimates or predictions of actions by
borrowers, competitors or regulatory authorities; (iii) statements of future
economic performance; and (iv) statements of assumptions underlying other
statements and statements about our business.





This document and documents
incorporated by reference herein also identify important factors which could
cause actual results to differ materially from those indicated by forward
looking statements.  These risks and uncertainties include, among
other things,  interest rate fluctuations as they effect the relative
yield of our loan portfolio and our ability to compete in making loans to
borrowers; payment default on loans made or bonds purchased by us, which could
adversely affect our ability to make distributions to our shareholders; the
actions of competitors; the effects of government regulation; and other factors
which are described herein and/or in documents incorporated by reference herein,
including the risks described at the end of Item 1.





The cautionary statements made
pursuant to the Private Litigation Securities Reform Act of 1995 above and
elsewhere by us should not be construed as exhaustive or as any admission
regarding the adequacy of disclosures made by us prior to the effective date of
such Act.  Matters which are the subject of forward looking statements
are beyond our ability to control and in many cases we cannot predict what
factors would cause results to differ materially from those indicated by the
forward looking statements.





Item
1.              Business.





General





We are a Minnesota corporation
incorporated on May 27, 1994.  We operate as a Real Estate Investment
Trust (“REIT”) and are engaged in the business of making mortgage loans to
churches and other non-profit religious organizations throughout the United
States.  The principal amount of loans we offer ranges from $100,000
to $2,000,000.  We may also invest up to 30% of our Average Invested
Assets in mortgage secured debt securities (bonds) issued by churches and other
non-profit religious organizations.  Between the date upon which we
began active business operations (April 15, 1996), and February 28, 2010, we
have made 175 loans to 145 churches approximating $88,858,000, with the average
principal amount of such loans being $508,000. Of the 175 loans we have made, 85
loans totaling $39,200,000 have been repaid early by the borrowing
churches.  We also own, as of December 31, 2009, $12,127,000 principal
amount of Church Bonds (hereinafter defined).  At no time have we paid
a premium for any of the bonds in our portfolio.  Subject to
supervision of our Board of Directors, our day to day business operations are
managed by Church Loan Advisors, Inc. (the “Advisor”), which provides investment
advisory and administrative services to us.  The principals of the
Advisor include principals of American Investors Group, Inc., a FINRA member
broker-dealer, which has served as underwriter of the public offerings of our
common stock, as well as our public offerings of secured investor
certificates.





The
Company’s Business Activities





Our business is managed by Church
Loan Advisors, Inc., Minnetonka, Minnesota (the “Advisor”).  We have
no employees but we do have two executive officers.  The Advisor's
affiliate, American Investors Group, Inc., (“American”) has been engaged since
1987 in the business of underwriting first mortgage bonds for churches
throughout the United States.  In underwriting church bonds, American
reviews financing proposals, analyzes prospective borrowers’ financial
capability, and structures, markets and sells, mortgage-backed securities which
are debt obligations (bonds) of such borrowers to the investing general
public.  Since its inception, American has underwritten approximately
249 church bond financings, in which approximately $469,205,000 in first
mortgage bonds have been sold to public investors.  The average size
of single church bond financings underwritten by American since its inception is
approximately $1,884,000.





In the course of its business,
American identified a demand from potential borrowers for smaller loans of
$100,000 to $2,000,000.  Because of the regulatory, administrative
expenses and complexity normally associated with the bond financing business,
American determined that the economic feasibility of bond financing diminished
for financings under $1,000,000.  As a result, we believe that many
churches are forced to either forego the project for which their financing
request was made, fund their project from cash flow over a period of time and at
greater expense, or seek bank financing at terms that are not always favorable
or available to them, due to the historic reluctance of banks to lend to
churches for other than economic








5





reasons.  Our
objective is to provide a lending source to this segment of the industry by
capitalizing on the human resources and experience available at American and the
Advisor, and taking advantage of the marketing, advertising and general goodwill
of American.





Financing
Business





Our primary business is to make first
mortgage loans in amounts ranging from $100,000 to $2,000,000, to churches and
other non-profit religious organizations, and selecting and investing in
mortgage-secured debt instruments ("Church Bonds") issued by churches and other
non-profit religious organizations throughout the United States.  We
attempt to apply our working capital (after adequate reserves determined by the
Advisor) toward making mortgage loans and investing in Church
Bonds.  We seek to enhance returns on investments on such loans
by:





·
            offering
      terms of up to 30 years, generating the highest yields possible under
      current market conditions;








·
            seeking
      origination fees (i.e. "points") from the borrower at the outset of a loan
      and upon any renewal of a loan;





·
            making
      a limited amount of higher-interest rate second mortgage loans to
      qualified borrowers; and





·
            purchasing
      mortgage-secured debt securities having various maturities issued by
      churches and other non-profit religious
  organizations.





Our policies limit the amount of
second mortgage loans to 20% of the Company's Average Invested Assets
(hereinafter defined) on the date any second mortgage loan is closed and limit
the amount of mortgage-secured debt securities to 30% of Average Invested Assets
on the date of their purchase.





“Average Invested Assets” for any
period is defined as the average of the aggregated book value of the assets of
the corporation invested, directly or indirectly, in loans (or interests in
loans) secured by real estate, and first mortgage bonds, before reserves for
depreciation or bad debts or other similar non-cash reserves computed by taking
the average of such values at the end of each calendar month during such
period.





All other mortgage loans made by us
(or Church Bonds purchased for investment) will be secured by a first mortgage
(or deed of trust) lien in favor of us.  Although we attempt to make
mortgage loans for various terms typically ranging from three to thirty years,
we may determine to emphasize longer-term fixed-rate loans in our discretion, in
order to reduce the risk to us of downward interest rate
fluctuations.





Our lending and investing operations,
including determination of a prospective borrower's or church bond issuer's
financial credit worthiness, are made on our behalf by the
Advisor.  Employees and agents of the Advisor conduct all aspects of
our business, including (i) marketing and advertising; (ii) communication with
prospective borrowers; (iii) processing loan applications; (iv) closing the
loans; (v) servicing the loans; (vi) enforcing the terms of our loans; (vii)
shareholder relations and (viii) administering our day-to-day
business.  For its services, the Advisor is entitled to receive a
management fee equal to 11⁄4% annually of the Company's Average Invested Assets,
plus one-half of any origination fee charged to borrowers on mortgage loans we
make.  The management fee is reduced to 1% on assets from $35 million
to $50 million and to .75% on assets over $50 million.  The Advisor’s
management fees are computed and payable monthly.





Current
First Mortgage Loan Terms





We offer prospective borrowers a
selection of loan types, which include a choice of fixed or variable rates of
interest indexed to the prime rate, the U.S. Treasury 10-Year Notes, or another
generally recognized reference index, and having various terms to maturity,
origination fees and other terms and conditions.  The terms of loans
we offer may be changed by our advisor as a result of such factors as (i) the
credit quality and experience of the borrowers; (ii) the terms of loans in our
portfolio; (iii) competition from other lenders; (iv) anticipated need to
increase the overall yield on our mortgage loan portfolio; (v) local and
national economic factors; and (vi) actual experience in borrowers’ demand for
the loans.  We currently offer the loan types described in the table
below.  This table describes material terms of loans available from
us.  The table does not purport to identify all possible terms, rates,
and fees we may offer.  We may modify the terms identified below or
offer loan terms different than those identified below.  Many loans
are individually negotiated and differ from the terms described
below.











6








Loan
      Type
            Interest
      Rate (1)
            Origination
      Fee (2)25/30
      Year Term (3)
            Fixed
      @ 8.75%/8.95% respectively
            3.5%20
      Year Term (3)
            Variable
      Annually @ Prime + 2.50%
            3.5%3
      Year Renewable Term (4)
            Fixed
      @ 8.25%
            3.0%Construction
      1 Year Term
            Fixed
      @ 9.00%
            2.0%





(1)
            “Prime”
      means the prime rate of interest charged to preferred customers, as
      published by a federally chartered bank chosen by us.  We may
      also tie our offered interest rates to other
  indexes.


(2)
            These
      are “target” fees and negotiation of these fees with borrowers can
      occur.  Origination fees are generally based on the original
      principal amount of the loan and are collected from the borrower at the
      origination and renewal of loans, one-half of which is payable directly to
      our Advisor.


(3)
            Fully
      amortized repayment term.  Amortization terms may vary, as may
      other loan terms, depending on individual loan negotiations and
      competitive forces.


(4)
            Renewable
      term loans are repaid based on a 25-year amortization schedule, and are
      renewable at the conclusion of their initial term for additional like
      terms up to an aggregated maximum of 25 years.  We charge a fee
      of 1% upon the date of each renewal.  If renewed by the
      borrower, the interest rate is adjusted upon renewal to Prime plus a
      specified percentage “spread.”





The above table describes certain
material terms of Loan Types, interest rates and fees currently offered and
charged by us.  The table does not, however, purport to identify all
possible Loan Types, terms, rates, and fees that we may offer from
time-to-time.  We may determine at any time to modify the terms
identified above and/or offer loan terms different than any of the Loan Types,
interest rates and fees identified above and do, in fact, negotiate these terms
and fees with certain of our borrowers.  In practice, loan terms vary
widely depending upon quality of the prospective borrowers, our working capital
situation, presence or absence of competitive influences on specific loans, and
general economic conditions.





Mortgage
Loan Processing and Underwriting





Mortgage loan applications are prepared
and verified by our Advisor's personnel in our Loan Origination and Underwriting
Department.  Verification procedures are designed to assure a
borrower's qualification under our Financing Policies which are specifically
identified herein and include, among other things, obtaining:





·
            applications
      containing key information concerning the prospective
      borrowers;





·
            project
      description;





·
            financial
      statements in accordance with our Financing
  Policies;





·
            corporate
      records and other organizational documents of the
  borrower;





·
            preliminary
      title report or commitment for mortgagee title insurance;
    and





·
            a
      real estate appraisal in accordance with the Financing
      Policies.





All appraisals are prepared by
independent third-party professionals who we approve based on their experience,
reputation and education.  All financial statements are prepared by
independent third-party professionals or a qualified accountant that we hire
that is independent of the borrower.  Completed loan applications,
together with a written summary are then presented to our Underwriting
Committee.  Our loan Underwriting Committee is comprised of the
Advisor's President and Vice-President and certain members of its staff
including staff members of American.  Our Advisor may arrange for the
provision of mortgage title insurance and for the services of professional
independent third-party accountants and appraisers on behalf of borrowers in
order to achieve pricing efficiencies on their behalf and to assure the
efficient delivery of title commitments, preliminary title reports and title
policies, and financial statements and appraisals meet our underwriting
criteria.  Our Advisor may arrange for the direct payment for such
professional services and for the direct reimbursement to it of such
expenditures by borrowers and prospective borrowers.  Upon closing and
funding of mortgage loans, an origination fee based on the original principal
amount of each loan may be charged, of which one-half is payable by the borrower
to our Advisor, and the other one-half to us.





7


Loan
Commitments





Subsequent to approval by our
Underwriting Committee, and prior to funding a loan, we may issue a loan
commitment to qualified applicants.  A loan commitment deposit may be
required from the borrowing church to commence the loan preparation
procedure.  These deposits are directly applied by the Advisor to
engage accountants and appraisers to prepare their respective reports on the
church.  Commitments may indicate, among other things, the loan
amount, origination fees, closing costs, underwriting expenses (if any), funding
conditions, approval expiration dates and interest rate and other
terms.  Commitments generally set forth a "prevailing" interest rate
that is subject to change in accordance with market interest rate fluctuations
until the final loan closing documents are prepared, at which time we commit to
a stated interest rate.  In certain cases we may establish ("lock in")
interest rate commitments up to sixty (60) days from the commitment to closing;
however, interest rate commitments beyond sixty days will not normally be issued
unless we receive an appropriate fee premium based upon our assessment of the
risk associated with a longer period.





Loan
Portfolio Management





Our portfolio of mortgage loans and
Church Bonds is managed and serviced by our Advisor in accordance with the
Advisory Agreement.  The Advisor is responsible for all aspects of our
mortgage loan business, including closing and recording of mortgage loans;
collecting payments of principal and interest regularly and upon the maturity of
a loan; enforcing loan payments and other lender's requirements; periodic review
of each mortgage loan file and determination of its reserve classification; and
exercising our remedies in connection with any defaulted or non-performing
loans.  Fees and costs of attorneys, insurance, bonds and other direct
expenses incurred in connection with the exercise of such remedies are our
responsibility.  We may, however, recoup these expenses from the
borrower in the process of pursuing our remedies.  The Advisor will
not receive any additional compensation for services rendered in connection with
loan portfolio management or exercising remedies on our behalf in the event of a
loan default.





Loan
Funding and Bank Borrowing





Our mortgage loans (and our purchases
of Church Bonds) are funded with available cash resources and, at the discretion
of the Advisor, with borrowings under a line of credit with a commercial lender
or bank.





The Company has a $4.5 million line of
credit with Beacon Bank.  Interest is charged at the prime rate with a
minimum interest rate of 5.00%.  When the prime rate is greater than
6.00%, the interest rate is prime less .50%, subject to a minimum interest rate
of 6.00%.  At December 31, 2009, the interest rate on the line of
credit was 5.00% and we had an outstanding balance of $4,100,000.  The
line of credit is secured by a first priority security interest in substantially
all of the Company’s assets other than collateral pledged to secure the
Company’s Series “A,” Series “B” and Series “C” secured investor
certificates.  The maturity date for the line is in September
2010.





Currently, we may borrow up to 300% of
our shareholder’s equity (in the absence of a satisfactory showing that a higher
level of borrowing is appropriate; any excess in borrowing over such 300% level
must be approved by a majority of the Independent Directors and disclosed to
shareholders in the next quarterly report along with justification for such
excess) to make loans regardless of our capacity to (i) sell our securities on a
continuing basis, or to (ii) reposition assets from the maturity or early
repayment of mortgage loans in our secured investor certificates, minus reserves
for operating expenses, and bad-debt reserves, as determined by the
Advisor.  Cash resources available to us for lending purposes include,
in addition to the net proceeds from any future sales of our common stock,
secured investor certificates (if any) or other debt securities, (i) principal
repayments from borrowers on loans made by us and (ii) funds borrowed under any
line of credit arrangement.





Public
Offerings - Secured Investor Certificates





In October 2008, we filed a
registration statement with the Securities and Exchange Commission to offer
$20,000,000 worth of Series C Secured Investor Certificates (File No.
333-154831).  The offering was declared effective by the SEC on March
30, 2009.  The Series C Certificates are being offered in multiples of
$1,000 with interest rates ranging from 6.25% to 7.25%, subject to changing
market rates, and maturities from 4-7 and 13-20 years.  At December
31, 2009, approximately $342,000 Series C Certificates had been
issued.





Previously, we have offered Series A
and Series B Secured Investor Certificates, at various maturities and interest
rates.  The weighted average interest rate on the certificateswas 6.82% at December
31, 2009 and 2008.  Holders of the secured investor certificates may
renew certificates at the current rates and terms upon maturity at the Company’s
discretion.  Renewals








8


upon
maturity are considered neither proceeds from nor issuance of secured investor
certificates.  Renewals of Series A and Series B secured investor
certificates totaled approximately $2,219,000 and $1,004,000 for the twelve
months ended December 30, 2009 and 2008, respectively.  All secured
investor certificates are collateralized by certain mortgage loans receivable or
secured church bonds of approximately the same stated value as the
certificates.  In addition, the secured investor certificates have
certain financial and non-financial covenants, as set forth in each Series’
respective trust indenture.





The
Advisory Agreement





We have entered into a contract with
the Advisor (the “Advisory Agreement”) under which the Advisor furnishes advice
and recommendations concerning our business affairs, provides administrative
services to us and manages our day-to-day operations.  We have no
employees.  All of our personnel needs are met through the personnel
and expertise of the Advisor and its affiliates.  Among other things,
the Advisor:





·
            serves
      as our mortgage loan underwriter and advisor in connection with our
      primary business of making loans to
churches;





·
            advises
      and selects Church Bonds to be purchased and held for investment by
      us;





·
            services
      all mortgage loans we make;





·
            provides
      marketing and advertising and generates loan leads directly and through
      its affiliates;





·
            deals
      with regulatory agencies, borrowers, lenders, banks, consultants,
      accountants, brokers, attorneys, appraisers, insurers and
      others;





·
            supervises
      the preparation, filing and distribution of tax returns and reports to
      governmental agencies and to shareholders and acts on our behalf in
      connection with shareholder
relations;





·
            provides
      office space and personnel as required for the performance of the
      foregoing services; and





·
            as
      requested by us, makes reports to us of its performance of the foregoing
      services and furnishes advice and recommendations with respect to other
      aspects of our business.





In performing its services under the
Advisory Agreement, the Advisor may use facilities, personnel and support
services of its affiliates.  Expenses such as legal and accounting
fees, stock transfer agent, registrar and paying agent fees and proxy
solicitation expenses are direct expenses of ours and are not provided for by
the Advisor as part of its services.





The Advisory Agreement is renewable
annually by us for one-year periods, subject to our determination, including a
majority of the Independent Directors, that the Advisor's performance has been
satisfactory and that the compensation paid the Advisor has been
reasonable.  We may terminate the Advisory Agreement with or without
cause upon 60 days written notice to the Advisor.  Upon termination of
the Advisory Agreement by either party, the Advisor may require us to change our
name to a name that does not contain the word "American," "America" or the name
of the Advisor or any approximation or abbreviation thereof, and that is
sufficiently dissimilar to the word "America" or "American" or the name of the
Advisor as to be unlikely to cause confusion or identification with either the
Advisor or any person or entity using the word "American" or "America" in its
name.  Our Board of Directors shall determine that any successor
Advisor possess sufficient qualifications to perform the advisory function for
us and justify the compensation provided for in its contract with
us.




Pursuant to the Advisory Agreement, the
Advisor is required to pay all of the expenses it incurs in providing services
to us, including, but not limited to, personnel expenses, rental and other
office expenses, expenses of officers and employees of the Advisor, including
travel and all of its overhead and miscellaneous administrative expenses
relating to performance of its functions under the Advisory
Agreement.  We are required to pay all other expenses we incur in the
daily operations of our business–such as the costs and expenses of reporting to
various governmental agencies and the shareholders; the general conduct of our
operations as a mortgage lender; fees and expenses of appraisers, directors,
auditors, outside legal counsel and transfer agents; directors and officers
liability insurance premiums; unreimbursed costs directly relating to closing of
loan transactions; and costs relating to the enforcement of loan agreements
and/or foreclosure proceedings.





In the event that our Total Operating
Expenses exceed in any calendar year the greater of (a) 2% of our Average
Invested Assets or (b) 25% of our net income, the Advisor is obligated to
reimburse us, to the extent of its fees for such calendar year,








9




for the
amount by which the aggregate annual operating expenses paid or incurred by us
exceed the limitation.  Total operating expenses as defined in the
Advisory Agreement exclude expenses of raising capital, interest payments,
taxes, non-cash expenditures (including, but not limited to, depreciation,
amortization and bad debt reserves), incentive fees and property operation and
disposition costs.  The Independent Directors may, upon a finding of
unusual and non-recurring factors which they deem sufficient, determine that a
higher level of expenses is justified in any given year.





Our bylaws provide that the Independent
Directors are to determine at least annually the reasonableness of the
compensation we pay to our Advisor.  On July 15, 2009,our Directors reviewed
and unanimously approved renewal of the Advisory Agreement for another
year.  Factors to be considered in reviewing the Advisory Fee include
the size of the fees of the Advisor in relation to the size, composition and
profitability of our loan portfolio, the rates charged by other investment
advisors performing comparable services, the success of the Advisor in
generating opportunities that meet our investment objectives, the amount of
additional revenues realized by the Advisor for other services performed for us,
the quality and extent of service and advice furnished by the Advisor, the
quality of our investments in relation to investments generated by the Advisor
for its own account, if any, and the performance of our
investments.





The Advisory Agreement provides for
indemnification by us of the Advisor and each of its directors, officers and
employees against expense or liability arising out of such person's activities
in rendering services to us, provided that the conduct against which the claim
is made was determined by such person, in good faith, to be in our best
interests and was not the result of negligence or misconduct.





Financing
Policies





Our business of mortgage lending to
churches and other non-profit religious organizations is managed in accordance
with and subject to the policies, guidelines, restrictions and limitations
identified herein (collectively, the "Financing Policy").  The intent
of the Financing Policy is to identify for our shareholders not only the general
business in which we are involved, but the parameters of our lending
business.  These policies may not be changed (except in certain
immaterial respects by majority approval of the Board of Directors) without the
approval of a majority of the Independent Directors, and the holders of a
majority of our outstanding shares at a duly held meeting for that
purpose:





(i)
            Loans
      made by us will be limited to churches and other non-profit religious
      organizations, and will be secured by mortgages.  The total
      principal amount of all second mortgage loans that we fund is limited to
      20% of Average Invested Assets.  All other loans will be first
      mortgage loans.





(ii)
            The
      total principal amount of mortgage-secured debt securities we purchase
      from churches and other non-profit religious organizations is limited to
      30% of our Average Invested Assets.





(iii)
            The
      loan amount cannot exceed 75% of the value of the real estate and
      improvements securing each loan, such value being determined based on a
      written appraisal prepared by an appraiser acceptable to the
      Advisor.  On all loans, we will require a written appraisal
      certified by a member of the Appraisal Institute ("MAI"), or a
      state-certified appraiser.





(iv)
            An
      ALTA (American Land Title Association) or equivalent Mortgage Title Policy
      must be furnished to us by the borrower insuring our mortgage
      interest.





(v)
            The
      borrower's long-term debt (including the proposed loan) cannot exceed four
      times their gross income for the previous twelve (12)
    months.





(vi)
            The
      borrower must furnish us with financial statements (balance sheet and
      income and expense statement) for its last three (3) complete fiscal years
      and current financial statements for the period within ninety (90) days of
      the loan closing date.  A borrower must have the last complete
      fiscal year financial statements reviewed by a certified public accountant
      (CPA) engaged by the borrower and who is independent of the
      borrower.  On loans in excess of $500,000 our advisor may
      require the last complete fiscal year be audited by a CPA engaged by the
      borrower and who is independent of the borrower.  In lieu of the
      above requirement, we or our Advisor may employ a qualified
      accountant.  The qualified accountant we employ would be
      required to be independent of the borrower.  Our employed
      qualified accountant would not be independent of us.  Compiled
      financial statements of the borrower are acceptable from our employed
      qualified accountant.  Along with the compiled financial
      statements of the borrower, our employed qualified accountant would
      perform partial and targetedreview
      examination procedures for borrowers.  On loans in excess of
      $500,000, the Advisor may require partial and targeted audit examination
      procedures for borrowers.





10


(vii)
            Borrowers
      in existence for less than three (3) fiscal years must provide financial
      statements since their inception.  No loan will be extended to a
      borrower in operation less than two (2) calendar years absent express
      approval by our Board of Directors.





(viii)
            The
      Advisor typically requires the borrower to arrange for automatic
      electronic payment or drafting of monthly
  payments.





(ix)
            The
      Advisor may require (i) key-man life insurance on the life of the senior
      pastor of a church; (ii) personal guarantees of church members and/or
      affiliates; and (iii) other security enhancements for our
      benefit.





(x)
            The
      borrower must agree to provide to us annual reports (including financial
      statements) within 120 days of each fiscal year end beginning with the
      fiscal year end next following the funding of the
  loan.





(xi)
            The
      Advisor may require the borrower to grant to us a security interest in all
      personal property located and to be located upon the mortgaged premises
      (excluding property leased by the
borrower).





(xii)
            We
      require borrowers to maintain a general perils and liability coverage
      insurance policy naming us as the loss-payee in connection with damage or
      destruction to the property of the borrower which typically includes
      weather-related damage, fire, vandalism and theft.  Our Advisor
      may require the borrower to provide flood, earthquake and/or other special
      coverage.





These
Financing Policies are in addition to the prohibited investments and activities
identified below and which are set forth in our Bylaws.





Prohibited
Investments and Activities





Our Bylaws impose certain prohibitions
and restrictions on our investment practices and lending activities, including
prohibitions against:





(i)
            Investing
      more than 10% of our total assets in unimproved real property or mortgage
      loans on unimproved real property;





(ii)
            Investing
      in commodities or commodity futures contracts other than "interest rate
      futures" contracts intended only for hedging
  purposes;





(iii)
            Investing
      in mortgage loans (including construction loans) on any one property which
      in the aggregate with all other mortgage loans on the property would
      exceed 75% of the appraised value of the property unless substantial
      justification exists because of the presence of other underwriting
      criteria;





(iv)
            Investing
      in mortgage loans that are subordinate to any mortgage or equity interest
      of the Advisor or the Directors or any of their
  affiliates;





(v)           Investing
in equity securities;





(vi)           Engaging
in any short sales of securities or in trading, as distinguished from investment
activities;





(vii)           Issuing
redeemable equity securities;





(viii)           Engaging
in underwriting or the agency distribution of securities issued by
others;





(ix)
            Issuing
      options or warrants to purchase our shares at an exercise price less than
      the fair market value of the shares on the date of the issuance or if the
      issuance thereof would exceed 10% in the aggregate of our outstanding
      shares;






11


(x)
            The
      aggregate borrowings of the corporation, secured and unsecured, must be
      reasonable in relation to the Shareholder’s Equity of the corporation and
      must be reviewed by the Independent Directors at least
      quarterly.  The maximum amount of such borrowings cannot exceed
      300% of shareholder’s equity in the absence of a satisfactory showing that
      a higher level of borrowing is appropriate.  Any excess in
      borrowing over such 300% level must be approved by a majority of
      Independent Directors and disclosed to shareholders in the next quarterly
      report along with justification for such
excess;





(xi)
            Investing
      in real estate contracts of sale unless such contracts are in recordable
      form and are appropriately recorded in the chain of
  title;




(xii)
            Selling
      or leasing to the Advisor, a Director or any affiliate thereof unless
      approved by a majority of our Directors (including a majority of our
      Independent Directors), who are not otherwise interested in such
      transaction, as being fair and reasonable to
us;





(xiii)
            Acquiring
      property from any Advisor or Director, or any affiliate thereof, unless a
      majority of our Directors (including a majority of our Independent
      Directors) who are not otherwise interested in such transaction approve
      the transaction as being fair and reasonable and at a price to us which is
      no greater than the cost of the asset to such Advisor, Director or any
      affiliate thereof, or if the price to us is in excess of such cost, that
      substantial justification for such excess exists and such excess is
      reasonable.  In no event shall the cost of such asset exceed its
      current appraised value;





(xiv)
            Investing
      or making mortgage loans unless a mortgagee's or owner's title insurance
      policy or commitment as to the priority of the mortgage or condition of
      title is obtained; or





(xv)
            Issuing
      shares on a deferred payment basis or other similar
      arrangement.





We do not invest in the securities of
other issuers for the purpose of exercising control, to engage in the purchase
and sale of investments other than as described in this Report, to offer
securities in exchange for property unless deemed prudent by a majority of the
Directors, or to make loans to other persons except in the ordinary course of
our business as described herein.





We will not make loans to or borrow
from, or enter into any contract, joint venture or transaction with, any of our
Directors or officers, the Advisor or any affiliate of any of the foregoing
unless a majority of our Directors, including a majority of our Independent
Directors, approves the transaction as fair and reasonable to us and the
transaction is on terms and conditions no less favorable to us than those
available from unaffiliated third parties.  Any investment by us in
any property, mortgage or other real estate interest pursuant to a transaction
with the Advisor or any Directors or officers thereof will be based upon an
appraisal of the underlying property from an independent qualified appraiser
selected by the Independent Directors and will not be made at a price greater
than fair market value as determined by such appraisal.





Under
Performing and Non-Performing Loans





As of December 31, 2009, we have seven
first mortgage loans totaling approximately $4,029,000 that are three or more
monthly payments in arrears.  We may incur a loss if these borrowers
are unable to bring their payments current and we are compelled to foreclose on
their properties.  We may be unable to dispose of the foreclosed
properties on terms that enable us to recoup our expenses and outstanding
balances.  We have initiated foreclosure proceedings on two of these
loans and expect to take possession of these churches and list their properties
for sale.  In addition, we have foreclosed and have taken possession
of four properties, and one property via deed in lieu of foreclosure, with loan
balances outstanding totaling approximately $1,586,000 and have listed the
properties for sale through local realtors.  The fair value of the
properties was $869,000 at December 31, 2009.





As of December 31, 2008, we had five
first mortgage loans totaling approximately $2,188,000 that were three or more
monthly payments in arrears.  In addition, we had foreclosed and had
taken possession of six properties with loan balances outstanding totaling
approximately $1,974,000 and had listed the properties for sale through local
realtors. Three of the properties were acquired through foreclosure proceedings
in 2008. The fair value of the properties was approximately $1,262,000 at
December 31, 2008.





12


Competition





The business of making loans to
churches and other non-profit religious organizations is highly
competitive.  We compete with a wide variety of investors and other
lenders, including banks, savings and loan associations, insurance companies,
pension funds and fraternal organizations which may have investment objectives
similar to our own.  A number of these competitors have greater
financial resources, larger staffs and longer operating histories than we
do.  We compete principally by limiting our business "niche" to
lending to churches and other non-profit religious organizations, offering loans
with competitive and flexible terms, and emphasizing our expertise in the
specialized industry segment of lending to churches and other religious
organizations.  Our competitive “specialty” is in offering fixed-rate,
long-term loans, which few of our competitors make available to
churches.





Employees





We have no employees but we have two
executive officers: Philip J. Myers, our Chief Executive Officer and President,
and Scott J. Marquis, our Chief Financial Officer and
Treasurer.  However, our daily operations and other material aspects
of our business are managed by Church Loan Advisors, Inc. (the “Advisor”) on a
“turn-key” basis using employees of the Advisor and/or its
Affiliates.  At present, certain officers and directors of American
and the Advisor are providing services to us at no charge and which will not be
reimbursed to them.  These services include, among others, legal and
analytic services relating to the execution of our business plan, development
and preparation of reports to be filed under the Securities Exchange Act, and
utilization of proprietary forms and documents utilized by the Advisor in
connection with our business operations.





Subject to the supervision of the Board
of Directors, our business is managed by the Advisor, which provides us
investment advisory and administrative services.  Philip J. Myers, our
Chief Executive Officer, President and a Director, is President of the Advisor
and President of American Investors Group, Inc., the underwriter of our past
public offerings.  The Advisor utilizes three employees of American on
a part-time or other basis.  The Company does not presently expect to
directly employ anyone in the foreseeable future, since all of our
administrative functions and operations are contracted through the
Advisor.  However, legal, accounting and certain other services are
provided to us by outside professionals and paid by us directly.





Operations





Our operations currently are located in
the 8,200 square foot offices of the Advisor’s affiliate, American Investors
Group, Inc., 10237 Yellow Circle Drive, Minnetonka, Minnesota
55343.  These facilities are owned by Yellow Circle Partners, L.L.P.,
a partnership owned in part by Philip J. Myers, our Chief Executive Officer,
President and a Director.  We are not separately charged any rent for
our use of these facilities, or for our use of computers, copying services,
telephones, facsimile machines, postage service, office supplies or employee
services, since these costs are covered by the advisory fee paid to the
Advisor.  However, we do pay postage service for costs associated with
the distribution of dividends and proxy materials to our
shareholders.








Item
1A. Risk Factors.





Risks
Related to Mortgage Lending





We Are Subject to the Risks
Generally Associated with Mortgage Lending.Mortgage lending
involves various risks, many of which are unpredictable and beyond our control
and foresight.  It is not possible to identify all potential risks
associated with mortgage lending. Some of the more common risks encountered may
be summarized as follows:








·low
      demand for mortgage loans
              
              ·interest
      rate and real estate valuation fluctuations
              
              ·changes
      in the level of consumer confidence
              
              ·availability
      of credit-worthy borrowers
              
              ·national
      and local economic conditions
              
              ·demographic
      and population patterns
              
              ·zoning
      regulations
              
              ·taxes
      and tax law changes
            ·availability
      of alternative financing and competitive conditions
              
              ·factors
      affecting specific borrowers
              
              ·losses
      associated with default, foreclosure of a mortgage, and sale of the
      mortgaged property
              
              ·state
      and federal laws and regulations
              
              ·bankruptcy
      or insolvency of a borrower
              
              ·borrower’s
      misrepresentation(s) and/or fraud








13


Losses Associated with Default,
Foreclosure of a Mortgage and Sale of Mortgaged Property Pose Additional
Risks.  We have experienced losses associated with default,
foreclosure of mortgages, and sales of mortgaged properties.  The time
frame to foreclose on a property varies from state to state, and delays can
occur due to backlog in court dockets; we have experienced delays from 12 to 18
months.  Such delays have and can cause the value of the mortgaged
property to further deteriorate due to lack of maintenance.  Theft and
vandalism have also occurred on our foreclosed properties.  Some
borrowers have removed fixtures and furnishings including sound systems, chairs,
pulpits, appliances, mechanical and electrical systems prior to vacating the
facility which further reduces the value of our collateral.  The
properties also incur operating expenses pending their sale (resale marketing,
property insurance, security, repairs and maintenance) and these expenses could
be substantial if we cannot readily dispose of the property.  Expenses
related to the foregoing and diminution in value could prevent us from
recovering the full value of a loan in the event of foreclosure, which shortfall
would decrease the value of assets held by the Company and could negatively
impact the Company’s ability to pay interest on its outstanding secured investor
certificates or dividends to shareholders.





Real Estate Taxes Resulting from a
Foreclosure May Prevent Us from Recovering the Full Value of a
Loan.  If we foreclose on a mortgage and take legal title to a
church’s real estate, real estate taxes could be levied and assessed against the
property since the property would no longer be owned by a non-profit
entity.  These expenses would be our financial responsibility, and
could be substantial in relation to our prior loan if we cannot readily dispose
of the property.  Such expenses could prevent us from recovering the
full value of a loan in the event of foreclosure, which shortfall would decrease
the value of assets held by the Company.





Second Mortgage Loans Pose
Additional Risks.  Our financing policies allow us to make
second mortgage loans.  The principal amount of such loans may not
exceed 20% of our Average Invested Assets.  Second mortgage loans
entail more risk than first mortgage loans, as foreclosure of senior
indebtedness or liens could require us to pay the senior debt or risk losing our
mortgage, or reduced collateral value may reduce or eliminate our
security.





Fixed and Variable-Rate Debt Can
Result in Yield Fluctuations.  Fixed and variable-rate debt
obligations carry certain risks.  A general rise in interest rates
could make the yield on a particular mortgage loan lower than prevailing
rates.  This could negatively affect our value and consequently the
value of our shares and certificates.  Neither we nor our advisor can
predict changes in interest rates.  We will attempt to reduce this
risk by maintaining medium and longer-term mortgage loans and through offering
adjustable rate loans to borrowers.  We do not intend to borrow funds
or sell certificates if the cost of such borrowing exceeds the income we believe
we can earn from lending the funds.  The current average holding
period of our debt is less than three years which has mitigated this risk in
yield fluctuations.





The Mortgage Banking Industry Is
Highly Competitive.  We compete with a wide variety of lenders,
including banks, savings and loan associations, insurance companies, pension
funds and fraternal organizations for mortgage loans.  Many
competitors have greater financial resources, larger staffs and longer operating
histories than we have, and thus may be a more attractive lender to potential
borrowers.  We intend to compete by limiting our business “niche” to
lending to churches and other non-profit religious organizations, offering loans
with competitive and flexible terms, and emphasizing our expertise in the
specialized industry segment of lending to churches and other non-profit
religious organizations.





Fluctuations in Interest Rates May
Affect Our Ability to Generate New Loans.  Prevailing market
interest rates impact borrower decisions to obtain new loans or to refinance
existing loans, possibly having a negative effect upon our ability to originate
mortgage loans.  If interest rates decrease and the economic
advantages of refinancing mortgage loans increase, then prepayments of higher
interest mortgage loans in our portfolio would likely reduce our portfolio’s
overall rate of return (yield).





We Are Subject to the Risks
Associated with Fluctuations in National and Local Economic
Conditions.  The mortgage lending industry is subject to
increased credit risks and foreclosure rates during economic
downturns.  In addition, because we provide mortgages to churches and
other religious organizations who generally receive financing through charitable
contributions, our financial results are subject to fluctuations based on a lack
of consumer confidence or a severe or prolonged national or regional
recession.  As a result of these and other circumstances, our
potential borrowers may decide to defer or terminate plans for financing their
properties.  In addition, during such economic times we may be unable
to locate as many credit-worthy borrowers.  In addition, we believe
the risks associated with our business are more severe during periods of
economic slowdown or recession if these periods are accompanied by declining
values in real estate.  For example, declining real estate values
would likely reduce the level of new loan originations, since borrowers often
use increases in the value of








14








their
existing properties to support the purchase of or investment in additional
properties.  Borrowers may also be less able to pay principal and
interest on our loans if the real estate economy remains weak, which could
result in higher default rates.  Higher default rates could adversely
affect the Company’s results of operations, which could negatively impact the
Company’s ability to pay interest on the certificates.  Further,
declining real estate values significantly increase the likelihood that we will
incur losses in the event of default because the value of our collateral may be
insufficient to cover our basis in the investment.





The Company Faces Certain Risks and
Uncertainties Related to Financing and Liquidity, and These Volatilities Could
Have an Impact on Its Operations and Its Ability to Maintain its Long-term
Capital Needs and/or Secure Additional Financing.  The Company
faces certain risks and uncertainties, particularly during volatile market
conditions.  In addition, liquidity remains tight in all financial
markets, including the debt and equity markets. These volatilities could have an
impact on operations to the extent that the Company experiences slower
maturities or repayment of mortgage loans, illiquid markets for our bond
portfolio, or a higher redemption rates on our secured investor certificates
than has been the case historically.





Our Business May Be Adversely
Affected if Our Borrowers Become Insolvent or Bankrupt.  If any
of our borrowers become insolvent or bankrupt, the borrower’s mortgage payments
will be delayed and may cease entirely.  For example, due to the
difficult and uncertain national and economic conditions, many companies have
been forced to cut employee salaries and many jobs have been either temporarily
or permanently eliminated.  Because our borrowers are churches and
other religious organizations who generally receive financing through charitable
contributions, if their members experience a decrease in pay or lose their jobs
and are unable to secure new ones, they may make fewer or no contributions to
our borrowers, which could result in the borrower’s inability to make mortgage
payments or make them on time.  In those situations, we may be forced
to foreclose on the mortgage and take legal title to the real estate and incur
expenses related to the foreclosure and disposition of the
property.  Such increased expenses paired with possible lower real
estate values (having been reduced by the foregoing expenses) could adversely
affect the Company’s results of operations.





We Have Fluctuating
Earnings.As mortgage lenders, we make provision for losses
relating to our loan portfolio and sometimes take impairment charges due to our
borrowers defaulting or declaring bankruptcy.  As the national and
local economies have worsened, increases in the occurrence of such events have
resulted in greater fluctuation of our earnings, which can reduce our net
income.  Our earnings are also impacted by non-performing assets and
the carrying cost of maintaining such assets (taxes, insurance and
maintenance).  Inconsistent earnings could adversely affect the
Company’s financial condition and results of operations.





Risks
Related to Mortgage Lending to Churches





Churches Rely on Member
Contributions to Repay Our Loans.  Churches typically rely on
member contributions for their primary source of income.  As such,
member contributions are the primary source used to repay our
loans.  The membership of a church or the per capita contributions of
its members may not increase or remain constant after a loan is
funded.  A decrease in a church’s income could result in its temporary
or continued inability to pay its obligation to us, which may affect our ability
to pay dividends on our common stock or pay interest or principal due on the
certificates.  We have no control over the financial performance of a
borrowing church after a loan is funded.





Churches Depend Upon Their Senior
Pastors.A church’s senior pastor usually plays an important
role in the management, leadership and continued viability of that
church.  A senior pastor’s absence, resignation or death could have a
negative impact on a church’s operations, and thus its continued ability to
generate revenues sufficient to service its obligations to us.





The Limited Use Nature of Church
Facilities Can Limit the Resale Value of Our Mortgage
Collateral.  Our loans are secured principally by first
mortgages upon the real estate and improvements owned or to be owned by
borrowing churches.  Although we will require an appraisal of the
premises as a pre-condition to making a loan, the appraised value of the
premises cannot be relied upon as being the actual amount which might be
obtained in the event we need to foreclose after a default by the
borrower.  The actual liquidation value of church, school or other
institutional premises could be adversely affected by, among other factors: (i)
its limited use nature; (ii) the availability on the market of similar
properties; (iii) the availability and cost of financing, rehabilitation or
renovation to prospective buyers; (iv) the length of time the seller is willing
to hold the property on the market; or (v) the availability in the area of the
mortgaged property of congregations or other buyers willing to pay the fair
value for a church facility.  This factor may influence our decision
to restructure the terms of a non-performing loan rather than foreclosing on the
church property.





Expenses of Foreclosure May Prevent
Us From Recovering the Full Value of a Loan.  If we foreclose
on a mortgage and take legal title to a church’s real estate, real estate taxes
could be levied and assessed against the property until sold since








15





the
property would no longer be owned by a non-profit entity.  The
property may also incur operating expenses pending its sale, such as resale
marketing, property insurance, utilities, security, repairs and
maintenance.  These expenses would be our financial responsibility,
and could be substantial in relation to our prior loan if we cannot readily
dispose of the property.  Such expenses could prevent us from
recovering the full value of a loan in the event of foreclosure.





Risks
Related to Us





Our Failure to Qualify as a Real
Estate Investment Trust Could Reduce the Funds We Have Available For
Investment.  We operate as a real estate investment trust
(“REIT”).  As a REIT, we are allowed a deduction for dividends paid to
our shareholders in computing our taxable income.  Thus, only our
shareholders are taxed on our taxable income that we distribute.  This
treatment substantially eliminates the “double taxation” of earnings to which
most corporations and their shareholders are subject.  Qualification
as a REIT involves the application of highly technical and complex Internal
Revenue Code provisions.





To qualify and maintain our status as a
REIT, we must meet certain share ownership, income, asset and distribution tests
on a continuing basis.  No assurance can be given that we will satisfy
these tests at all times.  Further, the requirements for a REIT may
substantially affect day-to-day decision-making by our Advisor.  Our
Advisor may be forced to take action it would not otherwise take or refrain from
action which might otherwise be desirable in order to maintain our REIT
status.





If we fail to qualify as a REIT in any
taxable year, then we would be subject to federal income tax on our taxable
income at regular corporate rates and not be allowed a deduction for
distributions to shareholders.  We would be disqualified from
treatment as a REIT for the four taxable years following the year of losing our
REIT status.  We intend to continue to operate as a
REIT.  However, future economic, market, legal, tax or other
consequences may cause our board of directors to revoke the REIT election. The
payment of taxes resulting from our disqualification as a REIT or revocation of
REIT status would reduce the funds available for distribution to shareholders or
for investment.





Conflicts of Interest Arise From Our
Relationship with Our Advisor.  The terms of transactions
involving our formation and the formation of our Advisor, and our contractual
relationship with our Advisor, were not negotiated at
arm’s-length.  Our non-independent directors and officers may have
conflicts of interest in enforcing agreements between us and our
Advisor.  Future business arrangements and agreements between us and
our Advisor and their affiliates must be approved by our Board of Directors,
including a majority of our Independent Directors.





Risks
Related to the Shares





Lack of Liquidity and Inconsistent
Public Market Price.Our common stock is not currently listed
or traded on any exchange or market and is not quoted on the National
Association of Securities Dealers, Inc. Automated Quotation System (“NASDAQ”),
and it is not expected that a material market for the shares will develop any
time soon.  “Pink Sheet” price quotations for our stock under the
symbol “ACMC” were made at certain isolated times during 2009 by other
broker-dealers at prices as low as $.75 per share and as high as $3.00 per
share.  In addition, the market for REIT securities historically has
been less liquid than non-real estate types of publicly-traded equity
securities.  Because of such illiquidity and the fact that the shares
would be valued by market-makers (if a material market develops) based on market
forces which consider various factors beyond our control, there can be no
assurance that the market value of the shares at any given time would be the
same or higher than the public purchase price of our shares.  In
addition, the market price, if a material market develops, could decline if the
yields from other competitive investments exceed the actual dividends paid by us
on our shares.





There Are Restrictions on Certain
Transfers of Our Shares.Our Articles of Incorporation and
Bylaws prohibit a transfer of shares to any person who, as a result, would
beneficially own shares in excess of 9.8% of the outstanding capital stock and
allow us to redeem shares held by any person in excess of 9.8% of the
outstanding capital stock.  These provisions may reduce market
activity for the shares and the opportunity for shareholders to receive a
premium for their shares.





Fluctuations in Interest Rates May
Cause the Value of Our Shares to Fluctuate.Prevailing market
interest rates impact borrower decisions to obtain new loans or to refinance
existing loans, possibly having a negative effect upon our ability to originate
mortgage loans.  Fluctuations in interest rates may cause the value of
the shares to fluctuate unpredictably.  If interest rates decrease and
the economic advantages of refinancing mortgage loans increase, then prepayments
of higher interest mortgage loans in our portfolio would likely reduce the
portfolio’s overall rate of return (yield).





Interest Payments to Certificate
Holders May Reduce Dividend Payments on Our Shares.  We attempt
to deploy our capital into new loans at rates that provide a positive interest
rate spread.  This spread, however, may be materially and adversely
affected by changes in prevailing interest rates which would reduce our net
income.  If this occurs, we may not have








16


sufficient
net income after paying interest on the certificates to maintain dividends to
shareholders at the levels paid in the past or even to pay dividends at
all.  In addition, because dividends are directly affected by the
yields generated on the Company’s portfolio of loans and bonds, shareholders
dividends can be expected to fluctuate significantly with interest rates
generally.





Risks
Related to the Indebtedness/Certificates





We May Be Unable to Generate
Sufficient Cash Flow to Service Our Debt Obligations.Our ability to make
payments on and refinance our indebtedness and to fund our operations depends on
our ability to generate cash in the future.  Our ability to generate
future cash is subject to general economic, industry, financial, competitive,
operating, legislative, regulatory and other factors that are beyond our
control.  As such, we cannot assure you that our business will
generate sufficient cash flow from operations or that future borrowings will be
available to us under our credit agreement in an amount sufficient to enable us
to pay amounts due on our indebtedness or to fund our other liquidity
needs.





We will need to refinance all or a
portion of our indebtedness on or before the maturity date of our line of credit
(September 2010).  Our ability to refinance our indebtedness or obtain
additional financing will depend on, among other things: (i) our financial
condition at the time; (ii) restrictions in our credit agreement or other
outstanding indebtedness; and (iii) other factors, including the condition of
the financial markets or the real estate and real estate lending markets. As a
result, we may not be able to refinance any of our indebtedness on commercially
reasonable terms, or at all.  If we do not generate sufficient cash
flow from operations, and additional borrowings or refinancings or proceeds of
asset sales are not available to us, we may not have sufficient cash to enable
us to meet all of our obligations, which could affect our tax status as a
REIT.





We May Incur More Indebtedness.We may incur additional indebtedness in the future.  We may
assign or pledge some of our mortgage-secured promissory notes or other
collateral in connection with incurring this additional indebtedness. Under our
Bylaws, as amended, we may incur indebtedness up to 300% of our shareholder’s
equity, the level permitted under North American Securities Administrators
Association (“NASAA”) guidelines, in the absence of a satisfactory showing that
a higher level of borrowing is appropriate; any excess in borrowing over such
300% level must be approved by a majority of the Independent Directors and
disclosed to shareholders in the next quarterly report along with justification
for such excess.





There Are Potential Adverse Effects
Associated with Lending Borrowed Funds.  In the past, we have
deployed the proceeds from the sale of secured investor certificates into loans
to, and bonds issued by, churches and other non-profit religious
organizations.  We have also used our line of credit from time to
time, to fund loans and purchase bonds, and intend to use our line of credit in
this way in the future.  Lending borrowed funds is subject to greater
risks than in unleveraged lending.  The profit we realize from lending
borrowed funds is largely determined by the difference, or “spread,” between the
interest rates we pay on the borrowed funds and the interest rates that our
borrowers pay us.  Our spread may be materially and adversely affected
by changes in prevailing interest rates.  Furthermore, the financing
costs associated with lending borrowed funds could decrease the effective spread
in lending borrowed funds, which could adversely affect our ability to pay
interest on and repay the certificates as they mature.





There Is No Public Market for the
Secured Investor Certificates.  There is no market for the
secured investor certificates.  It is unlikely that a market will
develop.  There are no current plans to list the secured investor
certificates on any exchange or for a broker-dealer to make a market in the
secured investor certificates.  In addition, the market for REIT
securities historically has been less liquid than the markets for other types of
publicly-traded securities.





There Is No Sinking Fund, Insurance
or Guarantee Associated With the Secured Investor
Certificates.  We do not contribute funds to a separate
account, commonly known as a sinking fund, to repay principal or interest on the
secured investor certificates upon maturity or default.  Our secured
investor certificates are not certificates of deposit or similar obligations of,
or guaranteed by, any depository institution.  Further, no
governmental or other entity insures or guarantees payment on the secured
investor certificates if we do not have enough funds to make principal or
interest payments.  Therefore, holders of our secured investor
certificates have to rely on our revenue from operations, along with the
security provided by the collateral for the secured investor certificates, for
repayment of principal and interest on them.





The Collateral for the Secured
Investor Certificates May Not Be Adequate If We Default.  The
secured investor certificates must at all times be secured by mortgage-secured
promissory notes and church bonds having an outstanding principal balance equal
to at least 100% of the outstanding principal balance of the secured investor
certificates.  If we default in the repayment of the secured investor
certificates, or another event of default occurs, the trustee will not be able
to foreclose on the mortgages securing the promissory notes and bonds in order
to obtain funds to repay certificate holders.  Rather, the trustee
will need to look to the revenue stream associated with our borrowers’ payments
on or repayment of the promissory notes and bonds or revenue derived from sale
of the promissory notes or bonds to repay certificate holders.  If the
trustee chooses to rely








17





on
revenues received from our borrowers, certificate holders may face a delay in
payment on certificates in the event of default, as borrowers will repay their
obligations to us in accordance with amortization schedules associated with
their promissory notes or bonds.  If the trustee chooses to sell
promissory notes or bonds in the event of our default, the proceeds from the
sales may not be sufficient to repay our obligations on all outstanding or
defaulted secured investor certificates.





The Secured Investor Certificates
Are Not Negotiable Instruments and Are Subject to Restrictions on
Transfer.  The secured investor certificates are not negotiable
debt instruments.  Rights of record ownership of the secured investor
certificates may be transferred only with our Advisor’s prior written
consent.  Certificate holders are not able to freely transfer the
secured investor certificates.





We Are Obligated To Redeem Secured
Investor Certificates Only In Limited
Circumstances.Certificate holders have no right to require us
to prepay or redeem any certificate prior to its maturity date, except in the
case of death or if we replace our current Advisor.  Further, even in
the event of death, we will not be required to redeem secured investor
certificates if we have redeemed at least $25,000 of principal amount of
certificates for the benefit of estates during the calendar
quarter.  There is no present intention to redeem secured investor
certificates prior to maturity except in the case of death of a certificate
holder.





We May Not Have Sufficient Available
Cash to Redeem Secured Investor Certificates If We Terminate Our Advisory
Agreement with Our Current Advisor.  We will be required to
offer to redeem all outstanding secured investor certificates if we terminate
our advisory agreement with Church Loan Advisors, Inc., our current Advisor, for
any reason.  If the holders of a significant principal amount of
secured investor certificates request that we redeem their certificates, we may
be required to sell a portion of our mortgage loan and church bond portfolio to
satisfy the redemption requests.  Any such sale could be at a discount
to the recorded value of the mortgage loans and bonds being
sold.  Further, if we are unable to sell loans or church bonds in our
portfolio, we may be unable to satisfy the redemption obligations.





The Indenture Contains Limited
Protection For Holders of Secured Investor Certificates.  The
indenture governing the secured investor certificates contains only limited
events of default other than our failure to pay principal and interest on the
certificates on time.  Further, the indenture provides for only
limited protection for holders of certificates upon a consolidation or merger
between us and another entity or the sale or transfer of all or substantially
all of our assets.  If we default in the repayment of the secured
investor certificates under the indenture, certificate holders will have to rely
on the trustee to exercise any remedies on their behalf.  Certificate
holders will not be able to seek remedies against us directly.





Risks
Related to Management





We Are Dependent Upon Our
Advisor.  Our Advisor, Church Loan Advisors, Inc., manages us
and selects our investments subject to general supervision by our Board of
Directors and compliance with our lending policies.  We depend upon
our Advisor and its personnel for most aspects of our business
operations.  Our success depends on the success of our Advisor in
locating borrowers and negotiating loans upon terms favorable to
us.  Among others, our Advisor performs the following services for
us:





·mortgage
      loan marketing and procurement
              ·bond
      portfolio selection and investment
              ·mortgage
      loan underwriting
              ·mortgage
      loan servicing
              ·money
      management
              ·developing
      and maintaining business relationships
              ·maintaining
      “goodwill”
            ·managing
      relationships with our accountants and attorneys
              ·corporate
      management
              ·bookkeeping
              ·reporting
      to state, federal, tax and other regulatory authorities
              ·reports
      to shareholders and shareholder relations
              ·loan
      enforcement and collections





Our shareholders’ right to participate
in management is generally limited to the election of
directors.  Certificate holders have no right to participate in our
management.  Certificate holders must be willing to entrust our
management to our Advisor and our Board of Directors.





We Have Conflicts of Interest with
Our Advisor and Affiliates.Affiliations and conflicts of
interests exist among our officers and directors and the owner and officers and
directors of our Advisor and affiliates.  Our Advisor and affiliates
are both controlled by our Chief Executive Officer and President, Philip J.
Myers.  Our President and the officers and directors of our Advisor
are involved in the church financing business through their affiliations with
American Investors Group, Inc. (“American”).  American originates,
offers and sells first mortgage bonds for churches.  We may purchase
first mortgage bonds issued by churches through American in its capacity as
underwriter for the issuing church, or as broker or dealer on the








18


secondary
market.  In such event, American would receive commissions (paid by
the issuing church) on original issue bonds, or “mark-ups” in connection with
any secondary transactions.  If we sell church bonds in our portfolio,
the bonds will be sold through American.  We would pay American
commissions in connection with such transactions, but in no event, in excess of
those normally charged to customers.





Our Bylaws limit the amount of all
commissions, mark-downs or mark-ups paid to American.  Our business
dealings with our Advisor and its affiliates outside of the ordinary course of
our activities are subject to approval by a majority of our Board of Directors,
including a majority of our Independent Directors.





Generally, mortgage loans we originate
are smaller than the bond financings originated by American.  However,
there may be circumstances where our Advisor and American could recommend either
type of financing to a prospective borrower.  The decisions of our
Advisor and American could affect the credit quality of our
portfolio.





Redemption Obligations Relating to
the Secured Investor Certificates May Affect Our Ability to Replace Our
Advisor.  We will be required to offer to redeem all
outstanding secured investor certificates if we terminate our advisory agreement
with Church Loan Advisors, Inc.  Our Independent Directors are
required to review and approve the advisory agreement with our Advisor on an
annual basis.  The redemption provision relating to the secured
investor certificates may have the effect of reducing our ability to replace our
current Advisor.





Risks
Related to Environmental Laws





We May Face Liability Under
Environmental Laws.Under federal, state and local laws and
regulations, a secured lender (like us) may be liable, under certain limited
circumstances, for the costs of removal or remediation of certain hazardous or
toxic substances and other costs (including government fines and injuries to
persons and adjacent property).  Liability may be imposed whether or
not the owner or lender knew of, or was responsible for, the presence of
hazardous or toxic substances.  The costs of remediation or removal of
hazardous or toxic substances, or of fines for personal or property damages, may
be substantial and material to our business operations.  The presence
of hazardous or toxic substances, or the failure to promptly remediate such
substances, may adversely affect our ability to resell real estate collateral
after foreclosure or could cause us to forego foreclosure.  This is a
changing area of the law.  The courts have found both in favor and
against lender liability in this area under various factual
scenarios.





The Collateral For Our Loans and Our
Lenders May Be Subject to Environmental Claims.If there are
environmental problems associated with the real estate securing any of our
loans, the associated remediation or removal requirements imposed by federal,
state and local laws could affect our ability to realize value on our collateral
or our borrowers’ ability to repay their loans.





Item
1B. Unresolved Staff Comments





As a smaller reporting company, as
defined in Rule 12b-2 of the Securities Exchange Act of 1934 (the “Exchange
Act”), we are not required to provide the information required by this
item.





Item
2.   Properties.





Our operationsare located in the
leased offices of American Investors Group, Inc., in Minnetonka,
Minnesota.  It is expected that for the foreseeable future our
operations will continue to be housed in these or similar leased premises along
with American's operations and those of the Advisor.  We are not
directly charged for rent, nor do we incur other costs relating to such leased
space, because our Advisor includes these expenses in the Advisory
Fee.





Real
Estate Held for Sale/Description of Properties Acquired through
Foreclosure





As of December 31, 2009, we have five
properties acquired through foreclosure (one via deed in lieu of foreclosure)
with  loan balances outstanding totaling approximately
$1,586,000.  We have listed the properties for sale through local
realtors except for the property for which we received a deed in lieu of
foreclosure.  The Church is still occupying the property and paying
rent while trying to either sell the building or obtain
re-financing.  Each property is valued based on its current listing
price less any anticipated selling costs, including, for example, realtor
commissions.  The fair value of our real estate held for re-sale is
approximately $869,000 as of December 31, 2009.  Once a property is
acquired by us, comparable sales information is obtained and a local realtor is
engaged to determine demand for our properties.  The general
competitive conditions surrounding the potential sale of our properties are
tied, in large part, to the fact that they are special-use properties
with








19




variable
zoning restrictions.  We principally lend to churches, which are
commonly exempt from zoning restrictions.  However, while a church
property may be exempt from zoning restrictions, if it is located in a
residential area, it still may only be used as a church, thereby limiting the
pool of potential buyers.  On the other hand, a church or other
property that is zoned for commercial use generally experiences higher demand,
as potential buyers can convert the property to their own business
use.  As such, our properties that are located in residential areas
typically experience less demand than those zoned for commercial
use.  Descriptions of the four properties we have acquired through
foreclosure (one via deed in lieu of foreclosure) are listed below.





Foreclosure of a $216,000 loan was
completed on a church located in Battle Creek, Michigan in May
2004.  The church congregation has disbanded and the church’s property
is currently which consists of a single church building located in a residential
area and a commercial store-front building, is currently
unoccupied.  We have taken possession of the church property and have
listed the property for sale through a local realtor.  The property is
reflected in Real Estate Held for Sale at $80,000.





Foreclosure of a $419,000 loan was
completed on a church located in Dayton, Ohio in August 2006.  During
2009, this property was being sold for $100,000 under a land sale contract,
which is being recorded under the deposit method.  The value of the
property of $100,000 is reflected in Real Estate Held for Sale at December 31,
2009 pending full receipt of proceeds of the sale.  At December 31,
2009, we have received $20,000, which is recorded as a deposit.  Title
to the property will transfer upon receipt of the final installment scheduled
for July 2011.





Foreclosure
of a $332,000 loan was completed on a church located in Tyler, Texas in June
2005.  The church congregation has disbanded and the church’s property
is currently unoccupied.  We have taken possession of the church and
have listed the property for sale through a local realtor.  The
property is included in Real Estate Held for Sale at December 31, 2009 at
$279,000. This property is located in a residential area.





Foreclosure of a $385,000 loan was
completed on a church located in Anderson, Indiana in May 2008.  The
Company has taken possession of the property and has listed it for sale through
a local realtor.  The property is included in Real Estate Held for
Sale at December 31, 2009 at $184,000.  This property is located in a
residential area.





We received a deed in lieu of
foreclosure on a church located in Pine Bluff, Arkansas and have recorded the
deed in the county where the church is located.  Due to the value of
the property ($360,000) versus the amount owed to us ($239,000), we have allowed
the church to either obtain financing from another source or list the property
for sale in hopes of recovering some of its equity.  The church is
paying us monthly rent until the property is refinanced or sold.  We
have included this property in Real Estate Held for Sale at $226,000 at December
31, 2009.





Item
3.   Legal Proceedings.





There are presently no legal actions
against us, pending or threatened.





Item
4.   RESERVED.








PART
II





Item
5.                      Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.





Outstanding
Securities





As of February 28, 2010, 2,472,081
shares of our common stock and $20,509,000 of secured investor certificates were
issued and outstanding.  We sold $277,000 of the bonds in our
portfolio in 2009.





Lack
of Liquidity and Absence of Public Market Price.





There is virtually no market for our
common shares.  It is not expected that a material market for the
shares will develop any time soon.  In addition, the market for REIT
securities historically has been less liquid than non-real estate types of
publicly-traded equity securities.  Because of such illiquidity and
the fact that the shares would be valued by market-makers (if a market develops)
based on market forces which consider various factors beyond our control, there
can be no assurance that








20





the
market value of the shares at any given time would be the same or higher than
the public purchase price of our shares.  In addition, the market
price, if a market develops, could decline if the yields from other competitive
investments exceed the actual dividends paid by us on our shares.  Our
common stock is not currently listed or traded on any exchange or market and is
not quoted on the National Association of Securities Dealers, Inc. Automated
Quotation System (“NASDAQ”).





Our Class A Common Stock, $.01 par
value per share, traded on the over-the-counter market Pink Sheets under the
symbol “ACMC.PK” from September 4, 2007 through December 31,
2009.  The following table sets forth the high bid quotation and the
low bid quotation as quoted by the Pink Sheets in 2008 and 2009.  Such
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.





High
            LowCalendar
      Year 2009First
      Quarter
            $0.75
            $0.75Second
      Quarter
            $3.00
            $0.75Third
      Quarter
            $2.80
            $1.30Fourth
      Quarter
            $3.00
            $2.00Calendar
      Year 2008First
      Quarter
            $4.94
            $3.29Second
      Quarter
            $4.87
            $3.65Third
      Quarter
            $5.25
            $2.50Fourth
      Quarter
            $3.25
            $1.20








Repurchase
of Our Shares





Although our shares of common stock are
not redeemable by us, we may at our complete discretion, repurchase shares
offered to us from time to time by our shareholders.  In such event,
we may pay whatever price the Advisor, a related party, deems appropriate and
reasonable, and any such shares repurchased will be re-designated as “unissued,”
will no longer be entitled to distribution of dividends and will cease to have
voting rights.  The Company’s board of directors has authorized the
repurchase of shares subject to availability of capital and generally limited to
prices at which no dilution of equity (book value) is experienced by remaining
shareholders.  During fiscal 2009, we did not repurchase any
shares.





On January 27, 2010, the Board of
Directors approved a stock repurchase program which permitted shareholders of
the Company to submit shares in exchange for the Company’s Series C Secured
Investor Certificates (“Certificates”).  The program offered to
shareholders an exchange of one $1,000 principal amount Certificate for each 200
shares submitted (a $5.00 per share conversion ratio).  To qualify for
participation, a shareholder was required to submit a minimum of 200 shares, but
in any case, all shares that he/she owned; odd-lots above each 200 shares
submitted were to be exchanged for $5.00 cash for each odd-lot share or portion
thereof.  The program was administered on a first-come, first-served
basis, and, unless increased or decreased in the discretion of the Board, the
program was limited to 500,000 shares ($2.5 million worth of
Certificates).  As of March 31, 2010, 500,000 shares have been
submitted requesting their shares be exchanged.  We anticipate the
exchange occurring in the second quarter of 2010.  The Board has not
authorized any additional repurchases of shares over 500,000.





Holders of Our Common
Shares





As of February 28, 2010, we had 1,046
record holders of our common stock, $.01 par value per share (excluding
shareholders for whom shares are held in a “nominee” or “street”
name).





We paid dividends on our common stock
for the fiscal years ended December 31, 2009 and 2008 as follows:





For
      Quarter Ended:
            Dollar
      Amount Distributed
              Per
      Share:
            Annualized
      Yield Per $10
              Share
      Represented:2009
            2008
            2009
            2008March
      31st
            $.090
            $.100
            3.60%
            4.00%June
      30th
            $.110
            $.100
            4.40%
            4.00%September
      30th
            $.100
            $.100
            4.00%
            4.00%December
      31st
            $.100
            $.050
            4.00%
            2.00%Totals:
            $.400
            $.350
            4.00%
            3.50%





21


As a Real Estate Investment Trust, we
make regular quarterly distributions to shareholders.  The amount of
distributions to our shareholders must equal at least 90% of our “real estate
investment trust taxable income” in order for us to retain REIT
status.  Shareholder distributions are estimated for our first three
quarters each fiscal year and adjusted annually based upon our final year-end
financial report.  Cash available for distribution to our shareholders
is derived primarily from the interest portion of monthly mortgage payments we
receive from churches borrowing money from us, from origination and other fees
paid to us by borrowers in connection with loans we make, interest income from
mortgage-backed securities issued by churches and other non-profit religious
organizations purchased and held by us for investment purposes, and earnings on
any permitted temporary investments made us.  All dividends are paid
by us at the discretion of the Board of Directors and will depend upon our
earnings and financial condition, maintenance of real estate investment trust
status, funds available for distribution, results of operations, economic
conditions, and such other factors as our Board of Directors deems
relevant.





From time to time we offer the sale of
shares of our common stock, the proceeds of which are typically to fund loans to
be made by us.  Until we have fully invested such funds into loans,
the relative yield generated by sales of our shares, and thus, dividends (if
any) to shareholders, could be less than expected.  We seek to address
this issue by (i) collecting from borrowers an origination fee at the time a
loan is made, (ii) timing our lending activities to coincide as much as possible
with sales of our securities, and (iii) investing our un-deployed capital in
permitted temporary investments that offer the highest yields together with
safety and liquidity.  However, there can be no assurance that these
strategies will improve current yields to our shareholders.  In order
to qualify for the beneficial tax treatment afforded real estate investment
trusts by the Internal Revenue Code, we are required to pay dividends to holders
of our shares in annual amounts which are equal to at least 90% of our “real
estate investment trust taxable income.”  For the fiscal year ended
December 31, 2009, we distributed substantially all of our taxable income to our
shareholders in the form of quarterly dividends.  We intend to
continue distributing virtually all of such income to our shareholders on a
quarterly basis, subject to (i) limitations imposed by applicable state law, and
(ii) the factors identified above.  The portion of any dividend that
exceeds our earnings and profits will be considered a return of capital and will
not currently be subject to federal income tax to the extent that such dividends
do not exceed a shareholder's basis in their shares.





Funds available to us from the
repayment of principal (whether at maturity or otherwise) of loans made by us,
or from sale or other disposition of any properties or any of our other
investments, may be reinvested in additional loans to churches, invested in
mortgage-backed securities issued by churches or other non-profit organizations,
or in permitted temporary investments, rather than distributed to the
shareholders.  We can pass through the capital gain character of any
income generated by computing its net capital gains and designating a like
amount of our distribution to our shareholders as “capital gain
dividends.”  The distribution requirement to maintain qualification as
a real estate investment trust does not require distribution of net capital
gains, if generated.  However, if we decide to distribute any such
gains, undistributed net capital gains (if any) will be taxable to
us.  The Board of Directors, including a majority of the Independent
Directors, will determine whether and to what extent the proceeds of any
disposition of property will be distributed to our shareholders.





Equity
Compensation Plans





We do not have any equity compensation
plans under which equity securities of the Company are authorized for
issuance.





Item
6.  Selected Financial Data





As a smaller reporting company, as
defined in Rule 12b-2 of the Securities Exchange Act of 1934 (the “Exchange
Act”), we are not required to provide the information required by this
item.











22





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





The following discussion regarding our
financial statements should be read in conjunction with the financial statements
and notes thereto included in this Annual Report beginning at page
F-1.





Financial
Condition





Our total assets decreased from
$46,961,200 at December 31, 2008 to $44,342,510 at December 31, 2009. The
primary reason for the decrease in total assets from December 31, 2007 through
December 31, 2009 was a decrease in mortgage loans receivable due to the payoff
of loans.  The funds were used to meet principal payments due on
maturing certificates and pay-down our line of credit.  Shareholders’
equity decreased from $20,323,684 at December 31, 2008 to $19,748,461 at
December 31, 2009.  This was primarily due to distributions, in the
form of dividends, of approximately $989,000 which was partially offset by net
income of approximately $414,000 for 2009.  Our primary liabilities at
December 31, 2009 and 2008 were our secured investor certificates, which were
$20,162,000 and $21,638,000 respectively, and our line of credit, which was
$4,100,000 and $4,500,000, respectively.  We also had dividends
declared as of the end of the period reported on, but which are not paid until
the 30th day
of the ensuing month.





Comparison of the
fiscal years ended December 31, 2009 and 2008





The
following table shows the results of our operations for fiscal 2009 and
2008:





Statement
      of Operations Data
            2009
            
            2008Interest
      and other income
            $3,667,091
            
            $3,690,434Interest
      expense
            1,788,714
            
            2,066,432Net
      Interest Income
            1,878,377
            
            1,624,002Total
      provision for losses on mortgage loans and bonds
            533,458
            
            352,670Net
      Interest Income after provision for mortgage and bonds
    losses
            1,344,919
            
            1,271,332Operating
      expenses
            746,468
            
            781,439Real
      estate impairment losses
            187,000
            
            460,865Total
      operating expenses
            933,468
            
            1,242,304Operating
      income
            411,451
            
            29,028Other
      income
            2,158
            
            21,403Net
      Income
            $413,609
            
            $50,431Basic
      and diluted earnings per share
            $0.17
            
            $0.02





Results
of Operations





Since we began active business
operations on April 15, 1996, we have paid 50 consecutive quarterly dividend
payments to shareholders.  These dividend payments have resulted in an
average annual return of 6.80% to shareholders.  Each loan funded
during the quarter generates origination income which is due and payable to
shareholders as taxable income even though origination income is not recognized
in its entirety for the period under generally accepted accounting principles
(“GAAP”). We anticipate distributing all of our taxable income in the form of
dividends to our shareholders in the foreseeable future to maintain our REIT
status and to provide income to our shareholders.





Net income under GAAP accounting for
our year ended December 31, 2009 was $413,609 on total interest and other income
of $3,667,091 compared to net income of $50,431 on total interest and other
income of $690,434 for the year ended December 31, 2008.  The increase
in net income was primarily due to decreased interest expenses and real estate
impairment charges.  We disposed of two properties in
2009.  We expect to foreclose on two additional properties in 2010 and
will incur costs to secure and prepare these properties for sale.  We
seek to exhaust all options available to us to before proceeding to
foreclosure.  We do not foresee any foreclosures other than these two
churches nor do we foresee an increase to our real estate impairment
reserves.





Net interest income earned on the
Company's portfolio of loans was $1,878,377 for the year ended December 31,
2009, compared to $1,624,002 for 2008.  The increase in net interest
income was due to a decrease in interest expenses as a result of secured
investor certificate maturities.  Excluded from revenue for the year
ended December 31, 2009 is $19,000 of origination income, or “points,” we
received.  Recognition of origination income under GAAP must be
deferred over the expected life of each loan.  However, under tax
principles, origination income is recognized in the period
received.  Accordingly, because our








23


status as
a REIT requires, among other things, the distribution to shareholders of at
least 90% of taxable income, the dividends declared and paid to our shareholders
for the quarters ended March 31, 2009, June 30, 2009, September 30, 2009 and
December 31, 2009 included origination income even though it was not recognized
in its entirety as income for the period under GAAP.





Our operating expenses for our fiscal
year ended December 31, 2009 were $933,468 compared to $1,242,304 for our fiscal
year ended December 31, 2008.  The decrease in operating expenses was
primarily a result of a decrease in losses related to  real estate
impairment as well as reduced carryingcosts associated with
foreclosed properties since we disposed of two properties during
2009.  Impairment charges on real estate held for sale were $187,000
and $460,865 for the years ended December 31, 2009 and 2008,
respectively.





Our Board of Directors declared
dividends of $.090 for each share of record on March 31, 2009, $.110 for each
share of record on June 30, 2009, and $.100 for each share of record on
September 30, 2009 and December 31, 2009 respectively.  Based on the
quarters ended March 31, 2009, June 30, 2009, September 30, 2009 and December
31, 2009 and assuming a share purchase price of $10.00, the dividends paid
represented a 3.60%, 4.40%, 4.00% and 4.00% annualized yield to shareholders,
respectively, for an effective overall annual yield of 4.00% in
2009.  Of the dividends paid to shareholders in 2008, 54% was taxable
ordinary dividends, while 46% of the dividends paid to shareholders in 2009 was
return of capital and is reported as non-dividend distributions.





The Company expects dividends paid in
2010 to be 100% of taxable income.





Liquidity
and Capital Resources





Our revenue is derived principally from
interest income, and secondarily, from origination fees and renewal fees
generated by mortgage loans that we make.  We also earn income through
interest on funds that are invested pending their use in funding mortgage loans
or distributions of dividends to our shareholders, and on income generated on
church bonds we may purchase and own.  We generate revenue through (i)
permitted temporary investments of cash, and (ii) making mortgage loans to
churches and other non-profit religious organizations.  Our principal
expenses are advisory fees, legal and auditing fees, communications costs with
our shareholders, and the expenses of our transfer agents and
registrar.





Our loan portfolio consists primarily
of long term fixed rate loans.  We currently do not have any short
term variable rate loans or renewable loans in our
portfolio.  Historically, loans in our portfolio are outstanding for
an average of just under three years.  Our borrowers are typically
small independent churches with little or no borrowing history.  Once
a church establishes a payment history with us, they look to re-finance their
loan with a local bank, credit union or other financial institution that is
willing to provide financing since the borrower has established a payment
history and have demonstrated they can meet their mortgage debt
obligations.





Currently, our bond portfolio comprises
28% of our assets under management.  The total principal amount of
mortgage- secured debt securities we purchase from churches and other non-profit
religious organizations is limited to 30% of our Average Invested
Assets.  The total principal amount outstanding is $12,454,000 as of
December 31, 2009.  We earned approximately $888,000 on our bond
portfolio in 2009.





In addition, we are able to borrow
funds in an amount up to 300% of shareholder’s equity (in the absence of a
satisfactory showing that a higher level of borrowing is appropriate; any excess
in borrowing over such 300% level must be approved by a majority of the
Independent Directors and disclosed to shareholders in the next quarterly report
along with justification for such excess) in order to increase our lending
capacity.  We currently have a $4,500,000 secured revolving credit
facility with Beacon Bank, Shorewood, Minnesota.  As of December 31,
2009 we have an outstanding balance of $4,100,000 against our line of
credit.  This credit line, which has a maturity date in September
2010, is secured by a first priority interest in substantially all of the
Company’s assets other than the collateral pledged to secure the Company’s
Series “A,” Series “B” and Series “C” secured investor
certificates.  Interest on our line of credit is payable to Beacon
Bank on a monthly basis.  We believe that the rate at which we lend
funds will always be higher than the cost at which we borrow the funds
(currently the rate at which we can borrow funds under this line of credit is
the prime rate with a minimum interest rate of 5.00%).





However, there can be no assurance that
we can always lend funds out at rates higher than the rate at which we borrow
the funds.  When we do carry an outstanding balance on this line of
credit we plan to “pay-down” any future borrowings on our line of credit by
applying the proceeds from principal payments on our current loan portfolio
payments and any loan re-payments.  Increases or decreases in
the








24


lending
rates charged by our bank sources as well as the increase or decrease in the
rate of interest charged on our loans has and likely will continue to impact
interest income we will earn and, accordingly, influence dividends declared by
our Board of Directors.





In October 2008, the Company filed a
registration statement with the Securities and Exchange Commission to offer
$20,000,000 of Series “C” Secured Investor Certificates.  The
Securities and Exchange Commission declared our registration statement effective
on March 30, 2009.  The certificates are offered in multiples of
$1,000 with interest rates ranging from 6.25% to 7.25%, subject to changing
market rates.  In January 2010, we amended the offering with regards
to maturities.  Certificates are now offered with maturities from 4-7
and 13-20 years and interest rates from 5.25% to 7.25%.  The
certificates are collateralized by certain mortgage loans receivable and church
bonds of approximately the same value.  Our future capital needs are
expected to be met by (i) future public offerings of our shares and/or our
certificates; (ii) the repayment of existing loans and bonds and potential sale
of bonds; and (iii) borrowing under our existing line of credit.





Loan
Loss Reserve Policy





We follow a loan loss reserve policy on
our portfolio of loans outstanding. This critical policy requires complex
judgments and the need to make estimates of future events, which may or may not
materialize as planned.  We record mortgage loans receivable at their
estimated net realizable value, which is the unpaid principal balance less the
allowance for mortgage loans.  Our loan policy provides an allowance
for estimated uncollectible loans based on an evaluation of the current status
of the loan portfolio. This policy reserves for principal amounts outstanding on
a particular loan if cumulative interruptions occur in the normal payment
schedule of a loan. Our policy will reserve for the outstanding principal amount
of a loan in our portfolio if the amount is in doubt of being
collected.  Additionally, no interest income is recognized on
non-performing loans that are in the foreclosure process.  At December
31, 2009, we reserved $475,960 against sixteen mortgage loans of which seven
churches were three or more mortgage payments in arrears.  At December
31, 2008, we reserved $107,308 against eleven mortgage loans, of which four
churches were three or more mortgage payments in arrears.





We changed our loan loss reserve policy
during 2009 to reflect the changing risks in the marketplace.  This
change in accounting estimate had the effect of increasing provision for loan
losses by approximately $171,000 during the year ended December 31,
2009.





The total value of non-performing
loans, which are loans that are in the foreclosure process or are declared to be
in default, was approximately $3,645,000 and $640,000 at December 31, 2009 and
2008, respectively. We believe that the total amount of non-performing loans is
adequately secured by the underlying collateral.





As of December 31, 2009, we had seven
first mortgage loans that are three or more payments in arrears.  Two
of the loans are in the process of being foreclosed.  Two additional
loans to the same borrower have been restructured but are still considered
non-performing loans.  These two loans have an outstanding balance of
approximately $910,000.  The church is current on its payments on the
restructured loans.





The first non-performing loan has an
outstanding balance of approximately $614,000.  The church missed
twelve semi-monthly mortgage payments in 2008 and did not make any payments in
2009.  This loan is in the foreclosure process.  We plan to
take possession of this property in 2010 and list it for sale through a local
realtor.





The second non-performing loan has an
outstanding balance of approximately $145,000.  The church missed ten
mortgage payments in 2009.  This loan is in the foreclosure
process.  We plan to take possession of this property in 2010 and list
it for sale through a local realtor.





The third non-performing loan has an
outstanding balance of approximately $400,000.  The church missed
eight payments in 2009 and one payment in 2008.  This loan has been
declared to be in default.  Due to the value of the property
($790,000) versus the amount owed to us, we have allowed the church to either
obtain financing from another source or list the property for sale in hopes of
recovering some of their equity.  The church is paying us monthly rent
until the property is refinanced or sold.





The fourth non-performing loan has an
outstanding balance of approximately $1,576,000.  This loan has been
declared to be in default.  The church missed two and one half
payments in 2009 and two mortgage payments in 2008.  The church is
working to bring its account current.





The fifth loan has an outstanding
balance of approximately $241,000.  The church missed three mortgage
payments in 2008, but none in 2009.The church is working to
bring its account current.





25


The sixth loan has an outstanding
balance of approximately $554,000.  The church missed three payments
in 2009 and is working to bring its account current.





The seventh loan has an outstanding
balance of approximately $499,000.  The church missed three mortgage
payments in 2009.  The church is working to bring its account
current.





We presently expect our loan loss
reserves to be adequate to cover all losses.  Listed below is our
current loan loss reserve policy:





Incident
            Percentage
      of Loan Reserved
            Status
      of Loan1.
            None
            Loan
      is current, no interruption in payments during history of the loan,
      (“interruption” means receipt by us more than 30 days after scheduled
      payment date).2.
            None
            Loan
      current, previous interruptions experienced, but none in the last six
      month period.  Applies to restructured loans or loans given
      forbearance.3.
            None
            Loan
      current, previous interruptions experienced, but none in the last 90 day
      period.4.
            1.00%
            Loan
      serviced regularly, but 2 or 3 payments cumulative in
      arrears.  Delinquency notice has been sent.5.
            5.00%
            Loan
      serviced regularly, but 4 or 5 payments cumulative in arrears. Repayment
      plan requested.6.
            10.00%
            Loan
      is declared to be in default.  Legal counsel engaged to begin
      foreclosure.  Additional accrual of overdue payments and
      penalties ceased.7.
            The
      greater of: (i) accumulated reserve during default period equal to
      principal loan balance in excess of 65% of original collateral value; or
      (ii) 1% of the remaining principal balance each quarter during which the
      default remains in effect.
            Foreclosure
      proceeding underway.  Accrual of all overdue interest and
      principal payments including penalties to be expensed.  Reserve
      amount dependent on value of collateral.  All expenses related
      to enforcing loan agreements are
expensed.





The Company’s Advisor, on an ongoing
basis, will review reserve amounts under the policy stated above and determine
the need, if any, to reserve amounts in excess of its current
policy.  Any additional reserve amounts will be equal to or greater
than its current reserve policy.  Loan loss reserves are calculated on
the remaining principal balance on the date of calculation and recorded on a
quarterly basis.





Bond
Loss Policy





Bond loss reserves are estimated by
management and are determined by reviewing: (i) payment history, (ii) our
experience with defaulted bond issues, (iii) the issuers payment history as well
as (iv) historical trends.





We currently own $2,035,000 First
Mortgage Bonds issued by St. Agnes Missionary Baptist Church.  St.
Agnes has defaulted on its payment obligations to bondholders.  We,
along with all other bondholders, have a superior lien over all other
creditors.  In March 2010, St. Agnes vacated the property and Herring
Bank, the Trustee for the bondholders is preparing the property to be listed for
sale.





We are monitoring these proceedings and
have reserved $500,000 against the $2,035,000 St. Agnes bonds we
own.  It is difficult to determine the correct reserve amount since no
viable offers have been made for the three properties Herring Bank now owns. The
condition of the three facilities is currently being determined by Herring
Bank.  We are investors in the bonds issued by St. Agnes, not the loan
originator.  We are not accruing any missed payments from the
bonds.  The increase in the loan reserve from $400,000 to $500,000 is
appropriate in our view as the collateral backing the bonds will incur
deferred








26


maintenance
costs given that, in our experience, defaulting churches do not continue to
repair or maintain their facilities until they either sell their properties or
the default is cured.





Critical
Accounting Policies and Estimates





Preparation of our financial statements
requires estimates and judgments to be made that affect the amounts of assets,
liabilities, revenues and expenses reported. Such decisions include the
selection of the appropriate accounting principles to be applied and the
assumptions on which to base accounting estimates.  We evaluate these
estimates based on assumptions we believe to be reasonable under the
circumstances.





The difficulty in applying these
policies arises from the assumptions, estimates and judgments that have to be
made currently about matters that are inherently uncertain, such as future
economic conditions, operating results and valuations as well as management
intentions. As the difficulty increases, the level of precision decreases,
meaning that actual results can and probably will be different from those
currently estimated.





Management
uses estimates and assumptions in preparing these financial statements in
accordance with generally accepted accounting principles.  Those 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 differ from those estimates.  The most
sensitive estimates relate to the realizability of the mortgage loans receivable
and the valuation of the bond portfolio and real estate held for sale.  The
estimates of the realizability of the mortgage loans are based on the payment
history of borrowers, current status of the loan portfolio, and general
conditions in the credit market.  The valuation of the bond portfolio is
based on similar debt instruments and discounted cash flows.  In addition,
we incorporate the current status of the underlying borrowers when circumstances
necessitate it, as in the case of the St. Agnes bonds.  It is at least
reasonably possible that these estimates could change in the near term and that
the effect of the change, if any, may be material to the financial
statements.
  We estimate
the value of real estate we hold pending re-sale on a number of
factors.  We look at the current condition of the property as well as
current market conditions in determining a fair value, which will determine the
listing price of each property.  Each property is valued based on its
current listing price less any anticipated selling costs, including for example,
realtor commissions.  Since churches are single use facilities the
listing price of the property may be lower than the total amount owed to
us.  Attorney fees, taxes, utilities along with real estate commission
fees will also reduce the amount we collect from the sale of a property we have
acquired through foreclosure. The fair value of the real estate held for re-sale
includes estimates of expenses related to the sale of the real
estate.





Off
Balance Sheet Arrangements





We have no off-balance sheet
arrangements, that have or are reasonably likely to have a current or future
effect that is material to investors on our financial condition, revenues or
expenses, results of operations, liquidity, capital resources or capital
expenditures.





Item
7A. Quantitative and Qualitative Disclosures About Market Risk





As a smaller reporting company, as
defined in Rule 12b-2 of the Securities Exchange Act of 1934 (the “Exchange
Act”), we are not required to provide the information required by this
item.





Item
8.  Financial Statements and Supplementary Data.





Financial Statements required by this
item can be found at pages F-1 through F-17 of this Form 10-K and are deemed
incorporated herein by reference.





Item
9.  Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.





None.





Item
9A(T). Controls and Procedures.





Evaluation
of Disclosure Controls and Procedures





We maintain a set of disclosure
controls and procedures, as defined in Section 13a-15(e) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to
ensure that information required to be disclosed by us in the reports filed by
us under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms. We carried out an evaluation, under





27





the
supervision and with the participation of our Chief Executive Officer and our
Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange
Act. Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures are not effective
as a result of limited resources such that financial information required to be
disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is
recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms; and (ii) is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer as
appropriate to allow timely decisions regarding required
disclosure.  More specifically, the Company has limited number of
personnel performing finance and accounting functions.  Were there a
larger staff, it would be possible to provide for enhanced disclosure of
financial reporting matters and greater segregation of duties which would permit
checks and balances and reviews that would improve internal
control.  Management is required to apply its judgment in evaluating
the cost benefit relationship of possible controls and
procedures.  Management recognizes these are material
weaknesses.





Management’s
Report on Internal Control Over Financial Reporting





Our management is responsible for
establishing and maintaining adequate internal control over financial reporting,
as such term is defined in Exchange Act Rule 13a-15(f).  Internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles.  Internal control over financial
reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of our assets; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
the financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures are being made only with proper
authorizations; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of our assets
that could have a material effect on the financial statements.





Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.





Our management, under the supervision
of and with the participation of the Chief Executive Officer and Chief Financial
Officer, assessed the effectiveness of our internal control over financial
reporting as of December 31, 2009 based on criteria for effective control over
financial reporting set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) in “Internal Control—Integrated
Framework.” Based on this assessment, our management concluded that, as
of the Evaluation Date, we did not maintain effective internal control over
financial reporting as a result of the material weaknesses described above. We
continue to evaluate internal control improvements, particularly related to
financial reporting for ongoing changes to our operations and segregation of
duties, to provide greater segregation and improve overall internal
control.  Some of the remediation actions we have undertaken include,
but are not limited to, the following: a) having an internal control review done
by an Independent Board Member who performs periodic testing of our internal
controls and procedures; b) having separate oversight of bank reconciliations
and other cash management procedures by individuals who are not involved in the
day to day operations of the Company; c) improved monitoring of changes to
financial reporting requirements; and d) monthly testing of our controls by
individuals not involved in the day to day operations of the Company which
testing is then reviewed by our Chief Financial Officer.





Internal control over financial
reporting cannot provide absolute assurance of achieving financial reporting
objectives because of its inherent limitations. Internal control over financial
reporting is a process that involves human diligence and is subject to lapses in
judgment or breakdowns resulting from human failures. Internal control over
financial reporting also can be circumvented by collusion or improper management
override. Because of such limitations, there is a risk that material
misstatements may not be prevented or detected on a timely basis by internal
control over financial reporting. However, these inherent limitations are known
features of the financial reporting process. Therefore, it is possible to design
into the process safeguards to reduce, though not eliminate, this
risk.





This Annual Report does not include an
attestation report of our registered public accounting firm regarding internal
control over financial reporting.  Management’s report was not subject
to attestation by our registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit us to provide only
management’s report in this Annual Report.








28


Changes in Internal Control over
Financial Reporting





There were no changes in our internal
control over financial reporting, that occurred during the last fiscal quarter
of the period covered by this report that have materially affected or are
reasonably likely to materially affect our internal control over financial
reporting.





Item
9B. Other Information





Not applicable.





PART
III





Item
10.                      Directors,
Executive Officers and Corporate Governance.





The information required by Item 10
will be included in the Company’s definitive proxy statement for the annual
meeting of shareholders to be held on or about June 3, 2010, to be filed with
the Securities and Exchange Commission not later than 120 days after the end of
the fiscal year covered by this report and is incorporated herein by
reference.





Item
11.  Executive Compensation.





The information required by Item 11
will be included in the Company’s definitive proxy statement for the annual
meeting of shareholders to be held on or about June 3, 2010, to be filed with
the Securities and Exchange Commission not later than 120 days after the end of
the fiscal year covered by this report and is incorporated herein by
reference.





Item
12.  Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.





The information required by Item 12
will be included in the Company’s definitive proxy statement for the annual
meeting of shareholders to be held on or about June 3, 2010, to be filed with
the Securities and Exchange Commission not later than 120 days after the end of
the fiscal year covered by this report and is incorporated herein by
reference.





Item
13.  Certain Relationships and Related Transactions, and Director
Independence.





The information required by Item 13
will be included in the Company’s definitive proxy statement for the annual
meeting of shareholders to be held on or about June 3, 2010, to be filed with
the Securities and Exchange Commission not later than 120 days after the end of
the fiscal year covered by this report and is incorporated herein by
reference.





Item
      14. Principal Accounting Fees and
Services.





The information required by Item 14
will be included in the Company’s definitive proxy statement for the annual
meeting of shareholders to be held on or about May 27, 2010, to be filed with
the Securities and Exchange Commission not later than 120 days after the end of
the fiscal year covered by this report and is incorporated herein by
reference.





29


PART
IV





Item 15.  Exhibits, Financial
Statement Schedules.





Exhibit
              No.
            Title3.1
            Amended
      and Restated Articles of Incorporation
            13.2
            Third
      Amended and Restated Bylaws
            24.1
            Specimen
      Common Stock Certificate
            14.2
            Trust
      Indenture between the Company and The Herring National Bank dated April
      26, 2002
            34.3
            Supplemental
      Trust Indenture between the Company and The Herring National Bank dated
      September 28, 2004
            44.4
            First
      Supplemental Indenture to 2002 Indenture dated July 2,
2007
            24.5
            First
      Supplemental Indenture to 2004 Indenture dated July 2,
2007
            24.6
            Trust
      Indenture between the Company and Herring Bank dated April 1,
      2009
            54.7
            Description
      of Share Repurchase Program and related Shareholder Letter and Reservation
      Form
            610.1
            Amended
      and Restated REIT Advisory Agreement with Church Loan Advisors, Inc. dated
      January 22, 2004
            710.2
            Security
      Agreement between the Company and The Herring National Bank, as Trustee
      dated April 26, 2002
            310.3
            Supplemental
      Security Agreement between the Company and The Herring National Bank, as
      Trustee dated September 28, 2004
            410.4
            Form
      of Loan and Security Agreement by and between the Company and Beacon
      Bank
            810.5
            Form
      of Revolving Note
            810.6
            Form
      of Securities Account Control Agreement by and among the Company, Herring
      Bank and Beacon Bank
            831.1
            Certification
      of the Chief Executive Officer Pursuant to Section 302 of Sarbanes Oxley
      Act of 2002
            931.2
            Certification
      of the Chief Financial Officer Pursuant to Section 302 of Sarbanes Oxley
      Act of 2002
            932.1
            Certification
      of the Chief Executive Officer Pursuant to 19 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes Oxley Act of
      2002
            932.2
            Certification
      of the Chief Financial Officer Pursuant to 19 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes Oxley Act of
      2002
            9





(1)
            Incorporated
      herein by reference to the Company’s Registration Statement on Form 8-A
      (File No. 000-25919), filed April 30,
1999.


(2)
            Incorporated
      herein by reference to the Company’s Current Report on Form 8-K, filed
      July 3, 2007.


(3)
            Incorporated
      herein by reference to the Company’s Registration Statement on Form
      S-11/A  (File No. 333-75836), filed April 26,
    2002.


(4)
            Incorporated
      herein by reference to the Company’s Registration Statement on Form S-11/A
      (File No. 333-116919), filed September 29,
2004.


(5)
            Incorporated
      herein by reference to Exhibit 4.1 of the Company’s Prospectus Supplement
      (filed April 1, 2009) to Registration Statement on Form S-11 (File No.
      333-154831), filed October 30,
2008.


(6)
            Incorporated
      herein by reference to the Company’s Current Report on Form 8-K (including
      Exhibit 99.1), filed February 2,
2010.


(7)
            Incorporated
      herein by reference to the Company’s Current Report on Form 8-K/A, filed
      August 1, 2007.


(8)
            Incorporated
      herein by reference to the Company’s Current Report on Form 8-K, filed
      September 17, 2008.


(9)
            Filed
      herewith.


30











SIGNATURES





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant
      has caused this report to be signed on its behalf by the undersigned,
      thereunto duly authorized.





AMERICAN
      CHURCH MORTGAGE COMPANY





Dated:  March 31,
      2010
            By:/s/
      Philip J. Myers


Philip
      J. Myers


Chief
      Executive Officer


(Principal
      Executive Officer)





By:/s/
      Scott J. Marquis


Scott
      J. Marquis


Chief
      Financial Officer and Treasurer


(Principal
      Financial and Accounting Officer)





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report
      has been signed below by the following persons on behalf of the registrant
      and in the capacities indicated.





By:
            /s/ Philip J.
      Myers
            Date:
      03/31/2010


Philip
      J. Myers


President,
      Treasurer and Director





By:
            /s/ Dennis J.
      Doyle
            Date:  03/31/2010


Dennis
      J. Doyle, Director





By:
            /s/ Michael G.
      Holmquist
            Date:  03/31/2010


Michael
      G. Holmquist, Director





By:
            /s/ Kirbyjon H.
      Caldwell
            Date:  03/31/2010


Kirbyjon
      H. Caldwell, Director


31
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 AMERICAN
CHURCH MORTGAGE COMPANY
 
 Minnetonka,
Minnesota
 
 Financial
Statements
 
 December
31, 2009 and 2008
  
   
 
 REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 Board of
Directors
 American
Church Mortgage Company
 Minnetonka,
Minnesota
 
  We have
audited the accompanying balance sheets of American Church Mortgage Company as
of December 31, 2009 and 2008 and the related statements of operations,
stockholders’ equity, and cash flows for each of the years in the two-year
period ended December 31, 2009. American Church Mortgage Company management is
responsible for these financial statements. Our responsibility is to express an
opinion on these financial statements based on our audits.
   We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
   In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of American Church Mortgage Company as
of December 31, 2009 and 2008, and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 2009 in
conformity with accounting principles generally accepted in the United States of
America.
  /s/ Boulay, Heutmaker, Zibell & Co., P.L.L.P.
 Certified Public Accountants
 
 Minneapolis,
Minnesota
 March 31,
2010


F-1


AMERICAN
      CHURCH MORTGAGE COMPANYBalance
      SheetsDecember
      31ASSETS
              
              2009
              
              
              2008Current
      AssetsCash
      and equivalents
              
              $
              67,137
              
              
              $
              271,373Accounts
      receivable
              
              
              130,338
              
              
              
              133,638Interest
      receivable
              
              
              157,442
              
              
              
              154,466Current
      maturities of mortgage loans receivable, net ofallowance
      of $475,960 and $107,308 and deferredorigination fees of $31,763 and $32,531 atDecember
      31, 2009 and 2008, respectively
              
              
              490,577
              
              
              
              463,841Current
      maturities of bond portfolio
              
              
              960,000
              
              
              
              342,000Prepaid
      expenses
              
              
              6,277
              
              
              
              9,724Total
      current assets
              
              
              1,811,771
              
              
              
              1,375,042Mortgage Loans
      Receivable, net of current maturities and
              
              
              29,932,970
              
              
              
              32,100,196deferred origination fees of $522,308 and $56,915 atDecember 31, 2009 and 2008, respectivelyBond Portfolio,net of
      current maturities
              
              
              10,972,496
              
              
              
              11,536,937Real
      Estate Held for Sale
              
              
              869,232
              
              
              
              1,261,832Deferred Offering
      Costs,net
      of accumulated amortization of $586,339 and $983,072at
      December 31, 2009 and 2008, respectively
              
              
              776,041
              
              
              
              687,193Total
    Assets
              
              $
              44,362,510
              
              
              $
              46,961,200Notes
      to Financial Statements are an integral part of this
      Statement.
   F-2
  AMERICAN
      CHURCH MORTGAGE COMPANYBalance
      SheetsDecember
      31LIABILITIES AND STOCKHOLDERS’
      EQUITY
              
              2009
              
              
              2008Current
      LiabilitiesCurrent
      maturities of secured investor certificates
              
              $
              1,151,000
              
              
              $
              3,969,000Line
      of credit
              
              
              4,100,000
              
              
              
              4,500,000Accounts
      payable
              
              
              67,865
              
              
              
              23,317Building
      funds payable
              
              
              16,976
              
              
              
              352,595Dividends
      payable
              
              
              247,208
              
              
              
              123,604Total
      current liabilities
              
              
              5,583,049
              
              
              
              8,968,516Deposit
      on real estate held for sale
              
              
              20,000
              
              
              
              -Secured Investor Certificates,
      Series A,net of current maturites
              
              
              4,249,000
              
              
              
              3,151,000Secured Investor Certificates,
      Series B,net of current maturites
              
              
              14,420,000
              
              
              
              14,518,000Secured Investor Certificates,
      Series C,net of current maturites
              
              
              342,000
              
              
              
              -Stockholders’
      EquityCommon
      stock, par value $.01 per shareAuthorized,
      30,000,000 sharesIssued
      and outstanding, 2,472,081 shares atDecember 31, 2009 and 2008
              
              
              24,721
              
              
              
              24,721Additional
      paid-in capital
              
              
              22,814,911
              
              
              
              22,814,911Accumulated
      deficit
              
              
              (3,091,171
              )
              
              
              (2,515,948
              )Total
      stockholders’ equity
              
              
              19,748,461
              
              
              
              20,323,684Total liabilities and
      stockholders' equity
              
              $
              44,362,510
              
              
              $
              46,961,200Notes
      to Financial Statements are an integral part of this
      Statement.
 F-3
  AMERICAN
      CHURCH MORTGAGE COMPANYStatements
      of OperationsYears
      Ended December 312009
              
              
              2008Interest
      and Other Income
              
              $
              3,667,091
              
              
              $
              3,690,434Interest
      Expense
              
              
              1,788,714
              
              
              
              2,066,432Net
      Interest Income
              
              
              1,878,377
              
              
              
              1,624,002Provision
      for losses on mortgage loans receivable
              
              
              433,458
              
              
              
              52,670Provision
      for losses on bonds
              
              
              100,000
              
              
              
              300,000Provision
      for Losses on Mortgage Loans Receivable and Bonds
              
              
              533,458
              
              
              
              352,670Net
      Interest Income after Provision for Mortgage and Bond
    Losses
              
              
              1,344,919
              
              
              
              1,271,332Operating
      ExpensesOther
      operating expenses
              
              
              746,468
              
              
              
              781,439Real
      estate impairment
              
              
              187,000
              
              
              
              460,865Total
      operating expenses
              
              
              933,468
              
              
              
              1,242,304Operating
      Income
              
              
              411,451
              
              
              
              29,028Other
      Income
              
              
              2,158
              
              
              
              21,403Net
      Income
              
              $
              413,609
              
              
              $
              50,431Income
      Per Share - Basic and Diluted
              
              $
              0.17
              
              
              $
              0.02Dividends
      Declared Per Share
              
              $
              0.40
              
              
              $
              0.35Weighted
      Average Shares Outstanding - Basic and Diluted
              
              
              2,472,081
              
              
              
              2,480,392Notes
      to Financial Statements are an integral part of this
      Statement.
 
 F-4
  AMERICAN
      CHURCH MORTGAGE COMPANYStatements
      of Stockholders’ EquityAdditionalCommon
      Stock
                
                
                Paid-In
                
                
                AccumulatedShares
                
                
                Amount
                
                
                Capital
                
                
                DeficitBalance,
      December 31, 2007
                
                
                2,493,595
                
                
                $
                24,936
                
                
                $
                22,927,644
                
                
                $
                (1,699,000
                )Repurchase
      of 21,514 shares of common stock
                
                
                (21,514
                )
                
                
                (215
                )
                
                
                (112,733
                )Net
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                50,431Dividends
      declared
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (867,379
                )Balance,
      December 31, 2008
                
                
                2,472,081
                
                
                $
                24,721
                
                
                $
                22,814,911
                
                
                $
                (2,515,948
                )Net
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                413,609Dividends
      declared
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (988,832
                )Balance,
      December 31, 2009
                
                
                2,472,081
                
                
                $
                24,721
                
                
                $
                22,814,911
                
                
                $
                (3,091,171
                )Notes
      to Financial Statements are an integral part of this
      Statement.
   
 F-5
  AMERICAN
      CHURCH MORTGAGE COMPANYStatements
      of Cash FlowsYears
      Ended December 312009
                
                
                2008Cash
      Flows from Operating ActivitiesNet
      income
                
                $
                413,609
                
                
                $
                50,431Adjustments
      to reconcile net income to net cashfrom
      operating activities:Impairment
      on real estate held for sale
                
                
                187,000
                
                
                
                460,865Provision
      for losses on mortgage loans receivable
                
                
                368,652
                
                
                
                52,670Provision
      for losses on bond portfolio
                
                
                100,000
                
                
                
                300,000Amortization
      of loan origination discounts
                
                
                (62,603
                )
                
                
                (102,152
                )Amortization
      of deferred costs
                
                
                125,372
                
                
                
                159,972Recognition
      of loan costs with line of credit refinancing
                
                
                -
                
                
                
                178,941Change
      in assets and liabilitiesAccounts
      receivable
                
                
                3,300
                
                
                
                (55,067
                )Interest
      receivable
                
                
                (2,976
                )
                
                
                (3,361
                )Prepaid
      expenses
                
                
                3,447
                
                
                
                (2,652
                )Accounts
      payable
                
                
                44,548
                
                
                
                (5,624
                )Accrued
      expenses
                
                
                -
                
                
                
                (18,022
                )Net
      cash from operating activities
                
                
                1,180,349
                
                
                
                1,016,001Cash
      Flows from Investing ActivitiesInvestment
      in mortgage loans
                
                
                (375,619
                )
                
                
                (1,954,644
                )Proceeds
      from origination fees
                
                
                19,228
                
                
                
                73,022Collections
      of mortgage loans
                
                
                2,065,763
                
                
                
                2,709,320Investment
      in bonds
                
                
                (553,979
                )
                
                
                (1,372,355
                )Proceeds
      from bonds
                
                
                400,420
                
                
                
                457,131Proceeds
      from sale of property
                
                
                15,050
                
                
                
                180,532Net
      cash provided by investing activities
                
                
                1,570,863
                
                
                
                93,006Cash
      Flows from Financing ActivitiesProceeds
      from/payments on line of credit, net
                
                
                (400,000
                )
                
                
                1,150,000Proceeds
      from secured investor certificates
                
                
                342,000
                
                
                
                -Payments
      on secured investor certificates issued
                
                
                (1,818,000
                )
                
                
                (1,193,000
                )Payments
      for deferred costs
                
                
                (214,220
                )
                
                
                (98,349
                )Stock
      redemptions
                
                
                -
                
                
                
                (112,948
                )Dividends
      paid
                
                
                (865,228
                )
                
                
                (868,455
                )Net
      cash used for financing activities
                
                
                (2,955,448
                )
                
                
                (1,122,752
                )Net
      Decrease in Cash and Equivalents
                
                
                (204,236
                )
                
                
                (13,745
                )Cash and Equivalents -
      Beginning of Period
                
                
                271,373
                
                
                
                285,118Cash and Equivalents -
      End of Period
                
                $
                67,137
                
                
                $
                271,373Notes
      to Financial Statements are an integral part of this
      Statement.
  F-6
   AMERICAN
      CHURCH MORTGAGE COMPANYStatements
      of Cash Flows - ContinuedYears
      Ended December 312009
                
                
                2008Supplemental
      Cash Flow InformationDividends
      payable
                
                $
                247,208
                
                
                $
                123,604Mortgages
      and accounts receivable reclassified toreal
      estate held for sale
                
                $
                -
                
                
                $
                989,083Mortgage
      loans closed but not paid
                
                $
                16,976
                
                
                $
                352,595Real
      estate held for sale reclassified to mortgage loans
                
                $
                205,550
                
                
                $
                645,000Line
      of credit refinanced
                
                $
                -
                
                
                $
                4,200,000Interest
      paid
                
                $
                1,658,230
                
                
                $
                2,084,454Notes
      to Financial Statements are an integral part of this
      Statement.




AMERICAN
CHURCH MORTGAGE COMPANY
 
 Notes to
Financial Statements
 
 December
31, 2009 and 2008
  1.  SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
 
 Nature of
Business
 
 American
Church Mortgage Company, a Minnesota corporation, was incorporated on May 27,
1994. The Company was organized to engage primarily in the business of making
mortgage loans to churches and other nonprofit religious organizations
throughout the United States, on terms established for individual
organizations.
 
 Accounting
Estimates
 
 Management
uses estimates and assumptions in preparing these financial statements in
accordance with generally accepted accounting principles.  Those
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 differ from those
estimates.  The most sensitive estimates relate to the realizability
of the mortgage loans receivable, the valuation of the bond portfolio and real
estate held for sale.  It is at least reasonably possible that these
estimates could change in the near term and that the effect of the change, if
any, may be material to the financial statements.
 
 Cash and
Equivalents
 
 The
Company considers all highly liquid debt instruments purchased with maturities
of three months or less to be cash equivalents.
 
 The
Company maintains accounts primarily at two financial
institutions.  At times throughout the year, the Company’s cash and
equivalents balances may exceed amounts insured by the Federal Deposit Insurance
Corporation.  Cash in money market funds is not federally insured. The
Company had $5,000 in a money market fund account at December 31, 2009 and 2008,
respectively.  The Company has not experienced any losses in such
accounts.
 
 Bond
Portfolio
 
 The
Company accounts for the bond portfolio under Financial Accounting Standards No.
115, “Accounting for Certain Investments in Debt and Equity
Securities.”  The Company classifies the bond portfolio as
“available-for sale” and measures the portfolio at fair value.  While
the bonds are generally held until contractual maturity, the Company classifies
them as available for sale as the bonds may be used to repay secured investor
certificates or provide additional liquidity in the short term.  The
Company has classified $960,000 and $342,000 in bonds as current assets as of
December 31, 2009 and 2008, respectively, based on management’s estimates for
liquidity requirements and contractual maturities of certain bonds maturing in
2010 and 2009, respectively.
 
 
 F-8
 
 
 AMERICAN
CHURCH MORTGAGE COMPANY
 
 Notes to
Financial Statements
 
 December
31, 2009 and 2008
 Allowance for Mortgage Loans
and Accounts Receivable
 
 The
Company records mortgage loans receivable at estimated net realizable value,
which is the unpaid principal balances of the mortgage loans receivable and
accounts receivable, less the allowance for mortgage loan losses.  The
Company’s loan policy provides an allowance for estimated uncollectible loans
based on an evaluation of the current status of the loan
portfolio.  This policy reserves for principal amounts outstanding on
a particular loan if cumulative interruptions occur in the normal payment
schedule of a loan, therefore, the Company recognizes a provision for losses and
an allowance for the outstanding principal amount of a loan in the Company’s
portfolio if the amount is in doubt of collection.  Additionally, no
interest income is recognized on impaired loans that are in the foreclosure
process or declared to be in default.  At December 31, 2009, the
Company reserved $475,960 for sixteen mortgage loans, of which seven are three
or more mortgage payments in arrears.  Two of the loans are in the
foreclosure process.  At December 31, 2008, the Company reserved
$107,308 for eleven mortgage loans, of which four were three or more mortgage
payments in arrears.  One of the loans was in the foreclosure
process.
 
 The
Company made a change to the loan loss reserve policy during 2009 to reflect the
changing risks in the marketplace accelerating the recording of losses for
payments in arrears.  This change in accounting estimate has the
effect of increasing the provision for loan losses by approximately $171,000
during the year 2009.
 
 A summary
of transactions in the allowance for credit losses for the years ended December
31 is as follows:
 
 2009
              2008Balance
      at beginning of year
              $                   107,308
              $                  72,056Provision
      for additional losses
              433,458
              52,670Charge-offs
              (64,806)
              (17,418)Balance
      at end of year
              $                   475,960
              $                107,308
 
 The total
impaired loans, which are loans that are in the foreclosure process or are no
longer performing, were approximately $3,645,000 and $640,000 at December 31,
2009 and 2008, respectively, which the Company believes is adequately secured by
the underlying collateral.
 
 Loans
totaling approximately $1,294,000 and $901,000 exceeded 90 days past due but
continued to accrue interest as of December 31, 2009 and 2008,
respectively.  The Company believes that continued interest accruals
are appropriate because the loans are well secured, not deemed impaired and the
Company is actively pursuing collection of past due payments.
 
 
 
 
 
 F-9
  AMERICAN
CHURCH MORTGAGE COMPANY
 
 Notes to
Financial Statements
 
 December
31, 2009 and 2008
 Real Estate Held for
Sale
 
 The
Company records real estate held for sale at the estimated fair value, which is
net of the expected expenses related to the sale of the real
estate.
 
 Foreclosure
was completed in 2004 on a church located in Battle Creek,
Michigan.  The church congregation disbanded and the church property
is currently unoccupied.  The Company owns and  took
possession of the church and has listed the property for sale through a local
realtor.
 
 Foreclosure
was also completed on a church located in Tyler, Texas in 2005.  The
church congregation is now meeting in a different location and the church
property is currently unoccupied.  The Company owns and took
possession of the church and has listed the property for sale through a local
realtor.
 
 Foreclosure
was completed in 2006 on a church located in Dayton, Ohio.  The
Company owns and took possession of the church and listed the property for sale
through a local realtor.  The sale contract was executed in July
2009.  The Company agreed to sell the property for $100,000 under a
three year land contract.  An initial payment of $20,000 was received
in July 2009.  A payment of $25,000 is due in April 2010 and a final
payment of $55,000, plus accrued interest is due in July 2011.  As
title has not transferred to the buyer, the sale is not considered
complete.  Upon receipt of final payment, title to the property will
transfer to the buyer and the sale will be considered fully
consummated.
 
 Foreclosure
was completed in 2008 on a church located in Anderson, Indiana.  The
Company owns and took possession of the property in May 2008 and listed it for
sale.
 
 Foreclosure
was completed in 2008 on a church located in Lancaster, Texas.  The
Company owns and took possession of the property in July 2008 and listed the
property for sale.  The Company sold the property in April 2009 for
$234,000.  The Company provided a twenty five year fully amortized
fixed rate loan to the buyer which is a church.  The Company recovered
$209,000 in the sale of the property after providing funding to the church to
install a new parking lot.
 
 A deed in
lieu of foreclosure was received in 2008 from a church located in Pine Bluff,
Arkansas.  The Company owns and took possession of the church while
the church attempts to obtain financing from another lender.  If
alternative financing cannot be obtained, the Company will list the church for
sale with a local realtor.
 
 A deed in
lieu of foreclosure was received from a church located in Cleveland,
Ohio.  The Company took possession of the church and listed the
property for sale through a local realtor.  The sale of the property
was completed on January 18, 2008.  The property sold for
approximately $215,000 and the Company received approximately $181,000 from the
sale of the property after closing costs and realtor fees.
 
 Foreclosure
was also completed on a church located in Dallas, Texas.  The Company
took possession of the property.  The sale of the property was
completed on September 30, 2008, for approximately $650,000.
   F-10
 AMERICAN
CHURCH MORTGAGE COMPANY
 
 Notes to
Financial Statements
 
 December
31, 2009 and 2008
 
 Carrying Value of Long-Lived
Assets
 
 The
Company tests long-lived assets or asset groups for recoverability when events
or changes in circumstances indicate that the carrying amount may not be
recoverable. Circumstances which could trigger a review include, but are not
limited to: significant decreases in the market price of the asset; significant
adverse changes in the business climate or legal factors; accumulation of costs
significantly in excess of the amount originally expected for the acquisition or
construction of the asset; current period cash flow or operating losses combined
with a history of losses or a forecast of continuing losses associated with the
use of the asset; and current expectation that the asset will more likely than
not be sold or disposed of significantly before the end of the estimated useful
life.
 
 Recoverability
is assessed based on the carrying amount of the asset compared to the sum of the
undiscounted cash flows expected to result from the use and the eventual
disposal of the asset, as well as specific appraisal in certain instances. An
impairment loss is recognized when the carrying amount is deemed not recoverable
and exceeds fair value as determined through various valuation techniques
including, but not limited to, discounted cash flow models, quoted market
values, and third party independent appraisals.
 
 Revenue
Recognition
 
 Interest
income on mortgage loans receivable and the bond portfolio is recognized as
earned.  Other income included with interest represents cash received
for loan origination fees, which are recognized over the life of the loan using
the straight-line method, which approximates the effective interest method, as
an adjustment to the yield on the loan.
 
 Deferred Financing
Costs
 
 The
Company defers the costs related to obtaining financing.  These costs
are amortized over the life of the financing using the straight line method,
which approximates the effective interest method.
 
 Income Per Common
Share
 
 No
adjustments were made to income for the purpose of calculating earnings per
share, as there were no potential dilutive shares outstanding.
 
 Income
Taxes
 
 The
Company elected to be taxed as a Real Estate Investment Trust
(REIT).  Accordingly, the Company is not subject to Federal income tax
to the extent of distributions to its shareholders if the Company meets all the
requirements under the REIT provisions of the Internal Revenue
Code.
 
 The
Company evaluated its recognition of income tax benefits using a two-step
approach to recognizing and measuring tax benefits when realization of the
benefits is uncertain. The first step is to determine whether the benefit meets
the more-likely-than-not condition for recognition and the second step is to
determine the amount to be recognized based on the cumulative probability that
exceeds
 
 
 F-11
 AMERICAN
CHURCH MORTGAGE COMPANY
 
 Notes to
Financial Statements
 
 December
31, 2009 and 2008
 
 50%.
Primarily due to the Company’s tax status as a REIT, the Company does not have
any significant tax uncertainties that would require recognition or
disclosure.
 
 Subsequent
Events
 
 The
Company commenced a stock repurchase program effective February 2, 2010 whereby
it offers to shareholders on an ongoing basis and until terminated or modified
by the Board of Directors an exchange of one $1,000 principal amount Series C
secured investor certificate for 200 shares of common stock of the Company, and,
with respect to odd-lots above 200 shares converted into certificates, the sum
of $5.00 cash for odd-lot share or portion thereof. As of March 31, 2010,
500,000 shares have been submitted requesting their shares be
exchanged.
 
 In
December 2009, the Company filed a post-effective amendment with the Securities
and Exchange Commission to add additional maturities to its current offering of
Series C Secured Investor Certificates.  The post-effective amendment
offering was declared effective on January 7, 2010.  The Company is
now offering four, five, six and seven year maturities on Series C secured
investor certificates in addition to thirteen to twenty year certificates
maturities on certificates.
 
 2.  FAIR
VALUE MEASUREMENT
 
 The
Company measures certain financial instruments at fair value in our balance
sheets.  The fair value of these instruments is based on valuations
that include inputs that can be classified within one of the three levels of a
hierarchy.  Level 1 inputs include quoted market prices in an active
market for identical assets or liabilities.  Level 2 inputs are market
data, other than Level 1, that are observable either directly or indirectly.
Level 2 inputs include quoted market prices for similar assets or liabilities,
quoted market prices in an inactive market, and other observable information
that can be corroborated by market data. Level 3 inputs are unobservable and
corroborated by little or no market data.
 
 Except
for the bond portfolio, which is required by authoritative accounting guidance
to be recorded at fair value in our Balance Sheets, the Company elected not to
record any other financial assets or liabilities at fair value on a recurring
basis.  We recorded impairment charges on our St. Agnes bonds (Note
3), which totaled $100,000 and $300,000 for the years ended December 31, 2009
and 2008, respectively.
 
 The fair
value of real estate held for sale was based upon the listed sales price less
expected selling costs, which is a Level 3 input.  The resulting
impairment charges were $187,000 and $461,000 for the years ended December 31,
2009 and 2008, respectively.
 
 F-12
 AMERICAN
CHURCH MORTGAGE COMPANY
 
 Notes to
Financial Statements
 
 December
31, 2009 and 2008
 
 The
following table summarizes the Company’s financial instruments that were
measured at fair value on a recurring basis:
  Fair
      Value MeasurementDecember 31, 2009
              Fair Value
              Level 3Bond
      portfolio
              $11,932,496
              $11,932,496
 
 
 Fair
      Value MeasurementDecember 31, 2008
              Fair Value
              Level 3Bond
      portfolio
              $11,878,937
              $11,878,937
 
 We
determine the fair value of the bond portfolio shown in the table above by
comparing it with similar instruments in inactive markets as well as using
widely accepted valuation techniques, including, for example, discounted cash
flow analysis on the expected cash flows of the bonds.  The analysis
reflects the contractual terms of the bonds, which are callable at par by the
issuer at any time, including the period to maturity and the anticipated cash
flows of the bonds and uses observable and unobservable market-based
inputs.  Unobservable inputs include our internal credit rating and
selection of similar bonds for valuation.
 
 The
change in Level 3 assets measured at fair value on a recurring basis is
summarized as follows:
  Bond PortfolioBalance
      at December 31, 2008
              
              $
              11,878,937Purchases
              
              
              553,979Proceeds
              
              
              (400,420
              )Provision
      for other than temporary losses
              
              
              (100,000
              )Balance
      at December 31, 2009
              
              $
              11,932,496
 
 3.  MORTGAGE
LOANS RECEIVABLE AND BOND PORTFOLIO
 
 At
December 31, 2009, the Company had first mortgage loans receivable totaling
$31,433,578.  The loans bear interest ranging from 5.00% to 10.25%
with a weighted average of approximately 8.37% at December 31,
2009.  The Company had first mortgage loans receivable totaling
$33,268,791 that bore interest ranging from 7.50% to 12.00% with a weighted
average of approximately 8.80% at December 31, 2008.
 
 The
Company has a portfolio of secured church bonds at December 31, 2009 and
December 31, 2008, which are carried at fair value.  The bonds
pay either semi-annual or quarterly interest ranging from 4.25% to
10.40%.  The aggregate par value of secured church bonds equaled
approximately $12,454,000 at December 31, 2009 with a weighted average interest
rate of 7.95% and approximately $12,298,000 at December 31, 2008 with a weighted
average interest rate of 7.74%.  These bonds are due at various
maturity dates through July 2009.  Two bond issues comprised 44% of
the Company’s
 
 F-13
 AMERICAN
CHURCH MORTGAGE COMPANY
 
 Notes to
Financial Statements
 
 December
31, 2009 and 2008
 
 bond
portfolio at December 31, 2009 and 2008, respectively.  The Company
has a provision for losses of $500,000 and $400,000 at December 31, 2009 and
2008, respectively, for the First Mortgage Bonds issued by St. Agnes Missionary
Baptist Church bond series that is in default.  This bond series is
approximately 16% and 17% of the bond portfolio at December 31, 2009 and 2008,
respectively.  The Company had maturities and redemptions of bonds of
approximately $554,000 and $1,372,000 of bonds in 2009 and 2008,
respectively.
 
 The
contractual maturity schedule for mortgage loans receivable and the bond
portfolio as of December 31, 2009, is as follows:
 
 Mortgage Loans
              
              
              Bond Portfolio2010
              
              $
              1,001,900
              
              
              $
              180,0002011
              
              
              618,064
              
              
              
              528,0002012
              
              
              686,590
              
              
              
              357,0002013
              
              
              1,372,342
              
              
              
              665,0002014
              
              
              925,026
              
              
              
              799,000Thereafter
              
              
              26,849,656
              
              
              
              9,903,49631,453,578
              
              
              
              12,432,496Less
      loan loss and bond loss provisions
              
              
              (475,960
              )
              
              
              (500,000
              )Less
      deferred origination income
              
              
              (554,071
              )
              
              _________Totals
              
              $
              30,423,547
              
              
              $
              11,932,496
 
 The
Company currently owns $2,035,000 First Mortgage Bonds issued by St. Agnes
Missionary Baptist Church located in Houston, Texas.  The total
principal amount of First Mortgage Bonds issued by St. Agnes is
$13,375,000.  St. Agnes defaulted on its payment obligations to
bondholders in September 2007.  The church subsequently commenced a
Chapter 11 bankruptcy reorganization proceeding regarding the three properties
that secure the First Mortgage Bonds in November 2007, which was dismissed in
September 2008, and the church was subsequently foreclosed upon.  The
Company, along with all other bondholders, has a superior lien over all other
creditors.  No accrual for interest receivable from the First Mortgage
Bonds is recorded by the Company.  The Company has a provision for
losses of $500,000 and $400,000 for the First Mortgage Bonds at December 31,
2009 and December 31, 2008, respectively, which effectively reduces the bonds to
the fair value amount management believes will be recovered.  In March
2009, a lease was signed with St. Agnes to permit it to remain in the property
while submitting lease payments to bondholders as partial interest
payments.  Lease payments began in the second quarter of 2009, however
St. Agnes failed to make all required lease payments and was evicted from the
property in the first quarter of 2010.  The trustee is currently
preparing the three properties for sale.
 
  F-14
 AMERICAN
CHURCH MORTGAGE COMPANY
 
 Notes to
Financial Statements
 
 December
31, 2009 and 2008
 4.  SECURED
INVESTOR CERTIFICATES
 
 Secured
investor certificates are collateralized by certain mortgage loans receivable or
secured church bonds of approximately the same value as the
certificates.  The weighted average interest rate on the certificates
was 6.44% and 6.86% at December 31, 2009 and 2008,
respectively.  Holders of the secured investor certificates may renew
certificates at the current rates and terms upon maturity at the Company’s
discretion.  Renewals upon maturity are considered neither proceeds
from nor issuance of secured investor certificates.  Renewals total
approximately $2,219,000 and $1,004,000 during 2009 and 2008,
respectively.  The secured investor certificates have certain
financial and non-financial covenants identified in the respective series’ trust
indentures.
 
 The
estimated maturity schedule for the secured investor certificates at December
31, 2009 is as follows:
 2010
              
              $
              1,151,0002011
              
              
              902,0002012
              
              
              1,271,0002013
              
              
              1,158,0002014
              
              
              711,000Thereafter
              
              
              14,969,000Totals
              
              $
              20,162,000
 
 In
October 2008, the Company filed a registration statement with the Securities and
Exchange Commission to offer $20,000,000 worth of Series C secured investor
certificates.  The offering was declared effective by the SEC on March
30, 2009 and was amended in January 2010.  The certificates are being
offered in multiples of $1,000 with interest rates ranging from 6.25% to 7.25%,
subject to changing market rates, and maturities from 4, 5, 6 and 7 to 13 to 20
years.  The certificates are collateralized by certain mortgage loans
receivable and church bonds of approximately the same value.  At
December 31, 2009, approximately 3,420 Series C certificates had been issued for
$342,000.
 
 5.  LINE
OF CREDIT
 
 The
Company has a $4,500,000 line of credit with Beacon Bank until September
2010.  Advances on the line of credit are available up to $4,500,000,
subject to borrowing base limitations, until Beacon Bank participates out the
remaining portion of the line of credit up to $8,000,000.  Interest on
the line of credit is charged monthly at the prime rate with minimum interest of
5.00%.  If the prime rate becomes greater than 6.00%, the interest
rate will be the prime rate less .50%, subject to a minimum interest rate of
6.00%.  The line of credit is secured by a first priority security
interest in substantially all of the Company’s assets other than collateral
pledged to secure the Company’s Series A, Series B and Series C Secured Investor
Certificates.  The line of credit has various financial and
non-financial covenants.  At December 31, 2009 and 2008, the interest
rate on the line of credit was 5.00% with outstanding balances of $4,100,000 and
$4,500,000, respectively.
 
 
 F-15
 AMERICAN
CHURCH MORTGAGE COMPANY
 
 Notes to
Financial Statements
 
 December
31, 2009 and 2008
 
 6.  TRANSACTIONS
WITH AFFILIATES
 
 The
Company has an Advisory Agreement with Church Loan Advisors, Inc. (the
“Advisor”).  The Advisor is responsible for the day-to-day operations
of the Company and provides office space and administrative
services.  The Advisor and the Company are related through common
ownership and common management.  The Company paid the Advisor
management and origination fees of approximately $386,000 and $452,000 during
the periods ended December 31, 2009 and 2008, respectively.
 
 7.  INCOME
TAXES
 
 As
discussed in Note 1, a REIT is subject to taxation to the extent that taxable
income exceeds dividend distributions to shareholders. In order to maintain
status as a REIT, the Company is required to distribute at least 90% of its
taxable income. In 2009, the Company had pretax income of $413,609 and
distributions to shareholders in the form of dividends during the tax year of
$988,832.  The tax based on statutory rates to the Company,
pre-dividends would have been $140,627 in 2009.  In 2008, the Company
had pretax income of $50,431 and distributions to shareholders in the form of
dividends during the tax year of $867,379. The tax based on statutory rates to
the Company, pre-dividends, would have been $17,147 in 2008.  The
Company paid out 100% of taxable income in dividends in 2009 and
2008.
 
 The
following reconciles the income tax provision with the expected provision
obtained by applying statutory rates to pretax income:
 
 2009              
               2008
 
 Tax
      based on statutory rates
              
              $
              140,627
              
              
              $
              17,147Realized
      tax loss on foreclosed properties
              
              
              (170,986
              )
              
              
              (134,666
              )Benefit
      of REIT distributions
              
              
              30,359
              
              
              
              117,519Total
      provision included in operating expenses
              
              $
              -
              
              
              $
              -
 
 The
components of deferred income taxes are as follows:
 2009             
               2008
 
 Loan
      origination fees
              
              $
              188,384
              
              
              $
              203,132Loan
      and bond loss provisions
              
              
              331,826
              
              
              
              176,527Real-estate
      impairment
              
              
              135,386
              
              
              
              238,206Valuation
      allowance
              
              
              (655,596
              )
              
              
              (617,865
              )Total
      deferred income tax
              
              $
              -
              
              
              $
              -
 
 
 F-16
 
 
 
 AMERICAN
CHURCH MORTGAGE COMPANY
 
 Notes to
Financial Statements
 
 December
31, 2009 and 2008
 The total
deferred tax assets are as follows:
 2009                     
        2008
 
 Deferred
      tax assets
              
              $
              655,596
              
              
              $
              617,865Deferred
      tax asset valuation allowance
              
              
              (655,596
              )
              
              
              (617,865
              )Net
      deferred tax asset
              
              $
              -
              
              
              $
              -
 
 The
change in the valuation allowance was approximately $56,000 and $203,000 for
2009 and 2008, respectively.
 
 8.  FAIR
VALUE OF FINANCIAL INSTRUMENTS
 
 The
estimated fair values of the Company’s financial instruments, none of which are
held for trading purposes, are as follows:
 
 December
31,
2009                         
          December
31, 2008
 Carrying                         Fair                      
   
 Carrying                  
       Fair
 Amount                  
 Value             
      Amount           
      Value
 
 Cash
      and equivalents
              
              $
              67,137
              
              
              $
              67,137
              
              
              $
              271,373
              
              
              $
              271,373Accounts
      receivable
              
              
              130,338
              
              
              
              130,338
              
              
              
              141,821
              
              
              
              141,821Interest
      receivable
              
              
              157,442
              
              
              
              157,442
              
              
              
              154,466
              
              
              
              154,466Mortgage
      loans receivable
              
              
              30,423,547
              
              
              
              27,631,900
              
              
              
              32,564,037
              
              
              
              33,469,004Bond
      portfolio
              
              
              11,932,496
              
              
              
              11,932,496
              
              
              
              11,878,937
              
              
              
              11,878,937Secured
      investor certificates
              
              
              20,162,000
              
              
              
              20,355,621
              
              
              
              21,638,000
              
              
              
              23,341,297
 
 The fair
value of the mortgage loans receivable is currently less than the carrying value
as the portfolio is currently yielding a lower rate than similar mortgages with
similar terms for borrowers with similar credit quality.  The credit
markets in which we conduct business have experienced an increase in interest
rates resulting in the fair value of the mortgage loans falling during the
fiscal year ended December 31, 2009.  We determine the fair value of
the bond portfolio shown in the table above by comparing with similar
instruments in inactive markets as well as using widely accepted valuation
techniques, including, for example, discounted cash flow analysis on the
expected cash flows of the bonds.  The analysis reflects the
contractual terms of the bonds, which are callable at par by the issuer at any
time, including the period to maturity and the anticipated cash flows of the
bonds and uses observable and unobservable market-based
inputs.  Unobservable inputs include our internal credit rating and
selection of similar bonds for valuation. The fair value of the secured investor
certificates is currently greater than the carrying value due to higher interest
rates than current market rates.
 
 
 
 
 
  F-17