Cornerstone Ministries Investments, Inc.

2450 Atlanta Highway, Suite 904

Cumming, GA  30040



FOR EDGAR FILING



March 29, 2007

Division of Corporation Finance

Securities and Exchange Commission

Washington, D.C. 20549



Re: Cornerstone Ministries Investments, Inc., File No. 333-93475

Form 10-KSB for year ended December 31, 2006



Dear Commission:



Attached is Form 10-KSB for filing by Cornerstone Ministries Investments, Inc. for its fiscal year ended December 31, 2006.



Thank you.





Sincerely,



By:  S/John T. Ottinger

John T. Ottinger

Chief Financial Officer







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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549



Form 10-KSB



[X] Annual report under section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2006



or



[   ] Transition report under section 13 or 15(d) of the securities exchange act of 1934 For the transition period from            to



Commissions file number 333-93475



Cornerstone Ministries Investments, Inc.

(Name of small business issuer in its charter)



|                                                              |  |                                  
|------------------------------------------------------------- |  | ---------------------------------
|Georgia                                                       |  | 58-2232313                       
|(State or other jurisdiction of incorporation or organization |  | (IRS Employer Identification No.)
|                                                              |  |                                  
|2450 Atlanta Highway, Suite 904, Cumming, GA                  |  | 30040                            
|(Address of principal executive offices)                      |  | (Zip Code)                       



Issuer's telephone number (678) 455-1100



Securities registered under Section 12(b) of the Exchange Act: None



Securities registered under Section 12(g) of the Exchange Act: None



Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]



Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [X]



Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2).  Yes [  ] No [X]



State issuer's revenues for its most recent fiscal year:  $17,406,381



State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. As of March 27, 2007 the aggregate market value held by non-affiliates was $5,630,333 based upon current public offering price.



State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 897,974 shares of common stock as of March 27, 2007.



Documents incorporated by reference: Portions of Issuers Form SB-2 Registration Statements: No. 333-131861 filed February 15, 2006 and August 21, 2006; No. 333-118613, filed August 27, 2004; No. 333-104810 filed April 29, 2003; No. 333-91564 filed June 28, 2002; and No. 333-93475 filed January 14, 2000.



Transitional Small Business Disclosure Format:  Yes [  ]; No [X]



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Cornerstone Ministries Investments, Inc.



|                                                                           |     
|-------------------------------------------------------------------------- | ----
|Form 10-KSB Index                                                          |     
|                                                                           | Page
|                                                                           |     
|Form 10-KSB Title Page                                                     | 1   
|Index                                                                      | 2   
|                                                                           |     
|Part I:                                                                    |     
|Item 1. Description of Business                                            | 3   
|Item 2. Description of Property                                            | 7   
|Item 3. Legal Proceedings                                                  | 8   
|Item 4. Submission of Matters to a Vote of Security Holders                | 9   
|                                                                           |     
|Part II:                                                                   |     
|Item 5. Market for Common Equity and Related Stockholder Matters           | 9   
|Item 6. Managements Discussion and Analysis or Plan of Operations         | 10  
|Item 7. Financial Statements                                               | 17  
|Independent Auditors Reports                                              | F-1 
|Consolidated Balance Sheets                                                | F-2 
|Consolidated Statements of Operations                                      | F-3 
|Consolidated Statements of Changes in Shareholders Equity                 | F-4 
|Consolidated Statements of Cash Flows                                      | F-5 
|Notes to Consolidated Financial Statements                                 | F-6 
|                                                                           |     
|Item 8. Changes In and Disagreements with Accountants on Accounting        | 17  
|and Financial Disclosures.                                                 |     
|Item 8A. Controls and Procedures                                           | 17  
|Item 8B. Other Information                                                 | 17  
|Part III:                                                                  |     
|Item 9. Directors, Executive Officers, Promoters and Control Persons;      | 17  
|Compliance with Section 16(a) of the Exchange Act                          |     
|Item 10. Executive Compensation                                            | 20  
|Item 11. Security Ownership of Certain Beneficial Owners and               | 20  
|and Related Stockholder Matters                                            |     
|Item 12. Certain Relationships and Related Transactions                    | 21  
|Item 13. Exhibits and Reports                                              | 22  
|Item 14. Principal Accountant Fees and Services                            | 23  
|                                                                           |     
|Signatures                                                                 | 23  
|Exhibit 14  Code of Ethics                                                | 25  
|Exhibit 31  Certifications Pursuant to Item 601(b)(31) of Regulation S-B  | 27  
|Exhibit 32  Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted | 29  
|Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                  |     
|                                                                           |     





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Part I



Item 1. Description of Business.



Summary

Our primary objective is to provide income for our bond holders and shareholders, mainly by financing the acquisition and development of facilities for use by churches, faith-based/non-profit organizations and for-profit organizations.  We define faith-based organizations as ones which have been formed and are operated in furtherance of their sponsors religious commitments.  Prior to 2004 all of our loans were made to churches and non-profit organizations.  During the last quarter of 2004, we began making loans to for-profit sponsors of affordable and low-income housing projects and in 2005 we originated a loan with a for-profit owner of senior living facilities.  We will make loans to for-profit sponsors if the project provides senior living, affordable housing or age-restricted housing programs that are similar to those of our non-profit borrowers.



Presbyterian Investors Fund, Inc. was incorporated as a Georgia non-profit corporation in December 1985 and Cornerstone Ministries Investments, Inc. was formed as a Georgia for-profit corporation on March 18, 1996. Presbyterian Investors Fund, Inc. was merged into Cornerstone Ministries Investments, Inc. on December 29, 2000 and our corporate name was changed to PIF/Cornerstone Ministries Investments, Inc.  The name was changed back to Cornerstone Ministries Investments, Inc. on February 26, 2003.



We offer development, construction, bridge and interim loans, usually due within one to three years.  The typical maximum investment amount in a church loan is $1,500,000. The typical maximum investment amount in a family housing project loan or senior housing loan is from $5,000,000 to $15,000,000.  Our largest loan is approximately $20,000,000, made for the acquisition and development of an age-restricted housing development.  The annual interest rate charged on all but one loan that we originated in 2005 and 2006 was from 9% to 10.5%. It is our policy to acquire assets primarily for income.  We do not have any limits on the percentage of our assets that may be in any one investment or in any geographic area of the United States.  We have not established any maximum ratio of our total debt to our total shareholders' equity.  These policies would be made by our board of directors and could be changed, without the vote of share or bond owners.  A description of our loan programs follows.



Types of loans we make

We make loans to four distinct groups of borrowers.  These borrowers can be characterized as churches, senior housing facilities, family housing development projects and daycare/faith-based schools.  Inherent credit risk is reflected by the effective interest rate charged to each borrower.  In each of the above borrower groups, we normally charge 10% as an annual interest rate.  However, we do recognize the risk in each borrower by the amount of origination fees charged, renewal fees charged, the loan term and any loan participation we may have in the net profit from the borrowers sale or refinancing of the property.  For larger loans, we may elect to partner with other lenders.  Accordingly, though each loan may carry identical interest rates, the overall risk adjusted return can be managed by fees charged and loan terms and is based on underwriting credit requirements and review.  Typically, church loans will have a 5% origination fee charged, have a one year term and may have a 5% renewal fee charged.  Non-church loans are charged a 5% to 10% origination fee, may have terms beyond one year and may not have a renewal fee charged.



Our fees and interest rates are similar to the costs of specialized construction and development loans or underwritten bond issues, and less than sub-prime lenders.  Banks and insurance companies, who make loans on similar properties that are larger and more fully developed, typically charge lower interest rates.  These conventional lenders typically charge 0.5% to 2.5% origination fees.  We are paid more because of our experience, advice and willingness to finance organizations in their development stage and with no down payment.   Our costs of administering these loans require us to charge higher loan fees and interest rates.   The chart below outlines the outstanding loan principal as of December 31, 2006 by borrower type.



|                                          |  |   |              |  |              |  |           |  |      |  |             |  |        
|----------------------------------------- |  | - | ------------ |  | ------------ |  | --------- |  | ---- |  | ----------- |  | -------
|                                          |  |   | Principal    |  | %            |  |           |  |      |  |             |  |        
|Borrower                                  |  |   | Outstanding  |  | Outstanding  |  | Initial   |  |      |  | Origination |  | Renewal
|Type                                      |  |   | Dec 31, 2006 |  | Dec 31, 2006 |  | Term*     |  | Rate |  | Fee*        |  | Fee*   
|Daycare/Schools                           |  | $ | 0            |  | 0%           |  | 1 year    |  | 10%  |  | 10%         |  | None   
|Churches                                  |  | $ | 8,727,817    |  | 5.7%         |  | 1 year    |  | 10%  |  | 5%          |  | 0-5%   
|Senior Housing - Loans                    |  | $ | 13,424,392   |  | 8.8%         |  | 1 year    |  | 10%  |  | 10%         |  | 0-5%   
|- Real Estate Joint Venture Investments   |  | $ | 20,241,163   |  | 13.3%        |  | 1 year    |  | 10%  |  | 10%         |  | 0-5%   
|Family Housing Development                |  | $ | 109,597,643  |  | 72.2%        |  | 1-3 years |  | 10%  |  | 5-10%       |  | 0-5%   
|                                          |  | $ | 151,991,015  |  | 100.0%       |  |           |  |      |  |             |  |        
|* Subject to underlying credit statistics |  |   |              |  |              |  |           |  |      |  |             |  |        



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| |  |  |  |  |  |  |  |  |  |  |  |  | 
| |  |  |  |  |  |  |  |  |  |  |  |  | 

Senior housing loans classified in this table as real estate joint venture investments are loans in which we participate in the residual profits of the property and all of the following exist at the inception of the loan:



·

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

·

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

·

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

·

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



We participate in residual profits through loan participation agreements, which enable us to receive income from the borrower when the property in which we provided financing is sold or refinanced to another lender.  The participation is between 25% and 33% of the borrowers gain.  We normally provide all or substantially all of the financing (directly or through loan guarantees) for the acquisition and development of these facilities, which are owed by non-profit entities.



We make three basic types of loans:  Development and acquisition loans, construction loans and semi-permanent loans.  The development and acquisition loans involve the most risk of the borrowers failure to make timely payment of interest or for us to lose principal in the event of default.  Construction loans are made when a property is ready to begin construction or renovation, so the risk is somewhat less.  Semi-permanent loans are made on completed properties that are being used for their intended purpose, so they involve the least risk to us of the three categories.  The following table shows the amount of each of these types of loans in our portfolio at December 31, 2006:



|                            |  |                       |             |                   |        
|--------------------------- |  | --------------------- | ----------- | ----------------- | -------
|                            |  | Principal Outstanding |             | % of principal at
|Type of Loan                |  | at December 31, 2006  |             | December 31, 2006
|Development and acquisition |  | $                     | 4,443,959   |                   | 2.90%  
|Construction                |  | $                     | 117,501,630 |                   | 77.30% 
|Semi-permanent              |  | $                     | 30,045,426  |                   | 19.80% 
|                            |  | $                     | 151,991,015 |                   | 100.00%



The following are further descriptions of each of these three types of loans:



Development and Acquisition Loans.  We will provide financing to young growing churches, non-profit and for-profit owners of senior housing facilities, non-profit and for-profit sponsors of affordable/low-income housing projects and other ministries that we judge to possess excellent growth or income potential and which show a strong ability to repay a loan through their growth or income (as in the case of senior housing, for instance.)  These borrowers may lack the history, size, equity or income required by conventional lenders or bond underwriters. Development and acquisition loans may be used to acquire property that is either developed or to be developed (in conjunction with a construction loan provided by us or another lender).  Each loan is initially made for one to three years; however, these loans may be renewed, with or without fees, for a maximum of three years under normal circumstances.   Normally these loans are refinanced by banks or others before there is a reduction in principal.



Construction Loans.Construction loans are typically made to finance the construction of new facilities, renovate existing facilities, and to develop family housing projects. They normally have a maturity of one to three years.  The borrowers may lack the history, size, equity or income required by conventional lenders.  Borrowers typically pay interest only on the outstanding balance drawn for construction.  We focus primarily on loans of less than $1,500,000 for churches and day-care facilities; larger loans are required to develop senior housing, family housing projects and student housing. Our largest construction loan to date has been $20,000,000, which was for an age-restricted family housing project.  For large loans we may partner with another lender.  These have included loans where we have been equal partners, where our portion was subordinated to that of our partner and where we have guaranteed payment to our partner.  We currently have 10 loans in which we have partnered with a commercial bank or other lenders.  The total of these loans was $110 million at December 31, 2006, of which $44 million was provided by the other lenders.  We require the customary documentation for construction loans, including lien subordinations and waivers, builders risk insurance, budgets and assignment of relevant contracts to us.  We make weekly disbursements on finished invoices and require interim lien waivers on all disbursements.



Semi-permanent Loans.These are often called mini-perms or bridge loans.  They are issued for as long as three years and may be linked to a construction or development and acquisition loan.  Once a property is being used for its intended purpose, the loan is converted from a construction or acquisition and development loan into a semi-permanent loan.  Also, they are often used by churches and other borrowers who expect to receive pledges, grants, leases or other anticipated income but who are in need of immediate funds.  The loans are usually repaid by other forms of financing, such as church bonds or conventional loans.  We will



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assist the borrower in finding long term financing through some of the lenders with which we have established relationships, or we will sell the loan to one of these lenders.  During 2006, six loans totaling almost $27 million were partially or fully refinanced by outside lenders.



We receive monthly interest payments on all of our real estate loans and senior housing loans classified as real estate joint venture investments except when the terms of a loan allow the borrower to finance interest payments.  Interest payments are financed in the following circumstances:



Family housing development loans may finance monthly interest payments while the project is in the development and pre-sales phase.  This phase takes from 12 to 36 months, depending on the size of the project.  We receive the financed interest as the borrower sells homes in the development.



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



Real estate joint venture loans may finance monthly interest payments during the construction/renovation and lease-up stages of the borrowers operations.  This takes two to six months if there is an existing building and 12 to 24 months if the financed property is raw land and a new building is being constructed.  When the construction or renovations are complete and the facility is operational, the financed interest is included in the loans principal amount and we start receiving monthly interest payments from the borrower.



Our loan policies

Loan Terms and Conditions. Each loan is secured by a first or second mortgage lien or a pledge of the borrowers LLC ownership interest if the property is owned by an LLC, a pledge of revenue and, where we determine necessary, limited personal guarantees made by members or principals of the borrowers.  We may provide a fixed or variable rate loan.  Our loans on senior housing facilities may include a participation feature where there is the possibility of additional income from the borrower upon the borrowers refinancing of a property or the sale of the property acquired by a borrower and resold during the term of our loan.  The terms and conditions offered to borrowers, including interest rates, fees, maturities and guarantees, will be based upon current market conditions and factors like our operating expenses and the loan's origination expenses.  We charge each borrower an application fee to offset the cost of loan origination and approval, legal fees and out-of-pocket expenses.  We charge a commitment and closing fee and may also charge a loan renewal fee.  These fees may be paid in cash by the borrower or added to the loan principal, at our discretion.  We generally require the normal protections afforded commercial lenders, including title insurance, real estate surveys, appropriate resolutions by the borrower, appraisals of the property, and the issuance of fire and extended insurance coverage.



Loan Guarantees.Certain real estate joint venture investments and real estate acquisition and development loans in which the borrower chooses to secure outside financing may require a guarantee from the Company as a condition of the extension of the loan by the financial institution.  The guarantee is limited to amounts under the loans and only covers outstanding principal and accrued interest and terminates upon maturity and principal repayment.  At December 31, 2006, there were 10 loans with a potential total of $48,904,661 for which we have a guarantee.  The total amount outstanding and therefore guaranteed at December 31, 2006 was $31,998,623.  All of the loans which have a guarantee are current based on the respective loan terms.  See Note 18 (page F-19) of the Notes to Consolidated Financial Statements for additional information about these guarantees.



Loan underwriting requirements

Mortgage loan applications submitted to our underwriting staff will normally include (i) a completed application on our form, or substantially similar information on a form acceptable to us, (ii) corporate organizational documents, (iii) financial statements including pro forma financial statements, (iv) certified real estate appraisal, (v) a real estate survey certified to us, (vi) preliminary title report, (vii) market and feasibility reports, if applicable, (viii) copies of relevant insurance coverage, (ix) copies of all material contracts and leases and (x) environmental report or affidavit.

Our loan standards used in evaluating the loan requests are based upon both objective and subjective criteria and may vary depending upon the nature of the borrower.  For church loans we examine:



·

Membership trends and growth potential

·

Historical financial performance and patterns

·

Value of real estate involved and other collateral



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For non-church loans we will review:

·

Proposed business plan and management

·

Markets and demographics

·

Current and projected earnings and cash flow

·

Current and future value of real estate and other collateral



For our senior housing loans, we also look to the pro-forma financial condition upon stabilization of operations and require third party appraisers with specialized knowledge of these types of projects and property. We apply loan to value and coverage ratios consistent with other commercial lenders.  Additionally we will require survey, title reports and insurance, property and liability insurance and full environmental reports.  If necessary, we will also require market studies and other demographic information.



Completed applications and supporting material are submitted to the loan committee of our Board of Directors, which has authority to approve loans of $500,000 or less.  Loans or investments over this amount must be submitted to the full board for approval.  The loan committee consists of at least three directors.  The loan committee determines the creditworthiness of the borrower and oversees the rates, terms and conditions of the loan.  Upon approval of a loan application, our loan staff will work with its officers and legal counsel to supervise the loan closing.  It is our policy to require borrowers to pay all expenses of the loan including our legal expenses.  These expenses are usually deducted from the loan proceeds.



Most of the organizations to which we provide financing have little or no assets with which they can provide additional guarantees, collateral or equity for the project.  We will seek to obtain additional guarantees from the principals of the church or organization, or from an affiliated organization that can provide the additional security or collateral; however, the majority of our loans are made with little or no equity from the borrower.  For the return of our investment, we rely on the value of the property to be acquired or developed, the feasibility of the project and the expertise and knowledge of the developer and manager.



Loan investments we have made

This chart shows the number and amount of new real estate loans and joint venture investments that we have made in each of the last seven years:



|     |  |            |  |            |           
|---- |  | ---------- |  | ---------- | ----------
|     |  | Number of  |  | Amount of 
|Year |  | loans made |  | loans made
|2000 |  | 10         |  | $          | 11,041,500
|2001 |  | 11         |  | $          | 14,029,191
|2002 |  | 16         |  | $          | 30,383,224
|2003 |  | 10         |  | $          | 14,622,943
|2004 |  | 8          |  | $          | 17,562,888
|2005 |  | 8          |  | $          | 16,405,561
|2006 |  | 18         |  | $          | 38,403,712



Each of our loans has a date when the full principal amount becomes due, or when we may call the loan for repayment.

These are the number and amount of our real estate loans and joint venture investments at December 31, 2006, which become due or callable in 2007 and in later years:



|                |  |                 |  |                 |            
|--------------- |  | --------------- |  | --------------- | -----------
|                |  | Number of loans |  | Principal      
|Year            |  | due or callable |  | due or callable
|2007            |  | 47              |  | $               | 114,436,700
|2008            |  | 10              |  |                 | 34,940,785 
|2009            |  | 2               |  |                 | 449,253    
|2010            |  | -0-             |  |                 | -0-        
|2011            |  | 5               |  |                 | 2,164,277  
|2012/thereafter |  | -0-             |  |                 | -0-        
|Total           |  | 64              |  | $               | 151,991,015





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Loan management

We monitor each loan closely.  A loan becomes delinquent when a payment default remains uncured after 15 days.  Any delinquency is addressed immediately and involves sending a legal notice requiring strict performance under the loan documents and outlines all the remedies available to us should the default not be cured within the period required by the loan documents.  In addition to these legal steps, we work closely with each borrower.  We may make personal visits and prepare to take all legal remedies available to us through the loan documents and the laws of the appropriate state.



A loan is considered impaired if either of the following occurs:

·

We determine that it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement.

·

A loan is restructured due to the financial condition of the borrower and the interest rate is reduced below what we would normally charge for a similar loan.



A specific impaired loan loss allowance is recognized when an impaired loans carrying amount exceeds the present value of expected future cash flows or the collaterals net realizable value if the loan is considered collateral dependent.  We would place a loan on non-accrual status if a loan is 180 days past due under the terms of the loan agreement and we have determined that an allowance for impairment loss should be recognized on the loan.  In our history, we have had six loan delinquencies of more than six months.  At December 31, 2006, two loans are past due more than 180 days; however, we have not placed them on non-accrual status because the underlying collateral for each loan is greater than the outstanding loan amount and we believe that we will receive the entire outstanding amount on each loan.  No allowance for specific impaired loan loss was recognized.  During 2005 we foreclosed on a church loan and repossessed the land and building that collateralized the loan.  This was our first ever foreclosure.  We initially determined that the net realizable value of the foreclosed assets was greater than the loans carrying amount; therefore, we did not recognize a loan loss in 2005.  In 2006 we sold the foreclosed property and recognized a loss of $34,000.  Other than the church property sold in 2006, we have not realized a loan loss write-off.  We would recognize additional loan loss write-offs upon the borrower filing bankruptcy or when other collection methods have been exhausted and foreclosure is likely.  The charge-off would be equal to the amount in which the loans carrying amount exceeds the net realizable value of the collateral.



In addition to allowances for loan losses related to specific impaired loans, we review our loan portfolio for collective loan losses as prescribed by SFAS No. 5.   A collective loan loss is recognized when the characteristics of a group of loans indicate that it is probable that a loss exists even though the loss cannot be identified with a specific loan.  The collective loan loss allowance amount is based on observable data that management believes is reflective of the underlying credit losses that are inherent in the portfolio.  The components of this evaluation include trends in our historical loss experience, changes in credit risk and credit quality, credit concentrations, economic conditions, collateral values and other risks inherent in the portfolio.  We conduct this review quarterly and changes in our allowance for loan losses are made based on the results of these reviews.



Subsidiaries



We have two subsidiaries as of December 31, 2006: Heron Lake, LLC (a South Carolina entity) in which we acquired an 89% ownership interest in 2006 - see Note 9 of the Notes to Consolidated Financial Statements for additional information; and CMI Asset Pool I, LLC (a Georgia entity) in which we own 100% of the ownership interest.



Item 2. Description of Property.



In February 2003, we moved our growing staff into a 4,400 square foot office building in Cumming, Georgia.  We paid $532,040 to purchase the building and as of December 31, 2005, there is a $405,127 mortgage on the building.  Effective August 1, 2004, we began leasing the office and its furnishings to Cornerstone Capital Advisors for $5,000 per month.  See Note 4 (page F-10) of the Notes to Consolidated Financial Statements for additional information about this lease.  We also owned two nearby office condominiums which we sold in February 2006 for $272,000, recognizing a $52,000 gain from the sale.  In managements opinion, our property is adequately insured.



Item 3. Legal Proceedings.



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





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

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

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

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

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

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

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

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

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

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

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



8



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

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

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

As of March 27, 2007, we are not aware that any other state has instituted any formal proceeding on this or any other issue related to any of our securities offerings, and we are not a party to any other pending legal proceeding.  We are not aware that any of the properties covered by our mortgage loans is subject to any pending legal proceeding or that any governmental authority is contemplating any legal proceeding involving us or any of those properties, other than as described above.

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



No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report, through the solicitation of proxies or otherwise.



Part II



Item 5. Market for Common Equity and Related Stockholder Matters.



a) Items required by Item 201 and Item 701 of Regulation S-B:

·

The Issuers common stock is not approved for listing on any stock exchanges.  No sales of unregistered securities occurred in 2006.

·

The Issuer has no outstanding options, warrants or securities convertible into common stock as of December 31, 2006.  There is an aggregate 31,769 shares of the Issuers common stock owned by its directors and executive officers and any shareholder it knows to beneficially own 5% or more of the outstanding shares of its common stock.  These shares could be sold under Rule 144.

·

The Issuer filed a Form SB-2 Registration Statement in 2006 and it was approved by the SEC in September 2006.  The Issuer is publicly offering 5,000,000 shares of its common stock at the same $6.50 price per share as in its previous offerings.  There is no public trading and therefore no market price of the common stock that could be affected.

·

There are 456 holders of record of the Issuers common stock.

·

For the last two fiscal years, the Issuer has paid semi-annual cash dividends on its common stock, at an annual rate of 9% on the $6.50 share price.  Earnings are the only restriction that may limit the ability to pay future dividends.



b) The Issuer is not required to furnish the information pursuant to Rule 463 of the Securities Act of 1933.



c)  The Issuer repurchased 0, 8 and 0 shares of its common stock during October, November and December 2006, respectively.  All shares were repurchased at $6.50 per share.  The repurchases were not part of a publicly declared plan to repurchase shares.





9



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Item 6. Management's Discussion and Analysis or Plan of Operation.



Selected financial data.

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



|                           |  |              |             |      |   |           
|-------------------------- |  | ------------ | ----------- | ---- | - | ----------
|                           |  | Year ended  
|                           |  | December 31,
|                           |  | 2006         |             | 2005
|Revenues                   |  | $            | $17,406,381 |      | $ | 15,703,121
|                           |  |              |             |      |   |           
|Investor interest expense  |  |              | 12,361,838  |      |   | 11,638,145
|Loan loss expense          |  |              | 521,000     |      |   | 100,000   
|Marketing expenses         |  |              | 1,209,035   |      |   | 1,082,967 
|Payroll expenses           |  |              | 107,737     |      |   | -0-       
|Management & advisory fees |  |              | 1,511,224   |      |   | 1,445,264 
|Operating expenses         |  |              | 917,253     |      |   | 695,756   
|Total expenses             |  |              | 16,628,087  |      |   | 14,962,132
|Operating income           |  |              | 778,294     |      |   | 740,989   
|Income tax provision       |  |              | 269,840     |      |   | 163,362   
|Net income                 |  | $            | $508,454    |      | $ | 577,627   



Overview of operations.

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



We generate revenue from:

·

interest on loans

·

origination and renewal fees on loans

·

loan participation income

·

interest on securities



We currently charge a 5% to 10% fee on new loans, based upon expected terms, and renewal fees of as much as 5% of the outstanding balance of the renewing loan.  Our interest rate on all new loans is currently from 9% to 10.5%.  Some loans are participating loans, which enables us to receive income from the borrower when the borrower sells or refinances (with another lender) the property in which we provided the financing.  The participation percentage varies between 25% and 33% of the borrowers gain.



Participating loans (all related to senior housing facilities) are classified as real estate joint venture investments if all of the following exist at the inception of the loan:

·

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

·

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

·

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

·

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



Comparison of Periods Ended December 31, 2005 and December 31, 2006.

General. Assets increased from $153,060,088 at December 31, 2005 to $178,164,987 at December 31, 2006 for an increase of $25,104,899 or 16%.  This increase is a result of the sale of Investor Bonds and Mortgage Participations, net of redemptions of $1,386,652, a $3,501,530 increase in accrued Investor Bond interest payable and an increase in other loans payable of $20,000,000.  With the additional net cash from these items and from cash on hand we invested in real estate loans and joint venture investments, net of principal payments received, of $27,538,681.  Total revenue increased for the year ended December



10



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31, 2006 by $1,703,260 or 11% from $15,703,121 in 2005 to $17,406,381 in 2006.  Net income for the year ended December 31, 2006 was $508,454 compared to $577,627 for the year ended December 31, 2005.



Total real estate loans and joint venture investments outstanding on December 31, 2006 were $148,642,820 compared to $121,104,139 on December 31, 2005 for an increase of $27,538,681 or 23%.  This increase is due to an increase in other loans payable and Investor Bonds/Mortgage Participation Agreements and the subsequent origination or refinancing of real estate loans and joint venture investments, as follows:



|                                                           |  |   |             
|---------------------------------------------------------- |  | - | ------------
|New real estate loan originations                          |  | $ | 38,403,712  
|Decrease in existing loans, net of principal received      |  |   | (16,460,111)
|New real estate joint venture investments made             |  |   | -0-         
|Increase in existing real estate joint venture investments |  |   | 5,595,080   
|                                                           |  | $ | 27,538,681  



We originated 18 new real estate loans in 2006 totaling $38,403,712.  We were able to originate this many loans because loan principal on existing loans decreased approximately $16,460,000 (mainly due to large principal pay downs made on our loan to Wellstone Retirement Communities I, LLC) and due to the $20,000,000 in new loan payable proceeds received from Bernard National.  Please refer to Note 4 and Note 17 of the Notes to Consolidated Financial Statements for additional information about our loan to Wellstone Retirement Communities I, LLC and our loan payable to Bernard National, respectively.  The increase in real estate joint venture investments was due to additional construction financing provided to two projects in which we have a first mortgage loan.



All other assets composed primarily of cash, bond holdings, property and equipment, consolidated real estate assets and unamortized debt issue costs were $29,522,167 as of December 31, 2005.  Bond holdings decreased approximately $12.1 million due to the sale of tax-free bonds in the first quarter of 2006.  Also, see Note 9 and Note 12 of the Notes to Consolidated Financial Statements for additional information about our consolidated real estate assets and bond holdings, respectively.



Our cash balance increased $410,519 from $12,447,193 on December 31, 2005 to $12,857,712 on December 31, 2006.  The large cash balances on hand at the end of 2005 and 2006 were due to large principal payments received during December of each year from real estate joint venture investments and senior housing real estate loans.  We anticipate using the cash on hand at the end of 2006 to make new loans and to fund Investor Bond maturities in which the investor elects to receive his bond principal in cash.



Principal and interest payable on Investor Bonds and Mortgage Participation (MP) Agreements increased $4,895,840 or 3.4% from $145,608,599 as of December 31, 2005 to $150,504,439 as of December 31, 2006.  From January to September 2006 we had no bonds available to sell; therefore, all maturities were paid in cash.  In September our Series G Investor Bonds were approved for sale by the Securities and Exchange Commission and we were able to start selling new bonds.  Because the new bonds were only available for three full months in 2006 the increase in outstanding Investor Bonds and MP Agreements was 3.4%, which is much lower than in prior years.



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



|            |  |             |  |            |  |       
|----------- |  | ----------- |  | ---------- |  | ------
|2006        |  | 2005        |  | Increase   |  | %     
|$16,872,548 |  | $14,093,734 |  | $2,778,814 |  | 19.70%



|                                           |  |   |          
|------------------------------------------ |  | - | ---------
|The increase was due to the following:     |  |   |          
|Increase in average outstanding principal  |  | $ | 1,651,753
|($145,343,555  2006; $127,484,677  2005) |  |   |          
|Increase in weighted average interest rate |  |   | 152,982  
|(9.84% - 2005; 9.72% - 2005)               |  |   |          
|Increase in loan fees recognized           |  |   | 974,079  
|                                           |  | $ | 2,778,814



The increase in average outstanding principal is due to the addition of 18 new real estate loans with outstanding principal of $38,403,712 and a decrease in the average outstanding principal on existing loans of $20,544,834.  Loan fees recognized increased due to the 18 new loans that were originated in 2006.





11



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Loan participation and other income.  For the year ended December 31, 2006, loan participation and other income decreased as follows:



|                           |  |      |         |      |   |           |  |   |            
|-------------------------- |  | ---- | ------- | ---- | - | --------- |  | - | -----------
|                           |  | 2006 |         | 2005 |   | Change   
|Investment income          |  | $    | 423,640 |      | $ | 590,866   |  | $ | (167,266)  
|Loan participation & other |  |      | 110,193 |      |   | 1,018,521 |  |   | (908,328)  
|Total                      |  | $    | 533,833 |      | $ | 1,609,387 |  | $ | (1,075,554)



The Companys investment income is from the purchase of tax-free bonds used as permanent financing for projects the Company funded during their development and initial operations, local church bonds and from interest income on the Companys excess cash.  The decrease in investment income is due to the disposition of all of our tax-free bonds during 2006.  Loan participation and other income decreased due to $825,000 in loan participation/break-up fees and $104,000 in loan guarantee fees being recognized in 2005 with no similar revenues recognized in 2006.



Investor and loan interest expense. Investor and loan interest expense for the year ended December 31, 2006 was $12,361,838, an increase of $723,693 or 6% compared to 2005.  The increase is due to:



|                                                                 |  |   |          
|---------------------------------------------------------------- |  | - | ---------
|Increase in average outstanding certificate principal, including |  |   |          
|interest payable subject to compounding                          |  | $ | 627,315  
|($134,953,506  2006; $127,800,221  2005)                       |  |   |          
|Change in weighted average interest percentage                   |  |   |          
|(8.71% - 2006; 8.72% - 2005)                                     |  |   | (12,780) 
|Interest capitalized  consolidated real estate assets           |  |   |          
|under construction                                               |  |   | (336,518)
|Increase in Bernard National loan principal outstanding          |  |   | 571,947  
|Decrease in average outstanding Mortgage Participation principal |  |   |          
|($3,636,120  2006; $4,947,090  2005)                           |  |   | (126,271)
|                                                                 |  | $ | 723,693  



Two consolidated real estate assets were under construction during 2006; therefore, we capitalized interest based on the construction costs spent during the construction period.  Please refer to Note 9 of the Notes to Consolidated Financial Statements for additional information about these assets.  Also, page 16 has additional information about our loan with Bernard National.



Loan loss expense and allowance for loan losses.  In 2005, we increased our allowance for loan loss by $100,000 because of an increase in our family housing development loan portfolios outstanding principal.    In 2006 we increased our allowance for loan loss by $521,000 because of an increase in our family housing development loans outstanding and because seven of our family housing loans are either behind their construction schedule or expected to be over budget.  Therefore, we have increased our risk assessment on these loans.  We will continue to review the credit risk of these projects each quarter and make adjustments to our allowance for loan losses based on the results of our reviews.



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



As of December 31, 2006, one joint venture investment loan and one church loan were considered impaired because they were at least six months behind on their interest payments.  The joint venture investment loan had a carrying amount of $6,328,901 and the church loan had a carrying amount of $295,349.  In total we had $6,624,250 in impaired loans.  At December 31, 2005 we had four church loans with a combined carrying amount of $3,854,226 that were impaired.  We have received an appraisal on the joint venture investment loan collateral and it is worth approximately $1.0 million dollars more than our loans carrying amount; therefore, we have not recognized a loss on this loan.  We continue to monitor the operating progress of this borrower and are actively involved in possible re-financing opportunities for this property.   Three of the four church loans that were considered impaired as of December 31, 2005, received second mortgage financing in January 2006 and were been able to pay all of their back interest with these funds.  The second mortgage holder is Church Growth Foundation, Inc. which is a former Company shareholder and parent company of Cornerstone Group Holdings, Inc.



12



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As of December 31, 2006, allowance for loan losses as a percent of outstanding loan principal by loan type:



|                                      |  |                     |           |                       |   |             |   |  |     
|------------------------------------- |  | ------------------- | --------- | --------------------- | - | ----------- | - |  | ----
|                                      |  | Loan Loss Allowance |           | Outstanding Principal |   |             | %
|Family Housing Development Loans      |  | $                   | 1,253,000 |                       | $ | 109,597,643 |   |  | 1.1%
|Church Mortgage Loans                 |  |                     | -0-       |                       |   | 8,727,817   |   |  | 0%  
|Senior Housing Mortgage Loans         |  |                     | -0-       |                       |   | 13,424,392  |   |  | 0%  
|Real Estate Joint Venture Investments |  |                     | -0-       |                       |   | 20,241,163  |   |  | 0%  
|Total                                 |  | $                   | 1,253,000 |                       | $ | 151,991,015 |   |  | .8% 



Marketing expenses. Total expenses for the marketing of investor certificates for the year ended December 31, 2006 were $1,209,035 compared to $1,082,967 for 2005.  The increase is due to:



|                             |  |      |           |      |   |           |  |   |         
|---------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | --------
|                             |  | 2006 |           | 2005 |   | Change   
|Debt issue cost amortization |  | $    | 1,111,577 |      | $ | 968,955   |  | $ | 142,622 
|Compliance and registration  |  |      | 36,524    |      |   | 51,234    |  |   | (14,710)
|Printing and promotions      |  |      | 26,708    |      |   | 19,581    |  |   | 7,127   
|Other marketing costs        |  |      | 34,226    |      |   | 43,197    |  |   | (8,971) 
|Total                        |  | $    | 1,209,035 |      | $ | 1,082,967 |  | $ | 126,068 



Debt issue cost amortization expense increased due to Investor Bonds and Mortgage Participations sold since December 31, 2005.  This expense will continue to increase as new Investor Certificates and Mortgage Participations are sold.  Compliance and registration costs are down due to the Chicago Stock Exchange issues that we had to deal with in 2005 (see Part I, Item 3 on page 8 for more information).  Printing and promotions costs are up due to a larger number of prospectuses printed and mailed in 2006 as compared to 2005.  Other marketing costs are down because we did not use consultants in 2006 to market our bonds.



Selling commissions paid to brokers for selling Investor Certificates and Mortgage Participations and costs incurred to register Investor Bonds are paid in cash and charged as an expense over the term of the related debt.  The unamortized balance is classified as an asset on the Balance Sheet as Unamortized debt issue costs.  The balance was $3,319,890 and $2,748,855 as of December 31, 2006 and 2005, respectively.



Operating, payroll and management/advisory expenses. Management and advisory expenses for the year ended December 31, 2006 increased $65,960 or 5% from $1,445,264 in 2005 to $1,511,224 in 2006.  The increase is due to the Companys growth in revenues.



The Company has contracted with Cornerstone Capital Advisors (CCA) to provide administrative and advisory services.   We pay CCA as follows:

·

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

·

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



Please see Note 4 of the Notes to Consolidated Financial Statements for additional information about our agreement with CCA and for amounts that we have paid to CCA during 2006 and 2005.



For the year ended December 31, 2005, operating expenses were $917,253, which is an increase of $221,497 from 2005s operating expenses of $695,756.  This change is due to:



|                       |  |   |          
|---------------------- |  | - | ---------
|Other Loan Issue Costs |  | $ | 117,988  
|Organization costs     |  |   | 44,138   
|Legal Fees             |  |   | (106,651)
|Insurance              |  |   | 20,663   
|Audit & Tax Expense    |  |   | 18,347   
|Loan Guarantee Expense |  |   | 87,000   
|Loan Property Costs    |  |   | 25,852   
|Other                  |  |   | 14,160   
|                       |  | $ | 221,497  





13



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Other loan issue costs increased due to the amortization of the Bernard National loan issue costs starting in August 2006.  Organization costs represent start-up and organizational costs incurred by Heron Lakes and Preston Pointe, our two consolidated real estate assets (see Note 9 of the Notes to Consolidated Financial Statements for more information).  Legal fees have decreased due to the legal proceedings in 2005 concerning the Chicago Stock Exchange.  We did not have any comparable issues in 2006; therefore, our legal costs decreased in 2006.  Insurance increased due to an increase in our Directors and Officers Liability Insurance premiums.  Loan guarantee expense increased due to an estimated increase in probable losses on our construction cost guarantees of the Appian Way and Cross Creek loans.  We are continuing to assess this situation and are working with the developer and the permanent financing lender to resolve this situation in a favorable manner.  Loan property costs increased due to the foreclosure in late 2005 of the church property in Dade City, FL.  We were responsible for insurance, property taxes and other operating costs prior to the sale of the property to another church.



Payroll expense increased in 2006 because our new President/CEO is employed directly by us and not by CCA.



Income tax provision. The income tax provision for the year ended December 31, 2006 was $269,840 compared to $163,362 for the year ended December 31, 2005.  The increase in income taxes is due to an increase in pre-tax income which was primarily due to a decrease in tax-exempt bond interest earned in 2006 as compared to 2005.  The Companys effective tax provision rate for 2006 and 2005 was 34.7% and 22.1%, respectively.  A reconciliation of the Companys effective tax provision rate to the federal statutory rate is included in the attached Notes to Consolidated Financial Statements (Note 13).



Dividends. Dividends of $516,938 and $489,177 were declared in 2006 and 2005, respectively.



Liquidity and Capital Resources.

Cash flows from operations.  Net cash provided by the Companys operations for the years ended December 31, 2006 and 2005 was $1,037,787 and $5,283,522, respectively.  This decrease was due to a decrease in net income, a smaller increase in Investor Bond interest payable compared to 2005, an increase in financed loan interest and a decrease in accounts and other payables.  These negative cash flow items were partially offset by an increase in depreciation and amortization expense, an increase in allowance for loan losses and a decrease in loans in process.



Investor and mortgage participation interest payable increased $3,509,188 in 2006 due to an increase in outstanding debt and because approximately 33% of the Investor Certificate holders who purchased certificates in 2003 through 2006 have elected to reinvest the interest due to them each year and not receive the interest in cash until maturity.  The increase in interest payable in 2005 was $5,090,277.  The smaller increase in interest payable during 2006 (as compared to 2005s increase) was due to a higher amount of Investor Bond maturities and redemptions in 2006, which resulted in additional interest paid in 2006 as compared to 2005.



Included in the 2006 and 2005 changes in accrued real estate loan and joint venture interest and deferred loan fee amounts is $4,718,333 and $966,250 in interest, which was financed as part of loan principal.  We receive monthly interest payments on our loans except when the terms of certain loans allow borrowers to finance interest payments while the collateralized property is under development or construction.  A summary (by loan type) of the amount of net financed interest for the years ended December 31, 2006 and 2005 is as follows:



|                           |  |   |           |  |   |        
|-------------------------- |  | - | --------- |  | - | -------
|Family Housing Development |  | $ | 3,774,056 |  | $ | 584,877
|Church                     |  |   | (104,945) |  |   | 15,775 
|Senior Housing             |  |   | (223,687) |  |   | -0-    
|Real Estate Joint Venture  |  |   | 1,272,909 |  |   | 365,598
|                           |  | $ | 4,718,333 |  | $ | 966,250



The amount for 2006 represents interest accrued and financed in 2006, net of payments received in 2006 that were financed in previous years.  2005s amount represents interest accrued and financed in 2005, net of payments received in 2005 that were financed in previous years.



The increase in the family housing net financed interest in 2006 as compared to 2005 is due to the addition of 13 new family housing loans in 2006 which are financing their interest.  We anticipate four to six loans moving from their development phase and into their sales or lease-up phase in 2007 with the remainder continuing to finance interest until 2008 unless alternative financing can be found.  We anticipate that between $3.0 and $3.5 million in interest will be financed in 2007.



The Real Estate Joint Venture financed interest for 2006 is related to loans in San Antonio, TX, Edmond, OK, St. Petersburg, FL and Chattanooga, TN.  The San Antonio facility financed approximately $268,000 in interest in 2006 and is currently under renovation and will be operational or sold in 2007.  The Edmond, OK facility financed $109,000 in interest in 2006 and is in the



14



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development phase of operation.  It is anticipated that this facility will be sold by the borrower in 2007.  The St. Petersburg facility is currently being converted from a senior housing rental facility into a senior housing for-sale condominium facility.  Interest financed in 2006 totaled $451,000 and we anticipate that this loan will continue to finance its interest in 2007.  The Chattanooga, TN facility financed $445,000 in interest in 2006 as part of their refinancing plan.  We are classifying this loan as impaired since the facility is operational and could not pay its interest.  We have an appraisal which indicates that the facility is worth approximately $1 million dollars more than the loan carrying amount so we have not recognized a loan loss on this loan.  We estimate that the net interest financed by real estate joint venture investment loans in 2007 will be under $500,000.



Cash flows from investing activities.    For the year ended December 31, 2006, the Company used $19,485,778 in cash from investing activities which is a decrease of $104,994 from $19,590,772 for the year ended December 31, 2005.  The decrease was due to the following:



|                                                                 |  |   |             
|---------------------------------------------------------------- |  | - | ------------
|Increase in real estate loans and joint venture investments made |  | $ | 23,795,409  
|Increase in real estate loan and joint venture investment        |  |   |             
|principal payments received                                      |  |   | (9,638,194) 
|Decrease in bonds purchased                                      |  |   | (12,683,580)
|Increase in bonds redeemed                                       |  |   | (9,431,300) 
|Increase in consolidated real estate assets purchased            |  |   | 8,388,978   
|Other items, net                                                 |  |   | (536,307)   
|                                                                 |  | $ | (104,994)   



The increase in real estate loans and joint venture investments made in 2006 is due to the increase in cash flows provided by financing activities, an increase in principal payments received from existing real estate loans and an increase in bond investment redemptions.  The cash provided from these items allowed us to originate new loans and fund existing loan commitments at a much faster pace than in 2005.



The increase in real estate loan and joint venture investment principal payments received is due to an increase in loan payments received from Wellstone Retirement Communities



The decrease in bonds purchased is due to the purchase of $1,953,580 in local church bonds and $10,730,000 in tax-free senior housing bonds in 2005 with no purchases made in 2006.  The increase in bonds redeemed is due to the redemption of our Barrington tax-free bonds in January 2006.



The increase in consolidated real estate assets is due to our purchase of an 89% ownership in Heron Lake, LLC and due to the consolidation of one real estate loan that we made in 2006 in which we are the primary beneficiary of a Variable Interest Entity.  Please see Note 9 of the Notes to Consolidated Financial Statements for additional information on these assets.



Cash flows from financing activities.  For the year ended December 31, 2006, the Companys financing activities provided $18,858,510, an increase of $7,266,726 when compared to 2005s amount of $11,591,784.  The increase was due to:



|                                           |  |   |            
|------------------------------------------ |  | - | -----------
|Decrease in investor bonds and mortgage    |  |   |            
|participations sold                        |  | $ | (9,654,036)
|Increase in redemptions of investor bonds  |  |   |            
|and mortgage participations                |  |   | (1,654,279)
|Decrease in common stock issued            |  |   | (564,961)  
|Increase in proceeds  other loans payable |  |   | 20,000,000 
|Increase in loan issue costs paid          |  |   | (752,468)  
|All others, net                            |  |   | (107,530)  
|Total decrease                             |  | $ | 7,266,726  



The decrease in investor certificate and mortgage participation sales is due to a decrease in the amount of time in which we had registered certificates available to sell in 2006 as compared to 2005.  Also, due to the Chicago Stock Exchange issue, we have fewer states in which we can sell our bonds.  The decrease in the amount of common stock issued was for the same reasons.



15



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In February 2006, we filed a new registration statement with the Securities and Exchange Commission which was approved in September 2006.  This registration allows us to sell up to $60,000,000 in Series G Investor Bonds and $32,500,000 in common stock which should continue our increase in outstanding bonds and common stock.



In August 2006 we entered into a loan agreement with Bernard National Senior Funding.  We did this so that we will have alternative financing in place and will not be 100% dependant on Investor Bonds and Common Stock for financing, which require a time-consuming registration process.  By having this loan agreement in place we should be able to manage our loan funding requirements in a more consistent manner.  We received $20,000,000 in 2006 from this loan agreement.  See Note 17 of the Notes to Consolidated Financial Statements for additional information.



We have $44,953,590 in Investor Bonds coming due or redeemable upon demand in 2007, as follows: $9,558,575  graduated bonds; $928,296  access bonds; $34,466,719  five-year bonds.  Graduated bonds can be redeemed yearly on the anniversary date of the purchase and access bonds are due on demand.  Based on past experience, we expect less than 20% of the graduated and access bonds to be redeemed in 2007 and, because we have registered bonds available to sell, we expect that approximately 80% of the maturing five-year bonds will be reinvested into new Investor Bonds.  However, there is no guarantee that this will happen.  We will ensure that we have enough cash available to handle these maturities.



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



·

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

·

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

·

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

·

Have a bank willing to extend credit lines if needed.

·

Spread maturity dates throughout the year.

·

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



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



16



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Item 7. Financial Statements.



For the information required by this item, please see Financial Statements beginning on page F-1.



Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.



None



Item 8A. Controls and Procedures.



(a) Evaluation of Disclosure Controls and Procedures. The Company maintains a system of disclosure controls and procedures (as defined in Rules 13a  15 and 15d  15 under the Securities Exchange Act of 1934) designed to provide reasonable assurance as to the reliability of the financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. The Companys Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the Companys disclosure controls within 90 days prior to the filing date of this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective in alerting them in a timely manner of material information required to be included in the Companys periodic Securities and Exchange Commission filings.



(b) Changes in Internal Controls. Since the evaluation date, no significant changes were made to the Companys internal controls or other factors that could significantly affect these controls.



Item 8B. Other Information.



No information required to be disclosed in a report on Form 8-K and not reported on a Form 8-K is included in this report.



Part III



Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.



Our board of directors is elected by our shareholders. The board is responsible for setting policies and for hiring and retaining management.  The following is information about our directors and officers.



|                        |  |     |  |                          
|----------------------- |  | --- |  | -------------------------
|Name, residence address |  | Age |  | Responsibility           
|                        |  |     |  |                          
|Jack Wehmiller          |  | 59  |  | Director, Chairman of the
|7034 George Barnes Road |  |     |  | Board, President, CEO    
|Murrayville, GA 30564   |  |     |  |                          
|                        |  |     |  |                          
|John T. Ottinger        |  | 52  |  | Chief Financial Officer  
|6020 Providence Lane    |  |     |  |                          
|Cumming, GA 30040       |  |     |  |                          
|                        |  |     |  |                          
|Ted Fox                 |  | 76  |  | Director                 
|10575 Big Canoe         |  |     |  |                          
|Jasper, GA  30143       |  |     |  |                          
|                        |  |     |  |                          
|Henry Darden            |  | 73  |  | Director, Member of the  
|614 Beverly Dr.         |  |     |  | Loan and Audit Committees
|Brandon, FL  33510      |  |     |  |                          
|                        |  |     |  |                          
|Jayme S. Sickert        |  | 59  |  | Director                 
|950 Landover Crossing   |  |     |  |                          
|Suwanee, GA  30024      |  |     |  |                          
|                        |  |     |  |                          
|                        |  |     |  |                          



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|                       |  |    |  |                        
|---------------------- |  | -- |  | -----------------------
|Irving B. Wicker       |  | 81 |  | Director, Member of the
|132 Eswick Drive       |  |    |  | Audit Committee        
|Prattville, AL 36067   |  |    |  |                        
|                       |  |    |  |                        
|John M. Nix            |  | 58 |  | Director               
|3160 Golf Club Drive   |  |    |  |                        
|Gainesville, GA  30501 |  |    |  |                        
|                       |  |    |  |                        
|Royce M. Cox           |  | 59 |  | Director               
|1980 Suncrest Drive    |  |    |  |                        
|Prattville, AL  36067  |  |    |  |                        
|                       |  |    |  |                        
|Barbara I. Byrd        |  | 53 |  | Director, Secretary    
|125 Ocee View Court    |  |    |  |                        
|Alpharetta, GA  30022  |  |    |  |                        





Directors are elected for three-year terms.  Messrs. Darden, Cox, Nix, Sickert, Fox and Byrd will serve until the 2009 annual meeting, Messrs. Wehmiller and Wicker will serve until 2007.  Mr. Ottinger has notified us that he will resign his position as Chief Financial Officer effective March 31, 2007.



Jack Wehmiller has served as President and CEO since November 2006 and as a director since May 2004.  In January 2004, he joined the staff of Cornerstone Capital Advisors, Inc.  His responsibilities include company management as well as broker-dealer relations.  Mr. Wehmiller was employed in the securities industry since 1971, with 17 years in retail brokerage and the balance in sales and marketing for a major mutual fund and variable annuity distributors.  From 1998 to 2000 he was regional vice president with ING Mutual Fund Management and ING Mutual Funds.  During 2001 and early 2002, he was an independent consultant and, from April 2002 through 2003, he formed and worked for Wellstone Securities LLC.  Mr. Wehmiller is an ordained deacon at the First Baptist Church of Gainesville, GA.  He attended the University of South Florida and the Southwest School of Municipal Finance.



John T. Ottinger, Jr. has served as Vice President and Secretary/Treasurer since Cornerstone Ministries Investments, Inc. was founded.  Mr. Ottinger is currently our Chief Financial Officer.  He graduated from the University of Delaware in 1976 and spent eight years in the lodging industry.  Mr. Ottinger has served as pastor of an established church as well as organizing pastor in North Carolina.  He joined the Presbyterian Investors Fund, Inc. staff in 1985.  Mr. Ottinger has 20 years of extensive experience in church and senior housing lending.  He was a director from 1996 until 2006.



Ted Fox has been a director since 1996, except for a period in 2003 in which he served as director of our former subsidiary, Wellstone Communities, Inc.  Since 1999 he has been an independent investor.  Mr. Fox had a 24-year career with Law Engineering Company, retiring as Assistant Vice-President.  From 1993 to 1998, Mr. Fox was employed part-time with Cole, Henderson and Drake, Inc., an advertising agency in their finance department, maintaining their financial records.  Mr. Fox is a past Chairman of the Board of the National Association of Credit Managers.  He received a Bachelor of Business Administration degree in Management from Georgia State University.



Henry Darden has served as a director since 1992.  He received a Bachelor of Science degree in forestry management from the University of Georgia in 1955 and an AA in real estate from the City College of Chicago in 1970.  He is a Distinguished Graduate of the Industrial College of the Armed Forces.   Mr. Darden retired in 1982 as a Lieutenant Colonel with the United States Air Force.  Since then, he has been a self-employed financial and tax consultant.



Jayme Sickert has served as a director since 2006 and has experience in the ministry, finance, insurance and securities areas.  Currently he is the President of Cornerstone Insurance Agency, a company started in January, 2005.  He holds both securities and insurance licenses.  His background includes serving as vice-president of Investor Services for Cornerstone Ministries in 2001 until he accepted his current position.  Additionally he operated a church bond financing company from 1996 through 2000.  Rev. Sickert was ordained in 1974 as a minister by the Presbyterian Church.  He successfully served four churches before being called to serve the denomination at its headquarters in Atlanta as the Director of Church Relations.  Rev. Sickert was honorably retired by his Presbytery in 2003.  He is a 1969 graduate of Covenant College in Lookout Mountain, TN where he met his wife of over 38 years.  He also received a Master of Divinity degree in 1974 from Covenant Theological Seminary in St. Louis, MO.



18



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Irving B. Wicker has served as a director since 1990.  He graduated from the University of Maryland in 1959 and received a Masters Degree from George Washington University in 1963.  He retired in 1969 as a Lieutenant Colonel in the United States Air Force.  Mr. Wicker was self-employed as a real estate broker and financial planner from 1969 until he retired in 2000.



John M. Nix, C.P.A., C.S.P.M. is a practicing Certified Public Accountant and has served as a director since 2006.  He has been managing partner of Bates, Carter & Co., a Gainesville, GA public accounting firm, since 1994.  John is a graduate of the University of Georgia with a Masters of Accountancy degree.  He is a past president of the Georgia Society of CPAs and was previously a member of the governing council of the American Institute of CPAs.  John has served on the board of several non-profit organizations and has been a board member and consultant to numerous for-profit businesses.  He is a founding member of the Center of Strategic Performance Management and is certified in the discipline.



Royce M. Cox has served as a director since 2006.  He has been a registered real estate appraiser since 2004.  From 1987 to 2004, Mr. Cox was employed by Learning Labs, Inc. helping to develop and market automated manufacturing and robotics systems to colleges/universities and business/industry.  He has 31 years of experience in management and has also served in the U.S. Navy.  He received a Bachelor of Science degree from Berry College in 1973 and he is an ordained elder in the Presbyterian Church in America.



Barbara I. Byrd has served as a director since 2006.  Ms. Byrd is currently employed by Cornerstone Capital Advisors, Inc. as an executive assistant and was previously employed by Cornerstone Ministries Investments, Inc. from February 2002 to June 2003 as the executive assistant to the CEO and CFO.  Before joining us in February 2002, Ms. Byrds prior experience includes 13 years in administration, property management and accounting as well as fourteen years in commission-based sales.  She attended DeKalb Junior College and West Georgia College.



Independent directors

Decisions involving Cornerstone Capital Advisors, Inc. require the approval of a majority of the independent directors, as well as a majority of the full board.  We define an independent director as one who is not an officer of ours or an officer, employee, director or shareholder of Cornerstone Capital Advisors, Inc.  We consider Messrs. Fox, Darden, Cox, Nix and Wicker to be independent directors.  We will maintain at least two independent directors on our board.



Committees

Audit Committee. Two independent directors, Messrs. Darden and Wicker, are the audit committee.  The audit committee will make recommendations concerning the engagement of independent public accountants; review their independence, the services they provide and the results of the audit engagement.  The audit committee will also consider the range of audit and non-audit fees and review the adequacy of our internal accounting controls.  We do not have an audit committee member who is a financial expert, as defined by the Sarbanes-Oxley Act of 2002.



Loan and Investment Committee. The board has established a loan and investment committee consisting of Messrs. Wehmiller, Ottinger, and Darden and having a quorum of two members.  The committee will review and may approve loans and investments of up to $500,000 on behalf of the board, in accordance with the loan and investment policies as adopted and amended by the board from time to time.  Any individual loans or investments in excess of the committees authority will be subject to approval by the entire board.



Meetings and compensation of directors

The directors meet at least annually and more often as needed.  The audit committee meets at least once annually.  The loan and investment committee meets as required.  Directors receive $250 for each conference call board and committee meeting they participate in and $500 per day for each face-to-face meeting attended.  We reimburse them for travel expenses to attend meetings. Here are the amounts paid to each director in 2006: Ted Fox - $5,500; Henry Darden - $5,500; Irving Wicker - $5,750; John M. Nix - $5,000; Royce M. Cox - $1,250.



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Indemnification of directors and officers and limitation of their liability

Officers or directors are not liable to Cornerstone Ministries Investments, Inc. or its shareowners, under Georgia law, if they acted in a manner they believed in good faith to be in or not opposed to Cornerstone Ministries Investments, Inc.s best interests.  They are not liable in any criminal proceeding if they had no reasonable cause to believe their conduct was unlawful.  As permitted by Georgia law, we will indemnify our officers and directors against liability and their defense costs in any proceeding in which they have been successful or where the directors who are not involved determine that the applicable standard of conduct has been met.  We will pay reasonable expenses, including attorneys' fees, incurred by directors or officers in advance of the final disposition of a proceeding, if they furnish written affirmation of good faith belief that they have met the applicable standard of conduct, together with a written promise to repay any advances if it is determined they are not entitled to indemnification.  Insofar as indemnification for liabilities arising under the federal Securities Act of 1933 (the Act) may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy expressed in the Act and is, therefore, unenforceable.  We carry insurance against the liability of our officers and directors.



Code of Ethics

The registrant has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.  A copy is attached to this report as exhibit 14.  The registrant will furnish a copy to any person, without charge, upon request made to the registrant at 2450 Atlanta Highway, Suite 904, Cumming, GA 30040.



Section 16(a) Beneficial Ownership Reporting Compliance



No directors, officers or beneficial owners of more than 10% of the registrants Common Stock was required to file reports as required by section 16(a) of the Exchange Act during the two most recent fiscal years.



Item 10. Executive Compensation.



This summary compensation table shows all compensation paid to our executive officers during the last three years:



|                            |  |      |  |        |         |       |   |        |  |       |        |  |   |        
|--------------------------- |  | ---- |  | ------ | ------- | ----- | - | ------ |  | ----- | ------ |  | - | -------
|Name/Position               |  | Year |  | Salary |         | Bonus |   | Other  |  | Total
|Cecil A. Brooks  President |  | 2006 |  | $      | 200,000 |       | $ | 59,000 |  |       | -      |  | $ | 259,000
|Jack Wehmiller  President  |  | 2006 |  | $      | 150,000 |       | $ | 59,000 |  |       | -      |  | $ | 209,000
|John T. Ottinger  CFO      |  | 2006 |  | $      | 150,000 |       | $ | 59,000 |  |       | -      |  | $ | 209,000
|                            |  |      |  |        |         |       |   |        |  |       |        |  |   |        
|Cecil A. Brooks  President |  | 2005 |  | $      | 200,000 |       |   | -      |  | $     | 30,000 |  | $ | 230,000
|John T. Ottinger  CFO      |  | 2005 |  | $      | 150,000 |       |   | -      |  | $     | 22,500 |  | $ | 172,500
|                            |  |      |  |        |         |       |   |        |  |       |        |  |   |        
|Cecil A. Brooks  President |  | 2004 |  | $      | 200,000 |       |   | -      |  | $     | 7,285  |  | $ | 207,285
|John T. Ottinger  CFO      |  | 2004 |  | $      | 150,000 |       |   | -      |  | $     | 5,464  |  | $ | 155,464



Except as noted below, all executive services from 2004 through 2006 were included in the advisory services agreement with Cornerstone Capital Advisors, Inc. (CCA); therefore the executives were employed by CCA. Effective October 1, 2006, Jack Wehmiller became an employee of Cornerstone Ministries Investments, Inc.  Neither we nor CCA have employment agreements with them or any other employees.  We have no restricted stock plans, stock options, stock appreciation rights or other long-term incentive plans.  Other compensation in the above chart represents contributions that CCA made to a defined contribution plan in 2004 and 2005 on behalf of the above named executives.

Item 11. Security Ownership of Certain Beneficial Owners and Management.



The following table shows the beneficial ownership of our common stock on December 31, 2006, for shares owned by:

(i)

each of our directors and executive officers,

(ii)

each shareowner we know to own beneficially 5% or more of the outstanding shares of our common stock and

(iii)

all directors and officers as a group.



We believe that the beneficial owners of the common stock listed below, based on information they furnished, have sole investment and voting power over their shares, subject to community property laws where applicable.





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|                                                              |                                     |                                                     
|------------------------------------------------------------- | ----------------------------------- | ----------------------------------------------------
|Name and address of
Beneficial Owner                          | Number of Shares Beneficially Owned | Percentage of  Total Common
Stock Beneficially Owned
|Jack Wehmiller
7034 George Barnes Road
Murrayville, GA  30564 | 404                                 | *                                                   
|                                                              |                                     |                                                     
|John T. Ottinger
6020 Providence Lane
Cumming, GA 30040       | 3,678                               | *                                                   
|                                                              |                                     |                                                     
|Ted Fox
10575 Big Canoe
Jasper, GA 30143                      | 6,083                               | *                                                   
|                                                              |                                     |                                                     
|Irving B. Wicker
132 Eswick Drive
Prattville, AL 36067        | 7,804                               | *                                                   
|                                                              |                                     |                                                     
|Henry Darden
614 Beverly Dr
Brandon, FL 33510                 | 6,000                               | *                                                   
|                                                              |                                     |                                                     
|Jayme S. Sickert
950 Landover Crossing
Suwanee, GA  30024     | 7,800                               | *                                                   
|                                                              |                                     |                                                     
|All directors and executive officers
as a group (5 Persons)   | 31,769                              | 3.6%                                                



* less than one percent.



Item 12. Certain Relationships and Related Transactions.



On July 1, 2003, we entered into a management and administrative services agreement with Cornerstone Capital Advisors, Inc. (CCA) for it to provide our administrative, management and executive services.  The agreement is for renewable one-year terms and may be terminated by either party upon 60 days written notice.  CCA is subject to the supervision of our board of directors.  At the time that this agreement was executed, two of our officers were also officers and directors of CCA.  Currently, one officer and one director of ours are employed by CCA.  We paid CCA $2,597,428 under this agreement in 2005 and $3,269,549 in 2006.  See Note 4 of the Notes to Consolidated Financial Statements for additional disclosures about our agreement with CCA.



In December 2005, our two largest borrowers sold eight senior housing properties to Wellstone Retirement Communities I, LLC (WRC) which is managed by CCA, which is also our manager.  Two of our directors were also directors of CCA at the time of this transaction.  As a result of this transaction, we received $63,190,168 in loan and bond holdings principal and we immediately supplied subordinated financing of $37,901,607 at 9.5% interest and a two year maturity to WRC to purchase the property.  Approximately $10,151,000 in equity was contributed by unrelated accredited investors with the remaining $64,077,000 needed to purchase the properties supplied by third-party first mortgage financing.  WRC owed us $12,331,339 in loan principal as of December 31, 2006.  In January 2007, WRC refinanced its existing senior debt and paid off its loan to us in full.



21



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During 2005 and 2006, eight loans were made to wholly or majority-owned subsidiaries of Cornerstone Group Holdings, Inc (CGH).  At the time that these loans were originated, two of our directors were also directors of CGH.  In 2006, both of our directors resigned from the board of CGH.  These eight loans were made at similar terms to that of our loans with independent third parties and were approved by all of our independent directors.  As of December 31, 2006, the principal outstanding on these eight loans was $8,348,236.  All of these loans accrue interest at 10% per annum and mature in 2007 or 2008.  Please refer to Note 4 of the Notes to Consolidated Financial Statements for additional information on these loans.



In March 2006 we originated a loan with a maximum commitment of $950,000 to Castleberry Properties, LLC for the acquisition of land that will be developed into an office park.  Cornerstone Capital Advisors, Inc. owns 50% of Castleberry Properties.  As of December 31, 2006, the loan principal outstanding is $850,701.  Cornerstone Capital Advisors, Inc. contributed $172,000 in equity to Castleberry.  We paid Cornerstone Capital Advisors a loan origination fee of $24,000 in connection with this loan.



In September 2006, Jack Wehmiller (President of CMI), John T. Ottinger (CFO of CMI), Cecil Brooks (former President of CMI and CCA and current chairman of CCAs parent company) and Robert Covington (President of CCA) each acquired an 18.75% ownership interest in Wellstone LLC, our largest borrower.  As of December 31, 2006, we have loans outstanding to eight projects owned by Wellstone LLC with total principal of $61,972,530 (41% of our loan portfolio).  Seven of the eight project loans were outstanding prior to September 2006 and one loan with outstanding principal of $1,205,780 was added after Messrs. Wehmiller, Ottinger, Brooks and Covington acquired their ownership interests in Wellstone LLC.  John T. Ottinger has resigned his position as our CFO effective March 31, 2007.  Jack Wehmiller intends to divest his interest in Wellstone LLC as of March 31, 2007 by donating it to a non-profit organization.  All of the Wellstone LLC loans accrue interest at 10% and mature in either 2007 or 2008.  None of these loans are considered impaired or non-performing.  The projects owned by Wellstone LLC are all age-restricted or affordable for-sale housing projects.  Wellstone LLC has engaged Houlihan Lokey, a national consulting firm, to obtain additional capital investors and lenders so that they can refinance most or all of the CMI debt.



All material affiliated transactions and loans are made or entered into on terms that are no less favorable to us than those that can be obtained from unaffiliated third parties and must be approved by a majority of our independent directors who do not have an interest in the transactions and who were offered access, at our expense, to our lawyer or independent legal counsel. We do not make loans to our officers or directors.



Item 13. Exhibits and Reports on Form 8-K.

(a)  (Item 601 of Regulation S-B)

Exhibit

Number                                    Description

1.1           Sales Agency Agreement with Wellstone Securities, LLC. (Incorporated by reference from Exhibit 1.1 of the Issuers Registration Statement on Form SB-2, No. 333-131861, filed February 15, 2006.)

1.3

Bond Purchase Agreement (Incorporated by reference from Exhibit 1.2 of the Issuers Registration Statement on Form SB-2, No. 333-118613, filed August 27, 2004.)

1.4

Common Stock Purchase Agreement (Incorporated by reference from Exhibit 1.3 of the Issuers Registration Statement on Form SB-2, No. 333-118613, filed August 27, 2004.)

3.1

Amended and Restated Articles of Incorporation (Incorporated by reference from Exhibit 3.1 of the Issuers Registration Statement on Form SB-2, No. 333-118613,filed August 27, 2004.)

3.2           Amended and Restated By-laws of the issuer (Incorporated by reference from Exhibit 3.2 of

Issuers Registration Statement on Form SB-2, No. 333-118613,filed August 27, 2004.)

4.1

Article III.A., page 1 of the Amended and Restated Articles of Incorporation and Article III of the Amended and Restated By-laws (Reference is made to Exhibits 3.1 and 3.2.)

4.2

Form of Graduated Rate Bonds (Incorporated by reference from Exhibit 4.3 of the Issuers Registration Statement on Form SB-2, No. 333-118613, filed August 27, 2004.)

4.3

Form of five-year term Bonds (Incorporated by reference from Exhibit 4.2 of the Issuers Registration Statement on Form SB-2, No. 333-131861,filed February 15, 2006.)

4.4

Trust Indenture for Series B and C Certificates of Indebtedness (Incorporated by reference from Exhibit 4.4 of Issuers Registration Statement on Form SB-2, No. 333-93475,filed January 14, 2000.)

4.5

Trust Indenture dated June 14, 2002 (Incorporated by reference from Exhibit 4.8 of the Issuers Registration Statement on Form SB-2, No. 333-91564, filed June 28, 2002.)

4.6           Trust Indenture dated April 29, 2003 (Incorporated by reference from Exhibit 4.6 of the Issuers Registration Statement on Form SB-2, No. 333-104810, filed April 29, 2003.)

4.7           Trust Indenture dated August 7, 2006 (Incorporated by reference from Exhibit 4.7 of the Issuers Registration Statement on Form SB-2, No. 333-131861, filed August 21, 2006.)

14            Code of Ethics



22



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21            Subsidiaries of the Issuer (included in the Description of Business section on page 7)

24            Power of Attorney (included in the Signatures section of this report)

31            Certifications pursuant to Item 601(b) (31) of Regulation S-B

32

Certifications pursuant to 18 U.S.C.  Section 1350



(b)  On November 3, 2006 the registrant filed Form 8-K, No. 001-32165, to report a change in the registrants board of directors and to its principal officers.  On November 27, 2006, the registrant filed Form 8-K/A, No. 001-32165 which amended the Form 8-K which was filed on November 3, 2006.



Item 14.  Principal Accountant Fees and Services.



The Board of Directors engaged Berman Hopkins Wright & LaHam, CPAs, and Associates, LLP (Berman Hopkins) as the auditors of the financial statements for the year ended December 31, 2006.  No member of Berman Hopkins has a financial interest in Cornerstone Ministries Investments, Inc.  All hours expended on the engagement to audit our financial statements were attributed to work performed by Berman Hopkinss full-time permanent employees.   All of the services described below were approved by our audit committee and the Board of Directors.



Audit Fees -fees for services rendered in connection with the audit of our annual financial statements, the review of  financial statements included in our Form 10-QSBs and for services that are normally provided by the accountant in connection with statutory and regulatory filings were $70,413 and $52,571 for the years ended December 31, 2006 and 2005, respectively.



Tax Fees -fees for tax services, including preparation of our tax returns and tax-related matters were $3,750 and $3,440 for the years ended December 31, 2006 and 2005, respectively.



All Other Fees - fees for the preparation and review of the financial sections of our Form SB-2 Registration Statements were $12,860 and $0 for the years ended December 31, 2006 and 2005, respectively.



SIGNATURES



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

CORNERSTONE MINISTRIES INVESTMENTS, INC.(Issuer)



By

S/Jack Wehmiller

March 27, 2007

Jack Wehmiller, Chief Executive Officer



Each person whose signature appears below appoints Jack Wehmiller, John T. Ottinger, or either of them, his or her attorney-in-fact, with full power of substitution and resubstitution, to sign any and all amendments to this report on Form 10-KSB of Cornerstone Ministries Investments, Inc., and to file them, with all their exhibits and other related documents, with the Securities and Exchange Commission, ratifying and confirming all that their attorney-in-fact and agent or his or her substitute or substitutes may lawfully do or cause to be done by virtue of this appointment.

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Issuer and in the capacities and on the dates indicated.



Signature

Title

Date



S/Jack Wehmiller

Chief Executive Officer, President and

March 27, 2007

Jack Wehmiller

Chairman of the Board of Directors



S/John T. Ottinger

Chief Financial Officer

March 27, 2007

John T. Ottinger

(principal accounting officer)





*S/Ted Fox

Director

March 27, 2007

Ted Fox



*S/Henry Darden

Director

March 27, 2007

Henry Darden



23



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*S/Jayme S. Sickert

Director

March 27, 2007

Jayme S. Sickert



*S/Irving B. Wicker

Director

March 27, 2007

Irving B. Wicker



*S/John M. Nix

Director

March 27, 2007

John M. Nix



*S/Royce M. Cox

Director

March 27, 2007

Royce M. Cox



*S/Barbara I. Byrd

Director, Secretary

March 27, 2007

Barbara I. Byrd



By: *S/Jack Wehmiller

, attorney-in-fact

March 27, 2007

Jack Wehmiller





Supplemental Information to be Furnished With Reports Filed

Pursuant to Section 15(d) of the Act by Registrants Which Have Not

Registered Securities Pursuant to Section 12 of the Act



The report on Form 10-K is the only annual report sent or to be sent to security holders covering the registrants last fiscal year.  No proxy soliciting material has been sent or is to be furnished to security holders with respect to any annual or other meeting of security holders.





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Report of Independent Registered Public Accounting Firm



To The Board of Directors and Shareholders

Cornerstone Ministries Investments, Inc.



We have audited the accompanying consolidated balance sheets of Cornerstone Ministries Investments, Inc., as of December 31, 2006 and 2005 and the related consolidated statements of operations, changes in shareholders equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.



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 audits 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 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, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cornerstone Ministries Investments, Inc. as of December 31, 2006 and 2005 and the results of its consolidated operations, changes in shareholders equity and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.









/S/ Berman Hopkins Wright & Laham, CPAs and Associates, LLP



Winter Park, Florida

March 26, 2007



F-1



---



|                                                      |  |  |  |  |   |             |  |   |             | 
|----------------------------------------------------- |  |  |  |  | - | ----------- |  | - | ----------- | 
|CORNERSTONE MINISTRIES INVESTMENTS, INC.              |  |  |  |  |   |             |  |  
|CONSOLIDATED BALANCE SHEETS                           |  |  |  |  |   |             |  |   |            
|December 31, 2006 and 2005                            |  |  |  |  |   |             |  |   |            
|                                                      |  |  |  |  |   |             |  |   |            
|                                                      |  |  |  |  |   | 2006        |  |   | 2005       
|ASSETS                                                |  |  |  |  |   |             |  |   |            
|Cash and cash equivalents                             |  |  |  |  | $ | 12,857,712  |  | $ | 12,447,193 
|Loan guarantee receivable                             |  |  |  |  |   | 91,000      |  |   | -          
|Loans in process                                      |  |  |  |  |   | 453,932     |  |   | 384,262    
|Real estate loans, net (including $81,459,921 and     |  |  |  |  |   | 128,181,880 |  |   | 106,238,279
|$39,466,114 from related parties - see note 4)        |  |  |  |  |   |             |  |   |            
|Real estate joint venture investments, net            |  |  |  |  |   | 20,460,940  |  |   | 14,865,860 
|Consolidated real estate assets                       |  |  |  |  |   | 8,715,127   |  |   | -          
|Bond holdings and accrued interest                    |  |  |  |  |   | 2,189,080   |  |   | 14,315,771 
|Property and equipment, net                           |  |  |  |  |   | 509,366     |  |   | 762,135    
|Refundable income taxes                               |  |  |  |  |   | 61,799      |  |   | -          
|Deferred tax asset, net                               |  |  |  |  |   | 481,910     |  |   | 143,837    
|Goodwill                                              |  |  |  |  |   | 450,997     |  |   | 450,997    
|Unamortized debt issue costs                          |  |  |  |  |   | 3,319,890   |  |   | 2,748,855  
|Foreclosed real estate held for sale                  |  |  |  |  |   | -           |  |   | 290,679    
|Real estate held for investment                       |  |  |  |  |   | 340,000     |  |   | 340,000    
|Other assets                                          |  |  |  |  |   | 51,354      |  |   | 72,220     
|                                                      |  |  |  |  |   |             |  |   |            
|TOTAL ASSETS                                          |  |  |  |  | $ | 178,164,987 |  | $ | 153,060,088
|                                                      |  |  |  |  |   |             |  |   |            
|LIABILITIES                                           |  |  |  |  |   |             |  |   |            
|Investor certificates and accrued interest            |  |  |  |  | $ | 147,821,207 |  | $ | 143,062,898
|Mortgage participations and accrued interest          |  |  |  |  |   | 2,683,232   |  |   | 2,545,701  
|Loans payable and accrued interest                    |  |  |  |  |   | 20,152,399  |  |   | -          
|Accounts and other payables (including                |  |  |  |  |   | 332,300     |  |   | 600,311    
|$182,634 and $73,365 to related parties - see note 4) |  |  |  |  |   |             | 
|Common dividends payable                              |  |  |  |  |   | 286,420     |  |   | 278,034    
|Consolidated real estate obligations                  |  |  |  |  |   | 326,149     |  |   | -          
|Loan guarantee obligations                            |  |  |  |  |   | 451,610     |  |   | 234,000    
|Building mortgages                                    |  |  |  |  |   | 405,127     |  |   | 578,309    
|Capital lease obligation                              |  |  |  |  |   | -           |  |   | 1,231      
|                                                      |  |  |  |  |   |             |  |   |            
|TOTAL LIABILITIES                                     |  |  |  |  |   | 172,458,444 |  |   | 147,300,484
|                                                      |  |  |  |  |   |             |  |   |            
|SHAREHOLDERS' EQUITY                                  |  |  |  |  |   |             |  |   |            
|Series A Convertible Preferred Stock, no par          |  |  |  |  |   |             |  |   |            
|value; 235,000 shares authorized, no                  |  |  |  |  |   |             |  |   |            
|shares issued and outstanding                         |  |  |  |  |   | -           |  |   | -          
|Common Stock, $0.01 par value; 29 million shares      |  |  |  |  |   |             |  |   |            
|authorized; 885,096 and 891,914 shares                |  |  |  |  |   |             |  |   |            
|issued and outstanding                                |  |  |  |  |   | 8,851       |  |   | 8,919      
|Paid in capital                                       |  |  |  |  |   | 5,526,483   |  |   | 5,570,992  
|Retained earnings                                     |  |  |  |  |   | 171,209     |  |   | 179,693    
|                                                      |  |  |  |  |   |             |  |   |            
|TOTAL SHAREHOLDERS' EQUITY                            |  |  |  |  |   | 5,706,543   |  |   | 5,759,604  
|                                                      |  |  |  |  |   |             |  |   |            
|TOTAL LIABILITIES AND                                 |  |  |  |  |   |             |  |   |            
|SHAREHOLDERS' EQUITY                                  |  |  |  |  | $ | 178,164,987 |  | $ | 153,060,088
|                                                      |  |  |  |  |   |             |  |   |            
|SEE ACCOMPANYING NOTES                                |  |  |  |  |   |             |  |   |            





F-2



---



|                                                                |              |            |              |                  |      |                  |     
|--------------------------------------------------------------- | ------------ | ---------- | ------------ | ---------------- | ---- | ---------------- | ----
|CORNERSTONE MINISTRIES INVESTMENTS, INC.                        |              |            |             
|CONSOLIDATED STATEMENTS OF OPERATIONS                           |              |            |             
|For the years ended December 31, 2006 and 2005                  |              |            |             
|                                                                |              |            |              |                  |      |                  |     
|                                                                |              |            |              |                  |      |                  |     
|                                                                |              |            |              |                  | 2006 |                  | 2005
|REVENUES                                                        |              |            |              |                  |      |                 
|Real estate loan and joint venture interest and fees (including | $ 16,872,548 |            | $ 14,093,734
|$6,571,739 and $439,208 from related parties - see note 4)      |              |            |             
|Loan participation and other income (including $60,000          | 533,833      |            | 1,609,387   
|and $60,000 from a related party - see note 4)                  |              |            |             
|                                                                |              |            |              |                  |      |                  |     
|TOTAL REVENUES                                                  |              |            |              | 17,406,381       |      | 15,703,121      
|                                                                |              |            |              |                  |      |                  |     
|EXPENSES                                                        |              |            |              |                  |      |                 
|Investor and loan interest expense                              |              | 12,361,838 |              | 11,638,145      
|Loan loss expense                                               |              |            |              | 521,000          |      | 100,000         
|Marketing expenses                                              |              |            |              | 1,209,035        |      | 1,082,967       
|Payroll expenses                                                |              |            |              | 107,737          |      | -               
|Management and advisory fees to related party (see note 4)      | 1,511,224    |            | 1,445,264   
|Operating expenses                                              |              |            |              | 917,253          |      | 695,756         
|                                                                |              |            |              |                  |      |                  |     
|TOTAL EXPENSES                                                  |              |            |              | 16,628,087       |      | 14,962,132      
|                                                                |              |            |              |                  |      |                  |     
|Income Before Provision For Income Taxes                        |              | 778,294    |              | 740,989         
|                                                                |              |            |              |                  |      |                  |     
|Income Tax Provision                                            |              |            |              | 269,840          |      | 163,362         
|                                                                |              |            |              |                  |      |                  |     
|NET INCOME                                                      |              |            |              | $     508,454    |      | $     577,627   
|                                                                |              |            |              |                  |      |                  |     
|Basic and Diluted Earnings                                      |              |            |              |                  |     
|per Common Share                                                |              |            |              | $           0.57 |      | $           0.69
|                                                                |              |            |              |                  |      |                  |     





F-3



---



|                                                           |  |  |  |               |  |          |  |            |  |              |  |             |       |  |            |  |  | 
|---------------------------------------------------------- |  |  |  | ------------- |  | -------- |  | ---------- |  | ------------ |  | ----------- | ----- |  | ---------- |  |  | 
|CORNERSTONE MINISTRIES INVESTMENTS, INC.                   |  |  |  |               |  |          |  |            |  |              | 
|CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY |  |  |  |               |  |          | 
|For the years ended December 31, 2006 and 2005             |  |  |  |               |  |          |  |            |  |              | 
|                                                           |  |  |  |               |  |          |  |            |  |              |  |             |       |  |           
|                                                           |  |  |  |               |  |          |  |            |  |              |  |             |       |  |           
|                                                           |  |  |  |               |  |          |  |            |  |              |  |             |       |  |           
|                                                           |  |  |  | COMMON STOCK: |  | PAID-IN  |  | PREFERRED  |  | RETAINED     |  |             | TOTAL
|                                                           |  |  |  | SHARES        |  | AMOUNT   |  | CAPITAL    |  | STOCK        |  | EARNINGS    |       |  | EQUITY    
|                                                           |  |  |  |               |  |          |  |            |  |              |  |             |       |  |           
|BALANCE, DECEMBER 31, 2004                                 |  |  |  | 819,351       |  | $  8,194 |  | $5,118,568 |  | $          - |  | $    91,243 |       |  | $5,218,005
|Net income                                                 |  |  |  |               |  |          |  |            |  |              |  | 577,627     |       |  | 577,627   
|Common stock issued                                        |  |  |  | 95,962        |  | 959      |  | 622,797    |  |              |  |             |       |  | 623,756   
|Common stock issuance costs paid                           |  |  |  |               |  |          |  | (18,514)   |  |              |  |             |       |  | (18,514)  
|Common stock redeemed                                      |  |  |  | (23,399)      |  | (234)    |  | (151,859)  |  |              |  |             |       |  | (152,093) 
|Dividends declared                                         |  |  |  |               |  |          |  |            |  |              |  | (489,177)   |       |  | (489,177) 
|                                                           |  |  |  |               |  |          |  |            |  |              |  |             |       |  |           
|BALANCE, DECEMBER 31, 2005                                 |  |  |  | 891,914       |  | $  8,919 |  | $5,570,992 |  | $          - |  | $  179,693  |       |  | $5,759,604
|Net income                                                 |  |  |  |               |  |          |  |            |  |              |  | 508,454     |       |  | 508,454   
|Common stock issued                                        |  |  |  | 6,197         |  | 62       |  | 40,219     |  |              |  |             |       |  | 40,281    
|Common stock issuance costs paid                           |  |  |  |               |  |          |  | (260)      |  |              |  |             |       |  | (260)     
|Common stock redeemed                                      |  |  |  | (13,015)      |  | (130)    |  | (84,468)   |  |              |  |             |       |  | (84,598)  
|Dividends declared                                         |  |  |  |               |  |          |  |            |  |              |  | (516,938)   |       |  | (516,938) 
|                                                           |  |  |  |               |  |          |  |            |  |              |  |             |       |  |           
|BALANCE, DECEMBER 31, 2006                                 |  |  |  | 885,096       |  | $  8,851 |  | $5,526,483 |  | $          - |  | $  171,209  |       |  | $5,706,543
|                                                           |  |  |  |               |  |          |  |            |  |              |  |             |       |  |           





F-4



---



|                                                                       |             |               |               |               |               |               |               |               |     
|---------------------------------------------------------------------- | ----------- | ------------- | ------------- | ------------- | ------------- | ------------- | ------------- | ------------- | ----
|CORNERSTONE MINISTRIES INVESTMENTS, INC.                               |             |               |               |               |              
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                  |             |               |               |               |              
|For the years ended December 31, 2006 and 2005                         |             |               |               |               |              
|                                                                       |             |               |               |               |               |               |               |               |     
|                                                                       |             |               |               |               |               |               | 2006          |               | 2005
|CASH FLOWS FROM OPERATING ACTIVITIES:                                  |             |               |               |               |              
|Net income                                                             |             |               |               |               |               | $     508,454 |               | $     577,627
|Adjustments to reconcile net income to cash from operations-           |             |               |               |               |              
|Depreciation and amortization                                          |             |               |               |               | 1,271,088     |               | 1,033,860    
|Gain from sale of property and equipment                               |             |               |               | (17,098)      |               | -            
|Loan loss expense                                                      |             |               |               |               |               | 521,000       |               | 100,000      
|Changes in-                                                            |             |               |               |               |               |               |               |              
|Loans in process                                                       |             |               |               |               |               | (69,670)      |               | (353,389)    
|Accrued bond interest, net                                             |             |               |               |               | 159,873       |               | (159,317)    
|Bond holdings principal discount amortization                          |             |               | (7,582)       |               | (2,241)      
|Accrued real estate loan/joint venture interest and deferred loan fees | (4,469,458) |               | (1,371,084)  
|(including ($2,781,272) and ($348,407) from related party loans)       |             |               |              
|Deferred taxes                                                         |             |               |               |               |               | (338,073)     |               | (214,194)    
|Refundable income taxes                                                |             |               |               |               | (61,799)      |               | -            
|Investor and mortgage participation interest payable                   |             |               | 3,509,188     |               | 5,090,277    
|Loan guarantee obligation, net of related receivables                  |             |               | 126,610       |               | 130,000      
|Accounts and other payables                                            |             |               |               |               | (115,612)     |               | 355,690      
|Other assets                                                           |             |               |               |               |               | 20,866        |               | 96,293       
|                                                                       |             |               |               |               |               |               |               |               |     
|NET CASH PROVIDED BY OPERATIONS                                        |             |               | 1,037,787     |               | 5,283,522    
|                                                                       |             |               |               |               |               |               |               |               |     
|CASH FLOWS FROM INVESTING ACTIVITIES:                                  |             |               |               |               |              
|Real estate loans made (including $31,816,483 and                      |             |               | (79,528,509)  |               | (53,699,489) 
|$2,115,438 to related parties)                                         |             |               |               |               |               |               |              
|Real estate loan principal payments received (including                |             | 60,480,585    |               | 36,950,082   
|$34,405,944 and $899,338 from related parties)                         |             |               |               |               |              
|Real estate joint venture investments made                             |             |               |               | (4,542,299)   |               | (6,575,910)  
|Real estate joint venture investment principal payments received       |             | -             |               | 13,892,309   
|Consolidated real estate assets purchased                              |             |               |               | (8,388,978)   |               | -            
|Bonds purchased                                                        |             |               |               |               |               | -             |               | (12,683,580) 
|Bonds redeemed or sold                                                 |             |               |               |               | 11,974,400    |               | 2,543,100    
|Property and equipment purchased                                       |             |               |               | (5,485)       |               | (13,157)     
|Proceeds from sale of property and equipment                           |             |               | 524,508       |               | -            
|Foreclosed real estate additions                                       |             |               |               |               | -             |               | (4,127)      
|                                                                       |             |               |               |               |               |               |               |               |     
|NET CASH USED BY INVESTING ACTIVITIES                                  |             |               | (19,485,778)  |               | (19,590,772) 
|                                                                       |             |               |               |               |               |               |               |               |     
|CASH FLOWS FROM FINANCING ACTIVITIES:                                  |             |               |               |               |              
|Investor certificates sold                                             |             |               |               |               | 10,916,270    |               | 20,100,246   
|Investor certificates redeemed                                         |             |               |               |               | (9,659,491)   |               | (2,767,779)  
|Mortgage participation agreements sold                                 |             |               |               | 1,904,940     |               | 2,375,000    
|Mortgage participation agreements redeemed                             |             |               | (1,775,067)   |               | (7,012,500)  
|Debt issue costs paid (including $20,000 in 2005 to a related party)   | (1,800,600) |               | (1,048,132)  
|Building mortgage principal payments                                   |             |               |               | (173,182)     |               | (24,060)     
|Capital lease principal payments                                       |             |               |               | (1,231)       |               | (6,710)      
|Common stock issued, net of issuance costs                             |             |               | 40,021        |               | 605,242      
|Common stock redeemed                                                  |             |               |               |               | (84,598)      |               | (152,093)    
|Dividends paid                                                         |             |               |               |               |               | (508,552)     |               | (477,430)    
|Loan payable proceeds                                                  |             |               |               |               | 20,000,000    |               | -            
|                                                                       |             |               |               |               |               |               |               |               |     
|NET CASH PROVIDED BY FINANCING ACTIVITIES                              |             |               | 18,858,510    |               | 11,591,784   
|                                                                       |             |               |               |               |               |               |               |               |     
|Net change in cash and cash equivalents                                |             |               |               | 410,519       |               | (2,715,466)  
|Cash and cash equivalents at beginning of period                       |             |               | 12,447,193    |               | 15,162,659   
|                                                                       |             |               |               |               |               |               |               |               |     
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                             |             | $ 12,857,712  |               | $ 12,447,193 
|                                                                       |             |               |               |               |               |               |               |               |     
|Supplemental Information-                                              |             |               |               |               |               |               |              
|Interest paid during the period                                        |             |               |               |               | $   8,795,278 |               | $   6,595,549
|Income taxes paid during the period                                    |             |               |               | $   1,038,000 |               | $     105,000
|Non-cash transactions-                                                 |             |               |               |               |               |               |              
|Investor certificates matured and re-invested                          |             |               | $   3,325,409 |               | $     151,412
|Loan interest financed and included in loan principal (including       |             | $   4,718,333 |               | $     966,250
|$1,413,469 and $63,187 on related party loans)                         |             |               |               |               |              
|                                                                       |             |               |               |               |               |               |               |               |     
|SEE ACCOMPANYING NOTES                                                 |             |               |               |               |               |               |              





F-5



---

CORNERSTONE MINISTRIES INVESTMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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



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



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



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



·

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

·

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

·

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



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

·

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

·

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

·

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

·

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



F-6



---



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



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



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



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



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



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



F-7



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



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



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



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



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



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



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



F-8



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



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



New Accounting Pronouncements:

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



In September 2006, the SEC issued SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, which provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of materiality assessment.  SAB 108 is effective for fiscal years ending after November 15, 2006.  The adoption of SAB 108 is not expected to have an impact on the Companys financial statements.



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



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



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

At December 31, property and equipment is composed of:



|                               |  |      |           |      |   |          
|------------------------------ |  | ---- | --------- | ---- | - | ---------
|                               |  | 2006 |           | 2005
|Office Condominiums            |  | $    | 550,116   |      | $ | 797,554  
|Office Computers, Furnishings, |  |      |           |      |   |          
|Software & Equipment           |  |      | 147,336   |      |   | 129,625  
|Vehicles                       |  |      | 30,351    |      |   | 30,351   
|Capital lease  phone system   |  |      | -0-       |      |   | 17,710   
|Less: Accumulated depreciation |  |      | (218,437) |      |   | (213,105)
|Property and equipment, net    |  | $    | 509,366   |      | $ | 762,135  
|                               |  |      |           |      |   |          
|Depreciation expense           |  | $    | 40,540    |      | $ | 63,242   



F-9



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



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



NOTE 3  COMMITMENTS AND CONTINGENCIES

Leases

During March 2003, the Company entered into a capital lease for a new telephone system at the Companys headquarters.  In March 2006, the Company made its last payment and the asset is now owned by the Company.  The lease was originally recorded at the assets fair value and amortized over three years using the straight-line method.  Interest expense was calculated based on the implied interest rate in the lease.  The lease payment, including principal, interest and sales tax, was $672 per month.  Amortization expense was $984 and $5,903 for the years ended December 31, 2006 and 2005, respectively.  Interest expense was $25 and $821 for the years ended December 31, 2006 and 2005, respectively.  There are no future minimum lease payments as of December 31, 2006.



Loan Commitments

The Company makes loan commitments in connection with certain real estate loans and joint venture investments that include funding for project development, building construction, renovations, lease-up operations, financed interest and other amounts that the borrower may draw upon in accordance with the loan agreement.  For existing loans, the Company has $41,401,000 in approved, unused loan commitments for real estate loans and $273,000 for real estate joint venture investments as of December 31, 2006.  The Company also has one new approved real estate loan commitment totaling $600,000 as of December 31, 2006 which the Company expects to fund in early 2007.



Legal Proceedings

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



NOTE 4  RELATED PARTY TRANSACTIONS

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

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

·

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

·

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



F-10



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For the year ended December 31, the Company paid CCA as follows:



|                      |  |      |           |      |   |          
|--------------------- |  | ---- | --------- | ---- | - | ---------
|                      |  | 2006 |           | 2005
|Management Fees       |  | $    | 1,511,224 |      | $ | 1,445,264
|Loan Origination Fees |  |      | 1,758,325 |      |   | 1,152,164
|                      |  | $    | 3,269,549 |      | $ | 2,597,428





As of December 31, 2006 and 2005, the Company owed CCA $182,634 and $73,365, respectively under the terms of this agreement.



Cornerstone Capital Advisors, Inc.  Office Lease

Effective August 1, 2004, the Company and CCA entered into a lease agreement whereby CCA is leasing the Companys corporate office building and office/computer equipment in Cumming, GA.  The lease payment is $5,000 per month.  The initial lease term ended on August 31, 2005, after which time the lease converted to a month-to-month lease.  The Companys cost basis in the office building and office/computer equipment is approximately $620,000.  The Company received $60,000 from CCA under the terms of this lease during each of the years ending December 31, 2006 and 2005.



Loans made to subsidiaries of Cornerstone Group Holdings, Inc.

During 2005, two loans were made to wholly owned subsidiaries of Cornerstone Group Holdings, Inc (CGH).  At the time that these loans were originated, two of the Companys directors served as directors of CGH.    The two loans were made at similar terms to that of the Companys third-party loans.



During 2006, the Company originated six loans to entities that are majority or wholly owned subsidiaries of CGH.  All of the loans accrue interest at 10% per annum and mature at various dates in 2007 and 2008.  All of the loans were made at similar terms to that of the Companys third-party loans.  A summary of all loans to CGH subsidiaries as of December 31, 2006 is as follows:



|                            |  |           |           |         |                                                             
|--------------------------- |  | --------- | --------- | ------- | ------------------------------------------------------------
|                            |  | Principal |           | Purpose
|Cushman Apartments, LP      |  | $         | 2,010,440 |         | Acquisition/renovation of affordable apartments/condos      
|Meridian Housing, LLC       |  |           | 697,650   |         | Acquisition/development of affordable apartments/housing    
|Lauren Ridge Apartments, LP |  |           | 1,844,089 |         | Acquisition/construction of market rate apartments          
|Preston Ridge, LLC          |  |           | 770,291   |         | Acquisition/construction of affordable single family housing
|Ashton Park Apartments, LP  |  |           | 479,422   |         | Acquisition of land for low income tax credit apartments    
|River Run Apartments, LLC   |  |           | 1,650,772 |         | Acquisition/construction of market rate apartments          
|Cambridge Place, LLC        |  |           | 495,991   |         | Acquisition/construction of affordable single family housing
|Madison Pointe, LLC         |  |           | 399,581   |         | Acquisition/construction of affordable single family housing
|Total                       |  | $         | 8,348,236 |         |                                                             



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





F-11



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Loan to Wellstone Retirement Communities I, LLC

In December 2005, the Companys two largest borrowers sold eight senior housing properties to Wellstone Retirement Communities I, LLC (WRC) which is managed by Cornerstone Capital Advisors, Inc. (CCA), which also serves as the Companys manager.  As a result of this transaction, the Company received $60,677,668 in loan principal and $2,512,500 in bond holdings principal.  The Company immediately supplied subordinated financing of $37,901,607 at 9.5% interest and a two year maturity to WRC to purchase the property.  This loan is included in Real estate loans, net on the accompanying December 31, 2006 Consolidated Balance Sheets.  Approximately $10,151,000 in equity was contributed to WRC by independent accredited investors with the remaining $64,077,000 needed to purchase the properties supplied by third-party first mortgage financing.



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



WRC received additional senior debt financing and equity contributions that allowed them to decrease the Companys loan principal by approximately $25,570,000 during 2006.  The WRC outstanding loan principal balance on December 31, 2006 was $12,331,339.  In January 2007, WRC refinanced its senior debt and was able to pay off the Companys loan with proceeds from the refinance and from additional equity contributions.



Loan to Castleberry Properties, LLC

In March 2006, the Company originated a loan to Castleberry Properties, LLC (Castleberry) for the acquisition of land that will be developed into an office park.  Cornerstone Capital Advisors, Inc. (CCA), the Companys manager, owns 50% of Castleberry.  As of December 31, 2006, the loan principal outstanding is $850,701 and CCA has contributed $172,000 in equity into Castleberry.  The loans maximum commitment is $950,000.



Loans to Wellstone, LLC

In September 2006, two Company officers and two CCA officers each acquired an 18.75% ownership interest in Wellstone LLC, the Companys largest borrower.  All of the loans accrue interest at 10% per annum and mature at various dates during 2007 and 2008.  All of the loans were originated at terms similar to that of the Companys third-party loans.  As of December 31, 2006, principal outstanding on the eight project loans to Wellstone LLC totaled $61,972,530.  Seven of the eight project loans were outstanding prior to September 2006 with one loan, with a principal amount outstanding of $1,205,780, added after Wellstone LLC became a related party.



Loan payable to Wellstone Investment Fund, LLC

In August 2006, the Company borrowed $1,589,000 from Wellstone Investment Fund, LLC (WIF) under a revolving line of credit agreement.  Cornerstone Capital Advisors, Inc, the Companys manager, also manages WIF.  In December 2006, the Company repaid the loan; therefore no principal and interest was due to WIF as of December 31, 2006.  Interest paid to WIF during 2006 equaled $51,680.



NOTE 5 - REAL ESTATE LOANS

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



|                                 |  |      |             |      |   |            
|-------------------------------- |  | ---- | ----------- | ---- | - | -----------
|                                 |  | 2006 |             | 2005
|Family housing development loans |  | $    | 109,597,643 |      | $ | 60,255,260 
|Church mortgage loans            |  |      | 8,727,817   |      |   | 8,971,537  
|Senior housing mortgage loans    |  |      | 13,424,392  |      |   | 38,901,607 
|Total principal                  |  |      | 131,749,852 |      |   | 108,128,404
|Accrued Interest                 |  |      | 958,069     |      |   | 856,363    
|Unearned Loan Fees               |  |      | (3,273,041) |      |   | (2,014,488)
|Allowance for loan losses        |  |      | (1,253,000) |      |   | (732,000)  
|Total Real Estate Loans          |  | $    | 128,181,880 |      | $ | 106,238,279



F-12



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These loans mature as follow: 2007 - $94,195,537; 2008 - $34,940,785; 2009 - $449,253; 2010 - $0; 2011 and beyond - $2,164,277.  Loan maturity may be accelerated in accordance with loan terms, generally upon certain events of default such as non-payment of scheduled payments or bankruptcy.



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



|                                           |  |      |             |      |   |          
|------------------------------------------ |  | ---- | ----------- | ---- | - | ---------
|                                           |  | 2006 |             | 2005
|Current year interest financed             |  | $    | 4,873,928   |      | $ | 1,398,731
|Previous years financed interest received |  |      | (1,428,504) |      |   | (798,079)
|Net financed interest                      |  | $    | 3,445,424   |      | $ | 600,652  



On December 31, 2006, the Company had significant credit risk concentrations in the following states:



Georgia - $ 29,027,720

Texas   -  $ 57,910,944

South Carolina - $29,406,638



Impaired loan disclosures for the years ended December 31:



|                                           |  |      |         |      |   |          
|------------------------------------------ |  | ---- | ------- | ---- | - | ---------
|                                           |  | 2006 |         | 2005
|Number of impaired loans                   |  |      | 1       |      |   | 4        
|Carrying amount                            |  | $    | 295,349 |      | $ | 3,854,226
|Weighted average investment  year-to-date |  | $    | 428,714 |      | $ | 3,746,612
|Impaired loan interest income              |  | $    | 29,288  |      | $ | 357,959  



No allowance for specific impaired loan loss has been recorded because the carrying amount of the impaired loans as of December 31, 2006 and 2005 was less than the present value of their expected future cash flows.



NOTE 6  REAL ESTATE JOINT VENTURE INVESTMENTS

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



|                                           |  |      |            |      |   |           
|------------------------------------------ |  | ---- | ---------- | ---- | - | ----------
|Location                                   |  | 2006 |            | 2005
|St. Petersburg, FL                         |  |      | 7,598,511  |      |   | 5,085,334 
|Lewisville, TX                             |  |      | 545,000    |      |   | 545,000   
|Chattanooga, TN                            |  |      | 6,227,187  |      |   | 5,715,991 
|San Antonio, TX                            |  |      | 4,121,041  |      |   | 2,197,781 
|Edmond, OK                                 |  |      | 1,749,424  |      |   | 881,849   
|Total principal outstanding                |  |      | 20,241,163 |      |   | 14,425,955
|Accrued interest                           |  |      | 219,777    |      |   | 446,971   
|Unearned loan fees                         |  |      | -0-        |      |   | -7,066    
|Allowance for loan losses                  |  |      | -0-        |      |   | -0-       
|Real estate joint venture investments, net |  | $    | 20,460,940 |      | $ | 14,865,860





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



F-13



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



In March 2005, the Company received $257,000 in loan participation income from a borrower as a result of the sale of a senior housing facility in which the Company held a real estate joint venture investment.



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



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



|                                           |  |      |           |      |   |          
|------------------------------------------ |  | ---- | --------- | ---- | - | ---------
|                                           |  | 2006 |           | 2005
|Current year interest financed             |  | $    | 1,296,055 |      | $ | 500,584  
|Previous years financed interest received |  |      | (23,146)  |      |   | (134,986)
|Net financed interest                      |  | $    | 1,272,909 |      | $ | 365,598  



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



One real estate joint venture investment loan was considered impaired as of December 31, 2006 and 2005. The impaired loans carrying amount as of December 31, 2006 and 2005 was $6,328,901 and $6,084,377, respectively.  The loans average carrying amount for 2006 and 2005 was $6,206,639 and $5,784,147, respectively.  A total of $593,378 and $565,438 in interest was earned in 2006 and 2005, respectively from this loan.  The loans collateral is appraised at $7,400,000; therefore, no loan loss allowance has been established.



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

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



In 2005, the Company originated a loan with a for-profit entity that did not have enough equity at risk to absorb all of its estimated expected losses.  The Company is not considered the primary beneficiary since the entitys equity guarantees are estimated to be sufficient to absorb the majority of its estimated expected losses, if they occur.  The loans carrying amount on December 31, 2006 was $709,389.



In September 2006, Senior Housing Services, Inc. (a non-profit entity) and its subsidiaries sold its ownership interests in seven family housing projects to Wellstone LLC, a for-profit entity formed by the projects third-party management group.  As part of the purchase agreement, Wellstone LLC assumed all of the Companys outstanding real estate loans on these projects.  Wellstone LLC is considered a variable interest entity because it does not have enough equity investment at risk to absorb all of its estimated expected losses.  The Company is not considered the primary beneficiary since Wellstone LLCs subordinated financial instruments are expected to be sufficient to absorb the majority of its estimated expected losses, if they occur.  The Companys seven original project loans to Wellstone LLC plus one new project loan originated in November 2006, had a total carrying amount of $59,946,064 as of December 31, 2006.



F-14



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During 2006, the Company originated six loans to borrowers who are considered variable interest entities because they do not have enough equity at risk to absorb all of their estimated expected losses.  Wellstone Retirement Communities I, LLC (WRC) has provided guarantees (for a fee) to these entities which, if needed, will be adequate to absorb the majority of each borrowers estimated expected losses, if they occur; therefore, the Company is not considered the primary beneficiary.  WRC is a related party because Cornerstone Capital Advisors, Inc. manages both entities (see Note 4).  The six loans have a total carrying amount of $5,431,467.  The borrowers are developing real estate for use as market rate apartments, low-income apartments and affordable single family housing.



As of December 31, 2006, the Company has 15 loans with a total carrying amount of $66,086,920 to VIEs in which the Company is not the primary beneficiary.  These loans are classified as Real estate loans, net in the accompanying Consolidated Balance Sheet



Loans to VIEs  Company considered primary beneficiary:



In 2006, the Company originated one loan to an entity in which the Company is considered the primary beneficiary.  The entity is developing real estate for use as a low income apartment facility.  The loans carrying amount as of December 31, 2006 was $5,161,065 and it has been eliminated in consolidation.  Please see Note 9 for additional information on this investment.



NOTE 8  ALLOWANCE FOR LOAN LOSSES

For the year ended December 31, 2006 and 2005, a summary of changes in the allowance for loan losses by loan type is as follows:

|                   |  |        |     |         |        |           |        |             |               |       |             |     |  |   |          
|------------------ |  | ------ | --- | ------- | ------ | --------- | ------ | ----------- | ------------- | ----- | ----------- | --- |  | - | ---------
|                   |  |        |     |         |        |           |        |             |               |       | Real Estate |     |  |  
|                   |  |        |     |         | Family |           | Senior |             | Joint Venture |       |             |    
|                   |  | Church |     | Housing |        | Housing   |        | Investments |               | Total
|Balance  12/31/04 |  | $      | -0- |         | $      | 632,000   |        | $           | -0-           |       | $           | -0- |  | $ | 632,000  
|Loan loss expense  |  |        | -0- |         |        | 100,000   |        |             | -0-           |       |             | -0- |  |   | 100,000  
|Charge-offs        |  |        | -0- |         |        | -0-       |        |             | -0-           |       |             | -0- |  |   | -0-      
|Recoveries         |  |        | -0- |         |        | -0-       |        |             | -0-           |       |             | -0- |  |   | -0-      
|Balance 12/31/05  |  | $      | -0- |         | $      | 732,000   |        | $           | -0-           |       | $           | -0- |  | $ | 732,000  
|Loan loss expense  |  |        | -0- |         |        | 521,000   |        |             | -0-           |       |             | -0- |  |   | 521,000  
|Charge-offs        |  |        | -0- |         |        | -0-       |        |             | -0-           |       |             | -0- |  |   | -0-      
|Recoveries         |  |        | -0- |         |        | -0-       |        |             | -0-           |       |             | -0- |  |   | -0-      
|Balance  12/31/06 |  | $      | -0- |         | $      | 1,253,000 |        | $           | -0-           |       | $           | -0- |  | $ | 1,253,000



Components of allowance for loan losses at December 31:



|                                |  |      |           |      |   |        
|------------------------------- |  | ---- | --------- | ---- | - | -------
|                                |  | 2006 |           | 2005
|Collective loan losses-         |  |      |           |      |   |        
|Historical experience           |  | $    | -0-       |      | $ | -0-    
|Current credit risk assessment  |  |      | 1,253,000 |      |   | 732,000
|Total collective loan losses    |  |      | 1,253,000 |      |   | 732,000
|Specific impaired loan losses   |  |      | -0-       |      |   | -0-    
|Total allowance for loan losses |  | $    | 1,253,000 |      | $ | 732,000



The Company incurred its first loss from a loan in 2006 when the Company sold a foreclosed church property at a loss of $34,000 (see Note 2).  Due to the immaterial amount of recognized losses from loans during the Companys operating history, there is no collective loan loss allowance related to the Companys historical experience.  For the years ended December 31, 2006 and 2005, the charges to loan loss expense were due to an increase in the principal outstanding on Family Housing loans and an increase in the managements assessment of its current risk.



F-15



---



NOTE 9  CONSOLIDATED REAL ESTATE ASSETS AND OBLIGATIONS

Consolidated real estate assets and obligations include the assets and liabilities of majority-owned subsidiaries and variable interest entities (VIE) in which the Company is considered the primary beneficiary.  As of December 31, 2006, one majority-owned subsidiary (Heron Lake, LLC) and one VIE in which the Company is considered the primary beneficiary (Preston Pointe Apartments, LP) have been consolidated.  As of December 31, 2006, the following assets and liabilities are included in the Companys Consolidated Financial Statements:



|                                           |  |            |           |     |   |           |  |   |          
|------------------------------------------ |  | ---------- | --------- | --- | - | --------- |  | - | ---------
|                                           |  | Subsidiary |           | VIE |   | Total    
|Land                                       |  | $          | 2,459,877 |     | $ | 810,110   |  | $ | 3,269,987
|Buildings and improvements                 |  |            | 0         |     |   | 4,456,965 |  |   | 4,456,965
|Construction in Progress                   |  |            | 532,586   |     |   | -0-       |  |   | 532,586  
|Loan issue costs                           |  |            | 270,324   |     |   | 79,697    |  |   | 350,021  
|Other                                      |  |            | 7,500     |     |   | 98,068    |  |   | 105,568  
|Total assets                               |  | $          | 3,270,287 |     | $ | 5,444,840 |  | $ | 8,715,127
|                                           |  |            |           |     |   |           |  |   |          
|Total liabilities                          |  | $          | -0-       |     | $ | 326,149   |  | $ | 326,149  
|                                           |  |            |           |     |   |           |  |   |          
|(Current payables and accrued liabilities) |  |            |           |     |  



The Company acquired its subsidiary in 2006 by purchasing an 89% ownership interest in an entity which is developing real estate for use as market-rate apartments.  Preliminary construction activities began in the fall of 2006 and construction is expected to start in early 2007.  A United States Department of Housing and Urban Development backed loan is expected to be used for construction and permanent financing.  The VIE investment started in 2006.  The consolidated entity completed construction of a low-income apartment facility late in December 2006.  Lease-up efforts have begun and operations began in January 2007.  Until permanent financing and equity is received by the VIE, its operating results will be included in future Consolidated Financial Statements.



NOTE 10 - GOODWILL

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



NOTE 11 - UNAMORTIZED DEBT ISSUE COSTS

Unamortized debt issue costs consist of legal, accounting, and filing costs incurred to register the Companys debt securities, commissions paid or accrued on the sale of debt securities, and loan fees and costs associated with the Companys loan from Bernard National.  These costs are amortized on a straight-line basis over the period the associated securities/loan are outstanding, generally five years for bonds and three years for the Bernard National loan (See Note 17).  At December 31, 2006, unamortized debt issue costs consist of:



|                                                |  |   |            
|----------------------------------------------- |  | - | -----------
|Costs incurred to obtain Bernard National loan  |  | $ | 1,061,889  
|Costs incurred to register debt securities      |  |   | 963,169    
|Commissions paid on the sale of debt securities |  |   | 5,364,094  
|Less: Accumulated Amortization                  |  |   | (4,069,262)
|                                                |  | $ | 3,319,890  



F-16



---

Amortization expense was $1,229,565 and $970,617 for the years ended December 31, 2006 and 2005, respectively.  Estimated amortization expense for the next five years:



2007: $1,298,274

2009: $704,988

2011: $110,443

2008: $999,965

2010: $206,220



NOTE 12 - BOND HOLDINGS



|                                         |  |      |           |      |   |            
|---------------------------------------- |  | ---- | --------- | ---- | - | -----------
|Bond holdings at December 31 consist of- |  | 2006 |           | 2005
|Largo, FL Subordinated Revenue bonds:    |  |      |           |      |   |            
|Matures 10/1/2033                        |  |      | -0-       |      |   | 13,170,000 
|Undivided interest sold to investors     |  |      | -0-       |      |   | (1,195,600)
|Net investment in Largo, FL bonds        |  |      | -0-       |      |   | 11,974,400 
|Local Church Bonds, maturing 2013        |  |      | 1,963,403 |      |   | 1,955,821  
|Cost and fair value of bond holdings     |  |      | 1,963,403 |      |   | 13,930,221 
|Accrued interest receivable              |  |      | 225,677   |      |   | 385,550    
|                                         |  | $    | 2,189,080 |      | $ | 14,315,771 



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



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



The local church bonds are recorded net of $50,597 and $58,179 in unamortized bond discounts as of December 31, 2006 and 2005, respectively.  The face amount of the bonds is $2,014,000.  During the years ended December 31, 2006 and 2005, $7,582 and $2,241 in bond discounts, respectively, were credited to interest income.



Proceeds from the sale or maturity of bonds were $11,974,400 and $2,543,100 for the years ended December 31, 2006 and 2005, respectively. No realized gains or losses were recognized in either period.  The Company uses the specific identification method to determine realized gains and losses.



Tax-free interest income was $75,359 and $347,583 for the years ended December 31, 2006 and 2005, respectively.



NOTE 13 - INCOME TAXES

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



|                         |  |      |           |      |   |          
|------------------------ |  | ---- | --------- | ---- | - | ---------
|                         |  | 2006 |           | 2005
|Deferred tax assets      |  | $    | 625,672   |      | $ | 345,658  
|Deferred tax liabilities |  |      | (143,762) |      |   | (201,821)
|Net deferred tax asset   |  | $    | 481,910   |      | $ | 143,837  



The deferred tax liabilities result from the use of accelerated depreciation methods for property and equipment and from using the installment method for tax accounting.  The deferred tax assets result from tax versus financial reporting differences in accounting for allowance for loan losses and from differences in the amortization of debt issue and start-up costs.  The Company estimates that future taxable income will be sufficient to realize the net deferred tax assets; therefore, no valuation allowance was provided for as of December 31, 2006 and 2005.



F-17



---



Components of the Companys income tax provision for the years ended December 31:



|                     |  |      |           |      |   |          
|-------------------- |  | ---- | --------- | ---- | - | ---------
|                     |  | 2006 |           | 2005
|Current:     Federal |  | $    | 545,193   |      | $ | 328,478  
|State                |  |      | 62,720    |      |   | 49,078   
|Deferred:   Federal  |  |      | (304,656) |      |   | (192,989)
|State                |  |      | (33,417)  |      |   | (21,205) 
|                     |  | $    | 269,840   |      | $ | 163,362  



Reconciliation of the Companys income tax provision rate to the statutory federal rate for the years ended December 31:



|                                        |  |  |        |  |        
|--------------------------------------- |  |  | ------ |  | -------
|                                        |  |  | 2006   |  | 2005   
|Statutory federal rate                  |  |  | 35.0%  |  | 35.0%  
|Effect of graduated federal rates       |  |  | (1.0%) |  | (1.0%) 
|State taxes, net of federal benefit     |  |  | 3.7%   |  | 3.7%   
|Effect of tax-free bond interest income |  |  | (3.3%) |  | (15.9%)
|Other, net                              |  |  | .3%    |  | .3%    
|Effective tax provision (benefit) rate  |  |  | 34.7%  |  | 22.1%  



Current income taxes payable were $0 and $367,038 as of December 31, 2006 and 2005, respectively, and are included in accounts and other payables in the accompanying Consolidated Balance Sheets.



NOTE 14 - CASH CONCENTRATION RISK

A cash concentration risk arises when the Company has more cash in a financial institution than is covered by federal deposit insurance. At December 31, 2006, the Company had cash in excess of insured limits totaling $12,649,135.  The Companys policy is to place its cash investments with high quality financial institutions and has never experienced any loss on holdings in excess of insured limits.



NOTE 15 - INVESTOR BONDS

The Company has three types of bonds outstanding:



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

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

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



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

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



F-18



---



|                   |  |      |             |      |   |            
|------------------ |  | ---- | ----------- | ---- | - | -----------
|Years to Maturity  |  | 2006 |             | 2005
|On demand & 1 year |  | $    | 44,953,590  |      | $ | 23,058,930 
|2                  |  |      | 18,003,015  |      |   | 34,507,886 
|3                  |  |      | 35,471,416  |      |   | 18,019,184 
|4                  |  |      | 17,922,696  |      |   | 35,638,069 
|5+                 |  |      | 14,213,172  |      |   | 18,083,041 
|Total Principal    |  | $    | 130,563,889 |      | $ | 129,307,110



At December 31, 2006 and 2005, accrued interest payable was $17,257,318 and $13,755,788, respectively.  Interest rates for bonds outstanding at December 31, 2006 are:



|                   |  |                     |  |                    
|------------------ |  | ------------------- |  | -------------------
|5.00% - $928,296   |  | 7.25% - $2,521,455  |  | 8.50% - $1,635,287 
|6.75% - $1,650,194 |  | 8.25% - $67,607,284 |  | 9.00% - $56,221,373



On August 27, 2004, the Company filed a Form SB-2 Registration Statement under the Securities Act of 1933 with the Securities and Exchange Commission to sell up to $20,000,000 of its Series F Investor Bonds along with $9,750,000 of its Common Stock.  The Securities and Exchange Commission notified the Company that it would not complete a full review of the registration statement.  The registration statement became effective on November 1, 2004 and the Company started to sell securities registered in this statement in January 2005.  For the year ended December 31, 2005, the Company sold $19,993,924 in bonds and $623,756 in Common Stock (95,962 shares at $6.50 per share).



The Company filed a Form SB-2 Registration Statement with the Securities and Exchange Commission in February 2006 with $60,000,000 in Series G Investor Bonds and $32,500,000 in Common Stock available for issuance.  The terms of the Series G Investor Bonds are similar to the Series E and F bonds.  After a full review by the Securities and Exchange Commission, the registration statement became effective on September 11, 2006 and the Company began to sell securities on September 25, 2006.  For the year ended December 31, 2006, the Company sold $10,916,270 in bonds and $40,281 in Common Stock (6,197 shares at $6.50 per share).



NOTE 16  MORTGAGE PARTICIPATION AGREEMENTS

In 2003, the Company began selling Mortgage Participation (MP) Agreements.  The MP Agreements have not been registered and therefore, are only available to accredited investors.  The agreements are collateralized by specific loans owned by the Company and entitle the investor to a proportionate share of the interest earned on the collateral.  Interest is paid monthly to the MP investor after the Company receives interest payments on related the collateralized loans.  The agreements have no stated maturity date.  Principal payments are made when the Company receives principal payments on the collateralized loans.  Losses that the Company may incur on the collateralized loans are shared pro-rata with the MP Agreement holders.  The Company has the right but not the obligation to redeem the MP Agreements at any time.  The MP Agreement investors do not have the right to sell or repledge their interest in the underlying collateral.  Interest expense related to MP Agreements was $368,439 and $494,709 for the years ended December 31, 2006 and 2005, respectively.  MP Agreement principal and interest outstanding and related collateral as of December 31, 2006:



|                                                  |  |             |           |                  |   |          
|------------------------------------------------- |  | ----------- | --------- | ---------------- | - | ---------
|                                                  |  | MP Amount   |           | Total Collateral
|                                                  |  | Outstanding |           | Carrying Amount 
|Bluffton, SC family housing loan; matures 4/15/07 |  |             |           |                  |   |          
|with no available extensions                      |  | $           | 2,654,873 |                  | $ | 3,290,658
|Accrued interest payable                          |  |             | 28,359    |                  |   |          
|                                                  |  | $           | 2,683,232 |                  |   |          





F-19



---

The loan which collateralizes the MP Agreements is classified as a real estate loan in the accompanying Consolidated Balance Sheets.  The total carrying amount is equal to the loans principal plus accrued interest.



NOTE 17  LOANS PAYABLE

Outstanding at December 31, 2006:

Bernard National Senior Funding, Ltd

Interest rate equal to the greater of 8.5%

or LIBOR + 3.5%  currently 8.826%;

matures August 31, 2009

Principal outstanding

20,000,000

Interest payable

152,399

Total principal & interest outstanding

$20,152,399



Interest expense for the year ended December 31, 2006 was $571,947.



The Bernard National Senior Funding, Ltd. (Bernard National) loan is a $40,000,000 revolving credit facility.  The loan is secured by 19 of the Companys first mortgage real estate loans which had a carrying value of $46,334,675 at December 31, 2006.  Interest-only payments are due monthly.  No principal payments are due until the maturity date unless certain loan to value ratio minimums (as defined in the agreement) are not met.  If these ratio minimums are not met, the Company is required to make a payment which would decrease the loan amount outstanding to an amount which would then allow the Company to meet the loan to value ratio minimums.  As of December 31, 2006 the loan to value ratio minimums have been met.



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



NOTE 18 - GUARANTEES

The Company is guarantor on 10 loans secured by senior housing, low income housing, affordable family housing and church facilities.  Certain real estate joint venture investments and real estate acquisition and development loans in which the borrower chooses to secure outside financing may require the Company to guarantee the loan as a condition of the extension of the loan by the financial institution.  The loan guarantees are solely limited to amounts drawn under credit facilities and cover outstanding principal and accrued interest and terminates upon maturity and principal repayment or at project stabilization (as defined by the agreement).  Only upon an uncured payment default and upon demand by the financial institution would the Company be required to perform under its guarantee obligations.  The Companys recourse would be limited to repossession of the underlying collateral and subsequent resale of the facilities.  As of December 31, 2006, all loans which had a guarantee were current based on their loan terms.  Loan guarantees as of December 31, 2006:

|                    |  |             |  |           |  |   |            |  |   |             |  |   |           
|------------------- |  | ----------- |  | --------- |  | - | ---------- |  | - | ----------- |  | - | ----------
|                    |  | Renewal/    |  |           |  |   |            |  |   | Current     |  |   | Loan      
|                    |  | Origination |  | Maturity  |  |   | Maximum    |  |   | Principal   |  |   | Guarantee 
|Location            |  | Date        |  | Date      |  |   | Guarantee  |  |   | Outstanding |  |   | Obligation
|Charleston, SC      |  | 12/30/2005  |  | 4/1/2008  |  | $ | 11,500,000 |  | $ | 11,500,000  |  | $ | 100,000   
|Beaufort, SC        |  | 12/30/2005  |  | 4/1/2008  |  |   | 8,850,000  |  |   | 8,850,000   |  |   | 150,000   
|Blythewood, SC      |  | 8/25/06     |  | 8/25/2008 |  |   | 250,000    |  |   | 250,000     |  |   | 3,750     
|Seneca, SC          |  | 9/08/06     |  | 9/8/2008  |  |   | 860,000    |  |   | 860,000     |  |   | 12,900    
|Spartanburg, SC     |  | 9/26/2006   |  | 9/26/2008 |  |   | 925,000    |  |   | 925,000     |  |   | 13,875    
|Lexington, SC       |  | 12/29/2006  |  | 12/29/08  |  |   | 18,250,000 |  |   | 1,809,422   |  |   | 91,000    
|Dallas, TX (church) |  | 5/16/2006   |  | 5/16/2009 |  |   | 219,000    |  |   | 219,000     |  |   | 2,153     
|Dallas, TX (church) |  | 6/9/2006    |  | 6/9/2009  |  |   | 331,661    |  |   | 331,661     |  |   | 3,215     
|Dallas, TX (church) |  | 8/24/06     |  | 8/24/2009 |  |   | 371,700    |  |   | 371,700     |  |   | 3,717     
|St. Petersburg, FL  |  | 12/18/2004  |  | 8/15/07   |  |   | 7,347,300  |  |   | 6,769,240   |  |   | 71,000    
|                    |  |             |  |           |  | $ | 48,904,661 |  | $ | 31,886,023  |  | $ | 451,610   





F-20



---

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



NOTE 19 - BUILDING MORTGAGES

|                                                                |  |      |         |      |   |        
|--------------------------------------------------------------- |  | ---- | ------- | ---- | - | -------
|Outstanding at December 31:                                     |  | 2006 |         | 2005
|Fidelity Bank  collateralized by rental office building        |  | $    | -0-     |      | $ | 161,015
|Interest rate varies with a 7.5% maximum,                       |  |      |         |      |   |        
|loan was paid off in February, 2006.                            |  |      |         |      |   |        
|Fidelity Bank  collateralized by corporate office building     |  |      | 405,127 |      |   | 417,294
|Interest rate equal to prime + 1.5%, currently 9.75%; monthly |  |      |         |      |   |        
|principal & interest payment of $4,322; matures Sept. 1, 2009,  |  |      |         |      |   |        
|at which time a balloon payment of $367,628 is due.             |  |      |         |      |   |        
|Total principal outstanding                                     |  | $    | 405,127 |      | $ | 578,309
|                                                                |  |      |         |      |   |        
|Interest expense                                                |  | $    | 41,660  |      | $ | 45,197 



Estimated annual principal payments: 2007 - $12,938; 2008 - $14,257; 2009 - $377,932.



NOTE 20 - SERIES A CONVERTIBLE PREFERRED STOCK

In 2001, the Company amended its Articles of Incorporation to provide for the issuance of up to 235,000 shares of Series A Convertible Preferred Stock.  The shares do not accrue dividends unless such dividends are declared by the Board of Directors.  The shares entitle the preferred shareholder to have one vote per share, presently equal to the voting rights of Common shareholders.  Each share is convertible, after 3 years, into shares of Common Stock based on a formula.  No Series A Convertible Preferred Stock was outstanding on December 31, 2006 and 2005.



NOTE 21 - EARNINGS PER SHARE

Basic earnings per share for the years ended December 31, 2006 and 2005 have been calculated as follows:



|     |  |                                   |  |   |        
|---- |  | --------------------------------- |  | - | -------
|2005 |  | Net Income                        |  | $ | 577,627
|     |  | Average Common Shares Outstanding |  |   | 840,376
|     |  | Earnings per Common Share         |  | $ | 0.69   
|     |  |                                   |  |   |        
|2006 |  | Net Income                        |  | $ | 508,454
|     |  | Average Common Shares Outstanding |  |   | 886,105
|     |  | Earnings per Common Share         |  | $ | 0.57   



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



F-21



---

NOTE 22  MAJOR CUSTOMERS

The Company received more than 10% of its total revenue for the year ended December 31, 2006 from the following customers:



|                                              |  |        |            |   |        |                                 |                                          
|--------------------------------------------- |  | ------ | ---------- | - | ------ | ------------------------------- | -----------------------------------------
|                                              |  | Amount |            | % |        | Description of Revenue Received
|Wellstone, LLC                                |  | $      | 6,259,989  |   | 36.00% |                                 | Interest and fees from real estate loans 
|                                              |  |        |            |   |        |                                 |                                          
|Senior Housing Services, Inc and subsidiaries |  | $      | 3,345,156  |   | 19.20% |                                 | Interest and fees from real estate joint 
|                                              |  |        |            |   |        |                                 | venture investments and real estate loans
|                                              |  |        |            |   |        |                                 |                                          
|Wellstone Retirement Communities I, LLC       |  |        | 3,006,520  |   | 17.30% |                                 | Interest and fees from a real estate loan
|                                              |  | $      | 12,611,665 |   | 72.50% |                                 |                                          



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



In September 2006, SHS sold its 100% ownership interests in seven family housing projects to Wellstone LLC, a company formed by the projects third-party management group.  As part of the purchase agreement, SHS received a preferred minority equity interest in Wellstone LLC.  Wellstone LLC assumed all of the Companys outstanding loans related to the seven projects that they purchased from SHS. To determine total revenues by major customer, the seven projects purchased by Wellstone LLC were considered owned by Wellstone LLC for all of 2006.  Wellstone LLC is considered a related party of the Company  please refer to Note 4 for additional information about this relationship.



Wellstone Retirement Communities I, LLC and the Company are managed by Cornerstone Capital Advisors, Inc.



NOTE 23  FINANCIAL INSTRUMENTS

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



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



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



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



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

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



The estimated fair values of the Companys financial instruments at December 31, 2006 are:



|                           |  |                 |             |            |   |            
|-------------------------- |  | --------------- | ----------- | ---------- | - | -----------
|                           |  | Carrying Amount |             | Fair Value
|Financial assets:          |  |                 |             |            |   |            
|Cash and cash equivalents  |  | $               | 12,857,712  |            | $ | 12,857,712 
|Bond holdings              |  | $               | 2,189,080   |            | $ | 2,189,080  
|Financial liabilities:     |  |                 |             |            |   |            
|Investor bonds             |  | $               | 130,563,889 |            | $ | 130,563,889
|Mortgage participations    |  | $               | 2,654,873   |            | $ | 2,654,873  
|Building mortgages         |  | $               | 405,127     |            | $ | 405,127    
|Loan guarantee obligations |  | $               | 451,610     |            | $ | 451,610    









F-22