The following discussion regarding our financial statements should be read in conjunction with the financial statements and notes thereto included in this Annual Report beginning at page F-1 and our forward-looking statement disclosure at the beginning of Part I to this Annual Report.





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Financial Condition

Our total assets decreased from $37,942,640 at December 31, 2019 to $35,574,723 at December 31, 2020. The primary reason for the decrease in total assets from December 31, 2019 through December 31, 2020 was a decrease in our mortgage loans receivable. Shareholders' equity decreased from $10,347,772 at December 31, 2019 to $10,085,327 at December 31, 2020. This was primarily due to a net loss of ($125,580) and dividends declared and paid totaling $134,176. Our primary liabilities at December 31, 2020 and 2019 were our secured investor certificates, which were $23,916,500 and $26,850,000, respectively. We also had dividends declared as of the end of the period reported on, but which are not paid before the 30th day of the ensuing month. We anticipate that funds from maturing loans and bonds will equal or exceed obligations due on our certificates after 2020. To the extent necessary, we will seek short-term financing or a new working capital facility, including our line of credit with a local bank, to meet any short-term cash requirements.

Comparison of the Fiscal Years ended December 31, 2020 and 2019





The following table shows the results of our operations for fiscal 2020 and
2019:



                                                         For the Year Ended December 31,

Statement of Operations Data                                    2020                   2019

Interest and other income                           $      2,543,507           $  2,808,534
Interest expense                                           1,776,427              1,882,290
Net interest income                                          777,080                926,244
Total provision for losses on mortgage loans
and bonds                                                     64,509                 87,727
Net interest income after provision for
mortgage and bonds losses                                    712,571                838,517
Operating expenses                                           838,430                780,731
Net (loss) income                                   $       (125,859 )         $     57,786
Basic and diluted (loss) income per share           $          (0.08 )         $       0.03




Results of Operations

Since we began active business operations on April 15, 1996, we have paid 99 consecutive quarterly dividend payments to shareholders. These dividend payments have resulted in an average annual return of 5.083% to shareholders who purchased shares at $10 per share in our public offerings of stock. Each loan funded during the quarter generates origination income of which one-half is due and payable to shareholders as taxable income even though origination income is not recognized in its entirety for the period under accounting principles generally accepted in the United States of America ("GAAP"). The other one-half of any origination income generated is due to our Advisor. We anticipate distributing all of our taxable income in the form of dividends to our shareholders in the foreseeable future to maintain our REIT status and to provide income to our shareholders.

Net (loss) for our year ended December 31, 2020 was $(125,859) on total interest and other income of $2,543,507 compared to net income of $57,786 on total interest and other income of $2,808,534 for the year ended December 31, 2019. The decrease in net income was primarily due to the decrease in size of loans outstanding and interest income received from our loan portfolio and an increase in other operating expenses.

Net interest income earned on the Company's portfolio of loans was $777,080 for the year ended December 31, 2020, compared to $926,244 for December 31, 2019. The decrease in net interest income was due to the decrease in loans outstanding in our loan portfolio.

Our operating expenses for our fiscal year ended December 31, 2020 were $838,430 compared to $780,731 for our year ended December 31, 2019. The increase in operating expenses was primarily a result of an increase in our legal fees involving our properties in foreclosure.

Our Board of Directors declared dividends of $.040 for each share of record on April 28, 2020, $.010 for each share of record on July 29, 2020, $.020 for each shares of record on October 30, 2020 and $.010 for each shares of record on January 28, 2021. Based on the quarters ended March 31, 2020, June 30, 2020, September 30, 2020 and December 31, 2020 and assuming a share purchase price of $10.00, the dividends paid represented a 0.80% annual yield in 2020. 100% of the dividends paid to shareholders for the tax year 2020 were non-dividend distributions due to the realized (carry-forward) loss of approximately





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$1,935,000. We expect dividends paid in 2021 to be 100% non-dividend distributions due to the realized (carry-forward) losses totaling approximately $1,620,000 for the period ended December 31, 2021.

We choose to distribute income from ongoing operations in the form of dividends to shareholders. As a Real Estate Investment Trust we are required to distribute up to 90% of our taxable income. The table below reflects taxable income, net income from operations, dividend distributions and the effect of the distributions to shareholders for the periods ended December 31, 2020 and 2019. Any amount distributed to shareholders in excess of income from ongoing operations is deemed to be return of principal which results in a reduction of our shareholder equity.





                                             December 31, 2020     December 31, 2019

Net Taxable Income                          $          18,484     $         152,233

Net Income From Operations (EBITA) $ 125,317 $ 485,011 Total Dividend Distributions

                $         134,176     $         486,562
Principal Distribution                      $           8,859     $           1,551
Number of Shares Outstanding                        1,676,598             1,667,798
Amount of Principal Distributed per Share   $            0.00     $            0.00

Liquidity and Capital Resources

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

Our loan portfolio consists primarily of long-term fixed rate loans. Historically, loans in our portfolio are outstanding for an average of approximately seven and a half years. Our borrowers are typically small independent churches with little or no borrowing history. Once a church establishes a payment history with us, they often look to re-finance their loan with a local bank, credit union or other financial institution that is willing to provide financing since the borrower has established a payment history and has demonstrated they can meet their mortgage debt obligations.

Currently, our bond portfolio comprises 35% of our assets under management. The total principal amount of mortgage- secured debt securities we purchase from churches and other non-profit religious organizations is limited to 40% of our Average Invested Assets. Excluded from this ratio of 40% for the year ended December 31, 2020 are bonds issued of which we hold 100% of the total bonds outstanding. The total principal amount outstanding is approximately $18,299,000 as of December 31, 2020 and was approximately $16,688,000 as of December 31, 2019. We earned approximately $1,011,000 on our bond portfolio in 2020 and approximately $1,054,000 in 2019.

In addition, we are able to borrow funds in an amount up to 300% of shareholder's equity (in the absence of a satisfactory showing that a higher level of borrowing is appropriate; any excess in borrowing over such 300% level must be approved by a majority of the Independent Directors and disclosed to shareholders in the next quarterly report along with justification for such excess) in order to increase our lending capacity.

In September 2017, we filed a registration statement with the Securities and Exchange Commission to offer $10,000,000 worth of Series E secured investor certificates. The offering was declared effective by the SEC on November 6, 2017. We sold 3,738 Series E secured investor certificates for a total of $3,738,000 for as of December 31, 2020. The offering terminated November 6, 2020.

In July 2014, we filed a registration statement with the Securities and Exchange Commission to offer $10,000,000 worth of Series D secured investor certificates. The offering was declared effective by the SEC on August 12, 2014. The offering was renewed with an effective date of September 23, 2016. The certificates were offered in multiples of $1,000 with interest rates ranging from 4.00% to 6.50%, subject to changing market rates, and maturities from 5 and 7 to 15 years. The certificates are collateralized by certain mortgage loans receivable and church bonds of approximately the same value. As of December 31, 2020, approximately 8,029 Series D certificates had been issued and were outstanding for $8,029,000. The offering terminated in August 2017.





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The table below shows the principal amount of loans and bonds to be paid during 2021 and the number of secured investor certificates maturing in 2021. We may need to obtain additional funds from other sources to meet our certificate maturity obligations. One source is the potential sale of bonds in our portfolio. In addition, at December 31, 2020 we held $87,702 in cash and cash equivalents and currently have a $4,000,000 working line of credit with a local bank of which $1,712,000 was available to us for the year ended December 31, 2020. This facility was renewed and expires January 19, 2022.





                                                                Fiscal Year 2021

Contractual maturity schedule mortgage loans                  $          825,073
Contractual maturity schedule bond portfolio                             283,000
Total                                                         $        1,108,073

Contractual maturity schedule secured investor certificates            2,168,000

Holders of our secured investor certificates may renew certificates at the current rates and terms upon maturity at our discretion. Renewals upon maturity are considered neither proceeds from nor issuance of secured investor certificates. Renewals totaled approximately $1,007,250 and $793,000 during 2020 and 2019, respectively. These renewals represent 28% and 38% of the maturing certificates for the period ended December 31, 2020 and 2019, respectively. We believe that renewals we offer to maturing certificate holders will reduce the amount of cash needed to pay maturing certificates in fiscal year 2021.





Loan Loss Reserve Policy

We follow a loan loss reserve policy on our portfolio of loans outstanding. This critical policy requires complex judgments and estimates. We record mortgage loans receivable at their estimated net realizable value, which is the unpaid principal balance less the allowance for mortgage loans. Our loan policy provides an allowance for estimated uncollectible loans based on an evaluation of the current status of the loan portfolio. This policy reserves for principal amounts outstanding on a particular loan if cumulative interruptions occur in the normal payment schedule of a loan. Our policy will reserve for the outstanding principal amount of a loan in our portfolio if the amount is in doubt of being collected. Additionally, no interest income is recognized on impaired loans that are declared to be in default and are in the foreclosure process.

The Company will declare a loan to be in default and will place the loan on non-accrual status when the following thresholds have been met: (i) the borrower has missed three consecutive mortgage payments; (ii) the borrower has not communicated to the Company any legitimate reason for delinquency in its payments to the Company and has not arranged for the re-continuance of payments; (iii) lines of communication to the borrower have broken down such that any reasonable prospect of rehabilitating the loan and return of regular payments is gone.

The Company's policies on payments received and interest accrued on non-accrual loans are as follows: (i) The Company will accept payments on loans that are currently on non-accrual status when a borrower has communicated to us that they intend to meet their mortgage obligations. A payment made on a non-accrual loan is considered a good faith deposit as to the intent to resume their mortgage payment obligation. This good faith deposit is credited back to interest first then principal as stated in the mortgage loan documentation. (ii) A letter outlining the re-payment terms or the restructure terms (if any) of the loan is provided to the borrower. This letter will be signed by the Senior Pastor and all board members of the borrower. This letter resumes the obligation to make payments on non-accrual loans. (iii) The borrower must meet all its payment obligations for the next 120 days without interruption in order to be removed from non-accrual status.

When a loan is declared in default according to the Company's policy or deemed to be doubtful of collection, the loan committee of the Advisor to the Company will direct the staff to charge-off uncollectable receivables.

At December 31, 2020, we reserved $1,493,996 against fourteen mortgage loans, of which nine churches were three or more mortgage payments in arrears and two of the Churches are declared to be in default. At December 31, 2019, we reserved $1,429,487 against fourteen mortgage loans, of which ten churches were three or more mortgage payments in arrears, three were declared to be in default.

The total value of impaired loans, which are loans that are in the foreclosure process or are declared to be in default, was approximately $38,000 and $256,000 at December 31, 2020 and 2019, respectively. We believe that the total amount of non-performing loans is adequately secured by the underlying collateral and the allowance for mortgage loans.





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Of the nine loans which were three or more payments in arrears, the first impaired loan has an outstanding balance of $543,822. This loan has been declared in default. The church is located in Detroit, Michigan and is located in an area suffering from urban blight and high crime. We are continually assessing our options with a local realtor. This church is located in a commercial area. Therefore, the facility can be converted and used other than as a church. We have reserved against the total outstanding amount of this loan since we have determined that there is little to no value left to recover with regards to the collateral of the property.

The second impaired loan has an outstanding balance of $44,965. The church is located in Chicago, Illinois. We have a second mortgage loan. We have been made aware that the church defaulted on its first mortgage loan as well. We will wait to see what the outcome with the first mortgage holder will be.

The third impaired loan has an outstanding balance of $284,960. The church is located in Raleigh, North Carolina. The church has missed six mortgage payments since the loan was re-structured in June 2008, the church has missed one payment in 2020. We are working with the church to bring its payments current.

The fourth impaired loan has an outstanding balance of $294,275. The church is located in Seagoville, Texas. The church has missed seven payments since the loan was funded in August 2006. However, the church did not miss any payments in 2020. We are working with the church to bring its payments current.

The fifth impaired loan has an outstanding balance of $689,060. The church is located in Dallas, Texas. The church has missed five payments since the loan was funded in September 2008. However, the church did not miss any payments in 2020. We are working with the church to bring its payments current. This is a commercial property.

The sixth impaired loan has an outstanding balance of $703,100. The church is located in Richmond Hills, Texas. The church has missed numerous payments since the loan was funded in November 2004. However, the church has been making regular payments which are being applied to the arrearage. We are continually working with the church to bring its payments current.

The seventh impaired loan has an outstanding balance of $220,968. The church is located in Kirbyville, Texas. The church has missed three payments since the loan was funded in June 2003. However, the church did not miss any payments in 2020. We are working with the church to bring its payments current.

The eighth impaired loan has an outstanding balance of $221,683. The church is located in Leslie, Georgia. The Church's loan was restructured in 2018 and the Church has not missed any mortgage payments since the restructure.

The ninth impaired loan has an outstanding balance of $381,130. The church is located in Waterbury, Connecticut. The church has missed five payments since the loan was re-structured in the April 2015. One payment was missed in 2020. We are working with the church to bring its payments current.

We presently expect our allowance for mortgage loans to be adequate to cover all losses incurred and probable. Listed below is our current loan loss reserve policy:





Incident Percentage of Loan Reserved Status of Loan
1.       None                        Loan is current, no interruption in payments
                                     during history of the loan, ("interruption" means
                                     receipt by us more than 30 days after scheduled
                                     payment date).
2.       None                        Loan current, previous interruptions experienced,
                                     but none in the last six month period. Applies to
                                     restructured loans or loans given forbearance.
3.       None                        Loan current, previous interruptions experienced,
                                     but none in the last 90 day period.
4.       1.00%                       Loan serviced regularly, but 2 or 3 payments
                                     cumulative in arrears. Delinquency notice has
                                     been sent.
5.       5.00%                       Loan serviced regularly, but 4 or 5 payments
                                     cumulative in arrears. Repayment plan requested.






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6.      10.00%                  Loan is declared to be in default. Legal counsel
                                engaged to begin foreclosure. Additional accrual
                                of overdue payments and penalties ceased.
7.      The greater of: (i)     Foreclosure proceeding underway. Accrual of all
        accumulated reserve     overdue interest and principal payments including
        during default period   penalties to be expensed. Reserve amount
        equal to principal loan dependent on value of collateral. All expenses
        balance in excess of    related to enforcing loan agreements are
        65% of original         expensed.
        collateral value; or
        (ii) 1% of the
        remaining principal
        balance each quarter
        during which the
        default remains in
        effect.

The Company's Advisor, on an ongoing basis, reviews reserve amounts under the policy stated above and determines the need, if any, to reserve amounts in excess of its current policy. Any additional reserve amounts will be equal to or greater than its current reserve policy. Allowance for mortgage loans are calculated on the remaining principal balance on the date of calculation and recorded on a quarterly basis.

Our borrowers are typically small independent churches with little or no borrowing history. Small independent churches have limited resources to pay missed mortgage payments. We continually monitor these missed payments and determine on a case by case basis if a restructure of the current loan terms will help the church recover from its payment issues or by communication with the church, or lack thereof, if we should foreclose on the property. We did not see a substantial increase in delinquent payments in 2020. However, we can provide no assurance that delinquent loan payments will be paid or a restructure of the loan will result in the borrowing church meeting their payment obligations.

The Novel Coronavirus (COVID-19) has recently affected global markets, supply chains, employees of companies, and the communities of our borrowers. Specific to us, COVID-19 may impact various parts of our 2021 operations and financial results including potential reduced revenue caused by new public health mandates including shelter in place orders, material supply chain interruption, economic hardships effecting our borrowers and effects on our workforce. Management believes we are taking appropriate actions to mitigate the negative impact. However, the full impact of COVID-19 is unknown and cannot be reasonably estimated as the date of this report.

Our loan loss reserve policy requires removal of a borrower from accrual status if the borrowing church misses three payments over a twenty-four month period.







Bond Loss Policy

Other than the temporary impairment, the impairment on bonds is estimated by management and is determined by reviewing: (i) payment history, (ii) our experience with defaulted bond issues, (iii) the issuer's payment history as well as (iv) historical trends.

We currently own $529,000 First Mortgage Bonds and $497,000 Second Mortgage Bonds issued by Agape Assembly Baptist Church located in Orlando, Florida. The total principal amount of First Mortgage Bonds issued by Agape is $7,200,000, and the total principal amount of Second Mortgage Bonds issued is $715,000. Agape defaulted on its payment obligations to bondholders in September 2010. The church subsequently commenced a Chapter 11 bankruptcy reorganization proceeding regarding the property that secures the First Mortgage Bonds in December 2010. In October 2014, the bondholders of Agape agreed to a modification in the terms of their bonds which resulted in the temporary resumption of both principal and interest payments to both the first and second mortgage bond holders. Both the First Mortgage Bonds and Second Mortgage Bonds were modified to a fully amortized fixed rate, quarterly interest payment of 6.25% with a new maturity date of September 2037 for all the issued and outstanding bonds. We, along with all other bondholders, have a superior lien over all other creditors. The Church subsequently defaulted on their modification agreement in 2016 and no interest payments were made to bondholders during the year ended December 31, 2020. However, the trustee made a distribution to bondholders during 2017 of $18.75 per $1,000 bond as a repayment of principal only, effectively reducing the outstanding balance of each $1,000 bond to approximately $826. The trustee again initiated foreclosure action against the Church and prevailed in its pursuit to foreclose on the Church's property on November 1, 2019. However, on the eve of the foreclosure sale, the Church again filed for bankruptcy protection. In October 2020, bondholders were asked by the trustee to accept or reject a plan of reorganization. The trustee is recommending bondholders accept the reorganization plan. We accepted the reorganization plan. Acceptance of the plan by bondholders could





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result in a return of approximately 67% of the original principal investment outstanding. As of December 31, 2020, we have not been updated as to the status of the reorganization plan.

We currently own $900,000 First Mortgage Bonds issued by Soul Reapers Worship Center International located in Raleigh, North Carolina. The total principal amount of First Mortgage Bonds issued by Soul Reapers is $1,920,000. The Church has failed to make payments as required under the terms of the Trust Indenture. As a Bondholder, we expected to receive interest and principal payment(s) on time and according to the terms of the Bonds. We did not receive any quarterly interest payments from the issuer for the year ended December 31, 2020.

We have an aggregate other than temporary impairment of $834,226 and $658,000 for our bond portfolio at December 31, 2020 and 2019, respectively, which effectively reduces the bonds to the fair value amount we believe will be recovered.

Critical Accounting Policies and Estimates

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

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

Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles generally accepted in the United States. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. The most sensitive estimates relate to the realizability of the mortgage loans receivable and the valuation of the bond portfolio and real estate held for sale. It is at least reasonably possible that these estimates could change in the near term and that the effect of the change, if any, may be material to the financial statements.

We estimate the value of real estate we hold pending re-sale based on a number of factors. We look at the current condition of the property as well as current market conditions in determining a fair value, which will determine the listing price of each property. Each property is valued based on its current listing price less any anticipated selling costs, including for example, realtor commissions. Since churches are single use facilities the listing price of the property may be lower than the total amount owed to us. Attorney fees, taxes, utilities along with real estate commission fees will also reduce the amount we collect from the sale of a property we have acquired through foreclosure. The fair value of the real estate held for sale includes estimates of expenses related to the sale of the real estate.

Off Balance Sheet Arrangements

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

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