Notes to Unaudited Financial Statements
June 30, 2022
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial
statements and the notes thereto have been prepared in accordance with generally accepted accounting principals in the United States
of America (“GAAP”). In the opinion of management, the accompanying unaudited interim financial statements contain
all normal recurring adjustments necessary to present fairly the financial positions, results of operations, changes in equity
and cash flows for the periods presented.
The accompanying unaudited financial statements
and related notes should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on March
29, 2022.
On May 27, 2022, American Church Mortgage Company
(“ACMC”) entered into an Asset Agreement dated as of May 27, 2022 (the “Asset Sale Agreement”) with OSK
XII, LLC (“OSK”), a third party not affiliated with ACMC.
Pursuant to the terms of
the Asset Sale Agreement, OSK has agreed to acquire from ACMC substantially all of the assets of ACMC, consisting of ACMC’s
Loans, Bonds and Real Estate Held for Sale (the “Transaction”). As provided in the Asset Sale Agreement, OSK agreed
to pay the purchase price of $26,100,000, plus interest due on ACMC’s Secured Investor Certificates (the “Purchase
Price”), adjusted as follows: (i) less all payments received by ACMC on account of the Loans and the Bonds from March 31,
2022 through the day before the “Closing Date”, (ii) plus the aggregate amount of asset level expenses set forth on
a schedule prepared by ACMC as part of ACMC’s confidential schedules delivered to OSK (the “Schedules”). OSK
delivered $21,976,500, plus interest from April 1, 2022 to the Closing Date, to an account at Herring Bank, which will be used
to redeem ACMC’s Secured Investor Certificates. The Transaction, closed on June 30, 2022. A final settlement totaling approximately
$1,721,000 was received on July 1, 2022.
2. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
Due to the sale transaction discussed above,
the Company performed an impairment analysis of its long lived assets and on its intangible assets and determined that an impairment
of the Company’s fixed assets and intangible assests has occurred which has resulted in additional impairment charges in
the quarter ended June 30, 2022.
These impairment charges contributed to a loss
of approximately $3,733,000 for the second quarter ended June 30, 2022 as a result of the Asset Sale Agreement.
Nature of Business
American Church Mortgage Company, a Minnesota
corporation, was incorporated on May 27, 1994. The Company is engaged primarily in the business of making mortgage loans to churches
and other
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
June 30, 2022
nonprofit religious organizations throughout the United States, on terms established for individual organizations.
Accounting Estimates
Management uses estimates and assumptions in
preparing these financial statements in accordance with GAAP. Those estimates and assumptions affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could
differ from those estimates. The most sensitive estimates relate to the realizability of the mortgage loans receivable, the valuation
of the bond portfolio and the valuation of 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.
Risks and Uncertainties
The United States and world economies continue
to suffer adverse effects from the COVID-19 virus pandemic (“COVID-19”). The impact of the pandemic to the Company
has included and may continue to include disruptions or restrictions on employers and contracted agents’ ability to work,
reduced demand for new loans and increased repurchase risk of loan or bond defaults. The future impact of the COVID-19 pandemic
on the Company cannot be reasonably estimated at this time.
Concentration of Credit Risk
The Company's loans have been granted to churches and other non-profit
religious organizations. The ability of the Company’s debtors to honor their contracts is dependent on member contributions
and the involvement in the church or organization of its senior pastor.
Cash and Cash Equivalents
The Company considers all highly liquid debt
instruments purchased with maturities of three months or less to be cash equivalents.
The Company maintains accounts primarily at
two financial institutions. At times throughout the year, the Company’s cash and equivalents balances may exceed amounts
insured by the Federal Deposit Insurance Corporation. Cash in money market funds is not federally insured. Management believes
these financial institutions have strong credit ratings and that the credit risk related to these deposits is minimal. The Company
has not experienced any losses in such accounts.
Bond Portfolio
Bonds that management has the intent to hold
to maturity are classified as held to maturity and recorded at amortized cost. Amortization of premiums and accretion of discounts
(if any) are recognized in interest income using the interest method over the estimated lives of the securities.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
June 30, 2022
Declines in fair value of bonds that are deemed
to be other than temporary, if applicable, are reflected in earnings as realized losses. In estimating other-than temporary impairment
losses, management considered the length of time and the extent to which fair value has been less than cost, the financial condition
and near-term prospects of the issuer, and the interest and the ability of the Company to retain its investment in the issuer for
a period of time sufficient to allow for any anticipated recovery in fair value. Gains and losses on the sales of securities are
recorded on the trade date and determined using the specific-identification method.
Allowance for Loan Losses on Mortgage
Loans Receivable
The Company records mortgage loans receivable
at estimated net realizable value, which is the unpaid principal balances of the mortgage loans receivable, less the allowance
for loan losses on mortgage loans receivable and less deferred loan origination fees. The Company’s loan policy provides
an allowance for estimated uncollectible loans based on an evaluation of the current status of the loan portfolio with application
of reserve percentages to specific loans based on payment status. This policy reserves for principal amounts outstanding on a specific
loan if cumulative interruptions occur in the normal payment schedule of the loan, therefore, the Company recognizes a provision
for losses and an allowance for the outstanding principal amount of the loan in the Company’s portfolio if the amount is
in doubt of collection. Additionally, no interest income is recognized on impaired loans that are 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: 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. The accrual of interest on a
loan is discontinued when the loan becomes 90 consecutive days delinquent or whenever management believes the borrower will be
unable to make payments as they become due. The interest on these loans is subsequently accounted for on the cash basis or using
the cost-recovery method until qualifying for return to accrual. Loans are returned to accrual status when all the principal and
interest amounts contractually due are brought current or restructured and future payments are reasonably assured. No interest
income was recognized on non-accrual loans at June 30, 2022 and December 31, 2021.
The Company has an Advisory Agreement with
Church Loan Advisors, Inc. (the “Advisor”). 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 will direct the staff to charge-off the uncollectable
receivables.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
June 30, 2022
Income Taxes
The Company elected to be taxed as a Real Estate
Investment Trust (REIT). Accordingly, the Company is not subject to Federal income tax to the extent of distributions to its shareholders
if the Company meets all the requirements under the REIT provisions of the Internal Revenue Code.
The Company evaluated its recognition of income
tax benefits using a two-step approach to recognizing and measuring tax benefits when realization of the benefits is uncertain.
The first step is to determine whether the benefit meets the more-likely-than-not condition for recognition and the second step
is to determine the amount to be recognized based on the cumulative probability that exceeds 50%. Primarily due to the Company’s
tax status as a REIT, the Company does not have any significant tax uncertainties that would require recognition or disclosure.
Subsequent Events
The Company has evaluated events and transactions
through August 15, 2022, the date the financial statements were available to be issued.
3. FAIR VALUE MEASUREMENT
Some assets and liabilities are measured at
fair value on a recurring basis under GAAP. The Company has no such assets or liabilities that are measured at fair value on a
recurring basis. Other assets and liabilities may be measured at fair value on a nonrecurring basis. Below is a description of
the valuation methodology and significant inputs used for each asset and liability measured at fair value on a nonrecurring basis,
as well as the classification of the asset or liability within the fair value hierarchy.
Bonds held to maturity
Securities held to maturity are not measured
at fair value on a recurring basis. However, securities deemed other-than-temporarily impaired are measured at fair value. The
fair value measurement of such securities is based on various assumptions market participants would use to value the securities,
such as current interest rates, estimated credit and liquidity spreads, conditional default and loss severity rates, and available
credit support. Since some of these assumptions are unobservable in the current market environment, the fair value measurement
of other-than-temporarily impaired securities held to maturity is considered a Level 3 measurement.
Loans
Loans are not measured at fair value on a recurring
basis. However, loans considered to be impaired may be measured at fair value on a nonrecurring basis. The fair value measurement
of an impaired loan that is collateral dependent is based on the fair value of the underlying collateral. Independent appraisals
are obtained that utilize one or more valuation methodologies - typically they will incorporate a comparable sales approach and
an income approach. Management routinely evaluates the fair value measurements
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
June 30, 2022
of independent appraisers and adjusts those valuations
based on differences noted between actual selling prices of collateral and the most recent appraised value. Such adjustments are
usually significant, which results in a Level 3 classification. All other impaired loan measurements are based on the present value
of expected future cash flows discounted at the applicable effective interest rate.
Real estate held for sale
Real estate and other property acquired through
or in lieu of loan foreclosure are not measured at fair value on a recurring basis. However, foreclosed assets are initially measured
at fair value (less estimated costs to sell) when they are acquired and may also be measured at fair value (less estimated costs
to sell) if they become subsequently impaired. The fair value measurement for each asset may be obtained from an independent appraiser
or prepared internally. Fair value measurements obtained from independent appraisers generally utilize a market approach based
on sales of comparable assets and/or an income approach. Such measurements are usually considered Level 2 measurements. However,
management routinely evaluates fair value measurements of independent appraisers by comparing actual selling prices to the most
recent appraisals. If management determines significant adjustments should be made to the independent appraisals based on these
evaluations, these measurements are considered Level 3 measurements. Fair value measurements prepared internally are based on management's
comparisons to sales of comparable assets, but include significant unobservable data and are therefore considered Level 3 measurements.
Information regarding the fair value of Assets and liabilities
Measured at Fair Value on a nonrecurring basis as of June 30, 2022 and December 31, 2021 follows:
Nonrecurring Fair Value at June 30, 2022 |
Assets: | |
| Quoted
Prices in Active Markets for Identical Instruments
Level 1 | | |
| Significant Other Observable Inputs Level 2 | | |
| Significant Unobservable Inputs Level 3 | | |
| Total | |
Bond portfolio | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Impaired loans | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Real estate held for sale | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
| |
| | | |
| | | |
| | | |
| | |
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
June 30, 2022
Nonrecurring Fair Value at December 31, 2021 |
Assets: | |
Quoted Prices in Active Markets for Identical Instruments Level 1 | |
Significant Other Observable Inputs Level 2 | |
Significant Unobservable Inputs Level 3 | |
Total |
Bond portfolio | |
$ | — | | |
$ | — | | |
$ | 7,142,094 | | |
$ | 7,142,094 | |
Impaired loans | |
$ | — | | |
$ | — | | |
$ | 4,496,970 | | |
$ | 4,496,970 | |
Real estate held for sale | |
$ | — | | |
$ | — | | |
$ | 328,996 | | |
$ | 328,996 | |
| |
| | | |
| | | |
| | | |
| | |
As of June 30, 2022, the Company sold all assets
to OSK, XII, LLC and therefore no longer own any of the bonds held to maturity. The Company recognized a final impairment of $1,755,504
on its bond portfolio. As of December 31, 2021, bonds held to maturity with a carrying value of $8,897,598 were written down to
their fair value of $7,142,094 by recognizing an other than temporary impairment of $1,755,094.
As of June 30, 2022, the Company sold all assets
to OSK, XII, LLC and therefore no longer own any of the loans in its portfolio. The Company recognized a final impairment of $1,486,434
its our loan portfolio. As of December 31, 2021, loans with a carrying amount of $5,983,404 were considered impaired and were written
down to their estimated fair value of $4,496,970 by recognizing a specific valuation allowance of $1,486,434.
As of June 30, 2022, the Company sold all assets
to OSK, XII, LLC and therefore no longer own any Real Estate Held for Sale. The Company recognized a final impairment of approximately
$328,996 on its Real Estate Held for Sale. Real estate held for sale is recognized at fair value, less costs to sell. Impairment
charges of $0 were recognized in earnings for the period ended December 31, 2021.
The following presents quantitative information about nonrecurring
Level 3 Fair Value Measurements as of June 30, 2022 and December 31, 2021:
|
Fair Value |
Valuation Technique |
Significant Unobservable Inputs(s) |
Range/Weighted |
|
|
|
|
|
June 30, 2022 |
|
|
|
|
Bond Portfolio |
$ - |
Market or Income Approach |
Discount to Appraised Values |
10-50% |
Impaired Loans |
$ - |
Market or Income Approach |
Discount to Appraised Values |
10-100% |
Real Estate Held for Sale |
$ - |
Market or Income Approach |
Discount to Appraised Values |
10-20% |
|
|
|
|
|
December 31, 2021 |
|
|
|
|
Bond Portfolio |
$7,142,094 |
Market or Income Approach |
Discount to Appraised Values |
10-20% |
Impaired Loans |
$4,496,970 |
Market or Income Approach |
Discount to Appraised Values |
10-100% |
Real Estate Held for Sale |
$328,996 |
Market or Income Approach |
Discount to Appraised Values |
10-20% |
The
estimated Carrying Values of the Company’s Financial Instruments are as follows:
| |
Level 1 | |
Level 2 | |
Level 3 | |
Carrying Value at June 30, 2022 |
Cash and equivalents | |
$ | 3,187,804 | | |
$ | — | | |
$ | — | | |
$ | 3,187,804 | |
Accounts receivable | |
| 1,720,989 | | |
| — | | |
| — | | |
| 1,720,989 | |
Interest receivable | |
| — | | |
| — | | |
| — | | |
| — | |
Mortgage loans receivable | |
| — | | |
| — | | |
| — | | |
| — | |
Bond portfolio | |
| — | | |
| — | | |
| — | | |
| — | |
Line of credit | |
| — | | |
| — | | |
| — | | |
| — | |
Secured investor certificates | |
| — | | |
| — | | |
| — | | |
| — | |
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
June 30, 2022
| |
Level 1 | |
Level 2 | |
Level 3 | |
Carrying Value at December 31, 2021 |
Cash and equivalents | |
$ | 114,798 | | |
$ | — | | |
$ | — | | |
$ | 114,798 | |
Accounts receivable | |
| 79,887 | | |
| — | | |
| — | | |
| 79,887 | |
Interest receivable | |
| 89,280 | | |
| — | | |
| — | | |
| 89,280 | |
Mortgage loans receivable | |
| — | | |
| — | | |
| 13,744,525 | | |
| 13,744,525 | |
Bond portfolio | |
| — | | |
| — | | |
| 16,337,978 | | |
| 16,337,978 | |
Line of credit | |
| 300,000 | | |
| — | | |
| — | | |
| 300,000 | |
Secured investor certificates | |
| — | | |
| 22,278,500 | | |
| — | | |
| 22,278,500 | |
Limitations
The fair value of a financial instrument is
the current amount that would be exchanged between market participants, other than in a forced liquidation. Fair value is best
determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various
financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present
value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of
the instrument. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value
of the Company.
Fair value estimates are made at a specific
point in time based on relevant market information and information about the financial instrument. These estimates do not reflect
any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular instrument.
Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments,
and other factors. These estimates are subjective in nature and involve uncertainties and matters that could affect the estimates.
Fair value estimates are based on existing balance-sheet financial instruments without attempting to estimate the value of anticipated
future business.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
June 30, 2022
4. MORTGAGE LOANS RECEIVABLE
As of June 30, 2022, the Company sold all assets
to OSK, XII, LLC and therefore no longer own any of the loans in its portfolio. The Company recognized a final impairment of
$1,486,434 on its loan portfolio. At December 31, 2021, the Company had mortgage loans receivable totaling $15,383,676. The loans
bear interest ranging from 0% to 10.25% with a weighted average of approximately 7.45% at December 31, 2021.
At June 30, 2022, the Company closed-out its
loan loss reserve totaling $1,486,434 since all assets were sold to OSK, XII, LLC. At June 30, 2021, the Company reserved $1,515,038
for fourteen mortgage loans. Nine of these loans are three or more mortgage payments in arrears of which two are declared to be
in default. The total principal amount of these fourteen loans totaled approximately $6,449 ,000
at June 30, 2021
A summary of transactions in the Allowance
for Mortgage Loans for six months ended June 30, 2022 and 2021 is as follows:
Six Months Ended |
|
Balance at December 31, 2021 |
$ 1,486,434 |
Charge-offs |
(1,486,434) |
Balance at June 30, 2022 |
$ 0 |
Six Months Ended |
|
Balance at December 31, 2020 |
$ 1,493,996 |
Provisions for loan losses |
21,042 |
Balance at June 30, 2021 |
$ 1,515,038 |
One loan was in the foreclosure process, had
a principal balance of $543,822 and were considered impaired and written down to their estimated fair value of $0 as of June 30,
2022. As a result, the Company recognized a specific valuation allowance against these impaired loans totaling $543,822 as of June
30, 2022.
Loans that are in the foreclosure process or are
declared to be in default, had a principal balance of $921,583
and were considered impaired and written down to their estimated fair value of $173,900
as of December 31, 2021. As a result, the Company recognized a specific valuation allowance against these impaired loans totaling
$747,683 as of December 31, 2021.
The outbreak of COVID-19 has affected churches
due to shelter-in-place directives which ceased or greatly curtailed social gatherings such as church worship services. The Company’s
borrowers have experienced financial duress during the COVID-19 shelter in place restrictions, amplified by the
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
June 30, 2022
financial setbacks for many of the church
members who have lost their jobs, been furloughed, or had their incomes diminished. The Company provided some temporary relief by
allowing its borrowers to either make interest only payments for a period of ninety days or forgo one monthly mortgage payment
(forbearance). In 2020, the Company provided nine churches totaling approximately $2,552,000,
in principal outstanding, ninety days interest only payments and five churches totaling approximately $2,119,000,
in principal outstanding, one-month forbearance of their mortgage payments. As of June 30, 2022, all churches, except one,
have returned to full monthly amortization payments. The one church totaling approximately $217,000
in principal outstanding, has remained on interest only payments. This relief will impact the Company’s revenue and the
Company will experience declines in payments due from borrowers which will impact operating income and may potentially impact future
distributions and the ability to make payments due on the Company’s certificates and dividends to its shareholders. The future
impact of COVID-19 on the Company’s investments or operations cannot be reasonably estimated at this time.
The Company did not restructure any loans during
the six month period ended June 30, 2022. A summary of Loans Re-structured or Modified as of June 30, 2022 and December 31, 2021
are shown below. All of the loans, except one, are currently performing under the terms of the modifications for their mortgage
obligations.
|
December 31, 2021 |
|
|
|
|
|
|
Type of Loan |
Number of Loans |
Original Principal Balance |
Original Average Interest Rate |
Unpaid Principal Balance |
Modified Average Interest Rate |
Mortgage Loans |
6 |
$4,196,544 |
8.101% |
$3,415,692 |
6.431% |
|
|
|
|
|
|
5. BOND PORTFOLIO
The Company had a portfolio of secured church
bonds at December 31, 2021, which were carried at amortized cost. The bonds paid either semi-annual or quarterly interest ranging
from 3.50% to 9.75%. The aggregate par value of secured church bonds equaled $18,093,483 at December 31, 2021 with a weighted average
interest rate of 6.77%. These bonds were due at various maturity dates through February 2047. The Company had recorded an aggregate
other than temporary impairment of $1,755,504 as of December 31, 2021. The Company had maturities and redemptions of bonds of approximately
$842,000 at December 31, 2021.
Total other than temporary impairment related
to the bond portfolio was $1,755,504 at December 31, 2021. The fair value of these securities was $7,142,094 at December 31, 2021.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
June 30, 2022
Below is a roll-forward of the amount of Other
than Temporary Impairment Related to Credit Loss that has been recognized in earnings during the periods ended June 30, 2022 and
December 31, 2021:
| |
June 30, 2022 | |
December 31, 2021 |
| |
| |
|
Beginning Balance | |
$ | 1,755,504 | | |
$ | 834,226 | |
Credit loss realized from redemption of securities | |
| (1,755,504 | ) | |
| (18,743 | ) |
Additions to other than temporary impairment | |
| — | | |
| 940,021 | |
Ending Balance | |
$ | — | | |
$ | 1,755,504 | |
6. SECURED INVESTOR CERTIFICATES
Pursuant
to the terms of the Asset Sale Agreement, OSK delivered $21,976,500, plus interest from April 1, 2022 to the Closing Date, to
an account at Herring Bank, which will be used to redeem ACMC’s Secured Investor Certificates. The Transaction, closed on
June 30, 2022.
Secured investor certificates are collateralized
by certain mortgage loans receivable or secured church bonds of approximately the same value as the certificates. The weighted
average interest rate on the certificates was 6.12% at December 31, 2021. Holders of the secured investor certificates may renew
certificates at the current rates and terms upon maturity at the Company’s discretion. Renewals upon maturity are considered
neither proceeds from nor issuance of secured investor certificates. Renewals totaled approximately $530,000 at December 31, 2021.
The secured investor certificates have certain financial and non-financial covenants identified in the respective series’
trust indentures.
7. TRANSACTIONS WITH AFFILIATES
The Company has an Advisory Agreement with
Church Loan Advisors, Inc. (the “Advisor”). The Advisor is responsible for the day-to-day operations of the Company
and provides office space and administrative services. The Advisor and the Company are related through common management. For its
services, the Advisor is entitled to receive a management fee equal to 1.25% annually of the Company's Average Invested Assets,
plus one-half of any origination fee charged to borrowers on mortgage loans made by the Company. A majority of the independent
board members approve the Advisory Agreement on an annual basis. The Company paid the Advisor management and origination fees of
approximately $123,000 and $268,000 for the periods ended June 30, 2022 and December 31, 2021, respectively. In addition, the Company
paid to the Advisor rent totaling $15,000 for the period ended June 30, 2022. The rent is on a month-to month basis.
8. LINE OF CREDIT
On April 9, 2018, the Company entered into
a Loan and Security Agreement (the “Loan Agreement”) with Alerus Financial, N.A., as lender (the “Lender”),
and a Revolving Note (the “Note”) evidencing a $4,000,000 revolving loan, later amended to $3,000,000 (the “Revolving
Loan”). The Lender agrees to
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
June 30, 2022
make loans to the Company from time to time and after the date of the loan agreement and the
Company may repay and re-borrow pursuant to the terms and conditions of the Revolving Loan as long as no borrowing causes that
dollar limit to be exceeded and the Company is not otherwise in default on the Revolving Loan. The Revolving Loan is secured by
a first priority security interest in substantially all of the Company’s assets other than collateral pledged to secure the
Company’s secured investor certificates, both those currently issued and any potentially issued in the future. The Company
borrowed against the line of credit and has an outstanding balance of $0 and $300,000 as of June 30, 2022 and December 31, 2021
respectively. The interest rate on the Revolving Loan is the prevailing Wall Street Journal U.S. Prime Rate (the Index) plus 1.00%.
On January 19, 2022, the Revolving Loan was extended through April 19, 2022. The Company did not renew the line of credit on April
19, 2022.