Eastern Light Capital 10K 2010 Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-12941

EASTERN LIGHT CAPITAL, INCORPORATED

(Exact Name of Registrant as Specified in Its Charter)

Delaware		94-3240473
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
100 Pine Street, Suite 560, San Francisco, California		94111
(Address of principal executive office)		(zip code)
	(415) 693-9500
(Registrant’s Telephone Number, including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class		Name of each exchange on which registered
Common Stock $0.01 par value		American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)

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

Yes o No x

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

Yes o No x

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.

Large accelerated filer: o	Accelerated filer: o
Non-accelerated filer: o	Smaller reporting company: x

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for the 2010 Annual Meeting of Shareholders to be held on June 1, 2011 are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

PART I		3
FORWARD LOOKING STATEMENTS		3
ITEM 1. BUSINESS		3
	General	3
MORTGAGE INVESTMENT BUSINESS		3
	General	3
	Mortgage Loan Portfolio	3
	Financing	4
MORTGAGE BANKING BUSINESS		4
	General	4
HEDGING		4
SERVICING		5
	Servicing Portfolio	5
	Geographical Distribution	5
	Interest	5
	Maturity	5
	Delinquencies	6
REGULATION		6
STRATEGY AND COMPETITION		6
EMPLOYEES		7
ITEM 1A. RISK FACTORS		7
ITEM 2. PROPERTIES		7
ITEM 3. LEGAL PROCEEDINGS		7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		7
PART II		8
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		8
ITEM 6. SELECTED FINANCIAL DATA		9
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		10
OVERVIEW		10
RECENT ACCOUNTING PRONOUNCEMENTS		10
CRITICAL ACCOUNTING POLICIES		10
	Operating Strategy	12
	Loan Origination	12
	Asset Management	12
	Contingencies and Commitments	12
RESULTS OF OPERATIONS		13
YEAR ENDED DECEMBER 31, 2010 COMPARED TO YEAR ENDED DECEMBER 31, 2009		13
LIQUIDITY AND CAPITAL RESOURCES		13



LIQIDITY AND CAPITAL RESOURCES FOR THE YEAR ENDED DECEMBER 31, 2010		13
LIQIDITY AND CAPITAL RESOURCES FOR THE YEAR ENDED DECEMBER 31, 2009		14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		14
	Market Risk	14
	Asset and liability Management	15
ITEM 8. FINANCIAL STATEMENTS		15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		15
ITEM 9A(T). CONTROLS AND PROCEDURES		15
	Evaluation of Disclosure Controls and Procedures	15
	Management's Report on Internal Control Over Financial Reporting	15
	Changes in Internal Control Over Financial Reporting	17
ITEM 9B. OTHER INFORMATION		16

PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		16
DIRECTORS
AUDIT COMMITTEE - FINANCIAL EXPERTS		16
EXECUTIVE OFFICERS		16
ITEM 11. EXECUTIVE COMPENSATION		16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		16
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE		17
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES		17
PART IV.		17
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		17
	(a) Financial Statements	17
	(b) Financial Statement Schedules	17
	(c) Exhibits	17
	(d) Reports on Form 8-K	18
	(e) Miscellaneous Exhibits	18
SIGNATURES		19

PART I

FORWARD LOOKING STATEMENTS

Certain statements made in this Annual Report on Form 10-K are "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Eastern Light Capital, Incorporated (the "Company") to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company's plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Annual Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.

ITEM 1. BUSINESS

General

References to the “Company” refer to Eastern Light Capital, Incorporated (the “Trust”) – a Real Estate Investment Trust (“REIT”) – and WrenCap Funding Corporation (“WCFC”), collectively. The Trust was incorporated in Delaware on December 12, 1995. On July 2, 2008, the Trust – formerly known as Capital Alliance Income Trust, Ltd – was renamed Eastern Light Capital, Incorporated.

On April 15, 1997, the Trust formed a taxable REIT subsidiary, Capital Alliance Funding Corporation (“CAFC”). On April 20, 2007, the subsidiary was renamed to WrenCap Funding Corporation. Both the Trust and WCFC are incorporated in Delaware. The Trust owns all of WCFC’s common and preferred shares and the Trust and WCFC are consolidated in the Company’s financial statements. Prior to December 29, 2006, the Company was externally advised by Capital Alliance Advisors, Inc. (the “Former Manager”, “CAAI”). On December 29, 2006, the Former Manager was terminated and the Company became self-administered and self-advised.

The Trust is a specialty mortgage finance company organized as a Real Estate Investment Trust (“REIT”). Historically the Trust has emphasized the Mortgage Investments Business and CAFC has emphasized the Mortgage Banking Business. On March 31, 2006, CAFC suspended the origination of new investment mortgages for the Trust and the origination of new mortgages for subsequent sale into the secondary mortgage market. By year end 2006, CAFC’s unsold mortgages originated for secondary market sale were sold to the Trust. As of December 31, 2010, the Trust’s investments are primarily high loan-to-value, collateral-oriented, non-conforming residential mortgage loans with limited secondary market appeal.

MORTGAGE INVESTMENT BUSINESS

General

The Trust’s Mortgage Investment Business, principally acquired non-conforming residential mortgage loans, which at the time of investment had a maximum 75% combined loan-to-value ratio. Both first and second mortgage loans were acquired. Income is primarily earned from mortgage interest and mortgage fees. These investments are financed with stockholders’ equity and institutional borrowings.

Mortgage Loan Portfolio

As a matter of investment policy, all loans originated or purchased for the Trust’s portfolio had a combined loan-to-value, at the time of acquisition, of not more than 75% of the collateral’s value. Mortgage loans that defer part of the interest payment (negative amortization) are not acquired if the maximum deferred payment balance, when added to the original mortgage balance, exceeds 75% of the collateral’s value at the time of origination. The collateral’s value is verified by independent appraisal.

As of December 31, 2010, the Mortgage Investment Business loan portfolio totaled $1,046,284 with an average loan size of $130,786, an average weighted yield of 8.04%, a weighted average adjusted maturity of 23 months and a weighted average combined loan-to-value ratio of 65% (based upon the collateral’s appraisal value at funding). First deeds of trust comprised 81% of the portfolio’s dollar value and second deeds of trust comprised 19%. As of December 31, 2009, the Mortgage Investment Business loan portfolio totaled $2,690,737 with an average loan size of $206,980, an average weighted yield of 8.98%, a weighted average adjusted maturity of 31 months and a weighted average combined loan-to-value ratio of 71% (based upon the collateral’s appraisal value at funding). First deeds of trust comprised 61% of the portfolio’s dollar value and second deeds of trust comprised 39%. The mortgage loans are concentrated in California.

Financing

The Mortgage Investment Business is currently financed by the stockholders’ equity. The Bylaws restrict the encumbrance of the Company’s assets to four (4) times its total stockholders’ equity after excluding financing obtained by WCFC. Lines of credit consistent with the financing objectives described herein may be sought.

MORTGAGE BANKING BUSINESS

General

The Mortgage Banking Business consisted of the origination and the purchase and sale of conforming and non-conforming mortgage loans secured by first liens and second liens on single (one-to-four) family residential properties. The Mortgage Banking Business provided a conduit between the originators of such mortgage loans and permanent investors in such loans. On March 31, 2006, the Company’s Board of Directors suspended its Mortgage Banking Business. Until December 29, 2006, CAAI contracted with CAFC to provide management, mortgage origination, loan processing, underwriting, and secondary sales services.

CAFC purchased or originated each loan from mortgage bankers, mortgage brokers or existing borrower relationships. The Mortgage Banking Business assumed the potential risk of delinquency and/or credit losses as well as interest rate risk in the event of a delay in the sale of such loans. Such on-going risks, upon the sale of a loan will pass to the purchaser without recourse to CAFC. CAFC’s origination risk was minimized by the relatively short period that such loans were held prior to sale. Loans not purchased by for the Mortgage Investment Business were sold in the secondary market through whole loan sales or to an affiliate of the Former Manager.

The Mortgage Banking Business acquired all of the servicing rights on loans it originated or purchased and such servicing rights were relinquished when loans were sold into the secondary market. The Mortgage Banking Business generally had no on-going risk of loss after a whole loan sale other than liability with respect to normal warranties and representations given in such sales, fraud in the origination process or early default on such mortgage loan.

Currently, residential mortgage banking activity is depressed by both historical and mid-2000 standards. Despite a generally favorable interest rate environment, the nationwide decline in home prices has reduced the pool of potential refinancings and the depressed level of home sales activity has limited the demand for purchase financings.

Although the Company has suspended its mortgage banking operations, the licenses to originate residential, multi-family and commercial mortgage loans in California remains active.

HEDGING

Most of the Trust’s mortgage investments have relatively short maturities. Therefore, the Trust has not implemented hedging strategies to protect against interest rate risks. However, hedging strategies and transactions may in the future be implemented by the Company based on various factors, including market condition, the expected volume of mortgage loan originations and purchases for investment and the mortgage volume and period of time required to accumulate and to sell mortgage loans.

Hedging is complex and no hedging strategy or combination of hedging strategies can completely insulate the Company from interest rate risks. In addition, hedging involves transaction and other costs, and such costs could increase as the period covered by the hedging protection increases or in a period of rising and fluctuating interest rates. Therefore, the Company may incur significant costs, remain ineffectively hedged from interest rate risks, and obtain reduced return on equity than otherwise achievable without hedging.

SERVICING

The Company’s mortgage loans include mortgage servicing rights. Any mortgage loan sold by the Company is sold with the loan’s mortgage servicing rights released. The Company does not separately acquire or maintain servicing rights. Loan servicing includes collecting and remitting loan payments, making required advances, accounting for principal and interest, holding escrow or impound funds for payment of improvement holdbacks, interest, taxes and insurance, if applicable, making required inspections of the mortgaged property, contacting delinquent borrowers and supervising foreclosures and property dispositions in the event of unremedied defaults. The Company services its own loans.

Servicing Portfolio

The following tables set forth certain information regarding the Trust’s Mortgage Investment Business servicing portfolio of loans for the years ended December 31.

	2010		2009
Beginning servicing portfolio	$	2,690,737	$	5,460,948
Loans added to the servicing portfolio		---		---
Loans sold, servicing released and principal paydowns (1)		1,644,453		2,770,211
Ending servicing portfolio	$	1,046,284	$	2,690,737
Number of loans serviced		8		13
Average loan size	$	130,786	$	206,980

(1) Includes normal loan payoffs, prepayments, principal amortization and foreclosures.

Geographical Distribution

The following table sets forth the geographic distribution of the Trust’s Mortgage Investment Business servicing portfolio for the years ended December 31.

	2010				2009
State	Number of loans		$-% of Portfolio		Number of loans		$-% of Portfolio
CA		7		88%		11		86%
Other		1		12%		2		14%
Totals:		8		100%		13		100%

Interest

The weighted average interest for the Trust’s Mortgage Investment Business portfolio of loans at December 31, 2010 was 8.04% and at December 31, 2009 was 8.98%.

Maturity

The weighted average adjusted maturity of the Trust’s Mortgage Investment Business portfolio of loans at December 31, 2010 was 23 months and at December 31, 2009 was 31 months. The following table shows the Trust’s maximum scheduled loan maturities for the years ended December 31.

	2010				2009
Terms of Loans	Amount of loans		$-% of Portfolio		Amount of loans		$-% of Portfolio
0-12 months		374,113		36%		1,012,235		38%
13-24 months		320,708		31%		341,117		13%
25-36 months		---		0%		326,050		12%
37-48 months		---		0%		---		0%
Over 48		351,463		33%		1, 011,335		37%
Totals:	$	1,046,284		100%	$	2,690,737		100%

Delinquencies

The following table shows the Trust’s Mortgage Investment Business delinquency statistics for its servicing portfolio for the years ended December 31.

	2010					2009
Loans Delinquent For:	Number of loans			$-% of Portfolio		Number of loans			$-% of Portfolio
31-60 days		0			0%		0			0%
61-90 days		0			0%		0			0%
91 days +		2	(1)		2%		3	(2)		39%
Totals:		2			2%		3			39%

(1)	None of the 91 days+ delinquent loans were satisfied or brought current by April 11, 2011.

(2)	None of the 91 days+ delinquent loans were satisfied or brought current by April 12, 2010, while two of the loans were scheduled for Trustee Sale in the second quarter of 2010.

REGULATION

The Company conducts its business so as not to become regulated as an investment trust under the Investment Trust Act. The Investment Trust Act exempts entities that are “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate” (“Qualifying Interest”). Under the current interpretation of the staff of the Commission, in order to qualify for this exemption, the Trust must maintain at least 55% of its assets directly in mortgage loans, and certain other Qualifying Interests in real estate. If the Trust fails to qualify for exemption from registration as an investment trust, its ability to use leverage in its Mortgage Investment Business would be substantially reduced, and it would be unable to conduct its business as described herein. The Company has not requested a legal opinion from counsel indicating that, it will be exempt from the Investment Trust Act.

Because the Company’s business is highly regulated, the laws, rules and regulations applicable to the Company are subject to regular modifications and change. There are currently proposed various laws, rules and regulations which, if adopted, could impact the Company. There can be no assurance that these proposed laws, rules and regulations, or other such laws, rules or regulations, will not be adopted in the future which could make compliance much more difficult or expensive, restrict the Company’s ability to originate, broker, purchase or sell loans, further limit or restrict the amount of commissions, interest and other charges earned on loans originated, brokered, purchased or sold by the Company, or otherwise affect the business or prospects of the Company. Also, members of Congress and government officials have from time to time suggested the elimination of the mortgage interest deduction for federal income tax purposes, either entirely or in part, based on borrower income, type of loan or principal amount. Because many of the Company’s loans are made to borrowers for the purpose of consolidating consumer debt or financing other consumer needs, the competitive advantages of tax deductible interest, when compared with alternative sources of financing, could be eliminated or seriously impaired by such government action. Accordingly, the reduction or elimination of these tax benefits could have a material adverse effect on the demand for loans of the kind offered by the Company.

On April 1, 2011, the Dodd Frank Wall Street Reform and Consumer Protection Act (“Act”) became effective. The Act is very broad and will affect a wide array of financial institutions practices, including residential mortgage marketing, underwriting, disclosure, and compensation. The Act also creates the Consumer Financial Protection Bureau as an agency to implement, regulate, and enforce additional consumer lending laws and mortgage servicing compliance standards. The effect of this legislation on the mortgage investment and mortgage banking business is undeterminable.

Additionally, there are various state and local laws and regulations affecting the Company. Mortgage operations also may be subject to applicable state usury statutes. The Company believes that it is in material compliance with all rules and regulations to which it is subject.

STRATEGY AND COMPETITION

The Mortgage Investment Business faces competition from other financial institutions, including but not limited to banks, specialty finance companies and private mortgage investors. Many of the institutions with which the Company competes have significantly greater financial resources. Management also believes the Act imposes additional regulatory and competitive disadvantages on smaller mortgage investment and mortgage banking companies. The appropriate diversification of the Company’s assets into other real estate investment trust permissible assets will be considered. The Company will also consider alternative investment strategies that deemphasize real estate and mortgage investments.

EMPLOYEES

At December 31, 2010, the Company had two full time employees. At December 31, 2009 the Company had two full time and one part time employee. The Company’s employees are not subject to a collective bargaining agreement and the relationship with its employees is good.

ITEM 1A. RISK FACTORS

The Company is not required to provide the information required by this item as it is a smaller reporting company.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

The Company’s principal office is located at 100 Pine Street, Suite 560, San Francisco, California, 94111 where it leases approximately 1,100 square feet under a lease that expires in July 2011. The existing facilities are adequate for the Company’s current needs.

ITEM 3. LEGAL PROCEEDINGS

Legal Proceedings are described in Note 17 to the Consolidated Financial Statements which is included in the Form 10-K under the caption “Legal Proceedings and Contingencies”.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The quarterly high and low sale prices of the Common Stock as quoted on the American Stock Exchange for the last two years follows:

Year	Quarter	High	Low	Dividend per Common Share
2009	1st	4.75	4.12	0.00
	2nd	5.44	4.10	0.00
	3rd	4.94	3.53	0.00
	4th	4.58	3.80	0.00
2010	1st	3.91	2.70	0.00
	2nd	3.20	2.65	0.00
	3rd	4.50	3.16	0.00
	4th	5.42	3.64	0.00
2011	Jan.1 – March 31	5.05	4.00	0.00

On December 31, 2010, there were approximately 180 stockholders of record (including holders who are nominees for an undetermined number of beneficial owners as one stockholder).

To maintain its qualification as a REIT, annual distributions to stockholders of at least 90% of its taxable income (which may not necessarily equal net income as calculated in accordance with GAAP), determined after the application of any net operating loss carry forward, without regard to the deduction for dividends paid and excluding any net capital gains or loan loss reserves, are required. Quarterly the Board of Directors meets to determine dividend distributions. The dividend policy is subject to revision at the discretion of the Board of Directors. Any distributions in excess of those required to maintain REIT status will be made at the discretion of the Board of Directors and will depend on the financial condition of the Company and such other factors as the Board of Directors deems relevant.

The Board of Directors has not established a minimum distribution level. During 2010 and 2009, no dividends were declared and paid. Distributions to stockholders are generally taxable as ordinary income, although a portion of such distributions may be designated as capital gain or may constitute a tax-free return of capital. Since 2005, the Company has incurred taxable losses, also known as Net Operating Losses (“NOL”). NOL’s may allow the Company to retain future taxable income equal to the cumulative amount of its NOL balance. The Internal Revenue Service waives mandatory dividend payments until allowable NOLs are recovered.

ITEM 6. SELECTED FINANCIAL DATA

The following table presents selected historical financial data derived from the audited consolidated financial statements of the Company.

The historical financial information is not necessarily indicative of future operations and should not be so construed. The selected financial data should be read in conjunction with “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.”

	Year Ended December 31
Financial Summary	2010			2009			2008			2007			2006

Operations:

Revenue	$	172,508		$	388,581		$	656,578		$	1,114,958		$	2,478,609
Net income (loss)		(1,392,097	)		(2,768,594	)		(619,718	)		(2,939,689	)		(1,631,428	)

Data:

Weighted average basic loss/share	$	(3.96	)	$	(7.73	)	$	(1.64	)	$	(7.73	)	$	(4.28	)
Weighted average diluted loss/share	$	(3.96	)	$	(7.73	)	$	(1.64	)	$	(7.73	)	$	(4.28	)

Consolidated Balance Sheet Data:

Mortgage notes receivable	$	1,046,284		$	2,690,737		$	5,460,948		$	11,144,365		$	17,121,939
Total assets		5,633,446			9,431,732			12,229,797			12,169,179			18,204,100
Total liabilities		2,308,234			4,719,972			4,687,254			3,955,164			7,049,874
Stockholders’ equity		3,325,212			4,711,760			7,542,543			8,214,015			11,154,226
Common share equity		(1,957,475	)		(570,927	)		2,259,856			2,931,328			5,871,539
Common shares		351,482			351,882			366,532			380,532			380,532

[INTENTIONALLY LEFT BLANK]

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

In May of 1997, the Trust registered its common shares with the Securities and Exchange Commission under the Securities Act of 1933. On September 30, 1998, the initial public offering of Common Shares was completed. Since October 1, 1998, the common shares have been publicly traded.

During the first quarter of 2006, the Trust announced its intent to suspend mortgage banking loan originations and to monetize its mortgage banking loan portfolio. By year end 2006, mortgage banking loans (mortgages originally originated for sale into the secondary market) were transferred to the Trust. Prior to December 29, 2006, the Company was externally advised by Capital Alliance Advisors, Inc. (the “Former Manager”, “CAAI”). On December 29, 2006, the Former Manager was terminated and the Company became self-administered and self-advised.

The current real estate market is characterized by both a lack of available credit and declining residential property valuations. Due to these conditions the Company’s focus on selling real estate owned (“REO”) is highly challenging. The current conditions are expected to extend through calendar year 2011.

On April 20, 2007, the Company’s 100% owned taxable subsidiary changed its name from Capital Alliance Funding Corporation (“CAFC”) to WrenCap Funding Corporation (“WCFC”). The transition agreement with the Former Manager required the Company to remove the name “Capital Alliance” from the Trust’s name by June 30, 2008 and from CAFC’s name by April 30, 2007. Since May 1, 2007, WCFC has traded exchange listed marketable securities.

Mortgage investment loans are reported as mortgage notes receivable and held until prepayment, maturity or foreclosure. As of December 31, 2010, the Mortgage Investment Business portfolio totaled $1,046,284, consisting of 8 loans, of which 2 loans totaling $23,318 or 2% of the portfolio loan value were delinquent over 60 days. As of April 11, 2011, none of the delinquent loans was brought current or paid off and two loans totaling $23,318 or 2% of the December 31, 2010 portfolio balance remained delinquent. As of December 31, 2010, the Trust held six properties as real estate for sale. During 2011, the Company is focusing on liquidating its REO assets. The monetization of REO assets is an important source of liquidity for the Company in 2011.

As of December 31, 2009, the Mortgage Investment Business portfolio totaled $2,690,737, consisting of 13 loans, of which 3 loans totaling $1,064,984 or 39% of the portfolio loan value were delinquent over 60 days. As of April 12, 2010, none of the delinquent loans was brought current or paid off and three loans totaling $1,064,984 or 39% of the December 31, 2009 portfolio balance remained delinquent. As of December 31, 2009, the Trust held nine properties as real estate for sale.

RECENT ACCOUNTING PRONOUNCEMENTS

These are incorporated by reference in the Financial Statement Footnotes.

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission. The Company’s significant accounting policies are described in the notes to the financial statements. Certain accounting policies require management to make significant estimates and assumptions, which have a material impact on the carrying value of certain assets and liabilities, and the Company considers these to be critical accounting policies. The estimates and assumptions used are based on historical experience and other factors, which management believes to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and results of operations for the reporting periods.

The following are critical accounting policies that require the most significant estimates and assumptions that are particularly susceptible to a significant change in the preparation of the consolidated financial statements and are not presented in their relative order of importance.

Revenue recognition. Interest income is recorded on the accrual basis of accounting in accordance with the terms of the loans. Management reviews the likelihood that a loan will be repaid when the payment of principal or interest is delinquent over two payments. For these delinquent loans, Management may establish an allowance for loan losses to protect against principal losses in the loan portfolio and an allowance for doubtful accounts to protect against losses from accrued interest. If the mortgage’s collateral is considered insufficient to satisfy the outstanding balance, after estimated foreclosure and selling costs, additional interest is not accrued. Loan origination income and extension fees are deferred and recognized over the remaining life of the loan as interest income on the interest method. Rental income is recognized as it is earned.

Allowance for Loan Loss Reserve. Management reviews its loan loss provision regularly and the Company maintains an allowance for losses on mortgage notes receivable at an amount that management believes is sufficient to protect against potential losses inherent in the loan portfolio. A provision for loan losses is based on management’s evaluation of an amount that is adequate to absorb losses inherent in the existing loan portfolio. The evaluation, which includes a review of all loans on which full collection may not be reasonably assumed, considers among other matters, general economic conditions, the fair value of underlying collateral, past loan loss experience, borrower economic resources, trends in loan delinquency and other factors that warrant recognition in providing for an adequate loan loss allowance. The Company’s actual losses may differ from the estimate. Notes receivable deemed uncollectible are written off. The Company does not accrue interest income on impaired loans.

Allowance for Doubtful Accounts. Management reviews its accounts receivable periodically and the Company establishes an allowance for receivables that may not be collectible. Management exercises judgment in establishing the allowance and the Company’s actual losses may differ from the estimate.

Real estate owned. Real estate owned results from foreclosure of mortgage notes receivable and at time of foreclosure is recorded at the lower of carrying amount plus any senior indebtedness or fair value of the property minus estimated costs to sell. Management may elect to lease foreclosed real estate owned in lieu of immediately marketing it for sale. Subsequent to foreclosure, the foreclosed asset value is periodically reviewed and adjusted to fair value if a decline has occurred. Income and expenses related to real estate owned are recorded as rental income, interest expense and operating expenses of real estate owned and are included in the consolidated statements of operations. Depreciation is taken on the leased real estate owned.

Stock-Based Compensation. The Company measures the cost of a recipient’s services received in exchange for an award of an equity instrument based on the award's fair value on the grant date and recognizes the cost over the period during which the recipient is required to provide service in exchange for the award, generally the vesting period. No compensation costs are recognized for equity instruments for which the recipient do not render the requisite service.

The Audit Committee of the Trust’s Board of Directors has discussed and approved the critical accounting policies and the development, selection and disclosure of the estimates and alternatives prior to filing this report with the Securities and Exchange Commission.

Operating Strategy

Mortgage investment loans are reported as mortgage notes receivable and are held until prepayment, maturity or foreclosure. The Company owns non-conforming mortgage loans on one-to-four unit residential properties secured by first and second deeds of trust. These loans are primarily secured by California real estate. Historically, the Trust limited its mortgage investments to a cumulative loan to value ratio (“CLTV”) that did not exceed 75% of the underlying collateral at the time of investment. The Company seeks to maximize the value of its loan portfolio through active asset management.

During 2009, the repayment of mortgage notes receivable and the monetization of non-performing assets reduced institutional borrowings by $2,000,000 to $0. During 2010, other than senior mortgage debt, institutional borrowings remained at $0.

The Company’s current investment policies include other REIT permissible assets in addition to residential mortgage loans. The Company may consider de-REITing to enhance shareholder value.

Loan Origination

Until March 31, 2006, the Company’s mortgage banking subsidiary originated loans in excess of the Trust’s 75% CLTV investment standard for subsequent sale into the secondary mortgage market. During 2006, the Former Manager was unable to sell $6,108,330 of these mortgage banking loans at an acceptable price. Although these loans did not satisfy the Trust’s investment standards, during 2006 these loans were transferred to the Trust and are reported as mortgage notes receivable.

Pursuant to the Stockholder’s vote, on December 29, 2006, the Board of Directors terminated the Former Manager. The Former Manager and the Company’s mortgage banking operations accounted for 100% of the loans acquired by the Trust in 2006. Subsequently, the Company has not acquired any loans from third parties or the Former Manager.

Asset Management

Asset management is mortgage loan servicing and real estate owned (“REO”) dispositions. Loan servicing consists of collecting payments from borrowers making required advances, accounting for principal and interest payments, holding borrowed proceeds in escrow until fulfillment of mortgage loan requirements, contacting delinquent borrowers, and in the event of unremedied defaults performing other administrative duties including supervising foreclosures. On June 30, 2007 the Loan Servicing Agreement with the Former Manager was cancelled. Subsequently, the Company engaged a subservicer to provide loan servicing. On December 31, 2009, the Company took over the servicing of its own loan portfolio.

The Company only services loans that it owns. It does not acquire loan servicing rights nor does it maintain a loan’s servicing rights at disposition. REO dispositions include all of the supervisory and administrative processes of preparing a foreclosed asset for sale.

Contingencies and Commitments

The allowance for loan losses is based on estimates, primarily based on the borrower’s payment record and the Company’s loan, lien position, and the fair value of the real property securing the loan. The Company analyzes the anticipated sales price of the foreclosed property that includes a discount from the latest appraised value of the property, less the sum of priority liens, costs of disposition, the face amount of the Company’s mortgage loan and accrued interest receivable. As of December 31, 2010 and 2009, the Company reserved an allowance for loan losses of $20,000 and $310,000, respectively.

Allowances for doubtful accounts are estimated reserves for the collectability of other receivables. As of December 31, 2010 and 2009, the Company reserved an allowance for doubtful accounts of $0 and $453,974, respectively.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2010 COMPARED TO YEAR ENDED DECEMBER 31, 2009

Revenues for the year ended December 31, 2010 decreased to $172,508 as compared to $388,581 for 2009. During 2010, interest income declined $106,662 due to ELC’s smaller loan portfolio as well as lower interest yields. Due to the suspension of mortgage banking operations in 2006, there was no loan origination income and service release premiums in 2010 and 2009.

Expenses for the year ended December 31, 2010 decreased to $1,435,426 as compared to $3,724,229 for the previous year. The decrease in 2010 compared to 2009 is primarily due to reduced impairment of real estate expenses of $2,013,829, the decrease in wages of $79,062 (due to a reduction in personnel), and reduced real estate owned expenses of $109,986 (due to fewer REO properties).

During 2010, there was a loss from real estate owned of $93,048 impairment of real estate owned of $457,645 and real estate expenses of $60,808. During 2009, there was a gain from the retirement of debt of $400,000, impairment of real estate owned of $2,269,128 and real estate expenses of $170,794.

Net Loss for the year ended December 31, 2010 was $1,392,097. Net Loss for the year ended December 31, 2009 was $2,768,594.

At year ended December 31, 2010, the Company’s mortgage notes receivable balance was $1,644,453 less than the mortgage notes receivable balance for the year ended December 31, 2009. At year ended December 31, 2010, the real estate owned balance was $2,665,428 less than the year ended December 31, 2009 balance.

LIQUIDITY AND CAPITAL RESOURCES

Management believes that existing cash balances, cash flow from operations, mortgage loans payments, the net proceeds of REO sales, additional credit facilities that may be obtained during 2011 and, if necessary, the limited sale of investment mortgages will be sufficient to meet the liquidity needs of the company’s businesses for the next twelve months.

LIQUIDITY AND CAPITAL RESOURCES FOR THE YEAR ENDED DECEMBER 31, 2010

As of January 1, 2010, the Trust had $227,944 of cash and cash equivalents. After taking into effect the various transactions discussed below, cash and cash equivalents at December 31, 2010 were $269,911. The following summarizes the changes in net cash used in operating activities, net cash provided by investing activities and net cash used in financing activities.

The principal source of the Trust’s increased liquidity was from investing activities. The primary use of cash was operating and financing activities.

Net cash used by the operating activities during the year ended December 31, 2010 was $826,377. A change in accounts receivable provided $463,031 and an impairments of real estate owned provided $457,645.

Net cash of $4,092,514 was provided by investing activities. Decreased mortgage notes receivable provided $368,009 and proceeds from real estate owned provided $3,926,520.

Net cash used in financing activities during the year ended December 31, 2010 was $3,224,172. Payments of senior mortgage loans payable of $3,222,727 and treasury stock purchases of $1,445 were the uses of cash from financing activities.

LIQUIDITY AND CAPITAL RESOURCES FOR THE YEAR ENDED DECEMBER 31, 2009

As of January 1, 2009, the Trust had $1,974,687 of cash and cash equivalents. After taking into effect the various transactions discussed below, cash and cash equivalents at December 31, 2009 were $227,944. The following summarizes the changes in net cash used in operating activities, net cash provided by investing activities and net cash used in financing activities.

The Trust’s liquidity decreased in 2009. The principal source of the Trust’s liquidity was from investing activities and the primary use of cash was operating and financing activities.

Net cash used in operating activities during the year ended December 31, 2009 was $283,469. A change in accounts receivable provided $209,476 and a change in other liabilities provided $181,658.

Net cash of $206,243 was provided by investing activities. Decreased mortgage notes receivable provided $200,112, marketable securities provided net cash of $78,031 and investments in real estate owned used $71,900.

Net cash used in financing activities during the year ended December 31, 2009 was $1,669,517. Paying down bank lines of credit of $1,605,184 and treasury stock purchases of $65,786 were the uses of cash from financing activities.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

Market risk is the exposure to loss resulting from changes in interest rates, credit spreads, foreign exchange rates, commodity prices, and equity prices. The Company’s primary market risks are interest rate risk and credit risk of the Mortgage Investment Business.

Interest Risk. Interest rate risk is highly sensitive to many factors, including governmental, monetary and tax policies, domestic and international economic and political considerations and other factors beyond the control of the Company. Changes in the general level of the U.S. Treasury yield curve can have significant effects on the market value of the Trust’s portfolio. The majority of the Company’s loans are fixed-rate loans. The Company’s loans are valued on the December 31, 2010 balance sheet at the lower of cost or market.

As U.S. Treasury securities are priced to a lower yield and/or the spread to U.S. Treasuries used to price the Company’s assets are decreased, the market value of its mortgage loans may increase. Conversely, as U.S. Treasury securities are priced to a higher yield and/or the spread to U.S. Treasuries used to price the Company’s assets is increased, the market value of its mortgage loans may decline. Changes in the level of the U.S. Treasury yield curve can also affect, among other things, the prepayment assumptions used to value certain loans. In addition, changes in the general level of the United States Prime Rate can affect the Company’s net interest income. The majority of the Trust’s liabilities are floating rate based on a spread over the daily 1 Month London Inter Bank Offered Rate (“LIBOR”). As the level of LIBOR increases or decreases, the Company’s interest expense will move in the same direction.

On account of the relatively short adjusted weighted average maturity of the mortgage investment portfolio, a variety of financial instruments available to limit the effects of interest rate fluctuations on its operations have not been utilized. The use of these types of derivatives (such as interest rate swaps, caps, floors and other interest rate exchange contracts) to hedge interest-earnings assets and/or interest-bearing liabilities carry risks, including the risk that the net losses on a hedge position may exceed the amount invested in such instruments. As the level of variable rate mortgage financing of the portfolio increases or the weighted average maturity of the portfolio increases, the Company may utilize a variety of financial instruments to limit the effects of interest rate fluctuations.

Credit Risk. Credit risk is the exposure to loss from loan defaults and foreclosures. Default and foreclosure rates are subject to a wide variety of factors, including, but not limited to, property values, supply/demand factors, construction trends, consumer behavior, regional economics, interest rates, the strength of the American economy and other factors beyond the control of the Trust.

All loans are subject to a certain probability of default and foreclosure. An increase in the Company’s default rates may reduce the book value of the Company’s assets, earnings and cash flow available to fund operations or pay dividends. The Company manages credit risk through the underwriting process, limiting loans in the mortgage investment portfolio (including the maximum deferral of interest), establishing loss assumptions and carefully monitoring loan performance. Nevertheless, the Company assumes that a certain portion of its loan originations will default and adjusts the allowance for loan losses based on that assumption.

Concentration Risk. Concentration risk is the exposure to loss associated with declines in assets that are geographically homogenous. In excess of 90% of the Company’s real estate assets are located in California. The Company is subject to economic risks associated with their physical concentration within the state of California as well as risks associated with the California economy.

Asset and Liability Management

Asset and liability management is concerned with the timing and magnitude of the maturity of assets and liabilities. In general, management’s strategy is to approximately match the term of the mortgage investment portfolio’s liabilities to the portfolio’s adjusted weighted average maturity.

The majority of the investment mortgage loans pay a fixed rate and the income from such assets are relatively unaffected by interest rate changes. During 2010, no recourse interest bearing liabilities were outstanding. Non-recourse senior mortgage debt liabilities, however, have a priority claim specifically limited to the foreclosed upon real estate (REO).

ITEM 8. FINANCIAL STATEMENTS

The audited Consolidated Financial Statements and their accompanying notes are presented with the Independent Registered Public Accounting Firm’s Report in Appendix F.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A(T). CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our Company’s management, including our Chief Executive Officer and Principal Accounting Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Our management has concluded that our disclosures controls and procedures as of the end of the period covered by this report are effective. Effective disclosure controls and procedures means that the material information required to be included in our Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and regulations for the period of time covered by this report.

Management’s Report on Internal Control Over Financial Reporting

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

Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Further, the evaluation of the effectiveness of internal control over financial reporting was made as of a specific date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies and procedures may decline.

Under the supervision and with the participation of our Company’s management, including our Chief Executive Officer and Principal Accounting Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on our evaluation under the framework, management has concluded that our internal control over financial reporting is effective as of December 31, 2010.

Our management, with the participation of the Chief Executive Officer and Principal Accounting Officer, have implemented internal procedures to continually improve the effectiveness of the Company’s internal control over financial reporting. Based on these policy changes, our management, with the participation of the Chief Executive Officer and Principal Accounting Officer, expects that our internal control over financial reporting will continue to be effective.

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

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the fourth quarter of fiscal 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None

PART III

Certain information required by Part III is omitted from this Annual Report in that the registrant will file its definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 1, 2011 pursuant to Regulation 14A of the Exchange Act (the Proxy Statement) not later than 120 days after the end of the fiscal year covered by this Annual Report, and certain information included in the Proxy Statement is incorporated herein by reference.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

DIRECTORS

The information required by this Item is incorporated herein by reference to the section entitled “Election of Directors” in the Proxy Statement.

AUDIT COMMITTEE – FINANCIAL EXPERTS

Certain information required by this Item is incorporated herein by reference to the section entitled “Report of the Audit Committee” in the Proxy Statement. The board of directors has determined that Mr. James L. Grainer is an “audit committee financial expert” and “independent” as defined under applicable SEC and exchange rules.

EXECUTIVE OFFICERS

The information required by this Item is incorporated herein by reference to the section entitled “Executive Officers” in the Proxy Statement.

The Company’s “Code of Ethics” applies to all employees and officers. A copy of the Code of Ethics is posted at www.caitreit.com. Any amendment or waiver granted to a provision of the Code of Ethics that applies to the principal executive officer, principal financial officer, or principal accounting officer that requires disclosure under applicable SEC rules, shall be fully disclosed on the Company’s website.

Section 16(a) Beneficial Ownership Reporting Compliance – The information required by this Item is incorporated herein by reference to the section entitled “Other Matters – Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference to the sections entitled “Executive Compensation” and “Directors’ Compensation” in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item is incorporated herein by reference to the sections entitled “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by this Item is incorporated herein by reference to the section entitled “Certain Relationships and Related Transactions” in the Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item is incorporated herein by reference to the section entitled “Principal Accounting Fees and Services” in the Proxy Statement.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements

The following financial statements of the Company included in Appendix F are incorporated by reference in Item 8 of this report:

Report of Independent Registered Public Accounting Firm	FS-1
Consolidated Balance Sheets	FS-2
Consolidated Statements of Operations	FS-3
Consolidated Statements of Changes in Stockholders’ Equity	FS-4
Consolidated Statements of Cash Flows	FS-5
Notes to Consolidated Financial Statements	FS-6

(b) Financial Statement Schedules

Schedule II – Valuation and Qualifying Accounts	FS-19
Schedule IV – Mortgage Loans on Real Estate	FS-19

Exhibit No.	Description
3.1	Certificate of Incorporation and Amendment No. 1 (1)
3.2	Bylaws of the Registrant (1)
3.3	Certificate of Amendment of Certificate of Incorporation (3)
4.1	Form of Stock Certificate of Common Shares of the Registrant (2)
10.2	Form of Indemnity Agreement between the Registrant and its Directors and Officers (1)
24.7	Power of Attorney of Richard J. Wrensen (4)
31.1	Sarbanes Certification of Richard J Wrensen
31.2	Sarbanes Certification of Andrea Barney
32.1	Sarbanes Certification

(1)

These exhibits were previously contained in Registrant’s Registration Statement filed on Form S-11 with the Commission on September 9, 1996, and are incorporated by reference herein.

(2)

These exhibits were previously contained in Amendment No. 1 to the Registrant’s Registration Statement filed on Form S-11 with the Commission on January 15, 1997, and are incorporated by reference herein.

(3)

These exhibits were previously contained in Form 10-Q for the period ending June 30, 1997 filed with the Commission on August 14, 1997, and are incorporated by reference herein.

(d) Reports on Form 8-K

Form 8-K was filed on:

·	On October 22, 2010 due to the press release regarding unusual market activity in the Company’s common shares.

·	On November 12, 2010 due to the press release regarding the NYSE Amex extension of the Company’s plan to satisfy a $1 million market value requiring publically held common shares until December 15, 2010.

·	On November 23, 2010 due to the press release of preliminary earnings and the requested extension to file Form 10-Q

·	On November 30, 2010 due to the press release regarding the Company’s timeline to file Form 10-Q for the period ending September 30, 2010 and to regain compliance with the NYSE Amex list requirements.

·	On December 20, 2010 due to the press release regarding the NYSE Amex extension of the Company’s plan to satisfy a $1 million market value requiring publically held common shares until February 11, 2011.

·	On December 23, 2010 due to the press release regarding unusual market activity in the Company’s common shares.

(e) Miscellaneous Exhibits

None

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, hereunto duly authorized.

Eastern Light Capital, Incorporated

April 15, 2011


/s/ Richard J. Wrensen			/s/ Andrea Barney
Richard J. Wrensen			Andrea Barney
Chairman and Chief Executive Officer			Principal Accounting Officer and Controller

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


/s/ Richard J. Wrensen			Dated: April 15, 2011
Richard J. Wrensen
Chairman, Chief Executive Officer President and Chief Financial Officer
/s/ James L. Grainer			Dated: April 15, 2011
James L. Grainer
Director
/s/ Alan R. Jones			Dated: April 15, 2011
Alan R. Jones
Director

/s/ Ace J. Blackburn			Dated: April 15, 2011
Ace J. Blackburn
Director

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Eastern Light Capital, Incorporated:

San Francisco, California

We have audited the accompanying consolidated balance sheets of Eastern Light Capital, Incorporated and subsidiary (the “Company”), as of December 31, 2010 and 2009 and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2010 and 2009 and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.

Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedules II and IV are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

/s/ Armanino McKenna LLP

San Francisco, California

April 15, 2011

FS-1

EASTERN LIGHT CAPITAL, INCORPORATED

Consolidated Balance Sheets

December 31, 2010 and 2009


	2010			2009
ASSETS
Cash and cash equivalents	$	269,911		$	227,944
Marketable securities		191			147
Investments		190,000			-
Prepaid expenses		7,500			-
Accounts receivable		61,686			524,717
Allowance for doubtful accounts		-			(453,974	)
Net accounts receivable		61,686			70,743
Notes receivable:
Mortgage notes receivable		1,046,284			2,690,737
Allowance for loan losses		(20,000	)		(310,000	)
Net notes receivable		1,026,284			2,380,737
Real estate owned		4,048,746			6,714,174
Other assets		29,128			37,987

Total assets	$	5,633,446		$	9,431,732

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities
Senior mortgage debt	$	2,112,947		$	4,487,940
Other liabilities		195,286			232,032
Total liabilities		2,308,233			4,719,972

Stockholders’ equity
Preferred stock, $.01 par value;1,600,000 shares authorized;
213,820 shares issued at December 31, 2010
and December 31, 2009		2,138			2,138
Additional paid in capital - preferred stock		5,509,728			5,509,728
Less treasury stock: 16,919 preferred shares at
December 31, 2010 and December 31, 2009 at cost		(229,179	)		(229,179	)

Common stock, $.01 par value; 2,000,000 shares authorized;
500,432 shares issued at December 31, 2010
and December 31, 2009		5,005			5,005
Additional paid in capital - common stock		9,415,696			9,408,747
Less treasury stock: 148,950 and 148,550 common shares at
December 31, 2010 and December 31, 2009 at cost		(1,829,141	)		(1,827,698	)
Accumulated other comprehensive loss		(532	)		(576	)
Accumulated deficit		(9,548,502	)		(8,156,405	)

Total stockholders’ equity		3,325,213			4,711,760

Total liabilities and stockholders’ equity	$	5,633,446		$	9,431,732

See accompanying notes to consolidated financial statements.

FS-2

EASTERN LIGHT CAPITAL, INCORPORATED

Consolidated Statements of Operations

For the Years ended December 31, 2010 and 2009

	2010			2009
REVENUES
Interest income	$	113,970		$	220,632
Rental income		53,200			137,931
Other income		5,338			30,018
Total revenues		172,508			388,581

EXPENSES
Senior mortgage interest expense		72,736			165,096
Interest expense on loans		-			24,169
Provision for loan losses		12,709			164,794
Provision for doubtful accounts		-			17,297
Expenses of real estate owned		60,808			170,794
Impairment of real estate owned		457,645			2,269,128
Wages and salaries		378,984			458,046
Non-income taxes		54,227			39,204
General and administrative		398,317			415,701
Total expenses		1,435,426			3,724,229

LOSS FROM OPERATIONS		(1,262,918	)		(3,335,648	)

Gain (loss) from retirement of debt		-			400,000
Gain (loss) on sale of real estate owned		(93,048	)		-
Gain (loss) on securities transactions		(36,131	)		37,195
Gain (loss) on investments		-			129,859
Total other income (loss), net		(129,179	)		567,054

NET INCOME (LOSS)	$	(1,392,097	)	$	(2,768,594	)

PREFERRED DIVIDENDS		-			-

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS	$	(1,392,097	)	$	(2,768,594	)

NET INCOME (LOSS) PER COMMON SHARE - BASIC	$	(3.96	)	$	(7.73	)

NET INCOME (LOSS) PER COMMON SHARE - DILUTED	$	(3.96	)	$	(7.73	)

DIVIDENDS PAID PER PREFERRED SHARE	$	-		$	-

DIVIDENDS PAID PER COMMON SHARE	$	-		$	-

See accompanying notes to consolidated financial statements.

FS-3

EASTERN LIGHT CAPITAL, INCORPORATED

Consolidated Statements of Changes in Stockholders' Equity

For the Years ended December 31, 2010 and 2009


	Preferred	Preferred		Preferred Additional Paid-in		Common		Common		Common Additional Paid in		Treasury			Accumulated Other Comprehensive			Accumulated						Comprehensive
	Shares	Stock		Capital		Shares		Stock		Capital		Stock			Income (Loss)			Deficit			Total			Loss

BALANCE, JANUARY 1, 2009	196,901	$	2,138	$	5,509,728	366,532		$	5,000	$	9,404,245	$	(1,991,091	)	$	334		$	(5,387,811	)	$	7,542,543
Acquisition of treasury stock	-		-		-	(15,050	)		-		-		(65,786	)		-			-			(65,786	)
Net loss	-		-		-	-			-		-		-			-			(2,768,594	)		(2,768,594	)		(2,768,594	)
Issuance of common stock options	-		-		-	400			5		4,502		-			-			-			4,507			---
Unrealized loss	-		-		-	-			-		-		-			(910	)		-			(910	)		(910	)
																								$	(2,769,504	)
BALANCE, DECEMBER 31, 2009	196,901		2,138		5,509,728	351,882			5,005		9,408,747		(2,056,877	)		(576	)		(8,156,405	)		4,711,760
Acquisition of treasury stock	-		-		-	(400	)		-		-		(1,443	)		-			-			(1,443	)
Net loss	-		-		-	-			-		-		-			-			(1,392,097	)		(1,392,097	)		(1,392,097	)
Re-issuance of common stock options	-		-		-	-					6,949		-			-			-			6,949			---
Unrealized gain	-		-		-	-			-		-		-			44			-			44			44
																								$	(1,392,053	)
BALANCE, DECEMBER 31, 2010	196,901	$	2,138	$	5,509,728	351,482		$	5,005	$	9,415,696	$	(2,058,320	)	$	(532	)	$	(9,548,502	)	$	3,325,213

See accompanying notes to consolidated financial statements.

FS-4

EASTERN LIGHT CAPITAL, INCORPORATED

Consolidated Statements of Cash Flows

For the Years ended December 31, 2010 and 2009

	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(1,392,097	)	$	(2,768,594	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation		21,699			47,581
Realized loss on sale of REO		93,048			-
Gain from retirement of debt		-			(400,000	)
Stock based compensation expense		6,949			3,054
Provision for loan losses		12,709			164,794
Change in allowance for doubtful accounts		(453,974	)		(96,834	)
Impairment of real estate owned		457,645			2,269,128
Realized loss on sale of marketable securities		-			114,098
Change in operating assets and liabilities
Change in prepaid expenses		(7,500	)		-
Change in accounts receivable		463,031			209,476
Change in other assets		8,859			(7,830	)
Change in in other liabilities		(36,746	)		181,658
Net cash used in operating activities		(826,377	)		(283,469	)

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from marketable securities		-			78,031
Proceeds from real estate owned		3,926,520			-
Purchase of investments		(190,000	)		-
Capital improvements on real estate owned		(12,015	)		(71,900	)
Principal collected on mortgage notes receivable		368,009			200,112
Net cash provided by investing activities		4,092,514			206,243

CASH FLOWS FROM FINANCING ACTIVITIES
Payments of senior mortgage loans payable		(3,222,727	)		-
Issuance of Common Stock		-			5
Issuance of Common Stock - APIC		-			1,448
Payments of Company loans payable		-			(1,605,184	)
Purchase of treasury stock		(1,443	)		(65,786	)
Net cash used in financing activities		(3,224,170	)		(1,669,517	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		41,967			(1,746,743	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		227,944			1,974,687

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	269,911		$	227,944

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest and senior mortgage interest expense	$	73,291		$	29,353
Cash paid for taxes	$	1,798		$	12,940

NON-CASH INVESTING AND FINANCING ACTIVITIES
Foreclosures, net of reserves	$	1,276,444		$	2,570,099
Assumption of senior debt upon foreclosure	$	1,162,947		$	1,856,244
Write-offs of uncollectible loans	$	302,709		$	574,794

See accompanying notes to consolidated financial statements.

FS-5

EASTERN LIGHT CAPITAL, INCORPORATED

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2010 and 2009

1.	Organization

On April 15, 1997 the Trust formed, a taxable REIT subsidiary, Capital Alliance Funding Corporation (“CAFC”). On April 20, 2007, the subsidiary was renamed to WrenCap Funding Corporation. Both the Trust and WCFC are incorporated in Delaware. The Trust owns all of WCFC’s common and preferred shares and the Trust and WCFC are consolidated in the Company’s financial statements. Prior to December 29, 2006, the Company was externally advised by Capital Alliance Advisors, Inc. (the “Former Manager”, “CAAI”). On December 29, 2006, the Former Manager was terminated and the Company became self-administered and self-advised.

Liquidity

Management has examined the Company’s 2011 cash requirements and believes that existing cash balances, the cash flows from operations, mortgage loans that may be prepaid, additional credit facilities that may be obtained, the sale of investment mortgages and most importantly, the monetization of real estate owned, will be sufficient to meet the Company’s operating requirements through December 31, 2011.

3.	Summary of significant accounting policies

Principles of consolidation. The consolidated financial statements include the accounts of the Trust and its wholly owned subsidiary, WCFC. All significant intercompany balances and transactions have been eliminated in consolidation.

Basis of accounting. The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission.

Use of estimates. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The most significant estimates are the allowance for loan losses and the valuation of real estate owned.

Cash and cash equivalents. Cash and cash equivalents include cash and highly liquid investments with maturities of three months or less when purchased. The Company deposits cash in financial institutions insured by the Federal Deposit Insurance Corporation. At times, the Company’s account balances may exceed the insured limits. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

Marketable securities. Marketable securities are classified as either trading or available-for-sale. Trading securities represent investments in exchange listed securities that are bought and held principally for the purpose of selling them in the near term. Available-for-sale securities represent investments in exchange listed securities which the Trust intends to hold for an indefinite period of time.

Investments. The Company purchased an investment in a privately held corporation during 2010. The investment amounted to $190,000 at December 31, 2010 and is accounted for under the cost method as the Company has no significant influence over the corporation.

FS-6

EASTERN LIGHT CAPITAL, INCORPORATED

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2010 and 2009

Allowance for doubtful accounts. Management reviews its accounts receivable periodically and the Company establishes an allowance for receivables that may not be collectible. Management exercises judgment in establishing the allowance and the Company’s actual losses may differ from the estimate.

Fair value measurements. The Company has adopted ASC Topic 820, Fair Value Measurements. ASC Topic 820 establishes a framework for measuring fair value and expands disclosure requirements for fair value measurements.

The Company determines the fair values of its assets and liabilities based on the fair value hierarchy established in ASC Topic 820. The standard describes three levels of inputs that may be used to measure fair value (Level 1, Level 2 and Level 3). Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 inputs are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability (including assumptions about risk). Unobservable inputs are developed based on the best information available in the circumstances and may include the Company’s own data.

Mortgage notes receivable. Mortgage notes receivable are carried at their origination value less any amortized principal. Management regularly reviews the asset securing the mortgage as well as the borrower’s payment history and ability to repay the mortgage.

Allowance for loan loss reserve. Management reviews its loan loss provision regularly and the Company maintains an allowance for losses on mortgage notes receivable at an amount that management believes is sufficient to protect against potential losses inherent in the loan portfolio. A provision for loan losses is based on management’s evaluation of an amount that is adequate to absorb losses inherent in the existing loan portfolio. The evaluation, which includes a review of all loans on which full collection may not be reasonably assumed, considers among other matters, general economic conditions, the fair value of underlying collateral, past loan loss experience, borrower economic resources, trends in loan delinquency and other factors that warrant recognition in providing for an adequate loan loss allowance. The Company’s actual losses may differ from the estimate. Notes receivable deemed uncollectible are written off. The Company does not accrue interest income on impaired loans.

Concentration of credit risk.The Company holds numerous mortgage notes receivable. These notes are secured by deeds of trust on residential properties located primarily in California, which results in a concentration of credit risk. The value of the loan portfolio may be affected by changes in the economy or other conditions of the geographical area. As of December 31, 2010 and 2009, one and three loans representing approximately 12% and 14%, respectively, of the loan portfolio are deeds of trust on residential properties not in California.

FS-7

EASTERN LIGHT CAPITAL, INCORPORATED

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2010 and 2009

Earnings (Loss) Per Share. In accordance with ASC No. 260 “Earnings Per Share,” the Company presents both basic and diluted earnings (loss) per share. Basic earnings (loss) per share excludes dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average number of shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, where such exercise or conversion would result in a lower (higher) earnings (loss) per share amount. At December 31, 2010, options to purchase shares of common stock below their fair market value trading price are not considered in the diluted earnings per share calculation due to their anti-dilution effect. See Note 14 and 15.

Income Taxes. The Trust has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). A REIT is generally not subject to federal income tax on taxable income which is distributed to its stockholders, provided that at least 90% of taxable income is distributed and provided that certain other requirements are met. Certain assets of the Company that produce non-qualifying income are held in taxable REIT subsidiaries. Unlike other subsidiaries of a REIT, the income of a taxable REIT subsidiary is subject to federal and state income taxes. Even as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributable taxable income. During 2010 and 2009, the Company expensed $1,798 and $12,940, respectively, for payment of such taxes. Since 2005, the Company incurred taxable losses, also known as Net Operating Losses (“NOL”). NOL’s may allow the Company to retain future taxable income equal to the cumulative amount of its NOL balance. The Internal Revenue Service waives mandatory dividend payments until prior year’s allowable NOLs are recovered.

The Company has evaluated its current tax positions and has concluded that as of December 31, 2010, the Company does not have any significant uncertain tax positions for which a liability would be necessary.

Reclassifications. Certain 2009 amounts have been reclassified to conform to the 2010 presentation. Such reclassifications had no effect on reported net income or earnings per share.

Recent accounting pronouncements In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit quality of Financing Receivables and the Allowance for Credit Losses. This ASU requires significant new disclosures about the allowance for credit losses and the credit quality of financing receivables. The requirements are intended to enhance transparency regarding credit losses and the credit quality of loan and lease receivables by disclosing an evaluation of (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses. Under this statement, allowance for credit losses and fair value are to be disclosed by portfolio segment, while credit quality information, impaired financing receivables and nonaccrual status are to be presented by class of financing receivables. Disclosure of the nature and extent, the financial impact and segment information of troubled debt restructurings will also be required. The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the portfolio’s risk and performance. ASU 2010-20 will be effective for the Company’s financial statements as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period. Disclosures that relate to activity during a reporting period will be required for the Company’s financial statements that include periods beginning on or after January 1, 2011.

FS-8

EASTERN LIGHT CAPITAL, INCORPORATED

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2010 and 2009

On April 5, 2011, the FASB issued ASU 2011-12, A Creditor’s Determination of Whether Restructuring is a Troubled Debt Restructuring, providing guidance to lenders for evaluating where a modification or restructuring of a loan as a Troubled Debt Restructuring (TDR). ASU 2011-12 provides expanded guidance on whether: 1) the lender has granted a “concession” and 2) whether the borrower is experiencing “financial difficulties.” The ASU is effective for the first interim or annual period beginning after June 15, 2011 (i.e. the third quarter of 2011) and is required to be applied retroactively for all modifications and restructuring activities in 2011. This ASU ends the FASB’s deferral of the additional disclosures about TDR activities required by ASU 2010-20.

4.	Marketable securities

Available-for-sale securities are reported at fair value with unrealized gains and losses excluded from earnings and reported in accumulated other comprehensive income (loss). For the years ended December 31, 2010 and 2009, the gain and loss in accumulated other comprehensive income was $44 and $(910), respectively. Trading securities are reported at fair value with realized and unrealized gains and losses reported in the statements of operations. Available-for-sale securities consist of exchange traded REIT securities whereas trading securities consist of exchange traded non-REIT securities. Both accounts utilize exchange listed derivative securities to enhance performance and to hedge against risk. The trading account also shorts exchange listed securities, including derivative securities.

As of December 31, 2010 and 2009, the trading securities account balance was $0. As of December 31, 2010 and 2009, the available for sale securities account balance was $191 and $147, respectively. Realized gains and losses on sales of both trading and available-for-sale securities are determined on an average cost basis and are reported in the statements of operations.

The accounts utilize margin borrowings and are separately maintained. The equity balance in the account is sufficient to offset the risk from a potential margin call. As of December 31, 2010 and 2009, the trading securities account had no borrowings while the available-for-sale securities account also had no borrowings.

5.	Accounts receivable

Accounts receivable consists of accrued interest on mortgage notes receivable, other amounts due from borrowers and a receivable from a custodial account. As of December 31, 2010 and 2009, accounts receivable were $61,686 and $524,717, respectively. As of December 31, 2010 and 2009, Management believes that an allowance for doubtful accounts of $0 and $453,974, respectively, is adequate protection against the collectability of the receivables as well as the costs associated with possible legal action. During 2010 and 2009, the Company recorded a provision for doubtful accounts of $0 and $17,297, which is reported in the statements of operations.

6.	Mortgage notes receivable

Reconciliation of the mortgage notes receivable balances for the years ended December 31, 2010 and 2009 follows:

Balance, beginning of year	2010			2009
Additions during period:	$	2,690,737		$	5,460,948
Originations		---			---
Deductions during period:
Collections of principal		(35,925	)		(53,252	)
Repayments		(332,084	)		(146,860	)
Foreclosures, net of reserve		(1,276,444	)		(2,570,099	)
Balance, end of year	$	1,046,284		$	2,690,737

FS-9

EASTERN LIGHT CAPITAL, INCORPORATED

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2010 and 2009

6.	Mortgage notes receivable (continued)

The mortgage notes receivable represent home equity loans secured by deeds of trust on one-to-four unit residential real estate. The Company is subject to the risks inherent in finance lending including the risk of borrower default and bankruptcy. Mortgage notes receivable are stated at the principal outstanding. Interest on the mortgages is due monthly and unamortized principal is usually due as a balloon payment at loan maturity. During 2010, no mortgage notes receivable were modified. During 2009, the terms of certain mortgage notes receivable were modified. These changes did not require the Company to recognize additional income or expense.

As of December 31, 2010, the mortgage notes receivable portfolio totaled $1,046,284 with an average loan size of $130,786, an average weighted yield of 8.04%, a weighted average adjusted maturity of 23 months and a weighted average combined loan-to-value ratio of 65% (based upon the collateral’s appraisal value at funding). First deeds of trust comprised 81% of the portfolio’s dollar value and second deeds of trust comprised 19%. As of December 31, 2009, the mortgage notes receivable portfolio totaled $2,690,737 with an average loan size of $206,980, an average weighted yield of 8.98%, a weighted average adjusted maturity of 31 months and a weighted average combined loan-to-value ratio of 71% (based upon the collateral’s appraisal value at funding). First deeds of trust comprised 61% of the portfolio’s dollar value and second deeds of trust comprised 39%. The mortgage loans are concentrated in California.

The following table sets forth the geographical distribution of the Trust’s mortgage notes receivable servicing portfolio for the years ended December 31:

	2010				2009
State	Number of loans		$-% of Portfolio		Number of loans		$-% of Portfolio
CA		7		88%		11		86%
Other		1		12%		2		14%
Totals:		8		100%		13		100%

The following table sets forth loan credit quality information for the years ending December 31:

	2010						2009
	Loans		Principal		Percent		Loans		Principal		Percent
First trust deeds		5	$	848,513		81%		6	$	1,631,444		61%
Second trust deeds		3		197,771		19%		7		1,059,293		39%
Third trust deeds		0		---		0%		0		---		0%
Total secured loans		8		1,046,284		100%		13		2,690,737		100%
Liens due other lenders at loan closing				702,029						2,268,976
Total debt			$	1,748,313					$	4,959,713
Appraised property value at loan closing			$	3,456,900					$	7,500,900
Percent of total debt to appraised values (LTV) at loan closing (1)				50.58%						66.12%

FS-10

EASTERN LIGHT CAPITAL, INCORPORATED

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2010 and 2009

6.	Mortgage notes receivable (continued)

(1)

Based on appraised values and liens due other lenders at loan closing. The loan to value computation does not take into account subsequent increases or decreases in security property values following the loan closing nor does it include decreases or increases of the amount owing on senior liens to other lenders by payments or interest accruals, if any. Property values likely have changed, particularly over the last three years, and the portfolio’s current loan to value ratio likely is higher than this historical ratio.

The following table sets forth mortgage notes receivable information summarized by property type for the years ended December 31:

	2010				2009
	Loans	Principal		Percent	Loans	Principal		Percent
Single family	8	$	1,046,284	100%	9	$	1,945,737	72%
Multi-family	0		---	0%	3		---	0%
Commercial	0		---	0%	1		750,000	28%
Land	0		---	0%	0		---	0%
Total secured loans	8	$	1,046,284	100%	13	$	2,690,737	100%

Single family properties include owner-occupied and non-owner occupied single family homes (1-4 unit residential buildings), condominium units, and townhouses. From time to time, loan originations in one sector or property type become more active due to prevailing market conditions. The current concentration of the Company’s loan portfolio is single family detached homes. No condominium loans were outstanding as of December 31, 2010 and 2009.

The following table sets forth scheduled loan maturity information summarized by year as of December 31:

	2010
	Loans	Principal		Percent
2011	3	$	348,613	33%
2012	2		320,708	31%
2013	0		---	0%
2014	0		---	0%
2015	0		---	0%
Thereafter	2		351,463	34%
Total future maturities	7		1,020,784	98%
Matured at December 31, 2010	1		25,500	2%
Total secured loans	8	$	1,046,284	100%

It is the Company’s experience that loans may be repaid or refinanced before, at or after the contractual maturity date. For matured loans, the Company may continue to accept payments while pursuing collection of amounts owed from borrowers. Therefore, the above tabulation for scheduled maturities is not a forecast of future cash receipts.

FS-11

EASTERN LIGHT CAPITAL, INCORPORATED

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2010 and 2009

6.	Mortgage notes receivable (continued)

The following is a summary of the Trust’s mortgage notes receivable balance at December 31, 2010:

Principal outstanding	Interest rate	Final maturity date	Monthly payment	Lien Priority	Face amount of mortgage(s)	Carrying amount of mortgage(s)	Amount of delinquent principal (Note A)

Individual loans greater than $499,999:	---	---	---	---	---	---	---
Loans from $400,000-$499,999	---	---	---	---	---	---	---
Loans from $300,000-$399,999	6.25%	1 month	$2,000	1st	359,000	325,294	---
Loans from $200,000-$299,999	6.375% to 8%	13 to 289 months	$5,435	1st	632,243	499,901	---
Loans from $100,000- 199,999	---	---	---	---	---	---	---
Loans up to $99,999	7.00% to 12.125%	0 to118 months	$2,713	1st & 2nd	407,377	221,089	23,318
Total Mortgage Notes Receivable at December 31, 2010					$1,398,620	$1,046,284	$23,318

(A) Delinquent loans are loans where the monthly interest payments in arrears are more than 60 days overdue. As of December 31, 2010, there were two (2) loans totaling $23,318 of principal that were delinquent. Interest has not been accrued on these delinquent loans.

FS-12

EASTERN LIGHT CAPITAL, INCORPORATED

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2010 and 2009

6.	Mortgage notes receivable (continued)

The following is a summary of the Trust’s mortgage notes receivable balance at December 31, 2009:

Principal outstanding	Interest rate	Final maturity date	Monthly payment	Lien Priority	Face amount of mortgage(s)	Carrying amount of mortgage(s)	Amount of delinquent principal (Note A)

Individual loans greater than $499,999:	11.50%	10/01/10	$7,187	1st	$750,000	$750,000	$750,000
Loans from $400,000-$499,999	---	---	---	---	---	---	---
Loans from $300,000-$399,999	6.25%	13 to 128 months	$3,850	1st & 2nd	674,200	631,552	$302,709
Loans from $200,000-$299,999	6.38% to 13.50%	2 to 297 months	$9,951	1st & 2nd	1,167,243	1,045,718	---
Loans from $100,000- 199,999	---	---	---	---	---	---	---
Loans up to $99,999	7.00% to 17.75%	10 to 160 months	$3,387	1st & 2nd	449,677	263,467	12,275
Total Mortgage Notes Receivable at December 31, 2009					$3,041,120	$2,690,737	$1,064,984

(A) Delinquent loans are loans where the monthly interest payments in arrears are more than 60 days overdue. As of December 31, 2009, there were four (4) loans totaling $1,064,984 of principal and $5,147 of interest that were delinquent.

FS-13

EASTERN LIGHT CAPITAL, INCORPORATED

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2010 and 2009

7.	Allowance for loan losses

The allowance for loan losses is primarily based on the fair value of the related collateral since all loans subject to this estimate are collateral dependent. Management believes a $20,000 and $310,000 loan loss reserve is adequate protection against potential losses inherent in the mortgage notes receivable balances as of December 31, 2010 and 2009, respectively. Actual losses may differ from the estimate.

A reconciliation of the allowance for loan losses for the years ended December 31, 2010 and 2009 follows:

	2010			2009
Provision for loan losses	$	12,709		$	164,794
Write-offs of uncollectible loans (net)		(302,709	)		(574,794	)
Total adjustments to allowance		(290,000	)		(410,000	)
Balance, beginning of year		310,000			720,000
Balance, end of year	$	20,000		$	310,000

8.	Real estate owned

As of December 31, 2009, the Company owned nine properties. During 2009, the company foreclosed on five properties. Three of the foreclosed properties had senior liens in the amounts of $950,000, $714,814, and $191,430. As of December 31, 2010, the Company owned six properties. During 2010, the company sold five properties, wrote off one, and foreclosed on three properties. Two of the foreclosed properties had senior liens in the amounts of $477,849, and $685,098. As of December 31, 2010 and 2009, the senior mortgage’s principal balances were $2,122,947 and $4,487,940, respectively. Management may elect to lease real estate assets in lieu of immediately marketing real estate owned assets for sale.

A reconciliation of the real estate owned account shows its cash and non-cash activities for the years ended December 31, 2010 and 2009:

	2010			2009
Balance, beginning of year	$	6,714,174		$	5,086,781
Additions:
Foreclosed mortgage notes, net of reserve (non-cash)		1,276,444			3,872,202
Assumptions of senior debt upon foreclosure, net of repayments		545,025			---
Capital improvements		12,015			71,900
Deductions:
Repayment of senior debt		---			---
Write-downs of property (non-cash)		(457,645	)		(2,269,128	)
Proceeds from sale of real estate owned (net of closing costs)		(3,926,520	)		---
Loss on real estate owned		(93,048	)		---
Depreciation		(21,699	)		(47,581	)
Balance, end of year	$	4,048,746		$	6,714,174

9.	Fair Value Measurements

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2010:

	2010		Level 1		Level 2		Level 3
Asset:
Marketable securities – Available for sale	$	191	$	191		---		---
Mortgage notes receivable (non-recurring)		---		---		---		---
Real estate owned (non-recurring)	$	1,903,437		---		---	$	1,903,437
Total	$	1,903,628	$	191	$	---	$	1,903,437

FS-14

EASTERN LIGHT CAPITAL, INCORPORATED

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2010 and 2009

9.	Fair Value Measurements (continued)

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2009:

	2009		Level 1		Level 2		Level 3
Asset:
Marketable securities – Available for sale	$	147	$	147		---		---
Mortgage notes receivable (non-recurring)	$	302,709		---	$	302,709		---
Real estate owned (non-recurring)	$	2,821,279		---		---	$	2,821,279
Total	$	3,124,135	$	147	$	302,709	$	2,821,279

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

Cash and cash equivalents. The carrying amounts reported in the consolidated balance sheets approximate fair value due to the short term nature of these accounts.

Available-for-sale securities (included in marketable securities). These investments are reported on the consolidated balance sheets based on quoted market prices.

Mortgage notes receivable. The fair value of non-impaired loans is estimated based upon projected cash flows discounted at the estimated current interest rates at which similar loans would be made. The applicable amount of the allowance for loan losses along with accrued interest and advances related thereto should also be considered in evaluating the fair value versus the carrying value. For loans in which a specific allowance is established based on the fair value of the collateral, the Company records the loan as nonrecurring Level 2 if the fair value of the collateral is based on an observable market price or a current appraised value. If an appraised value is not available or the fair value of the collateral is considered impaired below the appraised value and there is no observable market price, the Company records the loan as nonrecurring Level 3.

Real estate owned. At the time of foreclosure, real estate owned is recorded at the lower of the recorded investment in the loan, plus any senior indebtedness, or at the property’s estimated fair value, less estimated costs to sell, as applicable. The Company periodically compares the carrying value of real estate to expected undiscounted future cash flows for the purpose of assessing the recoverability of the recorded amounts. If the carrying value exceeds future undiscounted cash flows, the assets are reduced to estimated fair value.

Senior mortgage debt and loan commitments. The carrying amount equals fair value. All amounts, including interest payable, are subject to immediate repayment.

10.	Bank loans payable

During the second quarter of 2009, the Company recognized a $400,000 gain on the disposition of previously issued senior debt. The Company had borrowed $2,000,000 from a lender that was seized by the Federal Deposit Insurance Company. The borrowing was satisfied for $1,600,000. The gain of $400,000 is reported in the consolidated statements of operations. As of December 31, 2010 and 2009, there are no bank loans payable, except for senior mortgage debt on real estate owned.

11.	Senior Mortgage Debt

Senior mortgage debt is the estimated financing liability attached to a real estate asset acquired by the foreclosure of the Company’s junior financing. The senior mortgage debt’s balance and terms are often unavailable at the time of foreclosure. Because the Company is not the legal borrower, the senior mortgage debt’s agents assert that this information can not be disclosed on account of the borrower’s privacy rights. Different jurisdictions often have different privacy regulations and disclosure of the legal borrower’s obligations is complicated by competing, if not conflicting jurisdictional claims of the note, property, borrower, servicing agent, senior debt owner, new property owner and federal regulations.

FS-15

EASTERN LIGHT CAPITAL, INCORPORATED

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2010 and 2009

11.	Senior Mortgage Debt (continued)

The Company must also proceed cautiously in disclosing its position as the new property owner to the senior mortgage debt’s owner or agents. Many notes have acceleration clauses that may be activated by transfer, sale or foreclosure on the property. Although California law is generally written to prevent a senior mortgage debt from acceleration on account of foreclosure, every situation is different and the costs of defending the notes accelerated maturity could easily exceed the potential recovery from monetizing the foreclosed asset’s estimated residual equity. Due to the frequency of senior loan modifications and the frequency of misleading or inaccurate information provided by former owners or agents, the Company does not provide the individual terms or balances of its REO senior mortgage debt.

12.	Related party transactions

On March 26, 2010, the Company entered into a stockholder loan in the amount of $50,000. The loan’s interest rate was 9.99%. The borrowing was repaid on May 4, 2010.

13.	Preferred, common and treasury stock

The Preferred Stockholders are entitled to a dividend preference in an amount equal to an annualized return on the adjusted net capital contribution of Preferred Shares at each dividend record date during such year (or, if the Directors do not set a record date, as of the first day of the month). The annualized return is the lesser of: (a) 10.25%, (b) 1.50 % over the Prime Rate (determined on a not less than quarterly basis) or (c) the rate set by the Board of Directors. The preferred dividend preference is non-cumulative.

After declaring dividends for a given year to the Preferred Stockholders in the amount of the dividend preference, no further dividends may be declared on the Preferred Shares for the subject year, until the dividends declared on each Common Share for that year equals the dividend preference for each Preferred Share for such year. Any additional dividends generally will be allocated such that the amounts of dividends per share to the Preferred Stockholders and Common Stockholders for the subject year are equal. The Preferred Stockholder’s additional dividends, if any, are non-cumulative. Preferred Stockholders are entitled to receive all liquidating distributions until they have received an amount equal to their aggregate adjusted net capital contribution. Thereafter, Common Stockholders are entitled to all liquidation distributions until the aggregate adjusted net capital contributions of all Common Shares have been reduced to zero. Any subsequent liquidating distributions will be allocated among Common Stockholders and Preferred Stockholders pro rata.

The Preferred Shares are redeemable by a stockholder, subject to the consent of the Board of Directors, annually on June 30 for written redemption requests received by May 15 of such year. The Board of Directors may in its sole discretion deny, delay, postpone or consent to any or all requests for redemption. The redemption amount to be paid for redemption of such Preferred Shares is the adjusted net capital contribution plus unpaid accrued dividends, divided by the aggregate net capital contributions plus accrued but unpaid dividends attributable to all Preferred Shares outstanding, multiplied by the net asset value of the Trust attributable to the Preferred Shares which shall be that percentage of the Trust’s net asset value that the aggregate adjusted net capital contributions of all Preferred Shares bears to the adjusted net capital contributions of all Shares outstanding.

The Trust has the power to redeem or prohibit the transfer of a sufficient number of Common and/or Preferred Shares or the exercise of warrants and/or options and to prohibit the transfer of shares to persons that would result in a violation of the Trust’s shareholding requirements. The Bylaws provide that only with the explicit approval of the Trust’s Board of Directors may a stockholder own more than 9.8% of the total outstanding shares.

As of January 1, 2009, the Trust’s net Preferred Stock balance was 196,901. During 2009 and 2010, no Preferred Stock shares were purchased, so the Trust’s net Preferred Stock balance remained at 196,901 as of December 31, 2010.

As of January 1, 2009, the Trust’s net Common Stock number of shares outstanding was 366,532. During 2009, the Trust’s cumulative Common Stock purchases totaled 15,050 shares and 400 shares were issued upon stock option exercises. As of December 31, 2009, the Trust’s net Common Stock number of shares outstanding was 351,882. During 2010, the Trust’s cumulative Common Stock purchases totaled 400 shares. As of December 31, 2010, the Trust’s net Common Stock number of shares outstanding was 351,482.

FS-16

EASTERN LIGHT CAPITAL, INCORPORATED

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2010 and 2009

14.	Common stock options

The 1998 Incentive Stock Option Plan (“Plan”) adopted by the Board of Directors and approved by stockholders, provide qualified and non-qualified Common Stock options for the purchase of 247,500 Common Shares of the Trust. Company officers, employees, agents, contractors and Directors of the board are the eligible recipients of the options. The options may have a term of up to 10 years with a first exercise date generally within twelve (12) months after the date of the grant. Under the terms of the Plan, the exercise price of each option cannot be less than 100% of the Common Shares closing stock price on the date of grant. In February of 2008, the Board of Directors approved the reissuance of 84,655 options at 110% of the Common Shares closing stock price. The Plan expired on April 16, 2008. Therefore, the Company can no longer re-issue or re-price the outstanding options.

The activity in the Plan for the years ended December 31, 2010 and 2009 are as follows:

	Options			Weighted average exercise price
Outstanding at January 1, 2009		146,095		$	5.90
Granted		---			---
Exercised		(400	)	$	(3.63	)
Forfeited / Expired		(37,066	)	$	(9.00	)
Outstanding at December 31, 2009		108,629		$	4.85
Granted		---			---
Exercised		---			---
Forfeited / Expired		(22,624	)	$	6.15
Outstanding at December 31, 2010		86,005		$	4.45
Outstanding options exercisable as of
January 1, 2009		146,095		$	5.90
December 31, 2009		108,629		$	4.85
December 31, 2010		86,005		$	4.45

The following table summarizes information with respect to stock options outstanding at December 31, 2010:

	Options outstanding
Exercise price	Number of shares		Weighted-average remaining contractual life (years)		Weighted- average exercise price

$3.63		72,255		4.48	$	3.63
$9.00		13,750		0.19	$	9.06
		86,005		3.79	$	4.45

15.	Earnings (loss) per share

The following table represents a reconciliation of the numerators and denominators of the basic and diluted earnings per common share for the years ended December 31, 2010 and 2009:

Numerator:	2010			2009
Net loss	$	(1,392,097	)	$	(2,768,594	)
Preferred dividends attributable to income		---			---
Numerator for basic and diluted earnings (loss) per share available to common stockholders	$	(1,392,097	)	$	(2,768,594	)
Denominator: Basic weighted average shares		351,482			358,250
Dilutive effect of options diluted weighted average shares		---			---
Diluted weighted average shares		351,482			358,250
Basic loss per common share	$	(3.96	)	$	(7.73	)
Diluted loss per common share	$	(3.96	)	$	(7.73	)

FS-17

EASTERN LIGHT CAPITAL, INCORPORATED

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2010 and 2009

16.	Selected quarterly financial data – unaudited

Selected quarterly financial data is presented below by quarter for the year ended December 31, 2010:

				For the year ended December 31, 2010
	Total			4th Qtr			3rd Qtr			2nd Qtr			1st Qtr
Revenue	$	172,508		$	41,651		$	45,318		$	36,767		$	48,772
Gain (loss) from other items		(129,179	)		---			(120,426	)		27,378			(36,131	)
Net loss		(1,392,097	)		(430,218	)		(310,224	)		(386,298	)		(265,357	)
Preferred dividends		---			---			---			---			---
Net loss applicable to common stock	$	(1,392,097	)	$	(430,218	)	$	(310,224	)	$	(386,298	)	$	(265,357	)
Net loss per share, basic and diluted	$	(3.96	)	$	(1.22	)	$	(0.88	)	$	(1.10	)	$	(0.76	)

Selected quarterly financial data is presented below by quarter for the year ended December 31, 2009:

				For the year ended December 31, 2009
	Total			4th Qtr			3rd Qtr			2nd Qtr		1st Qtr
Revenue	$	388,581		$	67,238		$	114,385		$	128,185	$	78,773
Gain (loss) from other items		567,054			29,410			14,164			243,552		279,928
Net income (loss)		(2,768,594	)		(2,372,458	)		(470,602	)		45,958		28,508
Preferred dividends		---			---			---			---		---
Net loss applicable to common stock	$	(2,768,594	)	$	(2,372,458	)	$	(470,602	)	$	45,958	$	28,508
Net income (loss) per share, basic and diluted	$	(7.73	)	$	(6.60	)	$	(1.33	)	$	0.12	$	0.08

17.	Legal proceedings and contingencies

The Company is involved in three legal proceedings as of December 31, 2010.

Legal proceedings

During May 2010, the Company was named as a defendant in a complaint alleging fraudulent transfer of mortgage loans and aiding and abetting fraud. The Company believes that the plaintiff’s actions are without merit. The case was dismissed December 2010.

During January 2010, a former borrower filed an appeal of a previously dismissed case. The former borrower continued to allege that the Company made a fraudulent loan by cross collateralizing two separate properties. The cross collateralization was necessary to grant the borrower the desired loan amount, since there was insufficient equity in the primary property offered as collateral. The appeal was dismissed in the first quarter of 2011.

During June 2010, the Company was named a defendant in a complaint alleging damages for multiple violations associated with ELC’s foreclosure on improved real estate encapsulating the plaintiff’s unimproved real estate interest in a Deed of Trust. The Company believes the plaintiff’s actions are without merit and will seek dismissal of all complaints and reimbursement for reasonable legal costs and fees.

FS-18

EASTERN LIGHT CAPITAL, INCORPORATED

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2010 and 2009

Noncompliance with Exchange Listing Requirement

The NYSE Amex continued listing standard requires total stockholder equity of $6,000,000. The NYSE Amex has allowed the Company until November 7, 2011 to secure compliance. While the Company is working towards compliance, there is no assurance that it will be able to satisfy the $6,000,000 stockholder equity standard or that the NYSE Amex will not accelerate the compliance date.

18.	Subsequent Event

On February 12, 2011, both the common and preferred stockholders approved the conversion of the Series A Preferred Stock into Common Stock. The conversion was subsequently approved by the Company’s Board of Directors, filed with the Delaware Secretary of State and the NYSE Amex approved the listing of 246,126 additional common shares.

On March 3, 2011, the Company sold a real estate property for $650,000 and received net cash proceeds of approximately $560,000. The transaction did not result in a material gain or loss.

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

Description	Balance Beginning of Year		Costs and Expenses		Deductions			Balance End of Year
Allowance for Loan Losses	$	310,000	$	12,709	$	(302,709	)	$	20,000
Allowance for Doubtful Accounts	$	453,974	$	--- .	$	(453,974	)	$	--- .

SCHEDULE IV – MORTGAGE LOANS ON REAL ESTATE

Principal outstanding	Interest rate	Final maturity date	Monthly payment	Lien Priority	Face amount of mortgage(s)	Carrying amount of mortgage(s)	Amount of delinquent principal

Individual loans greater than $499,999:	---	---	---	---	---	---	---
Loans from $400,000-$499,999	---	---	---	---	---	---	---
Loans from $300,000-$399,999	6.25%	1 month	$2,000	1st	359,000	325,294	---
Loans from $200,000-$299,999	6.375% to 8.00%	13 to 289 months	$5,435	1st	632,243	499,901	---
Loans from $100,000- 199,999	---	---	---	---	---	---	---
Loans up to $99,999	7.00% to 12.125%	0 to118 months	$2,713	1st & 2nd	407,377	221,089	23,318
Total Mortgage Notes Receivable at December 31, 2010					$1,398,620	$1,046,284	$23,318

FS-19

EASTERN LIGHT CAPITAL, INCORPORATED

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2010 and 2009

Description		Balance Beginning of Year				Originations				Collections of Principal				Repayments				Sales				Write-offs				Foreclosures (net of reserve)				Balance End of Year
Mortgage Notes Receivable		$	2,690,737			$	---			$	(35,925	)		$	(332,084	)		$	---			$	---			$	(1,276,444	)		$	1,046,284

FS-20

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	8th grade Bad

Eastern Light Capital (ELCI) Inactive 10-K2010 FY Annual report

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