U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ending June 30, 2001
Or
/_/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to ____________
Commission File No. 333-93475
PIF/CORNERSTONE MINISTRIES INVESTMENTS, INC.
--------------------------------------------
(Exact name of small business issuer as specified in its charter)
Georgia 58-2232313
- ------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
6030 Bethelview Rd, #101, Cumming, GA 30071
- ----------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Issuer's telephone number, including area code: (678)-455-1100
--------------
- --------------------------------------------------------------------------------
Former name, address and former fiscal year, if changed since last report.
Check whether the issuer (1) filed all reports required to be filed by the
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for past 90 days.
Yes__X_ No___
As of August 31, 2001, there were issued and outstanding 560,013 shares of the
common stock of the issuer.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PIF/Cornerstone Ministries Investments, Inc.
Index
Page
Form 10-QSB Title Page 1
Index 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Report of Certified Public Accountant 3
Balance Sheet at June 30, 2000 and 2001 4
Statement of Income and Retained Earnings for
Six Months ending June 30, 2000 and 2001 5
Statements of Cash Flow for three
Months ending June 30, 2000 and 2001 6
Notes to Financial Statement 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults on Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
T. JACKSON McDANIEL III
Certified Public Accountant
1439 McLendon Drive
Suite C
Decatur, GA 30033
(770) 491-0609
To the Board of Directors
Cornerstone Ministries Investments, Inc.
I have reviewed the accompanying balance sheet of Cornerstone Ministries
Investments, Inc. as of June 30, 2001 and the statements of income, retained
earnings, and cash flows for the 6 months ended June 30, 2001 and June 30, 2000,
in accordance with standards established by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of PIF/Cornerstone Ministries, Inc.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, I do not express such an opinion.
Based on my review, I am not aware of any material modifications that should be
made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/s/ T. Jackson McDaniel III
---------------------------
T. Jackson McDaniel III
August 15, 2001
3
PIF/CORNERSTONE MINISTRIES INVESTMENTS, INC.
BALANCE SHEET
June 30, 2001
ASSETS
CURRENT ASSETS
CASH $ 2,743,742
ACCOUNTS RECEIVABLE 287,772
ACCRUED INTEREST RECEIVABLE 802,987
---------------
TOTAL CURRENT ASSETS 3,834,501
REAL ESTATE LOANS RECEIVABLE 28,590,067
FIXED ASSETS-NET OF ACCUMULATED
DEPRECIATION 234,220
INTANGIBLE ASSETS-NET OF ACCUMULATED
AMORTIZATION 1,032,286
INVESTMENTS
REAL ESTATE HELD 746,891
OTHER ASSETS
BOND HOLDINGS 223,000
PREPAID EXPENSES 1,500
DEPOSIT 400
---------------
TOTAL ASSETS $ 34,662,865
===============
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 13,468
INTEREST PAYABLE 2,412,731
INCOME TAXES PAYABLE 165,695
PAYROLL TAX LIABILITIES 10,503
DUE TO INVESTORS 89,915
DUE TO CHURCH GROWTH FOUNDATION -
RENT DEPOSITS HELD -
---------------
TOTAL CURRENT LIABILITIES 2,692,312
LONG TERM LIABILITIES
BUILDING LOAN 200,933
INVESTOR CERTIFICATES 28,047,867
---------------
TOTAL LONG TERM LIABILITIES 28,248,800
DEFERRED INCOME TAXES 31,669
---------------
TOTAL LIABILITIES 30,972,781
COMMON STOCK, .01 PAR VALUE,
10,000,000 SHARES AUTHORIZED,
530,613 ISSUED AND OUTSTANDING 5,306
PAID IN CAPITAL 3,443,961
RETAINED EARNINGS (DEFICIT) 240,817
---------------
TOTAL SHAREHOLDER'S EQUITY 3,690,084
---------------
TOTAL LIABILITIES AND MEMBER'S EQUITY $ 34,662,865
===============
4
PIF/CORNERSTONE MINISTRIES INVESTMENTS, INC
STATEMENT OF INCOME
AND RETAINED EARNINGS
For the 6 months ended June 30, 2001 and June 30, 2000
06/30/01 06/30/00
-------------- -------------
REVENUES
Interest Income-Loans $ 1,348,948 $ 178,791
Fees Earned 795,925 136,000
Rental Income 7,346 -
Other income 2,965 1,000
-------------- -------------
TOTAL REVENUES 2,155,184 315,791
OPERATING EXPENSES
Interest Expense-Investor Certificates 1,249,017 136,494
Interest Expense-other 5,927 31,367
Management Fees - 31,973
Marketing Expenses 105,203 19,822
Operating Expenses 431,575 31,559
-------------- -------------
TOTAL OPERATING EXPENSES 1,791,722 251,215
NET INCOME FROM OPERATIONS 363,462 64,576
OTHER INCOME (EXPENSE)
Interest Income-Banks 51,557 9,660
Income Tax Expense (174,541) (12,253)
-------------- -------------
TOTAL OTHER INCOME (EXPENSE) (122,984) (2,593)
NET INCOME $ 240,478 $ 61,983
RETAINED EARNINGS (DEFICIT)-BEGINNING OF PERIOD 339 10,130
DIVIDENDS - (72,010)
-------------- -------------
RETAINED EARNINGS (DEFICIT)-END OF PERIOD $ 240,817 $ 103
============== =============
See Accompanying accountant's report and notes to financial statements
5
PIF/CORNERSTONE MINISTRIES INVESTMENTS, INC.
STATEMENT OF CASH FLOWS
For the 6 months ended June 30, 2001 and June 30, 2000
06/30/01 06/30/00
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash from Operations:
Net income (loss) $ 240,478 $ 61,983
Items that do not use
Cash:
Depreciation and Amortization 59,809 8,375
(Increase) Decrease in
Accounts Receivable (220,687) (46,229)
(Increase) Decrease in
Accrued Interest Receivable 66,079 (12,146)
(Increase) Decrease in
Intangible Assets (106,939) (70,463)
(Increase) Decrease in
Other Assets 55,138 5,000
Increase (Decrease) in
Accounts Payable (12,869) (74,891)
Increase (Decrease) in
Interest Payable 199,041 37,352
Increase (Decrease) in
Dividends Payable (151,974) 42,269
Increase (Decrease) in
Rent Deposit Payable (700) -
Increase (Decrease) in
Income taxes payable 53,431 (18,557)
Increase (Decrease) in
Payroll taxes payable (24,368) -
Increase (Decrease) in
Other liabilities 67,675 -
Increase (Decrease) in
Deferred tax liability 8,846 3,584
------------- ------------
Net Cash Provided (Used) by
Operating Activities 232,960 (63,723)
Cash Flows From Investing Activities:
Real estate purchased (451,392) (263,042)
Plant, property and equipment purchased (257,460) -
Net loans made (2,120,258) (798,387)
------------- ------------
Net Cash Provided (Used) by
Investing Activities (2,829,110) 1,061,429)
Cash Flows From Financing Activties:
Stock subscriptions sold 867,009 41,987
Net certificates of Indebtedness Issued 2,090,671 207,141
Loan-PIF - 606,607
Building loan 200,933
Dividends - (72,010)
------------- ------------
Net Cash Provided by Financing Activities 3,158,613 783,725
Net Increase (Decrease)
in Cash: 562,463 (341,427)
Cash-Beginning of Year 364,608 706,035
------------- ------------
Cash-End of Year $ 927,071 $ 364,608
============= ============
6
PIF/CORNERSTONE MINISTRIES INVESTMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
NOTE 1 - Summary of Significant Accounting Policies
(A) Conformity with Generally Accepted Accounting Principles and Accounting
Method
The accounting policies of the Company conform to generally accepted accounting
principles consistent to its industry. The Company uses the accrual method of
accounting.
(B) Description of Company's Operations
The Company is in the business of originating and purchasing Mortgage loans on
Church and Church related properties. Costs associated with loan applications
received directly from borrowers are expensed as period costs.
The Company is also in the business of investing in Church and Church related
real estate for the purpose of 1)selling at a profit, 2)leasing to Churches and
Church related activities.
(C) Organizational Information
The Company is a corporation organized under the laws of the State of Georgia.
(D) Organizational Expenses
The expenses associated with organizing the corporation and beginning business
have been capitalized and are being amortized over 60 months.
(E) Provision for Loan Losses
Management is of the opinion that losses arising from the default of Church or
Church related loans are not probable or reasonably estimated. Management has an
aggressive policy of working out any potential problem loans before they reach
the default stage. As of the balance sheet date no loan is in arrears in a
material amount. Therefore, no allowance for loan losses is reflected in the
accompanying statements.
7
PIF/CORNERSTONE MINISTRIES INVESTMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
(F) Accrued Interest Income
Interest income is accrued monthly on the outstanding balance of loans
receivable.
(G) Accrued Interest Expense
Interest on Certificates of Indebtedness is accrued semiannually from the date
of issuance, and may be paid semiannually. Investors holding five year
certificates in multiples of $10,000 may receive interest monthly.
(H) Cash and Cash Equivalents
Cash and cash equivalents include checking accounts and short term certificates
with original maturities of 90 days of less.
NOTE 2 - LEASE COMMITMENTS
The Company currently has no lease commitments at June 30, 2001.
NOTE 3 - REAL ESTATE LOANS RECEIVABLE
At June 30, 2001 the Company had Real Estate Loans Receivable from Churches and
Church related properties totaling $28,590,067. These loans mature over a period
beginning in 2001 and ending in 2012. Of the total loans receivable at December
31, 2000 $21,720,888) were acquired as a result of the PIF Acquisition (See NOTE
11)
NOTE 4 - INTANGIBLE ASSETS
Intangible assets consist of costs incurred to 1)organize the Company, 2) costs
of registering the Company's equity and debt securities, 3) developing the
Prospectus for registering of the Company's securities, and 4) commissions paid
and/or accrued on the sale of debt securities and equity securities. Also
included in intangile assets is the premium of $500,955 paid as part of the PIF
acquisition (SEE NOTE 11). These intangibles are amortized on a straight line
basis periods of 5 to 40 years.
8
PIF/CORNERSTONE MINISTRIES INVESTMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
NOTE 5 - INCOME TAXES
Income taxes payable and the corresponding expense on The Company's net income
for the 6 months ended June 30, 2001 and June 30, 2000 has been computed as
follows:
06/30/2001 06/30/2000
--------------- ---------------
Current: Federal $ 142,193 $ 8,744
State 23,502 3,505
Deferred Federal 7,447 2,855
State 1,399 729
--------------- ---------------
$ 174,541 $ 15,837
=============== ===============
Deferred income taxes arise because of timing differences between financial
accounting and tax accounting rules for the deductibility of intangible
amortization expense.
NOTE 6 - CASH CONCENTRATION
A cash concentration risk arises when the Company has more cash in one financial
institution then is covered by insurance. At June 30, 2001 The Company had cash
in banks in excess of FDIC insured amounts totaling $1,468,777.
NOTE 7 - SIGNIFICANT BUSINESS CONCENTRATION
At June 30, 2001 the Company has loans receivable derived from lending
activities of $28,590,067. Of this amount $6,129,597 or approximately 21.44% of
the total loan portfolio of the Company is from one entity. This entity borrowed
the funds to finance Phase I of an Assisted Living Facility in Ft. Pierce, Fl.
Subsequent to the quarter ended June 30, 2001 The Company's loan was refinanced
and the Company received approximately $3,800,000 in cash plus acquired
$2,300,000 in tax free bonds in exchange for the balance.
9
PIF/CORNERSTONE MINISTRIES INVESTMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
NOTE 8-NAME CHANGE
Prior to the year ended December 31, 1998, the Company was named "Cornerstone
Ministries Fund, Inc.". During the year ended December 31, 1998, the Company
changed its name to "Cornerstone Ministries Investments, Inc." to allow it to
register its securities in all 50 states and to more correctly identify it with
its mission.
At the end of the year ended December 31, 2000 the Company again changed its
name as a result of the acquisition of assets of the Presbyterian Investors
Fund, Inc. (See NOTE 12). Effective December 29, 2000 the Company's name became
PIF/Cornerstone Ministries Investments, Inc.
NOTE 9-SECURITIES OFFERING
In December 1999 the Company filed a Form SB-2 Registration Statement under the
Securities Act of 1933. Under this Registration Statement it is the Company's
intent to raise approximately $19,275,000 in additional capital. This is to be
accomplished through the issuance of $2,275,000 in additional Common Stock and
$17,000,000 in new Certificates of Indebtedness.
As of the date of the accompanying accountant's report the company has an
additional 374,000 shares of stock outstanding as a result of this offering.
NOTE 10-STOCK SPLIT
In December of 1999 the board of directors authorized a stock split in a ratio
of approximately 1.53 to 1. This split was effected for shareholders of record
on January 2, 2000, and effected as of January 15, 2000. The split has no effect
on the earnings or cash position of the company at June 30, 2001
10
PIF/CORNERSTONE MINISTRIES INVESTMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
NOTE 11-ACQUISITION OF ASSETS OF PRESBYTERIAN INVESTORS FUND, INC.
On October 11, 2000 the Board of Directors agreed to acquire certain assets of
the Presbyterian Investors Fund, Inc. (PIF). PIF was in the business of
originating and purchasing loans made to churches that are members of The
Presbyterian Church in America (PCA). The acquisition price was determined by an
evaluation of the loan portfolio of PIF and was to be paid by the assumption of
certain liabilities of PIF plus a premium to be paid for the assets that was not
to be less than $500,000. This acquisition was closed on December 29, 2000
effective as of that date. The financial statements to which these footnotes are
a part include the results of that acquisition.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Since our inception, we have been focused on serving only faith-based
organizations, principally churches. We also offer specialized programs for
churches and non-profit sponsors of senior housing and affordable housing
programs. While our earnings have historically come from financing churches,
that began to change during the last quarter of 2000 as we began to realize
revenues from investment in senior and affordable housing projects.
As previously reported, Cornerstone Ministries Investments, Inc. acquired, by
merger effective December 29, 2000, all of the assets and liabilities of
Presbyterian Investors Fund, Inc., a not for profit corporation. No additional
shares were issued in the merger.
PIF/CMI generates revenue from origination and renewal fees on loans, interest
on these loans, gains on the sale of property and interest on money market
accounts. We also receive limited lease income, but we are no longer pursuing a
lease/purchase strategy. We currently charge a 10% fee on new loans and renewal
fees of as much as 5% of the outstanding balance of the renewing loan. Our
interest rate on all new loans is currently from 10% to 12%. Some loans are
participating loans, enabling PIF/CMI to receive income from the gains on the
sale of property for which it has provided financing. The participation
percentage varies between 25% and 33% of the gains on the sale of real estate.
Comparison of Periods Ending June 30, 2000 and June 30, 2001
Income
General. Assets increased from $5,337,845 at the end of June 30, 2000 to
$34,650,051 at the end of June 2001, as a result of the merger with PIF and the
sale of CMI's stock and certificates. The December 29, 2000 merger has had a
material effect on quarterly income. Gross income was $315,791 for the first 2
quarters of 2000 and $2,155,184 for 2001. Net income for these periods, before
dividends but after taxes, was $61,983 and $240,478.
Total loans outstanding on June 30, 2000 were $4,211,366 and $28,590,067 on June
30, 2001. Our other assets at the end of June 2001 included $223,000 in
investments in church bonds and $802,987 in interest receivable. We also had
investments in liquid securities of $2,745,742. (????)
Interest Income. Interest income on loans increased from $44,322 to $188.354,
largely as a result of the merger and additional loans made during this period.
Investment interest income decreased from $15,384 to $9,660 for the six month
period
Fee Income. Fee income for the six months ending June 30, 2001 was $136,000
versus $103,000 for the same period in 2000. The increase is the result of
additional loans being made during the period out of increased funds arising
from the sale of stock and certificates, as well as some limited refinancing of
existing loans by third parties, providing some additional lendable assets and
the merger.
Income from the sale of property. CMI did not realize any income from the sale
of property during the quarters ending June 30, 2000 or June 30, 2001. By the
end of 2000, CMI had disposed of most of the property to which it held title.
None of its participating loans had sold property during the course of the year.
PIF/CMI currently holds title to two properties, one in Soddy Daisy, TN, which
it expects to sell during the year 2001, one in Douglasville, Ga which it
expects to sell at some time in the near future and one in Cumming, Ga which is
being used for corporate offices.
Expenses
Interest Expense. As a result of its growth in assets through sales and the
merger, PIF/CMI experienced an increase in interest expense from $77,655 to
$167,860, including interest expense in the quarter for a loan on its facilities
purchased in February of 2001. This increase in interest expense is primarily a
result of a net increase in outstanding certificate principal, from 3,263,416 to
$28,047,867.
12
Marketing and Selling Expenses. To date, CMI has not committed substantial
resources for marketing its lending capabilities because of the continuing
backlog of projects with which it has been approached. Total promotional
expenses in the first two quarters of 2001 were $19,823 versus $14,022 in 2000.
Operating and Administrative Expenses. Operating and administrative expenses
totaled $63,532 in 2001 and $37,943 in 2000. This increase can be attributed to
having a larger asset base on which administrative services are calculated.
Prior to the merger, CMI paid PIF an administrative services fee of 1.5% of
assets. After the merger, all operating and administrative costs, including
selling commissions and legal expenses, are paid directly by PIF/CMI.
Selling commissions are paid in cash but capitalized over three, five, and seven
years depending on whether a three-year certificate, five-year certificate or
common stock is sold. Amortized commissions increased from $394,286 in 2000 to
$518,516 in 2001 as certificates and common stock have been sold in the current
offering, which commenced in May 2000. Commission expense and the accompanying
capitalized assets will increase as securities continue to be sold.
Amortized legal expenses increased as a result of the new offering in the year
2000. Legal expenses associated with both the 1998 offering and the 2000
offering are capitalized and amortized. We capitalized and are amortizing the
costs associated with the transfer of registrar, paying agent, and trustee
services as well.
Taxes. CMI accrued taxes of $12,898in 2000 on pre-tax income of $74,236,
anticipating significant additional income. We estimate taxes for the year 2001
will be approximately $175,000 based on projected income estimates for the year.
Liquidity and Capital Resources
Cash from Operations. Net cash provided from operating activities in 2000 was
$617,787 and for 2001 was $150,480.
Cash from Financings. CMI began operations in 1996 with an initial investment of
$510,000 from individuals and PIF. CMI's first offering of stock and
certificates in 1998 raised a total of $3,747,306.
Current Offering. CMI is currently seeking new capital of up to $19,275,000,
consisting of $2,275,000 in common stock (shares priced at $6.50 per share) and
$17,000,000 in unsecured debt. This offering began in May 2000. For the quarter
ended June 30, 2001 87,000 in new shares had been sold, raising $565,397 in new
equity, and an additional $1,412,835 in certificates had been sold, including
rollovers from maturing certificates. The total realized from this ongoing
offering is $1,978,232. A portion of these new investments came from maturing
investments in PIF.
We believe that additional sales of new investments from the current and planned
offerings, as well as cash on hand, expected refinancings and sales of existing
loans, will be sufficient to meet our capital needs for the next quarter. The
amount and timing of our future capital requirements will depend on factors such
as the origination and funding of new investments, the costs of additional
underwriting and marketing efforts, and general expenses of operations.
Effects of Inflation
Inflation, which has been limited during the course of our operating history,
has had little effect on operations and we do not believe it will have a
significant effect on our cost of capital or on the rates that we charge on our
loans. Inflation resulting in increased prices for real estate could potentially
decrease the ability of some potential clients to purchase, finance, or lease a
property.
13
Part II. Other Information
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
(d) The following information is furnished as required by Rule 463 and Item
701(f) of Regulation S-B, for the offering of securities under PIF/CMI's
first registration statement filed under the Securities Act of 1933:
(1) Effective date of the registration statement was May 1, 2000. Effective
date of Post-Effective Amendment No. 1 was April 16, 2001. The
Commission file number is 333-93475.
(2) The offering commenced May 1, 2000.
(3) Not applicable.
(4) (i) The offering has not terminated.
(ii) There is no underwriter.
(iii) Securities registered are common stock and Series B Certificates
of Indebtedness. (iv) For the common stock, 350,000 shares are
registered at an aggregate price of $2,275,000; 256,730 shares, at an
aggregate offering price of $1,668,745 had been sold through June 30,
2001. For the Certificates of Indebtedness, $17,000,000 face amount are
registered at an aggregate price of $17,000,000; $4,267,919 had been
sold through June 30, 2001. All sales were for the account of the
issuer. There is no selling security holder.
(v) The total amount of cash expenses incurred from the effective date
of the registration statement to June 30, 2001 was $ 207 ,044,
including $162,299 of commissions to registered broker-dealers and
$44,745 of other expenses.
(vi) The net offering proceeds to the issuer, after deducting total
expenses were $5,729,620. .
(vii) From the effective date of the registration statement to June 30,
2001, all of the net offering proceeds were used to finance buying and
building churches and their related properties. All of these payments
of the net proceeds were to persons other than directors, officers or
other persons described in Regulation S-B Item 701(f)(4)(vii)(A).
(viii) This use of proceeds is as described in the prospectus for the
offering.
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Securities Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) No exhibits are filed.
(b) A report on Form 8-K was filed January 16, 2001, to report, under Item 2,
the merger of Cornerstone Ministries Investments, Inc. and Presbyterian
Investors Fund, Inc. An amended Form 8-KA was filed June 16, 2001 to
furnish audited financial statements for the combined entity.
14
Signatures
In accordance with the requirements of the Securities and Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Cornerstone Ministries Investments, Inc.
(Registrant)
Dated: August 15, 2001
By: /S/ John T. Ottinger
----------------------------------
John T. Ottinger
Vice President and Chief Financial Officer
15