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, 2002
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.
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(Exact name of small business issuer as specified in its charter)
Georgia 58-2232313
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(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
6030 Bethelview Rd, #203, Cumming, GA 30040
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(Address of principal executive office) (Zip Code)
Issuer's telephone number, including area code: (678)-455-1100
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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 July 31, 2001, there were issued and outstanding 529,943 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
Balance Sheet at June 30, 2002 3
Statement of Operations for six
Months ending June 30, 2001 and 2002 4
Statements of Cash Flow for six
Months ending June 30, 2001 and 2002 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities and Use of Proceeds 9
Item 3. Defaults on Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Written statement of chief executive and chief financial officers 10
Special note about review by independent accountant 10
2
PIF/Cornerstone Ministries Investments, Inc.
Balance Sheet June 30, 2002
Assets
Current assets:
Cash $ 4,099,690
Accounts receivable 250,000
Other current assets 656,403
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Total current assets $ 5,006,093
Real estate loans receivable 38,644,682
Fixed assets 1,050,093
Bonds 5,110,500
Intangible assets, less amortization 306,229
Other assets 1,110,833
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Total assets $51,228,430
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 8,487
Interest and dividends payable 2,114,557
Income taxes payable 98,320
Due on redeemed certificates 971,646
Payroll tax liabilities 12,911
Other current liabilities 7,231
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Total current assets $ 3,213,152
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Long term liabilities:
Investor certificates $43,627,877
Building loan 193,336
Total liabilities $47,034,365
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Common stock, $0.01 par value,
10,000,000 shares authorized,
528,975 issued and outstanding 5,299
Paid in capital 3,439,332
Preferred stock 500,000
Retained Earnings 249,434
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Total equity $ 4,194,065
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Total liabilities and equity $51,228,430
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3
PIF/Cornerstone Ministries Investments, Inc.
Statement of Income and Retained Earnings
for the six months ended June 30, 2001 and June 30, 2002
Six months ended June 30
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2001 2002
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Revenues
Interest income - loans $ 1,400,505 $ 1,934,057
Fees earned 795,925 1,097,974
Rental income 7,346 13,235
Other income 2,965 --
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Total income $ 2,206,741 $ 3,045,266
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Operating expenses
Interest expense $ 1,254,944 $ 1,787,047
Marketing expenses 105,203 228,734
Other operating expenses 431,575 563,979
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Total operating expenses $ 1,791,722 $ 2,579,760
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Net income from operations $ 415,019 $ 465,506
Other income (expense)
Estimated income taxes (174,541) (89,800)
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Net income $ 240,478 $ 375,706
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4
PIF/Cornerstone Ministries Investments, Inc.
Statement of Cash Flows
for the six months ended June 30, 2001 and June 30, 2002
Six months ended June 30
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2001 2002
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Cash flows form operating activities:
Net income $ 240,478 $ 375,706
Adjustments to reconcile net income
To net cash provided by operations:
Depreciation and amortization 59,809 100,783
Changes in:
Accounts receivable (220,687) 3,668
Interest receivable 66,079 (81,086)
Related company advances -- (160,738)
Other assets (51,801) 9,456
Accounts payable (12,869) (69,463)
Redeemed certificates due investors -- 978,128
Interest payable 199,041 (1,103,422)
Dividends payable (151,974) 398
Income taxes payable 53,431 89,800
Payroll taxes payable (24,368) 1,736
Other liabilities 75,821 (4,099)
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Net cash provided by operating activities $ 232,960 $ 140,867
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Cash flows from investing activities:
Net loans made $(2,120,258) $(7,111,187)
Real estate purchased (451,392) (2,351)
Equipment purchased (257,460) (32,018)
Intangible assets purchased -- (44,400)
Related company investment -- (62,585)
Sale of bond holdings -- 62,000
Interest and fees receivable -- (364,859)
Prepaid commissions -- (146,100)
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Net cash used by investing activities $(2,829,110) $(7,701,500)
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Cash flows from financing activities:
Common stock issued $ 867,009 $ 7,669
Net debt certificates issued 2,090,671 9,022,921
Building loan 200,933 (3,858)
Dividends -- (172,452)
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Net cash provided by financing activities $ 3,158,613 $ 8,854,281
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Net cash increase for period $ 562,463 $ 1,293,648
Cash at beginning of period 364,608 2,806,042
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Cash at end of period $ 927,071 $ 4,099,690
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5
PIF/CORNERSTONE MINISTRIES INVESTMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2002
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.
(C) Organizational Information
The Company is a corporation organized under the laws of the State of Georgia.
(D) 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.
(E) Accrued Interest Income
Interest income is accrued monthly on the outstanding balance of loans
receivable.
(F) 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.
(G) Cash and Cash Equivalents
Cash and cash equivalents include checking accounts and short term certificates
with original maturities of 90 days or less.
NOTE 2 - LEASE COMMITMENTS
The Company had no lease commitments at June 30, 2002.
NOTE 3 - REAL ESTATE LOANS RECEIVABLE
At June 30, 2002, the Company had Real Estate Loans Receivable totaling
$38,644,682. These loans mature over a period beginning in 2002 and ending in
2012.
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 and (5) the
costs of acquiring assets and/or assuming liabilities in acquisitions. These
intangibles are amortized on a straight line basis for periods of 5 to 40 years.
6
PIF/CORNERSTONE MINISTRIES INVESTMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001and MARCH 31, 2002
NOTE 5 - CASH CONCENTRATION
A cash concentration risk arises when the Company has more cash in one financial
institution than is covered by insurance. At June 30, 2002, the Company had cash
in one institution that was $1,762,777 over the amount insured by the FDIC.
NOTE 6-SECURITIES OFFERING
During the year ended December 31, 2001 the Company filed 2 Form SB-2
Registration Statements under the Securities Act of 1933. Under these
Registration Statements, the Company issued 3 separate securities.
Under the first of the SB-2 filings the Company issued securities identified as
"Access Certificates". These certificates have no stated maturity, are purchased
in $100 increments and bear a rate of interest as determined by the Company's
board of directors on the first of each January, April, July and October. The
directors may also change the rates between these dates if market conditions
warrant such a change.
Under this same filing the Company issued 5 year "Graduated Certificates". These
certificates require a minimum investment of $500. Under the terms of the
offering as filed, these certificates carry a graduated interest rate based on
how long the certificate is held by the investor up to 5 years. These
certificates are not collateralized and no sinking fund for paying the
certificates on maturity is required.
Also during the year ended December 31, 2001 the Company offered up to
$17,000,000 of Series B Certificates of Indebtedness. Of the $17,000,000
offered, $3,000,000 has a March 13, 2003 maturity date and bears an interest
rate of 7%. The remaining $14,000,000 has a March 15, 2005 maturity date and
bears interest at 9%. These certificates are not collateralized and no sinking
fund for paying the certificates on maturity is required.
Under a registration statement effective July 3, 2002, the Company began
offering up to $45,000,000 of certificates, which include access, graduated and
five-year, fixed-rate certificates. These certificates are not collateralized
and no sinking fund for paying the certificates on maturity is required.
NOTE 7-LOAN GUARANTEES
At June 30, 2002, the Company was guarantor for loans secured by retirement
facilities owned by non-profit entities. The total of such loan guarantees was
approximately $20,310,000 at June 30, 2002.
NOTE 8-PROFIT SHARING PLAN
During the year ended December 31, 2001, the Company established a Profit
Sharing Plan for its employees. The Plan allows for entry into the plan after
one year of service, and immediate vesting of contributed amounts. The Plan does
not have an employee contribution component. All contributions are to be made at
the discretion of the Company after approval by the board of directors. For the
year ended December 31, 2001 the Company determined that a contribution of
approximately $41,000 was to be made.
NOTE 9-ACQUISITION OF INTEREST IN LIMITED LIABILITY COMPANY
During the year ended December 31, 2001, the Company acquired a 99% equity/100%
profits interest in Wellstone Financial Group, LLC (WFG), a Georgia Limited
Liability Company. WFG was formed for the purpose of assisting non-profit
entities secure financing from sources other than the Company for retirement
facilities, childcare facilities and church and church related facilities. WFG
receives a fee for assisting these non-profit entities secure non-Company
financing.
7
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, 2001 and June 30, 2002
Income
General. Assets increased from $34,650,051 at June 30, 2001 to $51,228,430 at
the end of June 2002, as a result of the sale of CMI's stock and certificates.
Gross income was $2,206,741 for the first two quarters of 2001 and $3,045,266
for the same period in 2002. Net income for these periods, before dividends but
after taxes, was $240,478 and $375,706.
Total loans outstanding on June 30, 2001 were $28,590,067 and $38,644,682 on
June 30, 2002. Our other assets at the end of June 2002 included $5,110,500 in
investments in bonds.
Interest Income. Interest income increased from $1,400,505 for the six months
ended June 30, 2001 to $1,934,057 in the 2002 period, largely as a result of the
additional loans made during this period.
Fee Income. Fee income for the six months ending June 30, 2002 was $1,097,974
versus $795,925 for the same period in 2001. The increase is primarily the
result of additional loans being made during the period out of increased funds
arising from the sale of certificates.
Expenses
Interest Expense. As a result of its growth in assets through certificate sales,
we experienced an increase in interest expense from $1,254,944 in the first six
months of 2001 to $1,787,047 in the 2002 period. This increase in interest
expense is primarily a result of a net increase in outstanding certificate
principal, from $28,047,867 to $43,627,877.
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 marketing expenses
in the first two quarters of 2002 were $228,734 versus $105,203 in 2001. 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. Commission expense and the accompanying capitalized assets will
increase as securities continue to be sold.
8
Operating and Administrative Expenses. Operating and administrative expenses
totaled $563,979 in the first six months of 2002 and $431,574 in the same period
of 2001. This increase can be attributed to additional staff and support
facilities.
Amortized legal expenses increased as a result of the offerings begun in the
2000. Legal expenses associated with both the offerings 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. We estimated income taxes for the six-month periods to be $89,800 for
2002 and $174,541 for 2001, based on projected income estimates for the year.
Liquidity and Capital Resources
Cash from Operations. Net cash from operating activities was $140,867 in 2002
and $232,960 in 2001.
Cash from Financings. For the six months ended June 30, 2002, $9,030,590 was
raised from the sale of new securities, after subtracting the amount of
outstanding securities redeemed. The net new capital raised in the 2001 period
was $2,957,680.
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.
Part II. Other Information
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
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) No reports on Form 8-K were filed during the quarter for which this report
is filed.
9
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.
PIF/Cornerstone Ministries Investments, Inc.
(Registrant)
Dated: August 12, 2000
By: S/ John T. Ottinger
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John T. Ottinger
Vice President and Chief Financial Officer
Written statement by the chief executive officer and chief financial officer
I certify that the Report on Form 10-QSB for the six months ended June 30, 2002
of PIF/Cornerstone Ministries Investments, Inc. fully complies with the
requirements of section 15(d) of the Securities Exchange Act of 1934 and that
information contained in that Report fairly presents, in all material respects,
the financial condition and results of operations of PIF/Cornerstone Ministries
Investments, Inc.
S/ Cecil A. Brooks
------------------------------------------
Cecil A. Brooks
President and Chief Executive Officer
S/ John T. Ottinger
------------------------------------------
John T. Ottinger
Vice President and Chief Financial Officer
Special note about review by independent accountant
The independent accountant for PIF/Cornerstone Ministries Investments, Inc. has
been T. Jackson McDonald, CPA, a sole proprietorship. Mr. McDonald had issued
all audit and review reports during the entire time that the registrant has
filed reports under Section 15(d). Mr. McDonald died suddenly and unexpectedly
on July 20, 2002, while on vacation with his family. The registrant is making
all diligent efforts to engage an independent accountant but was unable to do so
in time for a review of this Report.
10