U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ending March 31, 2003
Or
/_/ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _________ to ____________
Commission File No. 333-93475
CORNERSTONE MINISTRIES INVESTMENTS, INC.
----------------------------------------
(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)
2450 Atlanta Highway, Suite 904, Cumming, GA 30040
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(Address of principal executive office) (Zip Code)
Issuer's telephone number, including area code: (678)-455-1100
Formerly, Cornerstone Ministries Investments, Inc. Changed February 26, 2003
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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 February 28, 2003, there were issued and outstanding 531,136 shares of the
common stock of the issuer.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
Cornerstone Ministries Investments, Inc.
Index
Page
Form 10-QSB Title Page 1
Index 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Accountant's Review Report F-1
Consolidated Balance Sheet as of March 31, 2003 F-2
Consolidated Statements of Income (Loss) and Retained Earnings
(Deficit) for the Three Months ended March 31, 2002 and 2003 F-3
Consolidated Statements of Changes in Stockholders Equity For
the Three Months ended March 31, 2002 and 2003 F-4
Consolidated Statements of Cash Flows for the Three
Months ended March 31, 2002 and 2003 F-5
Notes to Financial Statements F-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 3
Item 3. Controls and Procedures 4
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 5
Item 2. Changes in Securities and Use of Proceeds 5
Item 3. Defaults on Senior Securities 5
Item 4. Submission of Matters to a Vote of Security Holders 5
Item 5. Other Information 5
Item 6. Exhibits and Reports on Form 8-K 5
Signatures 5
Certifications 5
2
ROBERT N. CLEMONS, CPA, PA
PO BOX 1670
DELAND, FLORIDA 32721-1670
To The Board of Directors
Cornerstone Ministries Investments, Inc.
We have reviewed the accompanying consolidated balance sheet of Cornerstone
Ministries Investments, Inc. as of March 31, 2003 and the related consolidated
statements of income (loss) & retained earnings (deficit), changes in
stockholder's equity and cash flows for the three months ended March 31, 2003 in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of Cornerstone Ministries Investments, 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, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements and supplementary information
in order for them to be in conformity with generally accepted accounting
principles.
/s/ Robert N. Clemons, CPA, PA
DeLand, Florida
May 13, 2003
F-1
CORNERSTONE MINISTRIES INVESTMENTS, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2002 & 2003
03/31/02 03/31/03
ASSETS
Cash in banks $ 3,695,015 $ 4,159,125
Pre-funded project costs 596,326 1,042,325
Real estate loans, net 34,226,079 71,655,754
Bond holdings 5,287,592 2,629,250
Fixed assets, net 235,097 877,349
Deferred tax asset 284,796 387,915
Goodwill 500,955 388,549
Other intangible assets, net 599,220 1,402,542
Real estate held for sale 333,864 340,000
Other assets 10,714 75,740
------------ ------------
TOTAL ASSETS $ 45,769,658 $ 82,958,549
============ ============
LIABILITIES & SHAREHOLDER'S EQUITY
Investor certificates & accrued interest $ 42,066,164 $ 79,156,351
Accounts and other payables 590,065 667,849
Building mortgage 195,359 186,863
Deferred income taxes 33,941 0
------------ ------------
TOTAL LIABILITIES 42,885,529 80,011,063
------------ ------------
SHAREHOLDER'S EQUITY
Series A Convertible Preferred Stock, no par
value; 235,000 shares authorized, no
shares issued & outstanding 0 0
Common Stock, $0.01 Par Value, 10 million shares
authorized; 531,136 shares issued & outstanding 5,290 5,311
Paid in capital 3,281,139 3,294,889
Retained earnings (deficit) (402,300) (279,465)
Treasury Stock 0 (73,249)
------------ ------------
TOTAL SHAREHOLDER'S EQUITY 2,884,129 2,947,486
------------ ------------
TOTAL LIABILITIES &
SHAREHOLDER'S EQUITY $ 45,769,658 $ 82,958,549
============ ============
SEE ACCOMPANYING NOTES F-2
CORNERSTONE MINISTRIES INVESTMENTS, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS) & RETAINED EARNINGS (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 2002 & 2003
03/31/02 03/31/03
INCOME
Loan interest & fees earned $ 1,161,700 $ 1,875,208
Real estate & other income 134,839 63,274
----------- -----------
TOTAL INCOME 1,296,539 1,938,482
----------- -----------
Investor interest expense 843,292 1,557,317
Marketing expenses 106,997 106,487
Operating & personnel expenses 318,819 528,610
----------- -----------
TOTAL EXPENSES 1,269,108 2,192,414
----------- -----------
Operating income (loss) 27,431 (253,932)
Income tax (provision) benefit (41,015) 113,946
----------- -----------
NET INCOME (LOSS) ($13,584) ($139,986)
=========== ===========
Retained earnings as previously reported ($30,744) ($139,479)
Correction of error, Note 2 (357,972) 0
----------- -----------
Beginning retained earnings (deficit) as restated (388,716) (139,479)
Net income (loss) (13,584) (139,986)
----------- -----------
Ending retained earnings (deficit) ($402,300) ($279,465)
=========== ===========
SEE ACCOMPANYING NOTES F-3
CORNERSTONE MINISTRIES INVESTMENTS, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2002 & 2003
RETAINED
COMMON PAID-IN PREFERRED EARNINGS TREASURY TOTAL
STOCK CAPITAL STOCK (DEFICIT) STOCK EQUITY
BALANCE, DECEMBER 31, 2001 $ 5,287 $ 3,279,491 $ 0 ($388,716) $ 0 $2,896,062
Net income (loss) for the 1st quarter as restated (13,584) (13,584)
Capital contribute d 3 1,648 1,651
----------- ----------- --------- --------- ----------- ----------
BALANCE, MARCH 31, 2002 $ 5,290 $ 3,281,139 $ 0 ($402,300) $ 0 $2,884,129
=========== =========== ========= ========= =========== ==========
BALANCE, DECEMBER 31, 2002 $ 5,309 $ 3,293,641 $ 0 ($139,479) $ 0 $3,159,471
Net income (loss) (139,986) (139,986)
Capital contribute d 2 1,248 1,250
Treasury shares acquired (73,249) (73,249)
----------- ----------- --------- --------- ----------- ----------
$ 5,311 $ 3,294,889 $ 0 ($279,465) ($ 73,249) $2,947,486
=========== =========== ========= ========= =========== ==========
SEE ACCOMPANYING NOTES F-4
CORNERSTONE MINISTRIES INVESTMENTS, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 & 2003
03/31/02 03/31/03
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($13,584) ($139,986)
Adjustments to reconcile net income to cash
from operations-
Depreciation & amortization 36,785 21,162
Changes in-
Pre-funded project costs (141,742) (433,305)
Accrued bond interest, net (19,439) 14,312
Accrued loan interest & deferred loan fees (285,519) 204,635
Deferred taxes (7,377) (113,682)
Other intangibles (72,708) (347,741)
Investor interest payable (170,308) 444,945
Accounts & other payables 457,887 442,729
Dividends payable (171,834) (168,640)
Other assets 22,769 (58,476)
----------- ------------
NET CASH PROVIDED (USED) BY OPERATIONS (365,070) (134,047)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate loans made & purchased (3,584,838) (10,431,739)
Loan principal payments received 86,785 3,078,398
Bonds redeemed 38,500 31,250
Fixed assets purchased 21,977 (544,898)
Treasury stock acquired 0 (73,249)
Real estate costs capitalized (2,351) 0
----------- ------------
NET CASH (USED) BY INVESTING (3,439,927) (7,940,238)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Investor certificates sold 7,841,938 12,285,881
Investor certificates redeemed (3,249,199) (1,551,857)
Building mortgage principle payments (1,835) (2,363)
Stock issued 1,651 1,250
----------- ------------
NET CASH PROVIDED BY FINANCING 4,592,555 10,732,911
----------- ------------
NET CHANGE IN CASH 787,558 2,658,626
Cash at beginning of period 2,907,457 1,500,499
----------- ------------
CASH AT END OF PERIOD $ 3,695,015 $ 4,159,125
=========== ============
Supplemental Information-
Interest paid during the period $ 1,018,072 $ 1,122,675
Income taxes paid during the period $ 0 $ 0
SEE ACCOMPANYING NOTES F-5
CORNERSTONE MINISTRIES INVESTMENTS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying Consolidated Financial Statements include the accounts of
Cornerstone Ministries Investments, Inc., Wellstone Communities, Inc. and
Wellstone Financial Group, LLC (collectively "The Company"). The Company
originates and purchases mortgage loans made to faith-based organizations. The
Company offers specialized programs for churches, not-for-profit sponsors of
senior housing and affordable housing programs. The Company also invests in
similar real estate projects for the purpose of selling at a profit, or leasing.
Substantially all of the Company's loans and investments are in projects located
in the Southeastern United States.
The Company recognizes interest income from loans (both interest and fees) as it
is earned in accordance with SFAS Nos. 65 & 91.
The Company has adopted SFAS No. 142 effective January 1, 2002. The expenses
associated with organizing the corporation and beginning business have been
capitalized and are being amortized over 60 months.
Management aggressively monitors and evaluates its loan credit risks including
the borrower's adherence to loan terms, delinquencies, and ongoing project
status. Based on these and other judgement factors, the Company provides for
possible loan losses when needed to reduce recorded loans to fair value in
accordance with SFAS No.107. As of the balance sheet date no loan is
substantially in arrears; therefore, no allowance for loan losses is reflected
in the accompanying statements.
Cash and cash equivalents include checking accounts and short term certificates
with original maturities of 90 days of less.
Property and equipment are valued at cost when purchased. Depreciation is
provided on the straight-line method over the estimated useful lives of the
assets, which are generally three to five years for furnishings and equipment,
and 40 years for the Company's owned offices.
Interest on Investor Certificates is accrued from the date of issuance, and may
be paid semi- annually. Investors holding five year certificates in multiples of
$10,000 may receive interest monthly.
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to the difference between the methods of accounting for
depreciation and loan fees for financial and tax-reporting purposes. The
deferred taxes represent the estimated future tax consequences of those
differences, which will be either taxable or deductible when the assets and
liabilities are
F-6
recovered or settled. Accelerated depreciation methods and shorter asset lives
are used for tax reporting, and straight-line depreciation is used for financial
statement reporting. The Company calculates deferred taxes under the provisions
of SFAS No. 109 which provides for deferred tax assets and liabilities to be
carried on the balance sheet at current tax rates.
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported revenues
and expenses. Actual results could vary from the estimates that are used.
Certain report classifications used in prior year financial statements have been
reclassified to conform to current year presentation.
NOTE 2 - CORRECTION OF PREVIOUS FINANCIAL STATEMENTS
The Company has retroactively restated prior period's financial statements for
corrections to it=s method of recognizing fees associated with mortgage loans
required by SFAS 91. As of December 31, 2000 the Company deferred unearned loan
fees net of related taxes, together aggregating $275,440. In addition, costs
associated with its stock offerings have been reclassified from intangible
assets to a reduction of the associated paid-in capital account.
NOTE 3 - FIXED ASSETS
As of March 31, 2003, the Company's fixed assets are composed of:
Office Condominiums $792,659
Office Computers, Furnishings, Software & Equipment 88,570
Vehicles 37,730
Less: Accumulated Depreciation (41,610)
--------
Fixed Assets, Net $877,349
NOTE 4 - COMMITMENTS
The Company has no material lease commitments at March 31, 2003. The Company has
entered into an Administrative Services Agreement with Cornerstone Capital
Advisors, Inc. (CCA) to provide loan administration, including the application
and closing process and loan accounting; investor relations; marketing
collateral; administration of computers, computer networks and management
information systems; photo copying; and, maintenance of records, record keeping,
bookkeeping and accounting. The Company is obligated to pay directly or
reimburse actual expenses to be billed monthly by CCA. The agreement is for
renewable one-year terms and it may be terminated by either party upon 60 days'
written notice. It is anticipated that after the first quarter of 2003, the
Company will not have any employees of its own and accordingly, CCA will be
subject to the supervision of the Board of Directors. As of March 31, 2003, CCA
had not incurred any material expenses to be billed to the Company.
F-7
NOTE 5-REAL ESTATE LOANS RECEIVABLE
At March 31, 2003 the Company had Real Estate Loans on church and other
not-for-profit properties as follows:
Mortgage Loans $71,595,884
Accrued Interest 573,180
Unearned Loan Fees (513,310)
-----------
Total Real Estate Loans $71,655,754
These loans mature over a period beginning in 2003 and ending in 2012.
NOTE 6 - INTANGIBLE ASSETS
The Company has adopted SFAS 142 "Goodwill and Other Intangible Assets"
effective January 1, 2002. Goodwill associated with the Company's acquisition of
Presbyterian Investor's Fund, Inc. (PIF) is carried at $388,549. Management does
not believe impairment of this asset has occurred and accordingly, no provision
for impairment loss has been recorded. Other Intangible Assets consist of costs
incurred to register the Company's debt securities and commissions paid or
accrued on the sale of debt securities. These are amortized on a straight line
basis over the period the securities are outstanding, generally 5 years.
NOTE 7 - INCOME TAXES
Income tax expense (benefit) consists of estimated federal and state income
taxes on the company's taxable income, and the change in components of deferred
tax assets and liabilities. The deferred tax asset is comprised of provisions
for deductible temporary differences, principally depreciation and amortization
methods and accelerated lives, and reporting of loan fees earned.
Components of income tax benefit for the period ended March 31, are:
Current: Federal $ 8,993
State 1,834
Deferred: Federal 87,651
State 15,468
---------
$ 113,946
The Company has pending with the Department of the Treasury, a request to change
its accounting method with respect to loan fees which would approximate the book
treatment under SFAS Nos. 65 and 91.
F-8
NOTE 8 - CASH CONCENTRATION
A cash concentration risk arises when the Company has more cash in a financial
institution than is covered by insurance. At March 31, 2003, the Company had
cash in excess of insured limits totaling $3,465,605.
NOTE 9-SECURITIES OFFERINGS
In the normal course of business, the Company registers with the Securities and
Exchange Commission to sell its Investor Certificates. Included in the
certificates maturing in 22003 are 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 a
change. Certificates are not collateralized and no sinking fund is required for
paying the certificates upon maturity. Listed below are the certificates
outstanding as of March 31, 2003 by interest rate and date of maturity-
5.0% $2,814,430 2003 $ 6,757,563
7.0% 6,045,969 2004 812,814
7.5% 1,448,558 2005 4,931,264
8.0% 1,240,878 2006 11,274,694
9.0% 64,393,316 2007/Beyond 52,166,816
On February 21, 2003 Wellstone Communities, Inc., a wholly owned subsidiary,
filed a Form SB-2 Registration Statement under the Securities Act of 1933 with
the Securities and Exchange Commission to sell up to $50,000,000 of its Series A
Preferred Stock. Net proceeds from the offering are expected to be used to make
and purchase loans secured by properties, start or acquire a bank and add to
working capital.
On April 29, 2003 the Company filed a Form SB-2 Registration Statement under the
Securities Act of 1933 with the Securities and Exchange Commission to sell up to
$50,000,000 of its Certificates of Indebtedness along with $1,625,000 of its
Common Stock
NOTE 10-LOAN GUARANTEES
At March 31, 2003 the Company was guarantor for approximately $34,776,000 of
loans secured by retirement facilities owned by not-for-profit entities.
NOTE 11-PROFIT SHARING PLAN
During 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. All contributions are to be made at the
discretion of the Company after approval by the board of directors. For the
three months ended March 31, 2003 the Company has not elected to contribute.
F-9
NOTE 12 - BUILDING MORTGAGE
In connection with the acquisition of office space, the Company obtained a
mortgage and pledged the real estate as collateral. The mortgage requires
monthly payments of principle and interest totaling $2,068. Estimated principle
reductions are-
Year 2003 $4,654 Year 2004 $7,717 Year 2005 $8,487
Year 2006 $9,333 Year 2005 & Beyond $156,672
NOTE 13 - SERIES A CONVERTIBLE PREFERRED STOCK
In 2001, the Company amended its Articles of Incorporation to provide for the
issuance of up to 235,000 shares of Series A Convertible Preferred Stock. The
shares do not accrue dividends unless such dividends are declared by the Board
of Directors. The shares entitle the preferred shareholder to have one vote per
share, presently equal to the voting rights of Common shareholders. Each share
is convertible, after 3 years, into shares of Common Stock based on an
adjustable formula. Shares with a value of $500,000 were issued to Wellstone
Financial Group, LLC (WFG) during 2001. As WFG is included in these consolidated
financial statements, the shares have been eliminated in consolidation. If the
shares were convertible at the balance sheet date herein, an additional 76,923
shares of Common Stock could be issued.
F-10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the accompanying
unaudited consolidated financial statements and related notes This discussion
contains certain forward-looking statements with respect to the Company's
operations, industry, financial condition and liquidity that involve risks and
uncertainties. These statements, which are typically introduced by phrases such
as "the Company believes", "anticipates", "estimates" or "expects" certain
conditions to exist, reflect management's best current assessment of a number of
risks and uncertainties. The Company's actual results could differ materially
from the results anticipated in these forward-looking statements as a result of
certain risk factors described in this report, including those set forth in the
Form 10-KSB for the year ended December 31, 2002. Overview Since its inception,
the Company has focused on serving only faith-based organizations, principally
churches and non-profit sponsors of senior housing, affordable housing, and
school and daycare programs.
The Company generates revenue primarily from origination and renewal fees on
loans, interest on these loans, gains on the sale of property and interest on
bonds and money market accounts. It currently charges a 10% fee on new loans and
renewal fees of as much as 5% of the outstanding balance of the renewing loan.
The interest rate on all new loans is currently from 10% to 12%. Some loans are
participating loans, enabling the Company 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 March 31, 2002 and March 31, 2001
Income
General. Assets increased from $45,769,658 at March 31, 2002 to $82,958,549 at
the end of March 31 2003 for a net increase of $37,188,891 or 81.3%. This
increase was primarily a result of the sale of investment certificates and the
subsequent origination of new loans. Total Revenue increased for the quarter
ending March 31 by $641,943 or 49.5% from $ 1,296,539 in 2002 to $1,938,482 in
2003. The net loss for the period ending March 31, 2003 was $(139.986) compared
to a net loss of ($13,584) for the same period ending March 31, 2002.
Total investments in loans outstanding on March 31, 2003 were $71,655,754
compared to $34,226,079 as of March 31, 2002 for an increase of $37,429,675 or
109.4%. This increase was a result of higher sales of investment certificates
and the subsequent origination or renewal of loans. All other assets, composed
primarily of cash, bond investments, fixed assets and intangibles were
$11,302,795 as of March 31, 2003. Investor certificates increased $37,090,187 or
88.2% from $42,066,164 as of March 31, 2002 to $79,156,351 as of March 31, 2003.
Loan Interest and Fee Income Interest income and fees earned increased by
$713,508 or 61.4% from $1,161,700 for the three months ended March 31, 2002 to $
1,875,208 for the same period ending March 31, 2003. This increase was largely
as a result of the additional loans and from the refinancing of existing loans
made during this period. The weighted average interest rate on the loan balances
as of March 31, 2003 was 9.47%
Investment, Real Estate and Other Income The Company currently owns two office
condominiums, one that was acquired during the first quarter of 2003 and is
utilized as corporate offices and the other is leased. No other real estate is
owned but the Company does engage in participating loans where the future gains
and losses could be realized. Most of the Company's investment income is from
our purchase of bonds used as permanent financing for projects funded during
their development and initial operations. The Company owned $2,629,250 of bonds
at March 31, 2003, down from $5,287,592 at March 31, 2002. This decrease was
primarily driven by the cash sale of $2,512, 500 8% and 10% certificate bonds on
September 30, 2003 Accordingly investment interest decreased by $71,565 or
(53.1%) from $ 134,839 during the first three months of March 2002 to $63,274
for the same period ending March 31, 2003.
Expenses
Investor Interest Expense. As a result of the growth in assets through
certificate sales, CMI experienced an increase in interest expense of $714,025
or 84.7% for the same periods ending March 31. This increase in interest expense
is primarily a result of a net increase in outstanding certificate principal,
which increased from $42,066,164 at March 31, 2002 to $79,156,351 at March 31,
2003. The weighted average interest cost for all outstanding certificates as of
March 31, 2003 was 8.65%
Marketing Expenses. CMI continues to commit substantial resources for marketing
its Investment Certificates because of the continuing backlog of projects. Total
expenses for the marketing of certificates during the first three months of 2003
were $106,487 versus $160,997 in 2002. Selling commissions paid to brokers for
selling certificates are paid in cash but charged as an expense over the term of
the certificates they sold. The unamortized balance is on the Balance Sheet as
part of "Other Intangible Assets, net of amortization." This balance was
$1,402,542 as of March 31, 2003.
3
Operating Expenses. Operating expenses were $528,610 for the quarter ending
March 31, 2003, which was $209,791 or 65.8% over $ $318,819 for the same period
ending March 31, 2002. This increase reflects additional employees and
compensation added to handle the Company's growth, as well as the support
facilities for the increased number of employees. For 2003, the Company has
contracted with Cornerstone Capital Advisors ("CCA") to provide all
administrative services. The Company will reimburse CCA for its expenses which
are expected to similar to the expenses incurred by the Company had its
continued its administrative support under previous arrangements. There is no
fee schedule but the Company may elect to pay fees for good performance.
Taxes Income tax expense (benefit) is estimated for the period based on
projected income estimates for the year, including the tax-free income from
bonds. Any income tax expense (benefit) is due to changes in our deferred tax
assets and liabilities.
Dividends
Dividends declared during the prior periods were $168,640 and $171,834,
respectively and were paid during the quarters ending March 31, 2003 and 2002.
No other dividends were declared during this period.
Liquidity and Capital Resources
Cash flows from Operations. Net cash used by the Company's operations for the
quarter ending March 31, 2003 was $134,047, which compares to $365,070 net cash
used from operations for the same period ending 2002 for a net cash use decrease
of $231,023. This difference was driven primarily from net changes in the
Company's Investor Interest Payables and Interest Accruals partially offset by
increases in Pre-funded project costs.
Cash Flows from Investing Activities. The Company used $7,940,238 in cash from
investing activities which was an increase of $4,500,311 from $ 3,439, 927 for
the same period ending March 31, 2002. This increase was driven by increases of
Real Estate loans made and purchased during the first three months of 2003. Net
of scheduled principal payments received, the company increased its loan
portfolio by $7,353,341 for the three months ending March 31, 2003. This
compares to a net increase in loans of $3,498,053 for the same three months
ending March 31, 2002, a 110.2% increase. The Company currently has commitments
and applications sufficient to invest its excess cash on hand.
Additionally during the first quarter of 2003, the Company purchased an office
condominium for approximately $525,600 to house its corporate offices and to
provide additional office space for support of existing operations and future
growth.
Cash from Financings. During the first quarter of 2003, the Company raised
$10,734,024 on the sale of new certificates, net of redemptions on existing
certificates. This represented an increase of $6,141,285 from net certificate
sales of $4,592,739 for the same period ending March 31, 2002. Since the
Company's inception, cash redemptions have been modest and significant
majorities of maturing certificates are reinvested. The ratio of certificates
redeemed for cash to certificates sold for the three months ending March,
31,2003 was 12.6%. Many factors beyond the Company's control can affect this
ratio, and no assurance can be made that this trend will continue for future
obligations and the Company may be required to raise cash, either from
additional borrowings or asset sales, to meet future cash redemptions.
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 or Deflation
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. There is very limited experience with a period of declining prices,
deflation. It could make it more difficult for our borrowers to obtain long-term
financing on their properties, so that the periods of our loans could be
extended.
Item 3. Controls and Procedures
The principal executive officer and the principal financial officer of the small
business issuer, Cornerstone Ministries Investments, Inc., have, as of March 31,
2003, evaluated the small business issuer's disclosure controls and procedures,
as defined by Sections 13a-14(C) and 15d-14(C) of the Securities Exchange Act of
1934. Based on their evaluation, they have concluded that those disclosure
controls and procedures are designed and implemented effectively to ensure that
information required to be disclosed by the small business issuer in the reports
that it files or submits under that Act is recorded, processed, summarized and
reported, within the time periods specified in the Commission's rules and forms.
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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) Exhibit 99.1, certifications pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) No reports on Form 8-K were filed during the quarter for which this report
is filed.
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.
Dated: May 14, 2003 Cornerstone Ministries Investments, Inc. (Registrant)
By: S/John T. Ottinger
----------------------------------------------
John T. Ottinger
Vice President and Chief Financial Officer
Certifications
I, Cecil A. Brooks, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Cornerstone
Ministries Investments, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
5
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003 s/Cecil A. Brooks
------------------
Cecil A. Brooks, Chairman of the Board, President,
Chief Executive Officer
I, John T. Ottinger, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Cornerstone
Ministries Investments, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003 /s/John T. Ottinger
-------------------
John T. Ottinger, Vice President, Chief Operating
Officer and Chief Financial Officer
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