U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly and six-month period ended June 30, 2001.
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________ to _________
COUNTRY MAID FINANCIAL, INC.
(Exact name of small business issuer as specified in its charter)
Commission file number: 0-30730
WASHINGTON 34-1471323
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
2500 South Main Street
Lebanon, Oregon 97355
(Address of principal executive offices)
(541) 451-1414
(Issuer's telephone number)
___________________
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of June 30, 2001, the Registrant
had 7,725,896 shares of Common Stock outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one): Yes [ ] No [X]
1
PART I: FINANCIAL STATEMENTS AND MANAGEMENT'S
DISCUSSION AND ANALYSIS
Item 1: Financial Statements
COUNTRY MAID FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2001 and December 31, 2000
ASSETS
June 30, 2001 December 31, 2000
(Unaudited) (Audited)
Current Assets
Cash $ 93,022 $ 39,317
Management Fee receivable 48,225 15,226
Accounts receivable 113,356 62,576
Prepaid expenses 134,989 59,682
--------------- -------------------
Total Current Assets 389,592 176,801
Fixed Assets
Furniture & Fixtures - Net 49,280 49,280
--------------- -------------------
Total Fixed Assets 49,280 49,280
Other Assets
Due from TIM 37,800 37,000
Due from TIM-OR 155,607 155,607
Due from Lessors 138,797 145,380
Lease Option 650 650
--------------- -------------------
Total Other Assets 332,854 338,637
--------------- -------------------
TOTAL ASSETS $ 771,726 $ 564,718
--------------- -------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 2001 December 31, 2000
(Unaudited) (Audited)
Current Liabilities
Bank Overdraft $ 0 $ 109,622
Accounts Payable, Trade 284,462 263,148
Accrued Payroll & Payroll Taxes 438,144 346,125
Accrued Expenses 253,953 158,024
--------------- -------------------
Total Current Liabilities 976,559 876,919
Other Liabilities
Advances from Properties 44,067 0
Notes Payable 285,308 0
Due to stockholders 1,014,695 1,032,695
--------------- -------------------
Total Other Liabilities 1,344,070 1,032,695
TOTAL LIABILITIES 2,320,629 1,909,614
Stockholder's Deficit
Common Stock 2,769,252 2,769,252
Preferred Stock 100,650 100,650
Excess Liabilities at Inception (60,000) (60,000)
Retained Deficit (4,358,805) (4,154,798)
--------------- -------------------
Total Stockholder's Equity (1,548,903) (1,344,896)
--------------- -------------------
TOTAL LIABILITIES &
STOCKHOLDER'S EQUITY $ 771,726 $ 564,718
--------------- -------------------
2
COUNTRY MAID FINANCIAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three & Six Months Ended June 30, 2001 and June 30, 2000
Three Months Ended Six Months Ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
Revenues $ 1,433,032 $ 994,472 $ 2,562,993 $ 1,640,700
Operating Costs
Lease payments 368,972 211,482 724,897 374,902
Direct costs 730,999 442,538 1,367,351 766,188
Administrative costs 130,101 75,132 223,488 112,477
Total Operating Costs 1,230,072 729,152 2,315,736 1,253,567
Gross Profit 202,960 265,320 247,257 387,133
Expenses
Payroll and payroll taxes 122,068 113,587 246,168 198,521
Professional Fees 65,716 52,782 129,892 123,218
General &
Administrative 36,020 39,932 75,204 72,957
Total expenses 223,804 206,301 451,264 394,696
Net (Loss)/Profit (20,844) 59,019 (204,007) (7,563)
Primary Loss per share 0.00 0.01 (0.03) 0.00
Diluted Loss per share 0.00 0.01 (0.03) 0.00
Weighted average number of
common shares outstanding 7,725,896 7,725,896 7,725,896 7,725,896
3
COUNTRY MAID FINANCIAL, INC.
Consolidated Statement of Cash Flows
For Six Months Ended June 30, 2001 and June 30, 2000
CASH FLOWS FROM OPERATING ACTIVITIES
June 30, 2001 June 30, 2000
Cash Flows from Operating Activities
Net Income from Operations $ (204,007) $ (7,563)
Changes in assets and liabilities
Prepaid expenses and other (184,929) (53,545)
Accounts payable 21,314 130,444
Accrued payroll and payroll taxes 92,019 32,456
Receivables (50,780) 0
Management fees (32,999) (21,377)
Accrued expenses 95,929 0
Net cash flow from operating activities (263,453) (80,415)
Cash flows from investing activities
Advance from Properties 44,067 16,092
Due to Stockholders (18,000) 0
Due from TI (800) 0
Due from Lessors 6,583 0
Total Cash Flows from Investing Activities 31,850 16,092
Cash Flows from Financing Activities
Notes Payable 285,308 0
Issuance of Preferred Stock 0 100,000
Total Cash Flows from Financing Activities 285,308 100,000
Net Cash Flows 53,705 196,507
Cash Balance Beginning 39,317 0
Cash Balance Ending 93,022 196,507
COUNTRY MAID FINANCIAL, INC.
Notes To Unaudited Consolidated Financial Statements
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and therefore do not
include all disclosures necessary for a fair presentation of financial position,
results of operations, and cash flows in conformity with generally accepted
accounting principles. The unaudited consolidated financial statements include
the accounts of the Company. Significant intercompany transactions have been
eliminated in the accompanying unaudited consolidated financial statements. The
operating results for interim periods are unaudited and are not necessarily an
indication of the results to be expected for the full fiscal year. In the
opinion of management, the financial statements reflect all adjustments
(consisting only of normal recurring adjustments), which are necessary for a
fair presentation of operating results.
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Note 2. Per Share Information
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding in the
period. Diluted earnings per share takes into consideration common shares
outstanding (computed under basic earnings per share) and potentially dilutive
common shares.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Statement of Forward-Looking Information
This discussion and analysis should be read together with the Company's
condensed financial statements and related notes appearing in Item 1, above.
This report contains both objective historical information and subjective
"forward-looking statements" that are subject to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995, and bear certain risks and
uncertainties that could cause actual results to differ materially from those
projected. Generally, forward-looking statements are prefaced by the words:
"believe," "expect," "intend," "anticipate," and similar expressions; but their
absence does not mean that a statement is not forward-looking. Numerous factors
both within and outside the Company's control could affect the Company's actual
results. These risk factors, among others, could cause results to differ
materially from those presently anticipated by the Company. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this report. The Company undertakes no obligation
to publicly release the results of any revisions to these forward-looking
statements that may be made to reflect events or circumstances after the date of
this report or to reflect the occurrence of anticipated events.
General
Country Maid Financial ("CMF" or "the Company"), a Washington corporation,
incorporated in 1984, manages and maintains twenty motel properties located
throughout the United States, through its subsidiary, Territorial Inns
Management, Inc. a Nevada corporation ("TIM"). Currently, CMF operates in eight
states: Florida, Georgia, Illinois, Kansas, Texas, Washington, Missouri, and
Iowa. The Company plans to significantly expand its operations by obtaining
additional motel operating leases throughout the United States and Canada, and
has undertaken a plan to lease a number of economy-scale motels from motel
owners with options to purchase the motels at their current values. The Company
is confident that these motel properties can be operated at a significant net
profit.
Since its inception, CMF has continually sought to maximize its revenues by
increasing the number of properties under its management, delivering fairly
priced and high-quality motel services to its guests, and hiring experienced,
talented, and personable on-site managers and staff to manage and maintain the
properties under its control. Additionally, CMF's policy of combined leasehold
ownership and property management allows CMF to control the entire scope of
property management, thereby increasing the individual motels' level of
operating efficiency. The combined impact of CMF's management policies has
yielded numerous competitive advantages over industry competitors who limit
their activities to either property management or leasehold ownership.
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Franchising Activities
Eleven of the twenty properties in CMF's portfolio are national motel
franchises. Two belong to the "Select Inns" chain, and nine are "Best Inns"
franchises. This arrangement has two primary advantages: First, name
recognition. Second, standardized quality. The combined impact of these
advantages is to increase the occupancy rates of the properties under CMF's
management, and to, thereby increase CMF's overall profitability
The Company's Portfolio
Long-Term Leased Properties
Southfork Motel. Effective July 1, 1999, the Company entered into a Lease
Agreement with Option to Purchase the Southfork Motel located in Bloomfield,
Iowa. The lease provides for monthly lease payments calculated at twenty-percent
(20%) of the gross revenue of the motel. The lease grants the Company an option
to purchase the property at the price of $650,000 exercisable only during the
last sixty (60) days of the fourth five-year term of the lease. The Company
agreed to grant 650 shares of Class C Preferred Stock, without dividend, valued
at a Subscription Price of $130,000, convertible to the same value of common
stock twelve months from the date of issuance.
The Southfork motel currently subleases the on-site restaurant to a
third-party and the Company has assumed all rights and obligations of the
sublease. The Company receives $1,200 in monthly rental payments that are
included as part of the gross revenue of property used to calculate the monthly
lease payments payable to the motel owner.
Best Inns. On or about November 9, 1998, the Company and Best Inns, Inc., a
Kansas corporation ("Best Inns Kansas"), executed a Letter of Intent, which sets
forth the terms for the Company to lease with an option to purchase nine Best
Inns motel properties. The terms of the Letter of Intent provide that the
Company will receive the gross revenue generated by the properties and pay to
Best Inns a fixed annual lease payment of $1,980,000 payable monthly, and the
Company has an option to purchase the properties for the total amount of
$24,000,000. As consideration to Best Inns for the option to purchase, the
Company agreed to issue securities of the Company with an aggregate value of
$3,000,000.
On March 1, 1999, the previous management company of the Best Inns
properties voluntarily resigned from their duties and the Company assumed the
operation of the nine Best Inns properties on a straight management basis of
five percent (5%) of the gross revenue to the Company. Best Inns Kansas
proceeded with litigation in the Southern District of Illinois Federal Court
against the former management company for unsatisfactory management of the
properties. The case was settled and dismissed on April 11, 2000. The Company
intends to continue the management of the nine (9) Best Inns based on the oral
agreement effective March 1, 1999. The Company does not plan to close the lease
transaction until the litigation matter is resolved.
Properties under Management Agreements
The Company operates six other motel properties and an apartment complex
under individual management agreements, which set the management fee at a fixed
percentage, generally five percent (5%) of the gross revenue received from the
property. The motel owners are obligated to pay all expenditures with limited
authority to the Company to pay recoverable expenditures on the owners' behalf
up to an amount of $5,000 per month.
The Company believes that its strategy of obtaining motel operating leases
with purchase options will enable it to increase the number of properties in its
portfolio, and that the combined effect of this growth strategy and the
Company's strong management group will enable it to increase its market
penetration into the motel operating industry.
6
Other Financial Arrangements
Effective September 1, 2000, C. Richard Kearns, the Company's Chairman, and
John C. Moneymaker, one of the Company's directors, formally executed a personal
Stock Pledge Agreement in which Mr. Kearns agreed to pledge 2,500,000 shares of
his personal CMF common stock to Mr. Moneymaker in return for a personal
guarantee by Mr. Moneymaker of certain debt obligations of CMF related to
property located in Borger, Hutchison County, Texas, known as the Borger Motel.
Because this is a personal agreement between Messrs. Kearns and Moneymaker,
entered into between these parties as individuals and not as corporate officers
of the Company, this agreement can only affect the parties' respective holdings
in the Company.
Results of Operation - Three and Six Months Ended June 30, 2001 Compared to Same
Period in 2000
Revenues. Revenues for the three-month periods ended June 30, 2000 and June
30, 2001 increased from $994,472 to $1,433,032, respectively. Revenues for the
six months ended June 30, 2000 and June 30, 2001 increased from $1,640,700 to
$2,562,993 respectively. During the three and six month periods ended June 30,
2001, the Company's revenue was generated by its property-leasing and management
activities. The increase in gross revenue during the three and six months
periods ending June 30, 2001, compared to the same period in the prior year is
attributable primarily to The increase in gross revenue during the three and six
month periods ending June 30, 2001, compared to the same periods in the prior
year is attributable primarily to an increase in properties under lease.
Labor and Benefits Expenses. This category comprises all internal labor
costs including: salaries, taxes and employee benefits. The Company's labor and
benefits expenses for the three-month period ended June 30, 2000 and June 30,
2001 increased from $113,587 to $122,068, respectively. During the six months
ended June 30, 2000 and June 30, 2001, the Company's labor and benefits
expenses, as evidenced by payroll and payroll taxes increased from $198,521 to
$246,168, respectively. The increase in labor and benefits expenses from the
second quarter and the first six months of 2001 compared to the same period in
2000 was directly attributable to an increase in costs associated with leasing
and managing CMF's various properties. At June 30, 2001, the Company had 80 full
time employees and 67 part-time employees engaged in administration, on-site
operations, and property management. In addition, from time to time, CMF may
hire additional independent consultants or contractors to support its property
management and administrative organizations. Moreover, CMF may hire additional
staff, as needed, to meet the demands of the Company's management and leasing
operations.
General and Administrative Expenses. General and administrative expenses
for the three-month periods ended June 30, 2000 and June 30, 2001 decreased from
$39,932 to $36,020 respectively. General and Administrative Expenses for the six
months ended June 30, 2000 and June 30, 2001 increased from $72,957 to $75,204,
respectively. In each period, these expenses consisted primarily of the costs
associated with purchasing supplies, property management, facility renovation,
human resources, employee training, advertising and marketing costs, and general
administrative costs. This decrease was due to a decrease in these costs.
Net Profit/Loss. CMF recognized a net loss for the three-month period ended
June 30, 2001 of $20,844 compared to a net profit of $59,019 for the same period
in 2000. The Company recognized a net loss of $204,007 for the six-month period
ended June 30, 2001, as compared with a net loss of $7,563 for the same period
in 2000. The change in net loss reflected in the three month period ending June
30, 2001 and the net profit in June 30, 2000, and the change in net loss
7
reflected in the six month periods ending June 30, 2001 and June 30, 2000 was
due to the slowing economy resulting in diminished occupancy, and therefore
reducing management fees and total property revenue.
Liquidity and Capital Resources. At June 30, 2001, the Company had cash and
cash equivalents of $389,592 as compared to $330,035for the same period in 2000.
In the first six months of 2001, total cash used in operating activities was
$263,453, which was primarily due to property management and operating expenses.
During the first six months of 2001, total cash used by operating and management
activities was $263,453 as compared to $80,415 in the first six months of 2000,
which was primarily due to expenses derived from the Company's management
activities. During the first six months of 2000 and 2001, the total cash flow
from investing activities was $16,092 and $31,850 respectively, from advances
from properties.
Miscellaneous Accounting Information
Statement of Financial Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities," established accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
133 has no impact on the Company's financial statements because the Company does
not currently engage in any derivatives or hedging activities.
Statement of Financial Standards No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise," does not apply to the Company.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company may become from time to time, subject to claims and suits
arising in the ordinary course of the Company's business. In certain actions,
plaintiffs request punitive or other damages that may not be covered by
insurance. In 2001, Tubeart Display, Inc. ("Tubeart") filed two suits against
TIM stemming from an alleged default by TIM on two rental agreements allegedly
entered into between Tubeart and TIM in 1996 for two properties in Yakima,
Washington and Kennewick, Washington. Both suits settled for approximately
$15,000, collectively. The Company does not believe that this settlement will
materially affect its investors.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
All of the Exhibits listed below are incorporated by reference from the
Company's Form 10 Registration Statement that became effective on November 8,
2000. No reports on Form 8-K were filed during either the fiscal year ended
December 31, 2000 or during the three month period ended March 31, 2001.
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Restated Articles of Incorporation
3.2 Bylaws
4.1 Specimen Common Stock Certificate
4.2 Certificate of Designation of Preferred Stock dated May 10, 1999
10.1 Form of Management Agreement of Territorial Inns Management, Inc.
(Schedule of Properties)
10.2 Form of Property Management Agreement of Territorial Inns
Management, Inc. (Schedule of Terms of Agreements)
10.3 Stock Purchase Agreement dated September 30, 1998 between
Country Maid Financial, Inc. and Shareholders of Territorial
Inns Management, Inc.
10.5 Office Lease Agreement dated December 20, 1999, between
Hanlin and Weathers and Territorial Inns Management, Inc.
(b) Reports on Form 8-K.
None.
8
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COUNTRY MAID FINANCIAL, INC.
Dated: August 14, 2001 By: /S/ C. RICHARD KEARNS
-----------------------
C. RICHARD KEARNS
Chief Executive Officer
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ACCOUNTANT'S REPORT
THOMAS J. HARRIS
CERTIFIED PUBLIC ACCOUNTANT
3901 STONE WAY N., SUITE 202
SEATTLE, WA 98103
206.547.6050
August 10, 2001
Board of Directors
Country Maid Financial, Inc.
Lebanon, Oregon
We have reviewed the accompanying Balance Sheets of Country Maid Financial, Inc.
as of June 30, 2001 and 2000 and the related statements of Income, Shareholders'
Equity, and Cash Flows for the six month & three month periods then ended, in
accordance with Statements 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 Country
Maid Financial, 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 in order for them to be in
conformity with generally accepted accounting principals.
August 10, 2001
10