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 nine-month period ended September 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 September 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
September 30, 2001 and December 31, 2000
ASSETS
September 30, 2001 December 31, 2000
(Unaudited) (Audited)
Current Assets
Cash $ 421,425 $ 39,317
Management Fee receivable 32,813 15,226
Accounts receivable 137,779 62,576
Prepaid expenses 194,289 59,682
-------------------- -------------------
Total Current Assets 786,306 176,801
Fixed Assets
Furniture & Fixtures - Net 52,912 49,280
-------------------- -------------------
Total Fixed Assets 52,912 49,280
Other Assets
Due from TIM 21,760 37,000
Due from TIM-OR 155,607 155,607
Due from Lessors 180,476 145,380
Lease Option 650 650
-------------------- -------------------
Total Other Assets 358,493 338,637
-------------------- -------------------
TOTAL ASSETS $ 1,197,711 $ 564,718
==================== ===================
2
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 2001 December 31, 2000
(Unaudited) (Audited)
Current Liabilities
Bank Overdraft $ 0 $ 109,622
Accounts Payable, Trade 363,763 263,148
Accrued Payroll & Payroll Taxes 299,242 346,125
Accrued Expenses 309,265 158,024
-------------------- -------------------
Total Current Liabilities 972,270 876,919
Other Liabilities
Advances from Properties 434,474 0
Notes Payable 284,877 0
Due to stockholders 1,008,695 1,032,695
-------------------- -------------------
Total Other Liabilities 1,728,046 1,032,695
TOTAL LIABILITIES 2,700,316 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 (4,312,507) (4,154,798)
-------------------- -------------------
Total Stockholder's Equity (1,502,605) (1,344,896)
-------------------- -------------------
TOTAL LIABILITIES & $ 1,197,711 $ 564,718
STOCKHOLDER'S EQUITY ==================== ===================
3
COUNTRY MAID FINANCIAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three & Nine Months Ended September 30, 2001 and September 30, 2000
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
Revenues $ 1,447,992 $ 1,260,930 $ 4,010,985 $ 2,901,630
Operating Costs
Lease payments 368,972 234,603 1,093,869 609,505
Direct costs 766,269 610,641 2,133,620 1,376,829
Administrative costs 130,084 108,972 353,572 221,449
Total Operating Costs 1,265,325 954,216 3,581,061 2,207,783
Gross Profit 182,667 306,714 429,924 693,847
Other Income 38,759 0 38,759 0
Total Income 221,426 306,714 468,683 693,847
Expenses
Payroll and payroll taxes 87,741 82,277 302,603 249,441
Professional Fees 36,426 76,093 166,318 199,311
General & Administrative 50,961 60,009 157,471 164,323
Total expenses 175,128 218,379 626,392 613,075
Net Profit/(Loss) 46,298 88,335 (157,709) 80,772
Primary Profit/(Loss) per share 0.00 0.01 (0.02) 0.01
Diluted Profit/(Loss) per share 0.00 0.01 (0.02) 0.01
Weighted average number of common shares outstanding 7,725,896 7,725,896 7,725,896 7,725,896
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COUNTRY MAID FINANCIAL, INC.
Consolidated Statement of Cash Flows
For Nine Months Ended September 30, 2001 and September 30, 2000
CASH FLOWS FROM OPERATING ACTIVITIES
September 30, 2001 September 30, 2000
Cash Flows from Operating Activities
Net Income from Operations $ (157,709) $ 80,772
Changes in assets and liabilities
Prepaid expenses and other (244,229) (80,589)
Accounts payable 100,615 26,856
Accrued payroll and payroll taxes (46,883) (6,643)
Receivables (75,203) 0
Management fees (17,587) (24,834)
Accrued expenses 151,241 0
Net cash flow from operating activities (289,755) (4,438)
Cash flows from investing activities
Advance from Properties 434,474 52,972
Fixed Assets - Net (3,632) 0
Due to Stockholders (24,000) 0
Due from TI 15,240 0
Due from Lessors (35,096) 0
Total Cash Flows from Investing Activities 386,986 52,972
Cash Flows from Financing Activities
Notes Payable 284,877 0
Issuance of Preferred Stock 0 100,000
Total Cash Flows from Financing Activities 284,877 100,000
Net Cash Flows 382,108 42,590
Cash Balance Beginning 39,317 0
Cash Balance Ending 421,425 42,590
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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.
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 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 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. Management of the nine Best Inns
franchises will terminate on October 1, 2001.
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.
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.
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.
During the third quarter of 2001, the Company invested revenues and
advances against the properties in stock and similar investment strategies. The
investments for the third quarter of 2001 have resulted in positive revenue.
Results of Operation - Three and Nine Months Ended September 30, 2001 Compared
to Same Period in 2000
Revenues. Revenues for the three-month periods ended September 30, 2000 and
September 30, 2001 increased from $1,260,930 to $1,447,992, respectively.
Revenues for the nine months ended September 30, 2000 and September 30, 2001
increased from $2,901,630 to $4,010,985 respectively. During the three and nine
month periods ended September 30, 2001, the Company's revenue was generated by
its property-leasing and management activities. The increase in gross revenue
during the three and nine months periods ending September 30, 2001, compared to
the same period in the prior year is attributable primarily to the increase in
gross revenue during the three and nine month periods ending September 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 September 30, 2000 and
September 30, 2001 increased from $82,277 to $87,741, respectively. During the
nine months ended September 30, 2000 and September 30, 2001, the Company's labor
and benefits expenses, as evidenced by payroll and payroll taxes increased from
$249,441 to $302,603, respectively. The increase in labor and benefits expenses
from the second quarter and the first nine 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 September 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 September 30, 2000 and September 30, 2001
decreased from $96,170 to $50,961 respectively. General and Administrative
Expenses for the nine months ended September 30, 2000 and September 30, 2001
decreased from $164,323 to $157,471, 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 profit for the three-month period
ended September 30, 2001 of $46,298 compared to $88,335 for the same period in
2000. The Company recognized a net loss of $157,709 for the nine-month period
ended September 30, 2001, as compared with a net profit of $80,772 for the same
period in 2000. The change in net profit reflected in the three month period
ending September 30, 2001 and September 30, 2000, and the change in net loss
reflected in the nine month periods ending September 30, 2001 and the net profit
ending in September 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 September 30, 2001, the Company had
cash and cash equivalents of $421,425 as compared to $39,317 for the same period
in 2000. In the first nine months of 2001, total cash used in operating
activities was $289,755, which was primarily due to property management and
operating expenses. During the first nine months of 2001, total cash supplied by
operating and management activities was $97,231 as compared to $48,534 in the
first nine months of 2000, which was primarily due to expenses derived from the
7
Company's management activities. During the first nine months of 2000 and 2001,
the total cash flow from investing activities was $386,986 and $52,972
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 from time to time be 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 settlement amounts have been paid in full. The
Company does not believe that this settlement will materially affect its
investors.
In 2001, Bowne of Los Angeles, Inc. filed a suit in the Linn County Circuit
Court of Oregon against the Company and TIM (NV), along with other defendants,
for collection of monies due. The suit settled almost immediately for a minimum
of $14,000 and a maximum of $15,000. The Company does not believe that this
settlement will materially affect its investors.
In June of 2001, the Tulia Independent School District, along with other
petitioners, filed a petition in the Swisher County District Court of Texas
seeking $81,457.81 in taxes owed to various taxing entities and seeking a
judgment against the respondents and foreclosure of the subject motel property
located in Tulia, Texas. Neither the Company nor TIM is a respondent to this
action. However, this action affects the Company in that it manages the property
that is the subject of this foreclosure action. The action remains pending.
In July of 2000, George Terry filed a suit in the King County Superior
Court of Washington against TIM, along with other defendants, for personal
injuries related to a fall in a bathtub/shower at the "Nendels" property located
in Renton, Washington. Mr. Terry sought an undisclosed amount of damages, and
the claim was remitted to TIM's insurance carrier for defense. The case settled
in October of 2001 for $28,500. The Company does not believe that this
settlement will materially affect its investors.
Item 2. Changes in Securities and Use of Proceeds
During the third quarter of 2001, the Company invested revenues and
advances against the properties in stock and similar investment strategies.
8
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information.
As of September 30, 2001, TIM was not an active Nevada corporation and was
authorized to transact business in the states of Washington and Oregon. TIM
intends to immediately seek reinstatement of its corporate status in the state
of Nevada and authorization to transact business in Washington and Oregon. TIM's
authority to transact business in Washington or Oregon cannot be regained
retroactively to the date of revocation. However, the Company does not believe
that TIM's lack of authority to transact business in Washington and Oregon will
materially affect its investors.
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 nine month period ended September 30, 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.
9
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: November 21, 2001 By: / s /
-------------------------
C. RICHARD KEARNS
Chief Executive Officer
10
ACCOUNTANT'S REPORT
THOMAS J. HARRIS
CERTIFIED PUBLIC ACCOUNTANT
3901 STONE WAY N., SUITE 202
SEATTLE, WA 98103
206.547.6050
November 19, 2001
Board of Directors
Country Maid Financial, Inc.
Lebanon, Oregon
We have reviewed the accompanying Balance Sheets of Country Maid Financial, Inc.
as of September 30, 2001 and 2000 and the related statements of Income,
Shareholders' Equity, and Cash Flows for the nine 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.
November 19, 2001
11