10QSB 1 doc1.txt 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 period ended March 31, 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 March 31, 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 March 31, 2001 and December 31, 2000 ASSETS March 31, 2001 December 31, 2000 (Unaudited) (Audited) Current Assets Cash $ 0 $ 39,317 Management Fee receivable 23,781 15,226 Accounts receivable 134,955 62,576 Prepaid expenses 85,644 59,682 -------- -------- Total Current Assets 244,380 176,801 Fixed Assets Furniture & Fixtures - Net 49,280 49,280 -------- -------- Total Fixed Assets 49,280 49,280 Other Assets Advance to Properties 63,162 0 Due from TI 37,000 37,000 Due from TIM-OR 155,607 155,607 Due from Lessors 86,305 145,380 Lease Option 650 650 -------- -------- Total Other Assets 342,724 338,637 -------- -------- TOTAL ASSETS $ 636,384 $ 564,718 ======== ========
2
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, 2001 December 31, 2000 (Unaudited) (Audited) Current Liabilities Bank Overdraft $ 97,360 $ 109,622 Accounts Payable, Trade 223,628 263,148 Accrued Payroll & Payroll Taxes 342,399 346,125 Accrued Expenses 220,715 158,024 ----------- ---------- Total Current Liabilities 884,102 876,919 Other Liabilities Notes Payable 289,047 0 Due to stockholders 1,032,695 1,032,695 ----------- ---------- Total Other Liabilities 1,321,742 1,032,695 TOTAL LIABILITIES 2,205,844 1,909,614 Stockholder's Deficit Common Stock 2,769,252 2,769,252 Preferred Stock 100,000 100,000 Excess Liabilities at Inception (60,000) (60,000) Retained Deficit (4,379,362) (4,154,798) ----------- ---------- Total Stockholder's Equity (1,569,460) (1,344,896) ----------- ---------- TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $ 636,384 $ 564,718 ----------- ----------
3
COUNTRY MAID FINANCIAL, INC. CONSOLIDATED STATEMENT OF OPERATIONS For the Three Months Ended March 31, 2001 and March 31, 2000 Three Months Ended Three Months Ended March 31, 2001 March 31, 2000 (Unaudited) (Unaudited) Revenues $ 1,129,961 $ 646,228 Operating Costs Lease payments 355,925 163,420 Direct costs 636,352 323,650 Administrative costs 93,387 37,345 Total Operating Costs 1,085,664 524,415 Gross Profit 44,297 121,813 Expenses Payroll and payroll taxes 105,703 70,084 Professional Fees 77,076 70,436 General & Administrative 86,082 47,875 Total expenses 268,861 188,395 Net Loss (224,564) (66,582) Primary Loss per share (0.03) (0.01) Diluted Loss per share (0.03) (0.01) Weighted average number of common shares outstanding 7,956,928 7,956,928
COUNTRY MAID FINANCIAL, INC. Consolidated Statement of Cash Flows For Three Months Ended March 31, 2001 and March 31, 200 March 31, 2001 March 31, 2000 (Unaudited) (Unaudited) Cash Flows from Operating Activities Net Income from Operations $ (224,564) $ (66,582) Changes in assets and liabilities Prepaid expenses and other (38,224) (85,298) Accounts payable (39,520) 123,248 Accrued payroll and payroll taxes (3,726) 19,120 Receivables (72,379) 0 Management fees (8,555) 12,384 Accrued expenses 62,691 0 Net cash flow from operating activities (324,277) 2,872 Cash flows from investing activities Advance to Properties (63,162) 34,967 Due from Lessors 59,075 0 Total Cash Flows from Investing Activities (4,087) 34,967 Cash Flows from Financing Activities Notes Payable 289,047 0 Issuance of Preferred Stock 0 100,000 Total Cash Flows from Financing Activities 289,047 100,000 Net Cash Flows (39,317) 137,839 Cash Balance Beginning 39,317 0 Cash Balance Ending 0 137,839
4 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 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 results of operations as reported for the interim period reflect all adjustments that 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 our condensed financial statements. 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 our control could affect our actual results. These risk factors, among others, could cause results to differ materially from those presently anticipated by us. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake 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 (the "Company"), a Washington corporation, incorporated in 1984, manages and maintains eighteen motel properties located throughout the United States, through its subsidiary, Territorial Inns Management ("TIM"). Currently, the Company operates in eight states: Florida, Georgia, Illinois, Iowa, Kansas, Missouri, Texas and Washington. 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 option to purchase the motel at its current value. The Company is confident that these motel properties can be operated at a significant net profit. Since its inception, the Company 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 5 its guests, and hiring experienced, talented, and personable on-site managers and staff to manage and maintain the properties under its control. Additionally, the Company's unique policy of combined leasehold ownership and property management allows the Company to control the entire scope of property management, thereby increasing the individual motels' level of operating efficiency. The combined impact of the Company's management policies has yielded numerous competitive advantages over industry competitors who limit their activities to either property management or leasehold ownership. Franchising Activities Eleven of the twenty properties in the Company'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 the Company's management, and to, thereby increase the Company'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. Properties under Management Agreement 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. We believe that our strategy of obtaining motel operating leases with purchase options will enable us to increase the number of properties in our portfolio, and that the combined effect of this growth strategy and our strong management group will enable us to increase our market penetration into the motel operating industry. 6 Recent Acquisitions On January 8, 2001, the Company announced that TIM had recently completed leases with options to purchase two lodging properties from True Vision Co., LLC, an Oregon limited liability company, and its affiliates. The Company believes each of these lodging facilities to be valued at $2,000,000. Both facilities will be operated and managed by TIM. The first facility is a Best Western Hallmark Inn in Lawrence, Kansas, with 60 economy-scale rooms, that the Company believes will add an additional $700,000 per year in revenue. The second facility, which consists of 95 rooms, is the Select Inn in Joplin, Missouri. The Company predicts the second facility to yield annual gross revenues of approximately $800,000. On January 29, 2001, the Company announced that TIM had completed leases with options to purchase two Texas lodging properties. The first property, which was leased with an option to purchase from True Vision Plainview I, LLC and its affiliates, is the Best Western Conestoga Inn in Plainview, Texas, which has 82 economy-scale rooms, The Company believes this property to be valued at $3,000,000. The second facility, consisting of 82 rooms, is the Fort Stockton Super Eight Motel in Fort Stockton, Texas. The Company values this facility at $1,100,000. The Company intends to operate and manage both facilities through TIM. Results of Operation - Three months ended March 31, 2001 Compared to three months ended March 31, 2000. Revenues. Revenues for the three-month periods ended March 31, 2000 and March 31, 2001 increased from $646,228 to $1,129,961, respectively. During the three-month period ended March 31, 2001, our revenue was generated by our property-leasing and management activities. The increase in gross revenue during the three-month period ending March 31, 2001, compared to the same period in the prior year is attributable primarily to a decrease in management costs and leasing expenses. Labor and Benefits Expenses. This category comprises all internal labor costs including: salaries, taxes, employee benefits, and all other direct costs related to Company performance, including labor costs, supplies and other miscellaneous related expenses. Our labor and benefits expenses for the three-month period ended March 31, 2000 and March 31, 2001 increased from $70,084 to $105,703, respectively. The fluctuation in labor and benefits expenses from the first quarter of 2000 compared to the same period in 2001was directly attributable to an increase in costs associated with leasing and managing the Company's various properties. At March 31, 2001, we had thirteen full time employees and seventeen part-time employees engaged in administration, on-site operations, and property management. In addition, from time to time, the Company may hire additional independent consultants or contractors to support its property management and administrative organizations. Moreover, we may hire additional staff, as needed, to meet the demands of our management and leasing operations. General and Administrative Expenses. General and administrative expenses for the three-month periods ended March 31, 2000 and March 31, 2001 increased from $47,875 to $86,082 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 management and administrative costs. This increase was due to an increase in these costs. We believe that our general and administrative expenses may increase in dollar amount for the remainder of fiscal 2001 as a result of an anticipated expansion of our operations. Net Loss. The Company recognized a net loss for the three-month period ended March 31, 2001 of $(224,564) compared to a net loss of $(66,582) for the same period in 2000. The change in net loss 7 reflected in the three-month period ending March 31, 2001 and March 31, 2000 reflected shifting property management and administrative costs. Liquidity and Capital Resources. At March 31, 2001, the Company had cash and cash equivalents of $(97,360). In the first three months of 2001, total cash used in operating activities was $(324,277), which was primarily due to property management and operating expenses. The Company did expend capital for investing activities during the first three months of 2001. 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 our financial statements because we do 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 us. 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 our business. In certain actions, plaintiffs request punitive or other damages that may not be covered by insurance. On March 23, 2001, Tubeart Display, Inc. ("Tubeart") filed suit against TIM for payment of $11,046.60 plus attorney fees stemming from an alleged default by TIM on a Rental Agreement allegedly entered into between Tubeart and TIM on November 26, 1996. No disposition has been reached in this case. However, the Company does not believe that the outcome of this litigation 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 8 (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 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. 10.4 Office Lease Agreement dated October 1, 1998, between Country Maid Financial, Inc. and C. Richard Kearns and Dixie Kearns. (b) Reports on Form 8-K. None. 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: May 18, 2001 By: /s/ ----------------------------- C. RICHARD KEARNS Chief Executive Officer 9