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 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 --------------- -------------------
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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
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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. 4 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. 5 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 9 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