UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended February 29, 2000
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act;
For the transition period from _________ to __________
Commission File Number #000-1024048
HOMELIFE, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 33-0680443
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4100 Newport Place, Suite 730, Newport Beach, CA 92660
------------------------------------------------ ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(949) 660-1919
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 [ ]
The issuer had 5,100,070 shares outstanding for the period ended February
29, 2000.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
HOMELIFE, INC.
INDEX
PAGE NO.
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PART I - FINANCIAL INFORMATION 1.
Item 1. Financial Statements 1.
Consolidated Balance Sheets as of February 29, 2000
(unaudited) and May 31, 1999 (revised audited) 1.
Comparative Unaudited Consolidated Statements of
Operations for the three months ended February 29,
2000 and February 28, 1999 3.
Comparative Unaudited Consolidated Statements of
Operations for the nine months ended February 29,
2000 and February 28, 1999 4.
Comparative Unaudited Consolidated Statements of Cash
Flows for the three months ended February 29, 2000
and February 28, 1999 5.
Comparative Unaudited Consolidated Statements of Cash
Flows for the 9 months ended February 29, 2000 and
February 28, 1999 6.
Notes to Unaudited Consolidated Financial Statements 7.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation. 14.
PART II - OTHER INFORMATION 18.
Item 1. Legal Proceedings. 18.
Item 2. Changes in Securities and Use of Proceeds. 18.
Item 3. Defaults Upon Senior Securities. 18.
Item 4. Submission of Matters to a Vote of Security Holders. 18.
Item 5. Other Information. 18.
Item 6. Exhibits and Reports of Form 8-K. 18.
(a) Exhibits
(b) Reports on Form 8-K
PART I - FINANCIAL INFORMATION
HOMELIFE, INC.
CONSOLIDATED BALANCE SHEETS
AS OF FEBRUARY 29, 2000 AND MAY 31, 1999
(unaudited) (revised audited)
February May
2000 1999
---- ----
ASSETS
Current Assets
Cash $193,103 $327,637
Marketable securities, at fair value 115,413 194,875
Accounts receivable 204,644 168,033
Notes receivable 219,303 215,803
Prepaid expenses and deposits 76,395 78,159
----------------------------
808,858 984,507
Property and Equipment 434,320 480,993
Goodwill 644,350 661,273
Other Assets 577,066 666,203
Cash Held in Trust 250,124 342,317
----------------------------
$2,714,718 $3,135,293
============================
1
HOMELIFE, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF FEBRUARY 29, 2000 AND MAY 31, 1999
(unaudited) (revised audited)
February May
2000 1999
---- ----
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Bank indebtedness $29,890 $16,960
Accounts payable 356,993 459,662
Advances from stockholder 143,472 143,472
Note payable 0 10,000
Reserve for warranty 51,100 51,500
Dividends payable 2,470 4,170
Deferred revenue 197,080 197,080
----------------------------
781,005 882,844
Deferred Revenue 206,149 206,149
Trust Liability 250,124 342,317
Minority Interest 42,982 43,378
----------------------------
1,280,260 1,474,688
Stockholders' Equity
Capital Stock 1,043,288 1,043,288
Additional Paid in Capital 2,846,093 2,846,093
Accumulated Other Comprehensive Loss (1,093) (1,093)
Accumulated Deficit (2,453,830) (2,227,683)
----------------------------
1,434,458 1,660,605
----------------------------
$2,714,718 $3,135,293
============================
2
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(UNAUDITED)
For the three For the three
months ended months ended
February 29, February 28,
2000 1999
REVENUE
Royalty and franchise fees $206,432 $145,856
Warranty fees 44,655 79,398
Mortgage financing fees 25,697 --
Real estate brokerage 400,864 380,542
Other income 50,056 122,544
---------------------------
727,713 728,340
COST OF SALES 426,621 396,650
---------------------------
301,092 331,690
---------------------------
EXPENSES
Salaries and fringe benefits 181,069 162,257
General and administrative 115,877 242,586
Occupancy 43,232 41,931
Financial (72,808) 26,159
Amortization 76,453 51,304
---------------------------
343,823 524,237
---------------------------
LOSS BEFORE MINORITY INTEREST (42,731) (192,547)
Minority interest 3,216 (1,930)
---------------------------
LOSS BEFORE INCOME TAX RECOVERY (39,515) (194,477)
Income tax recovery -- --
---------------------------
NET LOSS (39,515) (194,477)
Preferred dividends (140) (780)
---------------------------
NET LOSS APPLICABLE TO COMMON
SHARES (39,655) (195,257)
===========================
BASIC AND FULLY DILUTED LOSS
PER COMMON SHARE $(0.01) $(0.05)
===========================
WEIGHTED-AVERAGE NUMBER OF
COMMON SHARES 4,956,848 4,177,545
3
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(UNAUDITED)
For the nine For the nine
months ended months ended
February 29, February 28,
2000 1999
REVENUE
Royalty and franchise fees $ 649,997 $ 606,919
Warranty fees 201,384 217,336
Mortgage financing fees 64,331 --
Real estate brokerage 1,503,834 2,216,375
Other income 226,807 264,542
--------------------------
2,646,353 3,305,172
COST OF SALES 1,613,165 2,256,298
--------------------------
1,033,188 1,048,874
--------------------------
EXPENSES
Salaries and fringe benefits 471,910 411,989
General and administrative 413,944 727,758
Occupancy 128,273 117,703
Financial 78,097 77,942
Amortization 165,015 153,911
--------------------------
1,257,239 1,489,303
--------------------------
LOSS BEFORE MINORITY INTEREST (224,051) (440,429)
Minority interest (396) (6,882)
--------------------------
LOSS BEFORE INCOME TAX RECOVERY (224,447) (447,311)
Income tax recovery -- --
--------------------------
NET LOSS (224,447) (447,311)
Preferred dividends (1,700) (2,340)
--------------------------
NET LOSS APPLICABLE TO COMMON
SHARES (226,147) (449,651)
==========================
BASIC AND FULLY DILUTED LOSS
PER COMMON SHARE $ (0.05) $ (0.11)
==========================
WEIGHTED-AVERAGE NUMBER OF
COMMON SHARES 4,956,848 4,177,545
4
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
For the three For the three
months ended months ended
February 29, February 28,
2000 1999
$ $
CASH FLOWS FROM OPERATION ACTIVITIES
Net loss (39,655) (195,257)
Adjustments to reconcile net loss to net cash used
in operation activities
Depreciation and amortization 63,379 51,304
Minority interest (3,216) 1,930
Gain on trading securities (71,443) (247,018)
Changes in assets and liabilities
Decrease (increase) in accounts and other receivable (45,702) (46,776)
Decrease (increase) in notes receivable (3,500) 776,500
Decrease (increase) in prepaid expenses 1,349 161,210
Increase (decrease) in accounts payable (259,605) 34,007
Increase (decrease) in reserve for warranty 10,500 65,200
Increase (decrease) in notes payable (20,000) 0
Increase in deferred revenue 62,286 (173,955)
-------------------------
(305,607) 427,145
-------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment 55,868 199,881
Purchases of intellectual assets (95,815) (107,195)
Purchases of marketable securities 152,687 (375,000)
-------------------------
112,740 (282,314)
-------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in bank indebtedness 29,890 16,960
Increase (decrease) in advances from stockholder 50,096 (177,114)
Increase (decrease) in common stock issuance 36,860 15,917
Increase (decrease) in dividends payable (140) (7,180)
-------------------------
116,706 (151,417)
-------------------------
NET INCREASE (DECREASE) IN CASH (76,161) (6,586)
Cash, beginning of period 269,264 278,567
-------------------------
CASH, END OF PERIOD $ 193,103 $ 271,981
-------------------------
5
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(Unaudited) (Unaudited)
February 29, February 28,
2000 1999
$ $
CASH FLOWS FROM OPERATION ACTIVITIES
Net loss (226,147) (449,651)
Adjustments to reconcile net loss to net cash
used in operation activities
Depreciation and amortization 151,941 153,911
Minority interest 396 6,882
Loss/ (gain) on trading securities 79,462 (194,875)
Changes in assets and liabilities
Decrease (increase) in accounts and
other receivable (36,611) 9,793
Decrease (increase) in notes receivable (3,500) 392,500
Decrease (increase) in prepaid expenses 1,764 128,696
Increase (decrease) in accounts payable (102,669) (17,035)
Increase (decrease) in reserve for warranty (400) 54,000
Increase (decrease) in notes payable (10,000) 0
Increase in deferred revenue 0 75,172
-------------------------
(145,764) 159,393
-------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment 0 19,302
Purchases of intellectual assets 0 31,951
-------------------------
0 51,253
-------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in bank indebtedness 12,930) 16,960
Increase (decrease) in advances from stockholder 0 (186,904)
Increase (decrease) in common stock issuance 0 16,706
Increase (decrease) in dividends payable (1,700) (9,150)
-------------------------
11,230 (162,388)
-------------------------
NET INCREASE (DECREASE) IN CASH (134,534) 48,258
Cash, beginning of year 327,637 223,723
-------------------------
CASH, END OF PERIOD $ 193,103 $ 271,981
-------------------------
6
HOMELIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited for the nine months ended February 29, 2000)
NOTE 1. REVISIONS TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements for the period ended May 31, 1999 have
been revised in order to provide additional information to readers and
reclassify financial statement amounts to provide more precise information and
better comparison with prior years.
NOTE 2. BASIS OF REVISED CONSOLIDATED FINANCIAL STATEMENTS PRESENTATION
In the opinion of the Company's management, the accompanying condensed
consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position at February 29, 2000 and results of operations for nine months ended
February 29, 2000 and 1999.
These financial statements consolidate, using the purchase method, the accounts
of the Company and its subsidiaries listed below:
a) Wholly-owned subsidiaries
HomeLife Realty Services, Inc., FamilyLife Realty Services, Inc., MaxAmerica
Financial Services, Inc., Red Carpet Broker Network, Inc., National Sellers
Network, Inc., Builders Realty (Calgary) Ltd., Aspen Benson & May LLC., HomeLife
California Realty, Inc., and HomeLife Properties, Inc.
b) Majority-owned subsidiaries
The Keim Group Ltd., and MaxAmerica Home Warranty Company - 93.33% and 82.72%
respectively.
On consolidation, all material intercompany accounts have been eliminated.
Consolidation commenced with the effective dates of acquisition of the
operations of the subsidiary companies and these financial statements include
the financial results of the subsidiaries for the period ended February 29, 2000
and May 31, 1999.
The assets acquired were recorded as trademarks and will be amortized over 10
years on a straight-line basis.
On February 27, 1998, the Company acquired all issued shares of Builders Realty
(Calgary) Ltd., a Canadian real estate broker, for $316,080 in cash and stock.
The goodwill will be amortized over 40 years on a straight-line line basis.
On September 15, 1998, the Company purchased all the issued shares of an
inactive holding company, Aspen Benson and May LLC., for Common stock in the
amount of $77,500 to be issued in January 2000. At the time of purchase, Aspen
Benson and May LLC. had negligible assets and revenue.
On January 20, 1999, Builders Realty (Calgary) Ltd. purchased the real estate
brokerage business including licensing agreements and trademarks of HomeLife
Higher Standards operating in Calgary, Alberta, Canada, for $42,061 cash in
fourteen monthly installments of $2,714 and a final payment of $4,065.
During the period ended May 31, 1998, the company acquired, by cash of $5,000 in
total, all issued shares of several newly incorporated companies. These new
companies include: MaxAmerica Financial Services, Inc., which will be
originating real estate loans; HomeLife California Realty, Inc., which will be a
full service real estate operation; HomeLife Properties, Inc., which will be a
real estate holding company; Red Carpet Broker Network, Inc., and National
Sellers Network, Inc., which will be licensing real estate brokerages.
7
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principal Activities
HomeLife, Inc. together with its subsidiaries is a leading provider of services
to the real estate and mortgage loan industries. The Company engages in the
following activities:
The Company franchises full service real estate brokerage offices and provides
operational and administrative services to its franchisees under the names,
HomeLife Realty Services, National Real Estate Service, Red Carpet Real Estate
Services, Red Carpet Keim, Network Real Estate and International Estates.
The Company is a mortgage financing services provider through its subsidiary,
MaxAmerica Financial Services, Inc.
The Company owns and operates a full service retail real estate brokerage
through its subsidiary, Builders Realty (Calgary) Ltd.
The Company is a provider of home warranty coverage through its subsidiary,
MaxAmerica Home Warranty Company.
(b) Significant Group Concentrations of Credit Risk
The Company's accounts receivable and notes receivable are primarily from
franchisees in the real estate brokerage industry.
(c) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, amounts due to banks and any
other highly liquid investments purchased with a maturity of three months or
less. The carrying amount approximates fair value because of the short maturity
of those instruments.
(d) Marketable Securities
Marketable securities represent trading securities which have been reflected at
their fair market value at the year-end.
(e) Advertising Costs
Advertising costs represent prepaid preprinted advertising materials which have
been amortized over three years. For the period ended February 29, 2000, there
are no unamortized advertising costs.
(f) Other Financial Instruments
The carrying amount of the Company's other financial instruments approximates
fair value because of the short maturity of these instruments or the current
nature of interest rates borne by these instruments.
(g) Long-term Financial Instruments
The fair value of each of the Company's long-term financial assets and debt
instruments is based on the amount of future cash flows associated with each
instrument discounted using an estimate of what the Company's current borrowing
rate for similar instruments of comparable maturity would be.
8
(h) Amortization of Property and Equipment
Amortization of property and equipment is provided using the straight-line
method as follows:
Furniture and fixtures 7 years Computer equipment and software 7 years Leasehold
improvements 7 years Automobile 4 years
(i) Goodwill
Goodwill is the excess of cost over the value of tangible assets acquired. It is
amortized on the straight-line basis over 40 years.
(j) Amortization of Other Assets
Amortization of other assets is on a straight-line basis over their estimated
useful lives as follows: Trademarks and franchise rights 10 years
(k) Impairment
The Company's policy is to record an impairment loss against the balance of a
long-lived asset in the period when it is determined that the carrying amount of
the asset may not be recoverable. This determination is based on an evaluation
of such factors as the occurrence of a significant event, a significant change
in the environment in which the business assets operate or if the expected
future non-discounted cash flows of the business was determined to be less than
the carrying value of the assets. If impairment is deemed to exist, the assets
will be written down to fair value. Management also evaluates events and
circumstances to determine whether revised estimates of useful lives are
warranted. As of February 29, 2000, management expects its long-lived assets to
be fully recoverable.
(l) Revenue Recognition
Income from the sale of franchises is recognized over a 5-year period. Master
franchise agreement fees are recognized over 10 years. Royalty income stemming
from the gross commissions on the sales of real estate by the franchise offices
is recognized at the date of receipt; this is due to the complexity of
attempting to forecast the actual closing date of the properties. Warranty
income is recognized over the term of the contract which is usually 12 months;
anticipated obligations under these warranties have been recorded as reserve for
warranty and are based on past experience. Real estate brokerage income is
recognized at the close of escrow. Loan fees are recognized as income when the
loan is closed and funded at the close of escrow. Revenue received or
receivable, from the sale of franchises, master franchises and warranties, which
are not recognized as income, are recorded on the balance sheet as deferred
revenue.
(m) Income taxes
The Company accounts for income tax under the provisions of Statement of
Financial Accounting Standards No. 109, which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Deferred
income taxes are provided using the liability method. Under the liability
method, deferred income taxes are recognized for all significant temporary
differences between the tax and financial statement bases of assets and
liabilities. In addition, the Company is required to record all deferred tax
assets, including future tax benefits of capital losses carried forward, and to
record a "valuation allowance" for any deferred tax assets where it is more
likely than not that the asset will not be realized.
(n) Stock-Based Compensation
In December 1995, SFAS No. 123, Accounting for Stock-Based compensation, was
issued. It introduced the use of a fair value-based method of accounting for
stock-based compensation. It encourages, but does not require, companies to
recognize compensation expense for stock-based compensation to employees based
on the new fair value accounting rules. Companies that choose not to adopt the
new rules will continue to apply the existing accounting rules contained
9
in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. However, SFAS No. 123 requires companies that choose not to adopt the
new fair value accounting rules to disclose pro forma net income and earnings
per share under the new method. SFAS No. 123 is effective for financial
statements for fiscal years beginning after December 15, 1995. The Company has
adopted the disclosure provisions of SFAS No. 123 for both employee stock based
compensation. The Company's stock option plan prior to 1997 which vested
immediately and therefore there were no expense amounts to be reflected in the
current financial statements. The Company has used the fair value approach for
stock option plan granted to non-employees according to EITF 96-18.
(o) Foreign Currency Translation
Builders Realty (Calgary) Ltd., a wholly owned subsidiary, maintains its books
and records in Canadian dollars. Income and expenses are translated at the rate
in affect on the transaction dates. Transaction gain and losses are included in
the determination of earnings for the year.
Balance sheet accounts are translated using closing exchange rates in affect at
the balance sheet date and income and expenses accounts are translated using an
average exchange rate prevailing during each reporting period. No representation
is made that the Canadian dollar amounts could have been or could be, converted
rates. Adjustments resulting from the translation are included in the cumulative
translation adjustments section in stockholders' equity.
(p) Net Income (Loss) and Fully Diluted Net Income (Loss) Per Weighted Average
Common Stock
Net income (loss) per Common stock is computed by dividing net income (loss) for
the year by the weighted average number of Common stock outstanding during the
year.
Fully diluted net income (loss) per Common stock is computed by dividing net
income (loss) for the year by the weighted average number of Common stock
outstanding during the year, assuming, except where the result would be
anti-dilutive, that all convertible Preferred shares were converted, the
contingent Common stock were issued, the warrant was exercised and the stock
options granted were exercised. The shares to be issued have not been included
in the calculation as the number of shares to be issued is not determinable.
(q) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principals in the United States of America requires management to
make estimates and assumptions that affect certain reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(r) Accounting Changes
Effective June 1, 1999 the Company adopted Statement of Position No. 98-5 (SOP
98-5), "Reporting on the Costs of Start-up Activities". SOP 98-5 was issued to
provide guidance on financial reporting of start-up costs and organization costs
and requires such costs to be expensed as incurred. SOP 98-5 is effective for
financial statements for years beginning after December 15, 1998. Accordingly,
the Company wrote off existing organization costs of $48,955 which are reflected
in the presented financial statements.
NOTE 4. CASH HELD IN TRUST AND TRUST LIABILITY
Cash held in trust are deposits received in connection with the opening of
escrow accounts for the sale of real estate. The deposits are recorded as trust
liabilities and are refunded when the real estate is sold or the escrow is
closed according to the terms of the escrow agreement.
10
NOTE 5. BANK INDEBTEDNESS
For the period ended February 29, 2000 and May 31, 1999, the Company's available
line of credit under the bank loan agreement amounted to $33,920 (CDN$50,000).
The operating credit facility bears interest at the bank's prime lending rate
plus 2% per annum with interest payable monthly. As security, the Company has
provided a general assignment of book debts, a general security agreement
constituting a first charge over all present and future personal property of the
Company, a subordination agreement with respect to amounts owed by the borrower
to the shareholders of $33,920 (CDN$50,000), and a guarantee by the major
shareholder of the company of $33,920 (CDN$50,000).
At February 29, 2000, the Company had an available line of credit under the bank
loan agreement amounting to $25,000. The unsecured operating credit facility
bears interest at rate of 16% per annum.
NOTE 6. ADVANCES FROM A STOCKHOLDER
The advances are from the Company's president and majority stockholder, are
non-interest bearing, are without specific terms of repayment and are not
expected to repaid before June 1, 2000.
NOTE 7. CAPITAL STOCK
(a) Authorized
100,000 Class A Preferred shares of no par value, 6% non cumulative dividend,
voting, convertible to Common shares at the option of the shareholder at a price
equal to the face value of the Class A shares. Each Class A Preferred share
carries 1,000 votes as compared with 1 vote for each Common share
2,000 Class AA Preferred shares of $500 par value, 8% cumulative dividend,
non-voting, redeemable at face value by the Company. Convertible after 12 months
from the date of issuance, at the option of the shareholder, to Common shares at
a price equal to 125% of the face value of the Class AA shares as compared with
the market price of the Common stock.
20,000,000 Common shares of $0.001 par value
(b) Issued
10,000 Class A Preferred shares
78 Class AA Preferred shares (325 - 1999)
5,109,764 Common shares (4,803,932 - 1999)
(c) Warrant
On January 16, 1997, the Company granted a warrant to S & S Acquisition Corp. as
part of the consideration for the acquisition of its assets. The warrant
entitles S & S Acquisition Corp. to acquire, from January 31, 1998 to January
31, 2002, up to 200,000 Common shares of the Company at $6 per share. The number
of Common shares and the price per share are adjusted proportionately with the
increase in the number of Common shares issued by the Company. As the market
value of the Common share of the Company was significantly lower than $6 per
share, no value was assigned to the warrant.
(d) Stock options
On September 18, 1998, the Board of Directors of the Company adopted a stock
option plan (the "plan") for its directors, employees, and consultants. An
authorized number of shares of Common stock of the Company, which may be granted
under the plan, is one million shares. The terms of the options were to be
determined by the president of the company, subject to the approval by the
shareholders.
11
(e) Stock option plan
For the period ended May 31, 1999 options to various directors of the Company to
acquire 140,000 Common stock had been granted under the stock option plan with
the following terms:
100,000 Common shares at $3 per share
30,000 Common shares at $5 per share
10,000 Common shares at $1 per share, expiring July 10, 1999.
As the exercise prices were higher than the market values on the dates of the
grant, no compensation expenses were recorded by the Company.
(f) Earnings per share
The fully diluted earnings per share does not included the issuance of shares
which would be anti-dilutive arising from the following:
Conversion of 10,000 Class A Preferred shares to Common shares; conversion of 78
Class AA Preferred shares to Common shares; exercise of a warrant which entitles
holder to acquire 200,000 Common shares at $6 per share; exercise of stock
options to acquire issuance of 140,000 Common shares.
NOTE 8. COMMITMENTS
The Company has operating leases for premises which extend through August 31,
2002. Future minimum rental payments as of February 29, 2000 under the operating
lease agreements are as follows:
2000 $167,333
2001 $168,083
2002 $122,817
2003 $ 19,920
--------
TOTAL $478,153
========
NOTE 9. SEGMENTED INFORMATION
Segmented information has been provided for the company on the basis of
different geographic areas and different services. The revenue for Canada is
substantially all derived from real estate brokerage.
a) Revenue by Geographic Area
2000 1999
$ $
United States of America 960,566 929,536
Canada 1,685,787 2,375,636
-------------------------
2,646,353 3,305,172
=========================
b) Net Income (Loss) by Geographic Area
United States of America (236,334) (414,155)
Canada 10,187 (35,496)
-------------------------
(226,147) (449,651)
=========================
12
2000 1999
$ $
c) Identifiable Assets by Geographic Area
United States of America 2,297,047 2,852,580
Canada 417,671 282,713
-------------------------
2,714,718 3,135,293
=========================
d) Amortization by Geographic Area
United States of America 112,037 24,090
Canada 4,023 2,202
-------------------------
116,060 26,292
=========================
d) Revenue by industry
Real Estate Franchise 659,103 727,121
Real Estate Brokerage 1,685,787 2,375,636
Mortgage Financing 64,331 --
Home Warranty 204,102 189,460
Other 33,030 12,955
-------------------------
Total 2,646,353 3,305,172
=========================
e) Net income (loss) by industry
Real Estate Franchise (231,917) (423,337)
Real Estate Brokerage 10,187 (35,496)
Mortgage Financing 4,830 --
Home Warranty 2,208 22,136
Other (11,455) (12,954)
-------------------------
Total (226,147) (449,651)
=========================
f) Identifiable assets by industry
Real Estate Franchise 2,139,574 2,684,723
Real Estate Brokerage 417,671 282,713
Mortgage Financing 7,585 --
Home Warranty 134,281 154,742
Other 15,607 13,115
-------------------------
Total 2,714,718 3,135,293
=========================
13
2000 1999
$ $
g) Amortization by industry
Real Estate Franchise 111,010 24,090
Real Estate Brokerage 4,023 2,202
Mortgage Financing -- --
Home Warranty 1,027 --
-------------------------
Total 116,060 26,292
=========================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company has experienced growth primarily through its acquisitions of
and combinations with various other companies. This includes the acquisition in
August 1996 of the Keim Group of Companies and MaxAmerica Home Warranty Company
(Michigan) adding 60 real estate offices and a home warranty company in
Michigan. In 1997, the company purchased certain assets of S & S Acquisition
Corp. providing the company with Red Carpet Real Estate Services and National
Real Estate Services adding 58 real estate offices. The acquisition of the real
estate computer technology of House by Mouse and Virtual Assistant provided the
Company with the ability to enhance its Internet communication services to its
franchises. In July 1997, the Company acquired the licensing agreements,
trademarks and franchise offices of Network Real Estate, Inc. This acquisition
provided the Company with an additional 12 offices in Northern California and
access to the "high-end" luxury division of "International Estates". In February
1998, the Company acquired Builders Realty (Calgary) Ltd. providing access to
the Alberta, Canada market in both retail real estate and mortgage loans. On
September 15, 1998, the Company purchased the stock of the investment banking
firm of Aspen, Benson and May, LLC for Common stock.
From time to time, the Company has entered into strategic alliances with
various companies in order to explore the cross marketing of their services to
customers of the Company or its franchises. To date, these strategic alliances
have not included any funding agreements or other liabilities on the part of the
Company. Since the end of its last fiscal year, HomeLife has formed strategic
alliances with Home Value Check, LLC, and Allstate Funding. Home Value Check
provides Internet based appraisals for lenders and consumers of the Company's
services. Allstate Funding provides loan processing and underwriting for
MaxAmerica, the real estate mortgage brokerage subsidiary of HomeLife.
The following is management's discussion and analysis of HomeLife's
financial condition and results of operations. Detailed information is contained
in the financial statements included with this document. This section contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this document should be read as being applicable
to all related forward-looking statements wherever they appear in this document.
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THREE MONTHS ENDED FEBRUARY 29, 2000 (UNAUDITED) COMPARED TO THE THREE MONTHS
- --------------------------------------------------------------------------------
ENDED FEBRUARY 28, 1999 (UNAUDITED).
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REVENUES. The Company generated gross sales of $727,713 for the quarter
ended February 29, 2000 compared to gross sales of $728,340 for the quarter
ended February 28, 1999. Revenue by business segment is shown below:
February 29, 2000 February 28, 1999
Amount % Amount %
------ - ------ -
Real estate brokerage 400,864 55.1 380,542 52.2
Royalty & franchise fees 206,432 28.4 145,856 20.0
Mortgage financing 25,697 3.5 0 0
Home warranty sales 44,655 6.1 79,398 10.9
Other 50,056 6.9 122,544 16.9
---------- ------ ---------- ------
TOTAL 727,713 100 728,340 100
========== ====== ========== ======
Real estate brokerage commissions increased from $380,542 for the quarter ended
February 28, 1999 to $400,864 for the quarter ended February 29, 2000. This
increase of $20,322 or 5%, is a result of an increase in the number of escrows
per broker, as the number of brokers was approximately unchanged. During the
first calendar quarter of 2000, the housing market in Canada was on an upswing,
accounting for the increase in number of escrows closed per broker.
Royalty fees & franchise fees combined increased $60,576 from $145,856 for the
three months ended February 28, 1999 to $206,432 for the three months ended
February 29, 2000. As the franchise fees were approximately the same for both
periods, this increase relates to the royalty fees and is the result of an
increase in the number of franchise offices.
Mortgage financing fees were $25,697 for the quarter ended February 29, 2000. No
mortgages were brokered in 1999, as the mortgage subsidiary was awaiting
approval from the Department of Housing and Urban Development.
Home warranty sales decreased were $44,655 and $79,398 for the quarters ended
February 29, 2000 and February 28, 1999, respectively. This decrease was due to
fewer contracts sold and the average cost of the warranty contract in 2000 being
lower than in 1999.
COST OF SALES. Cost of sales for the current quarter was $426,621 compared
to $396,650 for the same prior year quarter. This increase is a result of higher
sales commissions were paid by Builders Realty (Calgary) Ltd. due to an increase
in brokerage real estate sales.
SALARIES AND FRINGE BENEFITS. Salaries and fringe benefits increased from
$162,257 for the three months ended February 28, 1999 to $181,069 for the three
months ended February 29, 2000. This increase of $18,812 was primarily the
result of salary increases to existing employees, and the hiring of an
additional employee.
GENERAL AND ADMINISTRATIVE. General and administrative costs for the
quarter ended February 29, 2000 were $115,877 versus $242,586 for the quarter
ended February 28, 1999. This decrease of $126,709 was primarily due to a
concentrated effort to reduce costs which mainly included a decrease in the use
of outside consultants
OCCUPANCY. There was a slight increase in occupancy costs for the
comparable third fiscal quarters which is a result of the escalation clauses in
the lease agreements.
FINANCIAL. Financial costs for the quarter ended February 29, 2000 were a
credit of $72,808 compared to the expense of $26,159 for the quarter ended
February 28, 1999. The credit primarily relates to a gain on the marketable
investment and currency conversions whereas the expense primarily relates to a
loss on a marketable investment and a loss on currency conversions.
AMORTIZATION. Amortization of intangibles was $76,453 for the three months
ended February 29, 2000 compared to $51,304 for the three months ended February
28, 1999. This increase was primarily a result of some assets the change in the
estimate of the useful lives of the trademarks and franchise rights from 20 year
to 10 years in 1999.
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MINORITY INTEREST. The reduction in net loss due to minority interest was
$3,216 in the quarter ended February 29, 2000 versus a n increase in the net
loss of $1,930 for the quarter ended February 28, 1999. This difference is the
result of Keim Group Ltd. and MaxAmerica Home Warranty Company, combined, being
profitable in the prior year quarter and recording a loss in the current year
quarter.
NINE MONTHS ENDED FEBRUARY 29, 2000 (UNAUDITED) COMPARED TO THE NINE MONTHS
- --------------------------------------------------------------------------------
ENDED FEBRUARY 28, 1999 (UNAUDITED).
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REVENUES. The Company generated gross sales of $2,646,353 for the nine
months ended February 29, 2000 compared to gross sales of $3,305,172 for the
nine months ended February 28, 1999. Revenue by business segment is shown below:
February 29, 2000 February 28, 1999
Amount % Amount %
------ - ------ -
Real estate brokerage 1,503,834 56.9 2,216,375 67.1
Royalty fees 615,205 23.2 572,374 17.3
Franchise fees 34,792 1.3 34,545 1.0
Mortgage financing 64,331 2.4 0 0
Home warranty sales 201,384 7.6 217,336 6.6
Other 226,807 8.6 264,542 8.0
---------- ------ ---------- ------
TOTAL 2,646,353 100 3,305,172 100
========== ====== ========== ======
Real estate brokerage commissions decreased from $2,216,375 for the period ended
February 28, 1999 to $1,503,834 for the period ended February 29, 2000. This
decrease is a result of a decrease in the number of escrows per broker, as the
number of brokers was approximately unchanged.
Royalty fees increased form $572,374 for the period ended February 28, 1999 to
$615,205 for the period ended February 29, 2000. This increase is the result of
an increase in the number of franchise offices.
Franchise fees were approximately the same for both periods.
Mortgage financing fees were $64,331 for the period ended February 29, 2000. No
mortgages were brokered in 1999, as the mortgage subsidiary was awaiting
approval from the Department of Housing and Urban Development.
Home warranty sales decreased from $217,336 for the period ended February 28,
1999 to $201,384 for the period ended February 29, 2000. This decrease of
$15,952 was due to the average cost of the warranty contract in 2000 being lower
than in 1999.
COST OF SALES. Cost of sales for the period ended February 29, 2000 was
$1,613,165 compared to $2,256,298 for the period ended February 28, 1999. This
decrease of $643,133 was primarily due to lower sales commissions paid by
Builders Realty (Calgary) Ltd. This was due to a decrease in sales commissions
paid per agent, combined with a decrease in the number of agents.
SALARIES AND FRINGE BENEFITS. Salaries and fringe benefits were $471,910
for the period ended February 29, 2000 compared to $411,989 for the period ended
February 28, 1999. This increase of $59,921 was primarily the result of salary
increases to existing employees, and the hiring of an additional employee.
GENERAL AND ADMINISTRATIVE. General and administrative costs for the period
ended February 29, 2000 were $413,944 versus $727,758 for the period ended
February 28, 1999. This decrease of $313,814 was primarily due to a decrease in
the use of outside consultants and a decrease in depreciation expenses.
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OCCUPANCY. Occupancy for the period ended February 29, 2000 was $128,273
compared to $117,703 for the period ended February 28, 1999. This increase of
$10,570 is as stated in occupancy lease agreements for annual increases.
FINANCIAL. Financial costs for the period ended February 29, 2000 were
$78,097 compared to $77,942 for the period ended February 28, 1999. Both
expenses were the result of a loss on a marketable investment, and a loss on
currency conversions.
AMORTIZATION. Amortization of intangibles was $165,015 for the period ended
February 29, 2000 compared to $153,911 for the period ended February 28, 1999.
This increase was mainly the result of the adoption of SOP 98-5.
MINORITY INTEREST. The increase in net lossdue to minority interest was
$396 in the period ended February 29, 2000 versus $6,882 for the period ended
February 28, 1999. This decrease of $6,486 was due to lower revenues for the
Keim Group Ltd., partially offset by higher revenues from MaxAmerica Home
Warranty Company.
PREFERRED DIVIDENDS. Preferred dividends were $1,700 in the period ended
February 29, 2000 versus $2,340 for the period ended February 28, 1999. This
decrease of $640 was due to a reduction in the number of outstanding shares of
Preferred stock when some of the owners of Preferred stock converted their
Preferred stock into Common stock.
LIQUIDITY AND CAPITAL RESOURCES. HomeLife's primary source of liquidity is
positive cash flow from its current operations. In addition it has 3,750 shares
of Voice Mobility Inc. as a marketable security, and lines of credit with two
banks in the amounts of CDN$50,000 and $25,000. The capital requirements of the
Company are for operating expenses and to service and use of its lines of
credit. The Company has recorded a loss on its marketable security as the share
price has declined in the public market from the purchase share price. The
Company has recorded significant operating losses in the prior three years.
These losses are primarily due to amortization and depreciation of acquisitions
made in prior years, loss on investments made in prior years, and write down of
promotional and marketing materials purchased in prior years due to outdated
advertising campaigns. Cash flow is cumulatively positive for the past three
years, and it is projected that operations for the coming years can be funded
out of future cash flows. The Company does not have any derivative instruments
or hedging activities therefore, the Company believes that SFAS No. 133 will
have no material impact on the Company's financial statements or notes thereto.
FOREIGN OPERATIONS. Foreign operations consist of the sale of a master
franchise agreement to an individual in Germany. Payment for this agreement was
scheduled to be made in 12 quarterly payments beginning in October 1999. Only
partial payments have been received. However, the Company is now in negotiations
with the obligor to re-structure this obligation. Continued default of this
agreement will deprive the Company of the anticipated payments, but it is
anticipated to have no adverse consequences to the operations of the Company,
since it has no commitments of capital or other resources to its foreign
operations.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently involved in two lawsuits.
The company is involved in a lawsuit with Network Real Estate, Inc., a real
estate broker, where Network Real Estate, Inc. has filed an action against the
company claiming that the company has failed to pay Network Real Estate, Inc.
the remaining balance of $80,000 pursuant to the Agreement for purchase of
Network Real Estate, Inc. licensing agreements and trademarks. On March 7, 2000,
the company filed a cross-complaint against Network Real Estate, Inc. and
International Estates, Inc, claiming that they failed to provide ownership of
International Estates trademark pursuant to the agreement. Settlement
negotiations are in progress and if finalized as proposed, the company will be
dismissed from the complaint by Network Real Estate, Inc. and Network Real
Estate, Inc. will pursue the company's claims against International Estates,
Inc. Pursuant to the settlement negotiations, Network Real Estate, Inc. did
submit 146,667 common shares for cancellation totaling to $58,667 on October 1,
1999. In management's opinion, this matter will not have a material effect on
the financial position of the company.
The Company is involved in a lawsuit with the sellers of Builders Realty
(Calgary) Ltd. to reduce the purchase price paid for Builders Realty (Calgary)
Ltd. - Builders Realty (Calgary) Ltd. v. Joyce Travis and Cecil Avery in the
Provincial Court of Alberta Canada. The sellers of Builders Realty (Calgary)
Ltd. have filed a counter lawsuit for damages of $223,872 (CDN $330,000). In
management's opinion, this matter will not have a material affect on the
financial position of the Company.
Management believes that there is no other material litigation matter pending or
threatened against the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULT 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:
None.
(b) Reports on Form 8-K:
None.
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
HOMELIFE, INC.
(REGISTRANT)
Dated September 8, 2000 /s/ Andrew Cimerman
------------------------------------
Andrew Cimerman,
Chief Executive Officer and Director
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