UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended November 30, 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 5,637,538 shares outstanding as of November 30, 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 Unaudited Balance Sheet as of November 30, 2000 1.
Comparative Unaudited Consolidated Statements of Operations 3.
for the three months ended November 30, 2000 and 1999
Comparative Unaudited Consolidated Statements of Operations 4.
for the six months ended November 30, 2000 and 1999
Comparative Unaudited Consolidated Statements of Cash Flows 5.
for the three months ended November 30, 2000 and 1999
Comparative Unaudited Consolidated Statements of Cash Flows 6.
for the six months ended November 30, 2000 and 1999
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 SHEET
AS OF NOVEMBER 30, 2000
(UNAUDITED)
ASSETS
Current Assets
Cash $ 290,674
Marketable securities, at fair value 20,625
Accounts receivable 89,216
Notes receivable 191,222
Prepaid expenses and deposits 58,994
------------
650,731
Property and Equipment 466,065
Goodwill 642,607
Other Assets 359,631
Cash Held in Trust 130,946
------------
$ 2,249,980
============
1
HOMELIFE, INC.
CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF NOVEMBER 30, 2000
(UNAUDITED)
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Bank indebtedness $ 75,000
Accounts payable 136,379
Accrued expenses 171,779
Note payable 90,944
Reserve for warranty 52,865
Dividends payable 5,770
Deferred revenue 177,452
------------
710,189
Deferred Revenue 154,119
Trust Liability 130,946
Minority Interest 30,417
------------
1,025,671
Stockholders' Equity
Capital Stock 1,036,629
Additional Paid in Capital 3,182,304
Accumulated Other Comprehensive Gain/(Loss) 277
Accumulated Deficit (2,994,901)
------------
1,224,309
------------
$ 2,249,980
============
2
HOMELIFE, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
------------ ------------
REVENUE
Royalty and franchise fees $ 210,598 $ 232,163
Warranty fees 55,357 71,605
Mortgage financing fees 40,022 8,012
Real estate brokerage 492,448 520,332
Other income 91,553 97,775
-----------------------------
889,978 929,887
DIRECT COSTS 563,168 565,518
-----------------------------
326,810 364,369
-----------------------------
EXPENSES
Salaries and fringe benefits 159,434 136,563
General and administrative 91,392 161,880
Occupancy 45,791 41,384
Financial 3,780 148,364
Amortization 8,643 86,419
-----------------------------
309,040 574,610
-----------------------------
INCOME/(LOSS) BEFORE MINORITY INTEREST 17,770 (210,241)
Minority interest 1,123 (4,094)
-----------------------------
NET INCOME/(LOSS) 18,893 (214,335)
Preferred dividends (630) (780)
-----------------------------
NET INCOME/(LOSS) APPLICABLE TO COMMON
SHARES 18,263 (215,115)
=============================
BASIC AND FULLY DILUTED INCOME/
(LOSS) PER COMMON SHARE $ 0.00 $ (0.05)
=============================
WEIGHTED-AVERAGE NUMBER OF 5,103,492 4,476,507
COMMON SHARES
3
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
------------ ------------
REVENUE
Royalty and franchise fees $ 379,172 $ 443,565
Warranty fees 139,729 156,729
Mortgage financing fees 63,068 51,812
Real estate brokerage 1,057,905 1,102,970
Other income 147,665 163,564
-----------------------------
1,787,539 1,918,640
DIRECT COSTS 1,160,292 1,186,544
-----------------------------
627,247 732,096
-----------------------------
EXPENSES
Salaries and fringe benefits 301,082 290,841
General and administrative 216,504 298,067
Occupancy 92,246 85,041
Financial 7,245 150,905
Amortization 17,286 88,562
-----------------------------
634,363 913,416
-----------------------------
INCOME/(LOSS) BEFORE MINORITY INTEREST (7,116) (181,320)
Minority interest 1,311 (3,612)
-----------------------------
NET INCOME/(LOSS) (5,805) (184,932)
Preferred dividends (1,260) (1,560)
-----------------------------
NET INCOME/(LOSS) APPLICABLE TO COMMON
SHARES (7,065) (186,492)
=============================
BASIC AND FULLY DILUTED INCOME/
(LOSS) PER COMMON SHARE $ 0.00 $ (0.04)
=============================
WEIGHTED-AVERAGE NUMBER OF 5,103,492 4,476,822
COMMON SHARES
4
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
------------ ------------
CASH FLOWS FROM OPERATION ACTIVITIES
Net income/(loss) $ 18,893 $ (214,335)
Adjustments to reconcile net income/(loss)
to net cash used in operating activities
Depreciation and amortization 8,643 86,419
Loss on trading securities 150,905
Minority interest (1,311) 4,094
Changes in assets and liabilities
Decrease (increase) in accounts and other receivable (9,365) 4,947
Decrease (increase) in notes receivable (14,421) --
Decrease (increase) in prepaid expenses 2,678 (17,324)
Increase (decrease) in accounts payable 47,850 251,476
Increase (decrease) in accrued expenses (41,153) --
Increase (decrease) in reserve for warranty (7,235) (19,500)
Increase in deferred revenue (24,697) (90,285)
-----------------------------
Net cash provided by/(used in) operating activities (20,118) 156,397
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Equity Capital -- (152,687)
Purchases of property and equipment 3,137 (54,029)
Investment in intellectual assets -- 95,815
-----------------------------
Net cash provided by/(used in) investing activities 3,137 (110,901)
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided by (required for) bank indebtedness 61,000 (16,960)
Increase (decrease) in dividends payable -- (780)
Preferred stock issuance -- (36,860)
Cash provided by (required for) notes payable 20,376 (5,000)
Cash provided by (required for) advances
from stockholder -- (50,096)
-----------------------------
Net cash provided by/(used in) financing activities 81,376 (109,696)
-----------------------------
NET INCREASE (DECREASE) IN CASH 64,395 (64,200)
Cash, beginning of period 226,279 333,464
-----------------------------
CASH, END OF PERIOD $ 290,674 $ 269,264
=============================
5
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
------------ ------------
CASH FLOWS FROM OPERATION ACTIVITIES
Net income/(loss) $ (5,805) $ (184,932)
Adjustments to reconcile net income/(loss)
to net cash used in operating activities
Depreciation and amortization 17,286 88,562
Loss on trading securities -- 150,905
Minority interest (1,499) 3,612
Changes in assets and liabilities
Decrease (increase) in accounts and other receivable 27,484 9,091
Decrease (increase) in notes receivable (15,222) --
Decrease (increase) in prepaid expenses (8,356) 415
Increase (decrease) in accounts payable (210,218) 156,936
Increase (decrease) in accrued expenses 171,779 --
Increase (decrease) in reserve for warranty (5,596) (10,900)
Increase in deferred revenue (24,697) (62,286)
-----------------------------
Net cash provided by/(used in) operating activities (54,844) 151,403
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Equity Capital -- (152,687)
Purchases of property and equipment (54,490) (57,428)
Investment in intellectual assets -- 95,815
-----------------------------
Net cash used in investing activities (54,490) (114,300)
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided by (required for) bank indebtedness 61,000 (16,960)
Cash (required for) provided by advances from stockholder -- (50,096)
Cash required for dividends -- (1,560)
Preferred stock issuance -- (36,860)
Cash provided by (required for) notes payable 90,944 10,000
-----------------------------
Net cash provided by/(used in) financing activities 151,944 (95,476)
-----------------------------
NET INCREASE (DECREASE) IN CASH 42,610 (58,373)
Cash, beginning of period 248,064 327,637
-----------------------------
CASH, END OF PERIOD $ 290,674 $ 269,264
=============================
6
HOMELIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000
NOTE 1. BASIS OF 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 November 30, 2000 and results of operations for the six months ended
November 30, 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 November 30, 2000
and May 31, 2000.
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.
NOTE 2. 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:
7
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 November 30, 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.
(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.
8
(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 November 30, 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 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.
9
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.
NOTE 3. 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.
NOTE 4. BANK INDEBTEDNESS
For the period ended November 30, 2000 and November 30, 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 November 30, 2000, the Company had an available line of credit under the bank
loan agreement amounting to $75,000. The unsecured operating credit facility
bears interest at the bank's prime lending rate plus 2% per annum.
NOTE 5. 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
10
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 $4 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 $4 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.
(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 $4 per share; exercise of stock
options to acquire issuance of 140,000 Common shares.
11
NOTE 6. PROMISSORY NOTE RECEIVABLE
On October 8, 1999, the Company signed an agreement with a former director who
had a $250,000 promissory note receivable. The agreement allowed the Company to
exchange the promissory note for 100,000 shares of Pioneer Growth Corp.
("Pioneer"), a company non-affiliated with the former director. However, the
former director could re-acquire the Pioneer shares within one year by paying
$250,000 in cash, or returning the 265,000 shares of HomeLife common stock
initially acquired. In addition, the former director has guaranteed the value of
the Pioneer shares would be atleast $250,000 on October 8, 2000, or he would
make up the difference in value in cash or by exercising his option to return
HomeLife shares equal to the amount.
The Company is in current negotiations with the former director relating to this
note and has extended the expiration of the option and right until January 22,
2001.
In light of the option provided to the former director to return all of part of
the HomeLife shares initially acquired as well as his right to re-acquire the
Pioneer shares, the Company will continue to reflect the promissory note
receivable until the option and the right expires on January 22, 2001. At that
time, the Company will either record the Pioneer shares as an asset at their
fair value, or the cash received in place of the Pioneer shares. Any shares of
HomeLife common shares received in settlement of the note will be cancelled.
In the event that the issuer fails to make up for any diminution in the fair
value of the Pioneer shares, the Company will cancel a proportionate number of
its common shares previously issued to issuer. If the Company continues to own
Pioneer shares subsequent to January 22, 2001, the Company will reflect any
changes in fair value through earnings on a quarterly basis.
NOTE 7. 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 $ 729,634 $ 815,670
Canada 1,057,905 1,102,970
----------------------------
1,787,539 1,918,640
============================
b) Net Income (Loss) by Geographic Area
United States of America (1,573) (213,164)
Canada (5,492) 26,672
----------------------------
(7,065) (186,492)
============================
12
c) Identifiable Assets by Geographic Area
2000 1999
United States of America $ 2,036,856 $ 2,550,101
Canada 213,124 405,138
----------------------------
2,249,980 2,955,239
============================
d) Amortization by Geographic Area
United States of America 16,098 85,475
Canada 1,188 3,087
----------------------------
17,286 88,562
============================
e) Revenue by industry
Real Estate Franchise 379,172 443,565
Real Estate Brokerage 1,057,905 1,102,970
Mortgage Financing 63,068 51,812
Home Warranty 139,729 156,729
Other 147,665 163,564
----------------------------
Total 1,787,539 1,918,640
============================
e) Net income (loss) by industry
Real Estate Franchise (24,417) (39,968)
Real Estate Brokerage (5,492) 26,672
Mortgage Financing 920 (148,591)
Home Warranty 35,157 (17,332)
Other (13,233) (7,273)
----------------------------
Total (7,065) (186,492)
============================
f) Identifiable assets by industry
Real Estate Franchise 1,857,630 2,268,152
Real Estate Brokerage 213,124 405,138
Mortgage Financing 16,903 49,039
Home Warranty 152,063 151,007
Other 10,260 81,903
----------------------------
Total 2,249,980 2,955,239
============================
13
2000 1999
g) Amortization by industry
Real Estate Franchise $ 15,414 $ 80,064
Real Estate Brokerage 1,188 3,087
Mortgage Financing -- --
Home Warranty 684 5,411
----------------------------
Total 17,286 88,562
============================
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. HomeLife has formed a strategic alliance with Allstate Funding.
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.
14
THREE MONTHS ENDED NOVEMBER 30, 2000 (UNAUDITED) COMPARED TO THE THREE MONTHS
ENDED NOVEMBER 30, 1999 (UNAUDITED).
REVENUES. The Company generated gross sales of $889,978 for the quarter
ended November 30, 2000 compared to gross sales of $929,887 for the quarter
ended November 30, 1999. Revenue by business segment is shown below:
November 30, 2000 November 30, 1999
Amount % Amount %
---------- ------- ---------- -------
Real estate brokerage 492,448 56 520,332 56
Royalty & franchise fees 210,598 24 232,163 25
Mortgage financing 40,022 4 8,012 1
Home warranty sales 55,357 6 71,605 8
Other 91,553 10 97,775 10
---------- ------- ---------- -------
TOTAL 889,978 100 929,887 100
========== ======= ========== =======
Real estate brokerage commissions decreased from $520,332 for the quarter ended
November 30, 1999 to $492,448 for the quarter ended November 30, 2000. The
decrease of $27,884 or 5% is a result of fewer brokers in addition to fewer
number of escrows per broker.
Royalty fees & franchise fees combined decreased $21,565 from $232,163 for the
three months ended November 30, 1999 to $210,598 for the three months ended
November 30, 2000. The decrease in revenue relates to lower royalty fees for the
period as well as a marketing effort to obtain new franchises by discounting the
initial franchise fees.
Mortgage financing fees were $40,022 for the quarter ended November 30, 2000
compared to $8,012 for the same period in the prior year. The increase is a
result of more existing franchises are selling mortgage loans in the current
year that were not selling the loans in the prior year.
Home warranty sales have decreased $16,248 or 22% from the same prior year
quarter. The downturn in the real estate market in Michigan, resulting in fewer
home warranty sales and lower per sale has accounted for this decrease.
DIRECT COSTS. Direct costs for the current quarter were $563,168 compared
to $565,518 for the same prior year quarter. As a percentage of sales, direct
costs are only slightly higher in the current year due to slightly higher
warranty claims than in the prior year.
SALARIES AND FRINGE BENEFITS. Salaries and fringe benefits increased from
$136,563 for the three months ended November 30, 1999 to $159,434 for the three
months ended November 30, 2000. This increase of $22,871 was primarily the
result of the addition of three employees in the Michigan offices.
GENERAL AND ADMINISTRATIVE. General and administrative costs for the
quarter ended November 30, 2000 were $91,392 versus $161,880 for the quarter
ended November 30, 1999. This decrease of $70,488 was due to a continued company
wide effort to reduce costs, which included a decrease & strict monitoring in
the use of outside consultants, as well as lower legal fees in the current year.
OCCUPANCY. There was a slight increase in occupancy costs for the
comparable second fiscal quarters which is a result of the escalation clauses in
the lease agreements.
FINANCIAL. The prior year quarter included the write down on the investment
securities. The company incurred no further write downs in the current year
quarter.
AMORTIZATION. Amortization of intangibles was $8,643 for the three months
ended November 30, 2000 compared to $86,419 for the three months ended November
30, 1999. The prior year quarter reflected the change in the estimate of the
useful lives of the trademarks and franchise rights from 20 year to 10 years.
MINORITY INTEREST. The increase in net income due to minority interest was
$1,123 for the quarter ended November 30, 2000 versus an increase in net loss of
$4,094 for the quarter ended November 30, 1999. This difference is the result of
Keim Group Ltd. and MaxAmerica Home Warranty Company, combined, recording losses
in the current year quarter whereas combined, they showed a profit in the prior
year quarter.
15
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 $75,000. 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.
SIX MONTHS ENDED NOVEMBER 30, 2000 (UNAUDITED) COMPARED TO THE SIX MONTHS ENDED
NOVEMBER 30, 1999 (UNAUDITED).
REVENUES. The Company generated gross sales of $1,787,539 for the six
months ended November 30, 2000 compared to gross sales of $1,918,640 for the six
months ended November 30, 1999. Revenue by business segment is shown below:
November 30, 2000 November 30, 1999
Amount % Amount %
------------ ------- ------------ -------
Real estate brokerage 1,057,905 59 1,102,970 57
Royalty & franchise fees 379,172 21 443,565 23
Mortgage financing 63,068 4 51,812 3
Home warranty sales 139,729 8 156,729 8
Other 147,665 8 163,564 9
------------ ------- ------------ -------
TOTAL 1,787,539 100 1,918,640 100
============ ======= ============ =======
Real estate brokerage commissions decreased from $1,102,970 for the half year
ended November 30, 1999 to $1,057,905 for the half year ended November 30, 2000.
Fewer brokers as well as fewer sales per broker has accounted for this decrease
of approximately 4% for the two periods.
Royalty fees & franchise fees combined decreased $64,393 or 15% from the six
months ended November 30, 1999 compared to the six months ended November 30,
2000. The decrease in revenue relates to lower royalty fees for the period as
well as a new marketing effort to obtain new franchises by discounting the
initial franchise fees.
Mortgage financing fees were $63,068 year to date fiscal 2000 compared to
$51,812 for the same period in the prior year. The increase is a result of more
existing franchises are selling mortgage loans in the current year
Home warranty sales were comparable for the two periods at 8% of overall sales.
DIRECT COSTS. As a percentage of sales, direct costs are higher by a couple
of percentage points in the current year due to slightly higher warranty claims
and real estate commission fees than in the prior year.
16
SALARIES AND FRINGE BENEFITS. Salaries and fringe benefits increased from
$290,841 for year to date fiscal year 1999 to $301,082 for year to date fiscal
year 2000. This increase results from the addition of personnel in the Michigan
offices.
GENERAL AND ADMINISTRATIVE. Due to a continued company wide effort to
reduce costs, which included a decrease & strict monitoring in the use of
outside consultants, in addition to lower legal fees in the current year,
general and administrative fees are $81,563 lower for the same periods in fiscal
year 2000 & 1999.
OCCUPANCY. There was a slight increase in occupancy costs for the
comparable first fiscal quarters which is a result of the escalation clauses in
the lease agreements.
FINANCIAL. The prior year amount for financial included the write down on
the investment securities. The company incurred no further write downs in the
current year quarter.
AMORTIZATION. Amortization of intangibles was $17,286 for the six months
ended November 30, 2000 compared to $88,562 for the six months ended November
30, 1999. This decrease was the result of the change in the estimate of the
useful lives of the trademarks and franchise rights from 20 year to 10 years in
1999.
MINORITY INTEREST. The reduction in net loss due to minority interest was
$1,311 for the six months ended November 30, 2000 versus an increase in net loss
of $3,612 for the six months ended November 30, 1999. This difference is the
result of Keim Group Ltd. and MaxAmerica Home Warranty Company, combined,
recording losses in the current year quarter whereas combined, they showed a
profit in the prior year quarter.
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 $75,000. 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.
17
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.
18
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 January 12, 2001 /s/ Andrew Cimerman
---------------------------------
Andrew Cimerman,
Chief Executive Officer and Director
19