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 February 28, 2001
[ ] 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 5,443,586 shares outstanding for the period ended February
28, 2001.
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 February 28, 2001 1.
Comparative Unaudited Consolidated Statements of Operations 3.
for the three months ended February 28, 2001 and February 29, 2000
Comparative Unaudited Consolidated Statements of Operations 4.
for the nine months ended February 28, 2001 and February 29, 2000
Comparative Unaudited Consolidated Statements of Cash Flows 5.
for the three months ended February 28, 2001 and February 29, 2000
Comparative Unaudited Consolidated Statements of Cash Flows 6.
for the nine months ended February 28, 2001 and February 29, 2000
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. 19.
Item 6. Exhibits and Reports of Form 8-K. 19.
(a) Exhibits
(b) Reports on Form 8-K
PART I - FINANCIAL INFORMATION
HOMELIFE, INC.
CONSOLIDATED BALANCE SHEET
AS OF FEBRUARY 28, 2001
(UNAUDITED)
ASSETS
Current Assets
Cash $ 164,440
Marketable securities, at fair value 7,625
Accounts receivable 123,517
Notes receivable 191,660
Prepaid expenses and deposits 57,554
----------
544,796
Property and Equipment 442,378
Goodwill 617,015
Other Assets 353,031
Cash Held in Trust 190,013
----------
$2,147,233
==========
1
HOMELIFE, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF FEBRUARY 28, 2001
(UNAUDITED)
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Bank indebtedness $ 50,000
Accounts payable 122,671
Accrued expenses 194,029
Reserve for warranty 41,214
Dividends payable 7,960
Deferred revenue 156,452
-----------
572,326
Deferred Revenue 154,119
Trust Liability 190,013
Minority Interest 30,120
-----------
946,578
Stockholders' Equity
Capital Stock 1,036,629
Additional Paid in Capital 3,182,304
Accumulated Other Comprehensive Loss (334)
Accumulated Deficit (3,017,944)
-----------
1,200,655
-----------
$ 2,147,233
===========
2
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
(UNAUDITED)
For the three For the three
months ended months ended
February 28, 2001 February 29, 2000
REVENUE
Royalty and franchise fees $ 197,402 $ 206,432
Warranty fees 33,751 44,655
Mortgage financing fees 4,681 25,697
Real estate brokerage 223,508 400,864
Other income 90,320 50,065
------------------------------
549,662 727,713
COST OF SALES 221,899 426,621
------------------------------
327,763 301,092
------------------------------
EXPENSES
Salaries and fringe benefits 132,570 181,069
General and administrative 119,534 115,877
Occupancy 46,414 43,232
Financial 15,741 (72,808)
Amortization 33,643 76,453
------------------------------
347,902 343,823
------------------------------
LOSS BEFORE MINORITY INTEREST (20,139) (42,731)
Minority interest (1,014) 3,216
------------------------------
NET LOSS (21,153) (39,515)
Preferred dividends (630) (140)
------------------------------
NET LOSS APPLICABLE TO
COMMON SHARES (21,783) (39,655)
==============================
BASIC AND FULLY DILUTED $ 0.00 $ (0.01)
LOSS PER COMMON SHARE
==============================
WEIGHTED-AVERAGE NUMBER OF 4,940,155 4,956,848
COMMON SHARES
3
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
(UNAUDITED)
For the three For the three
months ended months ended
February 28, 2001 February 29, 2000
REVENUE
Royalty and franchise fees $ 576,573 $ 649,997
Warranty fees 173,480 201,384
Mortgage financing fees 67,749 64,331
Real estate brokerage 1,281,413 1,503,834
Other income 237,985 226,807
------------------------------
2,337,200 2,646,353
COST OF SALES 1,382,191 1,613,165
------------------------------
955,009 1,033,188
------------------------------
EXPENSES
Salaries and fringe benefits 433,652 471,910
General and administrative 336,038 413,944
Occupancy 138,660 128,273
Financial 22,986 78,097
Amortization 50,928 165,015
------------------------------
982,264 1,257,239
------------------------------
LOSS BEFORE MINORITY INTEREST (27,255) (224,051)
Minority interest 297 (396)
------------------------------
NET LOSS (26,958) (224,447)
Preferred dividends (1,890) (1,700)
------------------------------
NET LOSS APPLICABLE TO
COMMON SHARES (28,848) (226,147)
==============================
BASIC AND FULLY DILUTED $ 0.00 $ (0.05)
LOSS PER COMMON SHARE
==============================
WEIGHTED-AVERAGE NUMBER OF 4,940,155 4,956,848
COMMON SHARES
4
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
For the three For the three
months ended months ended
February 28, 2001 February 29, 2000
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (23,043) (39,655)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation and amortization 33,642 63,379
Minority interest (297) (3,216)
Loss on trading securities 13,000 --
Effect on foreign currency exchange rates (611) --
Gain on trading securities -- (71,443)
Changes in assets and liabilities
Decrease (increase) in accounts and other receivable (34,301) (45,702)
Decrease (increase) in notes receivable (438) (3,500)
Decrease (increase) in prepaid expenses 1,440 1,349
Increase (decrease) in accounts payable (13,708) (259,605)
Increase (decrease) in accrued expenses 22,250 162,783
Increase (decrease) in reserve for warranty (11,651) 10,500
Increase in deferred revenue (21,000) 62,286
----------------------------
Net cash used in operating activities (34,717) (122,824)
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment 26,791 55,868
Purchases of intellectual assets (4,554) (95,815)
----------------------------
Net cash provided by/(used in) investing activities 22,237 (39,947)
----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided by (required for) bank indebtedness (25,000) 29,890
Cash provided by (required for) notes payable (90,944) 20,000
Increase (decrease) in common stock issuance -- 36,860
Increase (decrease) in dividends payable 2,190 (140)
----------------------------
Net cash provided by (used in) financing activities (113,754) 86,610
----------------------------
NET INCREASE (DECREASE) IN CASH (126,234) (76,161)
Cash, beginning of period 290,674 269,264
----------------------------
CASH, END OF PERIOD $ 164,440 $ 193,103
============================
5
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
(Unaudited) (Unaudited)
February 28, February 29,
2001 2000
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (28,848) (226,147)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation and amortization 50,928 151,941
Minority interest (1,796) 396
Loss on trading securities 13,000 --
Effect on foreign currency exchange rates (611) --
Changes in assets and liabilities
Decrease (increase) in accounts and other receivable (6,817) (36,611)
Decrease (increase) in notes receivable (15,660) (3,500)
Decrease (increase) in prepaid expenses (6,916) 1,764
Increase (decrease) in accounts payable (223,926) (102,669)
Increase (decrease) in accrued expenses 194,029 69,462
Increase (decrease) in reserve for warranty (17,247) (400)
Increase (decrease) in deferred revenue (45,697) 0
-----------------------
Net cash used in operating activities (89,561) (145,764)
-----------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (27,699) 0
Purchases of intellectual assets (4,554) 0
-----------------------
Net cash used in investing activities (32,253) 0
-----------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided by (required for) bank indebtedness 36,000 12,930
Increase (decrease) in common stock issuance 0 0
Increase (decrease) in dividends payable 2,190 (1,700)
-----------------------
Net cash provided by financing activities 38,190 11,230
-----------------------
NET INCREASE (DECREASE) IN CASH (83,624) (134,534)
Cash, beginning of year 248,064 327,637
-----------------------
CASH, END OF PERIOD $ 164,440 $ 193,103
=======================
6
HOMELIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited for the nine months ended February 28, 2001)
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 February 28, 2001 and results of operations for nine months ended
February 28, 2001 and February 29, 2000.
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 28, 2001
and February 29, 2000.
The assets acquired were recorded as trademarks and will be amortized over 10
years.
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 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:
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 28, 2001, 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 28, 2001, 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
9
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.
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 February 28, 2001, 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).
10
At February 28, 2001, the Company had an available line of credit under the bank
loan agreement amounting to $50,000. The unsecured operating credit facility
bears interest at rate of 16% 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.
2,000 Class AA Preferred shares of $500 par value, 8% cumulative dividend,
non-voting, are 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.
100,000,000 Common shares of $0.001 par value
(b) Issued
10,000 Class A Preferred shares
78 Class AA Preferred shares
5,443,586 Common shares
(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. The
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
11
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 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 April 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 April 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 April 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
2001 2000
$ $
United States of America 1,055,787 960,566
Canada 1,281,413 1,685,787
----------------------------
2,337,200 2,646,353
============================
b) Net Income (Loss) by Geographic Area
United States of America (29,451) (236,334)
Canada 603 10,187
----------------------------
(28,848) (226,147)
============================
12
2001 2000
$ $
c) Identifiable Assets by Geographic Area
United States of America 1,893,690 2,297,047
Canada 253,543 417,671
----------------------------
2,147,233 2,714,718
============================
d) Amortization by Geographic Area
United States of America 49,184 112,037
Canada 1,744 4,023
----------------------------
50,928 116,060
============================
d) Revenue by Industry
Real Estate Franchise 576,573 659,103
Real Estate Brokerage 1,281,413 1,685,787
Mortgage Financing 67,749 64,331
Home Warranty 173,480 204,102
Other 237,985 33,030
----------------------------
Total 2,337,200 2,646,353
============================
e) Net Loss by Industry
Real Estate Franchise (51,351) (231,917)
Real Estate Brokerage 603 10,187
Mortgage Financing (5,918) 4,830
Home Warranty 25,477 2,208
Other 2,341 (11,455)
----------------------------
Total (28,848) (226,147)
============================
f) Identifiable Assets by Industry
Real Estate Franchise 1,741,733 2,139,574
Real Estate Brokerage 253,543 417,671
Mortgage Financing 10,065 7,585
Home Warranty 129,406 134,281
Other 12,486 15,607
----------------------------
Total 2,147,233 2,714,718
============================
13
2001 2000
$ $
g) Amortization by industry
Real Estate Franchise 48,049 112,037
Real Estate Brokerage 1,744 4,023
Mortgage Financing -- --
Home Warranty 1,135 --
----------------------------
Total 50,928 116,060
============================
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.
14
THREE MONTHS ENDED FEBRUARY 28, 2001 (UNAUDITED) COMPARED TO THE THREE MONTHS
- --------------------------------------------------------------------------------
ENDED FEBRUARY 29, 2000 (UNAUDITED).
- ------------------------------------
REVENUES. The Company generated gross sales of $549,662 for the quarter
ended February 28, 2001 compared to gross sales of $727,713 for the quarter
ended February 29, 2000. Revenue by business segment is shown below:
February 28, 2001 February 29, 2000
Amount % Amount %
------ - ------ -
Real estate brokerage 223,508 40.6 400,864 55.1
Royalty & franchise fees 197,402 35.9 206,432 28.4
Mortgage financing 4,681 0.9 25,697 3.5
Home warranty sales 33,751 6.1 44,655 6.1
Other 90,320 16.5 50,056 6.9
------- ----- ------- -----
TOTAL 549,662 100 727,713 100
======= ===== ======= =====
Real estate brokerage commissions decreased from $400,864 for the quarter ended
February 29, 2000 to $223,508 for the quarter ended February 28, 2001. This
decrease of $177,356 or 44%, is a result of a decrease in the number of licensed
real estate agents in the Calgary office. The number of agents has decreased
approximately 15% and accounted for the large decrease in brokerage commissions.
During the first calendar quarter of 2000, the housing market in Canada was on
an upswing, which accounted for the higher amount of brokerage commissions in
the prior year .
Royalty fees & franchise fees combined decreased $9,030 from $206,432 for the
three months ended February 29, 2000 to $197,402 for the three months ended
February 28, 2001. As the franchise fees were approximately the same for both
periods, this decrease relates to the royalty fees and is the result of the
slowdown in real estate sales from the franchise offices.
Mortgage financing fees were $4,681 for the quarter ended February 28, 2001
compared to $25,697 for the quarter ended February 29, 2000. Very few mortgages
were brokered in the current fiscal quarter, as the mortgage subsidiary lost an
out of state correspondent that processed a majority of the company loans.
Home warranty sales were $33,751 and $44,655 for the quarters ended February 28,
2001 and February 29, 2000, respectively. This decrease was due to fewer
contracts sold due to the general slow down in real estate sales.
COST OF SALES. Cost of sales for the current quarter was $221,899 compared
to $426,621 for the same prior year quarter. As a percentage of sales, the cost
of sales is lower in the current quarter due to the decrease in brokerage real
estate sales.
SALARIES AND FRINGE BENEFITS. Salaries and fringe benefits decreased
$48,499 from $181,069 for the three months ended February 29, 2000 to $132,570
for the three months ended February 28, 2001. This decrease was primarily the
result of the reduction in personnel in the Michigan and Calgary divisions.
GENERAL AND ADMINISTRATIVE. General and administrative costs for the
quarter ended February 28, 2001 were $119,524 versus $115,877 for the quarter
ended February 29, 2000. This increase was mainly due to the use of outside
consultants that were covering for the reduction in personnel.
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 28, 2001 were an
expense of $15,741 compared to the credit of $72,808 for the quarter ended
February 29, 2000. The credit in the prior year primarily relates to a gain on
the marketable investment and currency conversions whereas the current year
expense primarily relates to bank charges and write down on the marketable
investment.
15
AMORTIZATION. Amortization of intangibles was $33,643 for the three months
ended February 28, 2001 compared to $76,453 for the three months ended February
29, 2000. This decrease was the result prior year write offs and the change in
the estimate of the useful lives of the trademarks and franchise rights from 20
year to 10 years which was a cumulative change.
MINORITY INTEREST. The increase in net loss due to minority interest was
$1,014 in the quarter ended February 28, 2001 versus a reduction in the net loss
of $3,216 for the quarter ended February 29, 2000. This difference is the result
of Keim Group Ltd. and MaxAmerica Home Warranty Company, combined, being
profitable in the current year quarter and recording a loss in the prior year
quarter.
NINE MONTHS ENDED FEBRUARY 28, 2001 (UNAUDITED) COMPARED TO THE NINE MONTHS
- --------------------------------------------------------------------------------
ENDED FEBRUARY 29, 2000 (UNAUDITED).
- ------------------------------------
REVENUES. The Company generated gross sales of $2,337,200 for the nine
months ended February 28, 2001 compared to gross sales of $2,646,353 for the
nine months ended February 29, 2000. Revenue by business segment is shown below:
February 28, 2001 February 29, 2000
Amount % Amount %
------ - ------ -
Real estate brokerage 1,281,413 54.8 1,503,834 56.9
Royalty & franchise fees 576,573 24.7 649,997 24.5
Mortgage financing 67,749 2.9 64,331 2.4
Home warranty sales 173,480 7.4 201,384 7.6
Other 237,985 10.2 226,807 8.6
--------- ----- --------- -----
TOTAL 2,337,200 100 2,646,353 100
========= ===== ========= =====
Real estate brokerage commissions decreased from $1,503,834 for the period ended
February 29, 2000 to $1,281,413 for the period ended February 28, 2001. This
decrease is a result of a decrease in the number of escrows per broker as well
as a decrease in the licensed number of brokers in the current year.
Royalty fees decreased from $649,997 for the period ended February 29, 2000 to
$576,573 for the period ended February 28, 2001. As franchise fees and number of
franchise offices were approximately the same for both periods, the decrease
relates to royalties and is a result of the overall slow down in real estate
sales.
Mortgage financing fees were $67,749 for the current year to date compared to
$64,331 for the period ended February 28, 2001. The year to date is slightly
higher than the prior year to date, although the separate quarters have
fluctuated.
Home warranty sales decreased from $201,384 for the period ended February 29,
2000 to $173,480 for the period ended February 28, 2001. This decrease of
$27,904 was due to the slow down in real estate sales and escrows closed during
the current year.
COST OF SALES. Cost of sales for the period ended February 28, 2001 was
$1,382,191 compared to $1,613,165 for the period ended February 29, 2000. These
amounts are comparable as a percentage of sales for the two periods.
SALARIES AND FRINGE BENEFITS. Salaries and fringe benefits were $433,652
for the period ended February 28, 2001 compared to $471,910 for the period ended
February 29, 2000. This decrease relates to the reduction of personnel in two of
the subsidiary divisions.
GENERAL AND ADMINISTRATIVE. General and administrative costs for the period
ended February 28, 2001 were $336,028 versus $413,944 for the period ended
February 29, 2000. This decrease of $77,916 was primarily due to a concentrated
company wide effort to reduce overall costs.
16
OCCUPANCY. Occupancy for the period ended February 28, 2001 was $138,660
compared to $128,273 for the period ended February 29, 2000. This increase of
$10,387 is as stated in occupancy lease agreements for annual increases.
FINANCIAL. Financial costs for the period ended February 28, 2001 were
$22,986 compared to $78,097 for the period ended February 29, 2000. The current
year expense is lower as the write down on a marketable investment was higher in
the prior year.
AMORTIZATION. Amortization of intangibles was $50,928 for the period ended
February 28, 2001 compared to $165,015 for the period ended February 29, 2000.
The adoption of SOP 98-5 occurred in the prior year and additional amortization
was written off.
MINORITY INTEREST. The decrease in net loss due to minority interest was
$297 in the period ended February 28, 2001 versus an increase in net loss of
$396 for the period ended February 29, 2000. This difference was due to the
combination of Keim Group Ltd. and MaxAmerica Home Warranty Company showing a
profit in the prior year to date and a net loss in the current year to date.
PREFERRED DIVIDENDS. Preferred dividends were $1,890 in the period ended
February 28, 2001 versus $1,700 for the period ended February 29, 2000. These
amounts are comparable and based on the number of preferred shareholders.
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 $50,000. 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.
The Company had its annual meeting of shareholders on February 8, 2001. At that
meeting and by proxy, a quorum was present and the Company received the
following votes on its proposals:
Proposal Yes No Abstain Shares Voted
Result
Board of Directors
Andrew Cimmerman 3,364,512 2,335 0 3,366,847
YES (62%)
F. Bryson Farrill 3,366,847 0 0 3,366,847
YES (62%)
Terry Lyles 3,366,847 0 0 3,366,847
YES (62%)
Marie M. May 3,366,847 0 0 3,366,847
YES (62%)
18
Increase in Authorized
Shares of Common Stock 3,366,847 0 0 3,366,847
YES (62%)
Ratification of
Acts of Board of Directors 3,366,847 0 0 3,366,847
YES (62%)
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
None.
(b) Reports on Form 8-K:
None.
19
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 April 8, 2001 /s/ Andrew Cimerman
----------------------------------------
Andrew Cimerman,
Chief Executive Officer and Director
20