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 August 31, 2002
[ ] 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.)
9475 Heil Avenue Suite D, Fountain Valley, CA 92708
--------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(714) 418-1414
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 6,108,586 shares outstanding as of August 31, 2002
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 August 31, 2002 1.
Comparative Unaudited Consolidated Statements of Operations 3.
for the three months ended August 31, 2002 and 2001
Comparative Unaudited Consolidated Statements of Cash Flows 4.
for the three months ended August 31, 2002 and 2001
Notes to Unaudited Consolidated Financial Statements 5.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation. 13.
PART II - OTHER INFORMATION 15.
Item 1. Legal Proceedings. 15.
Item 2. Changes in Securities and Use of Proceeds. 15.
Item 3. Defaults Upon Senior Securities. 16.
Item 4. Submission of Matters to a Vote of Security Holders. 16.
Item 5. Other Information. 16.
Item 6. Exhibits and Reports of Form 8-K. 16.
(a) Exhibits
(b) Reports on Form 8-K
Item 7. Certification. 19.
PART I - FINANCIAL INFORMATION
HOMELIFE, INC.
CONSOLIDATED BALANCE SHEET
AS OF AUGUST 31, 2002
(UNAUDITED)
ASSETS
Current Assets
Cash $ 131,291
Marketable securities, at fair value 900
Accounts receivable 17,639
Prepaid expenses and deposits 34,862
-----------
184,692
Property and Equipment 243,012
Goodwill 359,167
Other Assets 237,430
Purchased Franchise Rights 50,000
-----------
$ 1,074,301
===========
1
HOMELIFE, INC.
CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF AUGUST 31, 2002
(UNAUDITED)
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Bank indebtedness $ 80,106
Accounts payable 322,550
Reserve for warranty 55,052
Dividends payable 6,770
Deferred revenue 129,170
-----------
593,648
Deferred Revenue 113,020
Minority Interest 30,876
-----------
737,544
Stockholders' Equity
Capital Stock 1,031,109
Additional Paid in Capital 3,487,472
Accumulated Other Comprehensive Gain/(Loss) 4,715
Accumulated Deficit (4,186,539)
-----------
336,757
$ 1,074,301
===========
2
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED AUGUST 31, 2002 AND 2001
(UNAUDITED)
2002 2001
---- ----
REVENUE
Royalty and franchise fees $ 133,316 $ 195,177
Warranty fees 49,741 76,282
Mortgage financing fees -- 10,607
Real estate brokerage -- 411,776
Other income 51,925 65,869
--------------------------
234,982 759,711
DIRECT COSTS 51,335 470,669
--------------------------
183,647 289,042
--------------------------
EXPENSES
Salaries and fringe benefits 79,043 119,637
General and administrative 59,510 117,605
Occupancy 15,448 37,012
Financial 1,735 5,018
Depreciation 16,046 16,551
Impairment loss on purchased franchise rights 10,000 --
Amortization 12,963 20,192
--------------------------
194,745 316,015
--------------------------
INCOME/(LOSS) BEFORE GAIN ON DISPOSAL OF
SUBSIDIARY ASSETS (11,098) (26,973)
Gain on Disposal of Subsidiary Assets -- 52,130
--------------------------
INCOME/(LOSS) BEFORE MINORITY INTEREST (11,098) 25,157
Minority interest 807 1,568
--------------------------
NET INCOME/(LOSS) APPLICABLE TO COMMON
SHARES (10,291) 26,725
==========================
BASIC AND FULLY DILUTED INCOME/ $ 0.00 $ 0.00
(LOSS) PER COMMON SHARE
==========================
WEIGHTED-AVERAGE NUMBER OF 6,108,586 5,486,531
COMMON SHARES
3
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 2002 AND 2001
(UNAUDITED)
2002 2001
---- ----
$ $
CASH FLOWS FROM OPERATION ACTIVITIES
Net income/(loss) (10,291) 26,725
Adjustments to reconcile net income/(loss) to
net cash provided by operating activities
Depreciation and amortization 29,009 36,743
Minority interest (807) (1,568)
Loss on trading securities -- 4,013
Impairment loss on purchased franchise rights 10,000 --
Gain on disposal of subsidiary assets -- (52,130)
Shares issued for services -- 3,000
Reserve for warranties 463 7,576
Changes in assets and liabilities
Change in accounts and other receivable 6,163 (38,593)
Change in notes receivable -- (845)
Change in prepaid expenses (213) 5,861
Change in accounts payable (6,542) (27,403)
Change in notes payable -- --
Change in deferred revenue (6,995) (15,705)
----------------------
Net cash provided by/(used in) operating activities 20,787 (52,326)
----------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposition of subsidiary assets -- 64,500
----------------------
Net cash provide by/(used in) investing activities -- 64,500
----------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided by (repayment of) bank indebtedness (2,971) (1,704)
----------------------
Net cash provided by/(used in) financing activities (2,971) (1,704)
----------------------
Effect of foreign currency exchange rates -- 1,024
NET INCREASE (DECREASE) IN CASH 17,816 11,494
Cash, beginning of period 113,475 73,881
----------------------
CASH, END OF PERIOD $ 131,291 $ 85,375
======================
4
HOMELIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED FOR THE THREE MONTHS ENDED AUGUST 31, 2002
NOTE 1. MANAGEMENT'S PLAN AND FUTURE OPERATIONS
As of August 31, 2002, adverse principal conditions and events are
prevalent that require necessary action by management to enable the company
to return to profitability and to reverse these adverse conditions and
events. These conditions and events include recurring operating losses,
working capital deficiencies, negative cash flow from operations and
adverse key financial ratios. Management's plans to mitigate these adverse
conditions and events include:
1. During the prior fiscal year, the company closed the operations of an
unprofitable subsidiary, HomeLife Builders Realty (Calgary) Ltd, and
sold certain assets.
2. During the prior fiscal year, certain cost cutting measures were
implemented to significantly reduce office rental costs, payroll
expenses and certain SEC filing costs in the Michigan and California
offices.
3. During the prior fiscal year, the company settled certain lawsuits
regarding Network and International Estates which will further reduce
legal fees and management involvement.
4. The company is currently focusing on:
- the core business of franchising,
- the home warranty business,
- attempting to raise additional funding through private and public
offering,
- investigating and pursing potential mergers/acquisitions.
NOTE 2. 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 August 31, 2002 and results of operations for the three months ended
August 31, 2002 and 2001.
These financial statements consolidate, using the purchase method, the accounts
of the Company and its subsidiaries listed below:
Wholly-Owned Subsidiaries - active
- ----------------------------------
HomeLife Realty Services, Inc., MaxAmerica Financial Services, Inc., and
HomeLife California Properties, Inc. (formerly named HomeLife Properties Inc.)
Wholly Owned Subsidiaries - inactive
- ------------------------------------
FamilyLife Realty Services, Inc., Red Carpet Broker Network, Inc., National
Sellers Network, Inc., Aspen Benson & May LLC, HomeLife California Realty, Inc.,
and Builders Realty (Calgary) Ltd.
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 August 31, 2002
and August 31, 2001.
The assets acquired were recorded as trademarks and will be amortized over 10
years on a straight-line basis.
5
In February 1998, the Company acquired Builders Realty (Calgary) Ltd. Builders
Realty (Calgary) is a two-office residential real estate company located in
Calgary, Alberta, Canada. Builders Realty (Calgary) Ltd. changed its trade name
to HomeLife Builders Realty and operates as a wholly owned subsidiary of
HomeLife, Inc.
In April 1998, the company incorporated National Sellers Network, Inc., as a
Nevada corporation, to function as a real estate licensing company for the
National Real Estate Services trade name. National Sellers Network, Inc. is a
wholly owned subsidiary of the Company. Also in April 1998, the company
incorporated Red Carpet Broker Network, Inc., as a Nevada corporation, to
function as a real estate licensing company for the Red Carpet Real Estate
Services trade name. Red Carpet Real Estate Services, Inc. is also a wholly
owned subsidiary of the Company.
In August 1998, the Company incorporated HomeLife Properties, Inc. as a Nevada
corporation to function as a buyer and seller of real property. This company
currently has no operations and is a wholly owned subsidiary of HomeLife.
In September 1998, the company acquired the investment banking firm of Aspen,
Benson & May, LLC. Aspen, Benson & May, LLC currently has no operations and the
Company does not anticipate operating through this subsidiary during at least
the next 12 months.
In November 1998, the Company sold a master franchise in Germany.
In January 1999, the Company's Builders Realty (Calgary) Ltd. subsidiary
purchased the assets and business of HomeLife Higher Standards, a real estate
brokerage firm in Calgary, Alberta, Canada.
In September 2001, the company sold certain assets of HomeLifeBuilders Realty
(Calgary) Ltd., a wholly owned subsidiary, for $38,700.
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 Inc.
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, HomeLife California Properties Inc.
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 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
6
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 August 31, 2002, 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
During the year ended the company adopted the Financial Accounting Standards
Board issued Statements of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets." Under the new rules, goodwill and
indefinite lived intangible assets are no longer amortized but are reviewed
annually for impairment. Separable intangible assets that are not deemed to have
an indefinite life will continue to be amortized over their useful lives. The
amortization provisions of SFAS No. 142 apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, the Company began applying the new accounting
rules effective June 1, 2001. Consequently the company has changed its
accounting policy of amortizing goodwill over 40 years to the amortization
provisions of SFAS No. 142.
(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 August 31, 2002, management expects its long-lived assets to be
fully recoverable.
7
(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 which represent incurred but not reported losses (IBNR)
under these warranties have been recorded as reserve for warranty and are based
on past loss 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 is not recognized as income
is recorded on the balance sheet as deferred revenue.
(m) Income taxes
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 consolidated
financial statements for fiscal years beginning after December 15, 1995. The
company has adopted the disclosure provisions of SFAS No. 123 for employee stock
based compensation. Accordingly, compensation cost for stock option is measured
as the excess, if any, of the quoted market price of the company's stock at the
measurement date over the amount an employee must pay to acquire the stock. See
note 14 (f) for a summary of the pro-forma EPS determined as if the company had
applied FAS No. 123. The company's stock option plan prior to 1997 which vested
immediately and therefore there are no expense amounts to be reflected in the
current consolidated financial statements. The company will use the fair value
approach for stock option plan granted to non-employees according to EITF 96-18.
There were no stock options granted to non-employees in fiscal years 2002 and
2001.
(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. Balance sheet accounts are translated using
closing exchange rates in effect 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 into United States dollars at
the rates on the respective dates or at any other certain rates. Adjustments
resulting from the translation are included in accumulated other comprehensive
income 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.
8
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 4. BANK INDEBTEDNESS
At August 31, 2002, the company had three available lines of credit under bank
loan agreements. Two of the lines amounted to $80,106 combined and were
unsecured operating credit lines bearing interest at the rate of 16% per annum.
These lines were held by the corporate office in California. The third line of
credit amounted to $29,198 (Canadian $50,000) and was held by the Calgary
office. This operating credit facility bears interest at the bank's prime
lending rate plus 2% per annum with interest payable monthly. All three credit
facilities are guaranteed by a major shareholder of the company.
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, 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
50 Class AA Preferred shares
6,108,586 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 by the company.
9
During the prior fiscal year, replacement warrants were issued. The ten year
warrants are for the purchase of an aggregate of 200,000 shares of common stock
at $1.75 per share. The company recorded these replacement warrants in the
amount of $8,564 as expense.
(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 mabe 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
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. As of August 31, 2002, options to various employees of the company
to acquire 130,000 Common stock had been granted under the stock option plan
with the following terms:
100,000 Common shares at $3 per share, granted in February, 1998, vested
and exercisable for 5 years
30,000 Common shares at $5 per share, granted in September, 1998, vested
and exercisable for 5 years
(f) Earnings per share
The fully diluted earnings per share does not include the issuance of shares
which would be anti-dilutive arising from the following:
i. Conversion of 10,000 Class A Preferred shares to Common shares
ii. Conversion of 50 Class AA Preferred shares to Common shares
iii. Exercise of warrant which entitles holder to acquire 200,000 Common
shares at $1.75 per share
iv. Exercise of stock options to acquire 130,000 issuance of Common shares
v. Common stock which may be required
NOTE 6. PROMISSORY NOTE RECEIVABLE
The company issued 265,000 HomeLife Inc. shares in exchange for a promissory
note receivable of $250,000. On October 8, 1999, the promissory note receivable
in the amount of $250,000 was guaranteed by 100,000 shares of Pioneer Growth
Corp. ("Pioneer"). The value of these Pioneer shares have been guaranteed by the
issuer of the promissory note for $250,000 (the "guaranty"). Should the value of
the Pioneer shares be less than $250,000 on the due date of the promissory note,
October 8, 2000, the issuer of the note has the option to make up the difference
in cash, or make up the difference with HomeLife Inc.'s common stock by
providing one share of HomeLife, Inc's common stock for each dollar that is
deficient.
On November 1, 2000, the company agreed to accept full ownership rights to a
company, Consolidated International Telecom, Inc. ("Consolidated"), in exchange
for the 100,000 shares of Pioneer, the guaranty and to extend the repayment date
of the promissory note from October 8, 2000 to December 31, 2001. The company
has no expectation of receipt of payment of this subscription receivable of
$250,000 and has written off this amount in the prior fiscal year.
10
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
2002 2001
$ $
United States of America 234,982 347,935
Canada -- 411,776
-----------------------
234,982 759,711
=======================
b) Net Income (Loss) by Geographic Area
United States of America (10,291) 42,710
Canada -- (15,985)
-----------------------
(10,291) 26,725
=======================
c) Identifiable Assets by Geographic Area
United States of America 1,074,301 1,446,326
Canada -- 176,083
-----------------------
1,074,301 1,622,409
=======================
d) Amortization by Geographic Area
United States of America 12,963 20,192
Canada -- --
-----------------------
12,963 20,192
=======================
d) Revenue by industry
Real Estate Franchise 133,316 195,177
Real Estate Brokerage -- 411,776
Mortgage Financing -- 10,607
Home Warranty 49,741 76,282
Other 51,925 65,869
-----------------------
Total 234,982 759,711
=======================
2002 2001
$ $
e) Net income (loss) by industry
Real Estate Franchise 4,751 44,101
Real Estate Brokerage -- (15,985)
Mortgage Financing (100) 2,393
Home Warranty (16,276) (6,390)
Other 1,334 2,606
-----------------------
Total (10,291) 26,725
=======================
11
f) Identifiable assets by industry
Real Estate Franchise 882,966 1,237,710
Real Estate Brokerage -- 176,083
Mortgage Financing 75,020 77,115
Home Warranty 101,256 116,437
Other 15,059 15,064
-----------------------
Total 1,074,301 1,622,409
=======================
g) Amortization by industry
Real Estate Franchise 12,963 19,814
Real Estate Brokerage -- --
Mortgage Financing -- --
Home Warranty -- 378
-----------------------
Total 12,963 20,192
=======================
NOTE 8. RELATED PARTY TRANSACTIONS
In the current quarter, the Company accrued $7,500 for licensing expense to
a company controlled by the President.
NOTE 9. CONTINGENCY
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. The sellers of Builders Realty (Calgary) Ltd. have filed a
counter lawsuit for $455,000 (Canadian $695,000). Should any expenditures
be incurred by the company for the resolution of this lawsuit, they will be
charged to the operations of the year in which such expenditures are
incurred.
NOTE 10. SUBSEQUENT EVENT
On October 1, 2002, the company entered into a reorganization agreement
with Anza Capital Inc. The reorganization agreement is conditioned upon the
approval of the Board of Directors and shareholders of HomeLife Inc., as
well as two institutional investors and the shareholders of Anza Capital,
Inc. Under this agreement, should the agreement be approved, all assets of
HomeLife Inc., with the exception of the public entity and the Red Carpet
real estate brokerage trademark and associated franchise operations, would
be assigned to the President & CEO, Mr. Andrew Cimerman, in exchange for
his majority interest in HomeLife Inc.
The company is involved in a lawsuit with a franchisee of Red Carpet Keim.
A claim in the amount of $124,800 was filed on September 13, 2002 as a
result of the deterioration in value of the individual's stock
12
value of HomeLife Inc. Should any expenditures be incurred by the company
for the resolution of this lawsuit, they will be charged to the operations
of the year in which such expenditures are incurred.
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.
Certain assets of Builders Realty (Calgary) were sold during the prior fiscal
year. 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 fiscal year 2000, HomeLife has formed a strategic
alliance with Allstate Funding. Allstate Funding provides loan processing and
underwriting for MaxAmerica Financial Services, Inc., the real estate mortgage
brokerage subsidiary of HomeLife.
On October 1, 2002, the company entered into a reorganization agreement
with Anza Capital Inc. The reorganization agreement is conditioned upon the
approval of the Board of Directors and shareholders of HomeLife Inc., as well as
two institutional investors and the shareholders of Anza Capital, Inc. Under
this agreement, should the agreement be approved, , all assets of HomeLife Inc.,
with the exception of the public entity and the Red Carpet real estate brokerage
trademark and associated franchise operations, would be assigned to the
President & CEO, Mr. Andrew Cimerman, in exchange for his majority interest in
HomeLife Inc.
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.
THREE MONTHS ENDED AUGUST 31, 2002 (UNAUDITED) COMPARED TO THE THREE MONTHS
- --------------------------------------------------------------------------------
ENDED AUGUST 31, 2001 (UNAUDITED).
- ----------------------------------
REVENUES. The Company generated gross sales of $234,982 for the quarter
ended August 31, 2002 compared to gross sales of $759,711 for the quarter ended
August 31, 2001. Revenue by business segment is shown below:
13
August 31, 2002 August 31, 2001
Amount % Amount %
------ - ------ -
Real estate brokerage -- -- 411,776 54
Royalty & franchise fees 133,316 57 195,177 26
Mortgage financing -- -- 10,607 1
Home warranty sales 49,741 21 76,282 10
Other 51,925 22 65,869 9
------- ------- ------- -------
TOTAL 234,982 100 759,711 100
======= ======= ======= =======
The largest decrease in revenue from fiscal year 2001 was from real estate
brokerage. The Company sold certain assets of Builders Realty (Calgary) at the
end of the first quarter, in the prior fiscal year. The remaining product lines
and decrease in revenues from the prior fiscal year was a direct result of the
terrorist attacks of September 11, 2001 and its adverse affect on the US
economy.
Royalty fees & franchise fees combined decreased from the prior fiscal year due
to fewer offices in the current fiscal year. Additionally, no new master
franchises have been sold in the current fiscal year.
Mortgage financing was not earned during the current fiscal year. There is
strong competition in this area and the record low mortgage financing rates.
Additionally, the company no longer has a dedicated individual to sell the
financing at the current time.
Home warranty sales were lower in the current year first quarter compared to the
same period in the prior year due to a general downturn in the Michigan real
estate market over the past year. This is another area where the company no
longer has a dedicated individual to market home warranties.
DIRECT COSTS. Consistent with the decrease in overall revenues mainly
attributable to the closing of the operations of Builders Realty (Calgary), the
direct costs are lower in the current year due to no sale commissions associated
with the revenue.
SALARIES AND FRINGE BENEFITS. Salaries and fringe benefits decreased from
$119,637 for the three months ended August 31, 2001 to $79,043 for the three
months ended August 31, 2002. This decrease of $40,594 was the result of two
employees who left the company and have not been replaced. The remainder of the
reduction relates to the payroll associated with the closing of the operations
of Builders Realty (Calgary).
GENERAL AND ADMINISTRATIVE. General and administrative costs decreased to
$59,510 for the quarter ended August 31, 2002 from $117,605 for the quarter
ended August 31, 2001. The decrease was primarily due to the closing of
operations of Builders Realty (Calgary) in addition to a company wide monitoring
of expenses.
OCCUPANCY. The decrease of $21,564 in occupancy costs from first quarter
fiscal year 2002 compared to first quarter fiscal year 2001 results from the
Michigan and California corporate offices moving or reducing office space to
reduce costs as well as to the closing of operations of Builders Realty
(Calgary).
FINANCIAL. Financial costs were lower for the quarter ended August 31, 2002
due to less interest and bank charges paid than in the prior year.
DEPRECIATION. Depreciation of fixed assets was comparable for both periods.
AMORTIZATION. Amortization of intangibles was $20,192 for the three months
ended August 31, 2001 and $12,963 for the three months ended August 31, 2002.
The decrease in the current fiscal year relates to the implementation of FASB
142.
IMPAIRMENT LOSS. During the prior fiscal year, the Company received a
franchise right in lieu of payment of a note receivable from a franchisee. An
impairment loss of $10,000 was recognized during the first quarter of the
current fiscal year.
MINORITY INTEREST. Minority interest decreased due to the combined losses
of Keim & MaxAmerica.
LIQUIDITY AND CAPITAL RESOURCES. The Company has 3,750 shares of Voice Mobility
Inc. as a marketable security, and lines of credit with three banks in the
amounts of CDN$50,000 and $80,000. The Company
14
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 two years. These losses are primarily
due to amortization and depreciation and impairment of franchise rights
purchased. 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.
The company has experienced recurring operating losses and has a working capital
deficiency of $408,956 as of August 31, 2002. During the prior fiscal year, the
company disposed of certain assets of Builders Realty (Calgary) Ltd., a
wholly-owned subsidiary that had suffered recurring losses. In addition,
management has initiated changes in operational procedures, reduced staff and
expenses and focused its efforts on its core business. Management believes that,
despite the losses incurred and the deterioration in stockholders' equity, it
has developed a plan, which, if successfully implemented, can improve the
operating results and financial condition of the company. Furthermore, the
company continues its attempt to raise additional financings through private and
public offerings.
FOREIGN FRANCHISEES. Foreign franchisees consist of the sale of a master
franchise agreement to an individual in Germany. Payments for this agreement
were scheduled to be made in 12 quarterly payments beginning in October 1999.
Only partial payments have been received, however, and the company is now in
negotiations with the obligor to restructure this obligation. Continued default
of this agreement will deprive the Company of the anticipated payments, but is
anticipated to have no adverse consequences to the operations of the Company,
since it has no commitments of capital of other resources to its foreign
franchisees. During the fiscal year 2001, the company sold master franchise
agreements in Portugal and China. During the prior fiscal year, the company
received payments on the master franchise agreements in Portugal and China.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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. The sellers of Builders Realty (Calgary) Ltd. have filed a
counter lawsuit for $455,000 (Canadian $695,000). Should any expenditures
be incurred by the company for the resolution of this lawsuit, they will be
charged to the operations of the year in which such expenditures are
incurred.
The company is involved in a lawsuit with a franchisee of Red Carpet Keim.
A claim in the amount of $124,800 was filed on September 13, 2002 as a
result of the deterioration in value of the individual's stock value of
HomeLife Inc. Should any expenditures be incurred by the company for the
resolution of this lawsuit, they will be charged to the operations of the
year in which such expenditures are incurred.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
15
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.
16
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 October 15, 2002 /s/ Andrew Cimerman
----------------------------------------
Andrew Cimerman,
Chief Executive Officer and Director
17
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") the Registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
HOMELIFE, INC.
Registrant
By: /s/ Andrew Cimerman Date: October 15, 2002
-------------------------------------------- ----------------
Chief Executive Officer, President, Director
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ Andrew Cimerman Date: October 15, 2002
-------------------------------------------- ----------------
Chief Executive Officer, President, Director
18
ITEM 7 - CERTIFICATION
- ----------------------
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of HomeLife Inc.'s (the "Company") Quarterly
Report on Form 10-Q for the period ending August 31, 2002 with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Andrew Cimerman,
the President and Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Andrew Cimerman
--------------------------
Andrew Cimerman
President and
Chief Executive Officer
Date: October 15, 2002
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of HomeLife Inc.'s (the "Company") Quarterly
Report on Form 10-Q for the period ending August 31, 2002, with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Marie M. May, the
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Marie M. May
--------------------------
Marie M. May
Chief Financial Officer
Date: October 15, 2002