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, 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 November 30, 2002
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
HOMELIFE, INC.
INDEX
PAGE NO.
--------
PART I - FINANCIAL INFORMATION 1.
Item 1. Financial Statements 1.
Consolidated Unaudited Balance Sheet as of November 30, 2002 1.
Comparative Unaudited Consolidated Statements of Operations 3.
for the three months ended November 30, 2002 and 2001
Comparative Unaudited Consolidated Statements of Operations 4.
for the six months ended November 30, 2002 and 2001
Comparative Unaudited Consolidated Statements of Cash Flows 5.
for the three months ended November 30, 2002 and 2001
Comparative Unaudited Consolidated Statements of Cash Flows 6.
for the six months ended November 30, 2002 and 2001
Notes to Unaudited Consolidated Financial Statements 7.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation. 15.
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. 19
Item 4. Submission of Matters to a Vote of Security Holders. 19.
Item 5. Other Information. 19.
Item 6. Exhibits and Reports of Form 8-K. 19.
(a) Exhibits
(b) Reports on Form 8-K
Item 7. Certification. 22.
PART I - FINANCIAL INFORMATION
HOMELIFE, INC.
CONSOLIDATED BALANCE SHEET
AS OF NOVEMBER 30, 2002
(UNAUDITED)
ASSETS
Current Assets
Cash $ 106,720
Marketable securities, at fair value 900
Accounts receivable 24,138
Prepaid expenses and deposits 34,862
------------
166,620
Property and Equipment 229,852
Goodwill 269,167
Other Assets 224,467
Purchased Franchise Rights 40,000
------------
$ 930,106
============
1
HOMELIFE, INC.
CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF NOVEMBER 30, 2002
(UNAUDITED)
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Bank indebtedness $ 79,557
Accounts payable 336,336
Reserve for warranty 56,507
Dividends payable 6,770
Deferred revenue 122,175
------------
601,345
Deferred Revenue 113,020
Minority Interest 29,623
------------
743,988
Stockholders' Equity
Capital Stock 1,031,109
Additional Paid in Capital 3,487,472
Accumulated Other Comprehensive Gain/(Loss) 4,715
Accumulated Deficit (4,337,178)
------------
186,118
------------
$ 930,106
============
2
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2002 AND 2001
(UNAUDITED)
2002 2001
------------ ------------
REVENUE
Royalty and franchise fees $ 131,434 $ 206,998
Warranty fees 52,042 57,301
Mortgage financing fees -- 11,586
Other income 25,461 46,248
------------------------------
208,937 322,133
DIRECT COSTS 51,018 63,057
------------------------------
157,919 259,076
------------------------------
EXPENSES
Salaries and fringe benefits 72,509 83,455
General and administrative 92,539 182,565
Occupancy 15,452 11,472
Financial 1,312 13,679
Impairment loss 100,000 --
Depreciation 15,036 16,551
Amortization 12,963 20,192
------------------------------
309,811 327,914
------------------------------
LOSS BEFORE MINORITY INTEREST (151,892) (68,838)
Minority interest 1,253 (8,743)
------------------------------
NET LOSS (150,639) (77,581)
Preferred dividends -- (1,260)
------------------------------
NET LOSS APPLICABLE TO COMMON
SHARES (150,639) (78,841)
==============================
BASIC AND FULLY DILUTED
LOSS PER COMMON SHARE $ (0.02) $ (0.01)
==============================
WEIGHTED-AVERAGE NUMBER OF
COMMON SHARES 6,108,586 5,846,641
3
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2002 AND 2001
(UNAUDITED)
2002 2001
------------ ------------
REVENUE
Royalty and franchise fees $ 264,750 $ 402,175
Warranty fees 101,783 133,583
Mortgage financing fees -- 22,193
Real estate brokerage -- 411,776
Other income 77,386 112,117
------------------------------
443,919 1,081,844
DIRECT COSTS 102,353 533,726
------------------------------
341,566 548,118
------------------------------
EXPENSES
Salaries and fringe benefits 151,552 203,092
General and administrative 152,049 300,170
Occupancy 30,900 48,484
Financial 3,047 18,697
Depreciation 31,082 33,102
Impairment 110,000 --
Amortization 25,926 40,384
------------------------------
504,556 643,929
------------------------------
LOSS BEFORE GAIN ON DISPOSAL OF
SUBSIDIARY ASSETS (162,990) (95,811)
Gain on Disposal of Subsidiary Assets -- 52,130
------------------------------
LOSS BEFORE MINORITY INTEREST (162,990) (43,681)
Minority interest 2,060 (7,175)
------------------------------
NET LOSS (160,930) (50,856)
Preferred dividends -- (1,260)
------------------------------
NET LOSS APPLICABLE TO COMMON
SHARES (160,930) (52,116)
==============================
BASIC AND FULLY DILUTED INCOME/
(LOSS) PER COMMON SHARE $ (0.03) $ (0.01)
==============================
WEIGHTED-AVERAGE NUMBER OF
COMMON SHARE 6,108,586 5,846,641
4
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2002 AND 2001
(UNAUDITED)
2002 2001
$ $
------------ ------------
CASH FLOWS FROM OPERATION ACTIVITIES
Net loss (150,639) (78,841)
Adjustments to reconcile net loss to net cash provided
by operating activities
Depreciation and amortization 27,999 36,743
Minority interest (1,253) 8,743
Loss on trading securities -- 337
Impairment loss on purchased franchise rights 10,000 --
Impairment loss on goodwill of subsidiary 90,000 --
Shares issued for services -- 45,764
Reserve for warranties 1,455 389
Changes in assets and liabilities
Change in accounts and other receivable (6,499) 41,752
Change in prepaid expenses -- (457)
Change in accounts payable 13,786 19,295
Change in deferred revenue (6,995) (30,705)
-----------------------------
Net cash provided by/(used in) operating activities (22,146) 43,020
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (1,876) --
-----------------------------
Net cash provide by/(used in) investing activities (1,876) --
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided by (repayment of) bank indebtedness (549) 36,683
Cash required for dividends -- 1,260
-----------------------------
Net cash provided by/(used in) financing activities (549) 37,943
-----------------------------
Effect of foreign currency exchange rates -- (170)
NET INCREASE (DECREASE) IN CASH (24,571) 80,793
Cash, beginning of period 131,291 85,375
-----------------------------
CASH, END OF PERIOD $ 106,720 $ 166,168
=============================
5
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2002 AND 2001
(UNAUDITED)
2002 2001
$ $
------------ ------------
CASH FLOWS FROM OPERATION ACTIVITIES
Net loss (160,930) (52,116)
Adjustments to reconcile net loss to net cash provided
by operating activities
Depreciation and amortization 57,008 73,486
Minority interest (2,060) 7,175
Loss on trading securities -- 4,350
Impairment loss on purchased franchise rights 20,000 --
Impairment loss on goodwill of subsidiary 90,000 --
Gain on disposal of subsidiary assets -- (52,130)
Shares issued for services -- 48,764
Reserve for warranties 1,918 7,965
Changes in assets and liabilities
Change in accounts and other receivable (336) 3,159
Change in notes receivable -- (845)
Change in prepaid expenses (213) 5,404
Change in accounts payable 7,244 (8,108)
Change in deferred revenue (13,990) (46,410)
-----------------------------
Net cash provided by/(used in) operating activities (1,359) (9,306)
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposition of subsidiary assets -- 64,500
Purchase of fixed assets (1,876) --
-----------------------------
Net cash provide by/(used in) investing activities (1,876) 64,500
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided by (repayment of) bank indebtedness (3,520) 34,979
Cash required for dividends -- 1,260
-----------------------------
Net cash provided by/(used in) financing activities (3,520) 36,239
-----------------------------
Effect of foreign currency exchange rates -- 854
NET INCREASE (DECREASE) IN CASH (6,755) 92,287
Cash, beginning of period 113,475 73,881
-----------------------------
CASH, END OF PERIOD $ 106,720 $ 166,168
=============================
6
HOMELIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED FOR THE SIX MONTHS ENDED NOVEMBER 30, 2002
NOTE 1. MANAGEMENT'S PLAN AND FUTURE OPERATIONS
As of November 30, 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.
Despite their best efforts, however, there can be no assurance that the company
will be successful in their endeavors in this regard.
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 November 30, 2002 and results of operations for the six months ended
November 30, 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.),
Real Estate School of Southern California
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 November 30, 2002
and November 30, 2001.
The assets acquired were recorded as trademarks and will be amortized over 10
years on a straight-line basis.
7
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 HomeLife Builders 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
8
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, 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 November 30, 2002, management expects its long-lived assets to
be fully recoverable.
(l) Revenue Recognition
9
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 2003 and
2002.
(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.
10
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. PROPOSED REORGANIZATION
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 the
shareholders of Anza Capital, Inc. Should the agreement be approved, under the
agreement, 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 Family Life Realty Services, Inc., in exchange
for the majority interest in HomeLife Inc of Mr. Andrew Cimerman.
NOTE 5. GOODWILL
The changes in the carrying amount of goodwill for the period ended November 30,
2002, are as follows:
Royalty &
Franchise Fees Warranty Sales
Segment Segment Total
Balance as of
June 1, 2002 $ 269,167 $ 90,000 $ 359,167
Impairment losses -- (90,000) (90,000)
------------ ------------ ------------
Balance as of
November 30, 2002 $ 269,167 $ -- $ 269,167
============ ============ ============
Due to the loss of key personnel, cash flows were less than expected for home
warranty fees in the first half of fiscal year 2003. In November 2002, a
goodwill impairment loss of $90,000 was recognized in the MaxAmerica Home
Warranty reporting unit. The fair value of that reporting unit was estimated
using the expected present value of future cash flows.
The following table represents the impact of adopting SFAS No. 142 on net loss
and net loss per share had the standard been in effect as of November 30, 2001:
For the three For the six
months ended months ended
November 30, 2001 November 30, 2001
Reported net loss (78,841) (52,116)
Add back: Goodwill amortization 2,100 4,200
-------- ---------
Adjusted net loss (76,741) (47,916)
======== =========
Net loss per share $ (.01) $ (.01)
======== =========
11
NOTE 6. PURCHASED FRANCHISE RIGHTS
During the prior fiscal year, the Company received a franchise right in lieu of
payment of a note receivable from a franchisee. During the six months ended
November 30, 2002, an impairment loss of $20,000 associated with the Purchased
Franchise Rights was recognized. The fair value of the purchased franchise
rights was estimated using the expected selling price per franchise.
NOTE 7. BANK INDEBTEDNESS
At November 30, 2002, the company had three available lines of credit under bank
loan agreements. Two of the lines amounted to $50,359 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 8. 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.
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
12
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 maybe 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 November 30, 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 9. 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.
On November 13, 2002, the Company entered into a settlement agreement whereby
agreeing to accept 150,000 shares of stock in Berkshire Asset Management, Inc.
As of the filing of this document, the Company has not yet received the agreed
upon stock.
13
NOTE 10. SEGMENTED INFORMATION
Segmented information has been provided for the company on the basis of
different services.
2002 2001
$ $
a) Revenue by industry
Real Estate Franchise 264,750 402,175
Real Estate Brokerage -- 411,776
Mortgage Financing -- 22,193
Home Warranty 101,783 133,583
Other 77,386 112,117
------------ ------------
Total 443,919 1,081,844
============ ============
b) Net income (loss) by industry
Real Estate Franchise (131,253) (26,154)
Real Estate Brokerage -- (15,985)
Mortgage Financing (540) 3,058
Home Warranty (28,993) (13,676)
Other (144) 641
------------ ------------
Total (160,930) (52,116)
============ ============
c) Identifiable assets by industry
Real Estate Franchise 739,869 1,021,028
Real Estate Brokerage -- --
Mortgage Financing 74,580 79,530
Home Warranty 100,463 118,949
Other 15,194 13,099
------------ ------------
Total 930,106 1,412,606
============ ============
d) Amortization by industry
Real Estate Franchise 25,926 39,628
Real Estate Brokerage -- --
Mortgage Financing -- --
Home Warranty -- 756
------------ ------------
Total 25,926 40,384
============ ============
NOTE 11. RELATED PARTY TRANSACTIONS
In the current fiscal year, the Company accrued $15,000 for licensing expense to
a company controlled by the President.
14
NOTE 12. 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.
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. Additionally, the Company has filed a counter claim
against the franchisee.
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
shareholders of Anza Capital, Inc. Should the agreement be approved, under the
agreement, 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 Family Life, in exchange for the majority
interest in HomeLife Inc of Mr. Andrew Cimerman.
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.
15
THREE MONTHS ENDED NOVEMBER 30, 2002 (UNAUDITED) COMPARED TO THE THREE MONTHS
- --------------------------------------------------------------------------------
ENDED NOVEMBER 30, 2001 (UNAUDITED).
- ------------------------------------
REVENUES. The Company generated gross sales of $208,937 for the quarter
ended November 30, 2002 compared to gross sales of $322,133 for the quarter
ended November 30, 2001. Revenue by business segment is shown below:
November 30, 2002 November 30, 2001
Amount % Amount %
---------- ---------- ---------- ----------
Royalty & franchise fees 131,434 63 206,998 64
Mortgage financing -- -- 11,586 4
Home warranty sales 52,042 25 57,301 18
Other 25,461 12 46,248 14
---------- ---------- ---------- ----------
TOTAL 208,937 100 322,133 100
========== ========== ========== ==========
The largest decrease in revenue from fiscal year 2002 was from royalty and
franchise fees. During the current fiscal year, there have not been any new
franchises or master franchises sold. Additionally, the franchises that are on a
transaction basis have sold less than in the prior fiscal year due to the
competitiveness of the real estate market.
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 second 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. As a percentage of sales, direct costs increased from 20% for
the second quarter of fiscal 2002 compared to 24% for the second quarter of
fiscal 2003. This increase in costs results from higher expenses incurred with
claims associated with the warranty revenue.
SALARIES AND FRINGE BENEFITS. Salaries and fringe benefits decreased from
$83,455 for the three months ended November 30, 2001 to $72,509 for the three
months ended November 30, 2002 . This decrease of $10,946 was the result of an
employee who left the company in the prior fiscal year and has not been
replaced.
GENERAL AND ADMINISTRATIVE. General and administrative costs decreased to
$92,539 for the quarter ended November 30, 2002 from $182,565 for the quarter
ended November 30, 2001. The decrease was primarily due to the reduction in
outside services in regards to the closing of operations of Builders Realty
(Calgary), legal fees and also a company wide monitoring of expenses.
OCCUPANCY. Occupancy costs increased from $11,472 for the quarter ended
November 30, 2001 to $15,452 for the quarter ended November 30, 2002 due to some
minor repairs and maintenance expense incurred for the California office.
FINANCIAL. Financial costs were lower for the quarter ended November 30,
2002 compared to the same period in the prior year due to less interest paid
than in the prior year. Additionally, a bad debt charge of $10,000 was incurred
in the prior fiscal year.
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 second quarter of the
current fiscal year. This adjustment is consistent with the first quarter of the
current fiscal year. Additionally, due to
16
the loss of key personnel, cash flows related to home warranty sales were less
than expected. In accordance with FASB 142, an impairment loss on goodwill of
subsidiary of $90,000 was recognized during the second quarter.
DEPRECIATION. Depreciation of fixed assets was comparable for both periods.
AMORTIZATION. Amortization of intangibles was $20,192 for the three months
ended November 30, 2001 and $12,963 for the three months ended November 30, 2002
.. The decrease in the current fiscal year relates to the implementation of FASB
142.
MINORITY INTEREST. The change minority interest results from lower combined
net income of Keim & MaxAmerica.
SIX MONTHS ENDED NOVEMBER 30, 2002 (UNAUDITED) COMPARED TO THE SIX MONTHS ENDED
- --------------------------------------------------------------------------------
NOVEMBER 30, 2001 (UNAUDITED).
- ------------------------------
REVENUES. The Company generated gross sales of $443,919 for the quarter
ended November 30, 2002 compared to gross sales of $1,081,844 for the quarter
ended November 30, 2001. Revenue by business segment is shown below:
November 30, 2002 November 30, 2001
Amount % Amount %
---------- ---------- ---------- ----------
Real estate brokerage -- -- 411,776 38
Royalty & franchise fees 264,750 60 402,175 37
Mortgage financing -- -- 22,193 2
Home warranty sales 101,783 23 133,583 12
Other 77,386 17 112,117 11
---------- ---------- ---------- ----------
TOTAL 443,919 100 1,081,844 100
========== ========== ========== ==========
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. Additionally, there have not
been any franchise or master franchise sold in the current year.
Royalty fees & franchise fees combined decreased from the prior fiscal year due
to fewer offices in the current fiscal year. Additionally, no new franchises or
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 first six months of the current year
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
$203,092 for the six months ended November 30, 2001 to $151,552 for the six
months ended November 30, 2002 . This decrease of $51,540 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
$152,049 for the first half ended November 30, 2002 from $300,170 for the first
half ended November 30, 2001. The decrease was primarily due to the closing of
operations of Builders Realty (Calgary), reduction in outside services & legal
fees in addition to a company wide monitoring of expenses.
17
OCCUPANCY. The decrease of $17,584 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 six months ended November 30,
2002 compared to the same period in the prior year due to less interest and bank
charges paid than in the prior year and less bad debt expense booked.
DEPRECIATION. Depreciation of fixed assets was comparable for both periods.
AMORTIZATION. Amortization of intangibles was $40,384 for the six months
ended November 30, 2001 and $25,926 for the six months ended November 30, 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 each quarter of the current
fiscal year. Additionally, due to the loss of key personnel, cash flows related
to home warranty sales were less than expected. In accordance with FASB 142, an
impairment loss on goodwill of subsidiary of $90,000 was recognized during the
second quarter.
MINORITY INTEREST. The change minority interest results from lower combined
net income 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 has recorded significant
operating losses in the prior two years. These losses are primarily due to
amortization and depreciation and impairment losses of goodwill and 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 $434,725 as of November 30, 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 or looking into mergers and acquisitions.
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
18
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.
Additionally, the Company has filed a counter claim against the
franchisee.
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.
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 January 14, 2003 /s/ Andrew Cimerman
------------------------------------
Andrew Cimerman,
Chief Executive Officer and Director
20
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: January 14, 2003
-------------------------------------------- --------------------
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: January 14, 2003 Chief Executive Officer, President, Director
-------------------------
21
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 November 30, 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: January 14, 2003
22
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 November 30, 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: January 14, 2003
23