UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended February 29, 2004
[ ] 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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9475 Heil Avenue Suite D, Fountain Valley, CA 92708
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(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 February 29, 2004
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
HOMELIFE, INC.
INDEX
PAGE NO.
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PART I - FINANCIAL INFORMATION 1.
Item 1. Financial Statements 1.
Consolidated Balance Sheet at February 29, 2004 (Unaudited) 1.
Consolidated Statements of Operations for the three months ended 3.
February 29, 2004 and February 28, 2003 (Unaudited)
Consolidated Statements of Operations for the nine months ended 4.
February 29, 2004 and February 28, 2003 (Unaudited)
Consolidated Statements of Cash Flows for the nine months ended 5.
February 29, 2004 and February 28, 2003 (Unaudited)
Notes to Consolidated Financial Statements 6.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation. 7.
Item 3. Controls and Procedures. 10.
PART II - OTHER INFORMATION 10.
Item 1. Legal Proceedings. 10.
Item 2. Changes in Securities and Use of Proceeds. 11.
Item 3. Defaults Upon Senior Securities. 11.
Item 4. Submission of Matters to a Vote of Security Holders. 11.
Item 5. Other Information. 11.
Item 6. Exhibits and Reports on Form 8-K. 11.
(a) Exhibits
(b) Reports on Form 8-K
PART I - FINANCIAL INFORMATION
HOMELIFE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AT FEBRUARY 29, 2004
(UNAUDITED)
ASSETS
Current Assets
Cash $ 88,332
Marketable securities, at fair value 900
Accounts receivable, net 22,791
Prepaid expenses and deposits 35,407
------------
147,430
Property and Equipment, net 150,484
Goodwill 225,943
Other Assets, net 159,652
Purchased Franchise Rights 20,000
------------
$ 703,509
============
1
HOMELIFE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
AT FEBRUARY 29, 2004
(UNAUDITED)
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities
Bank indebtedness $ 40,731
Accounts payable 230,803
Reserve for warranty 66,158
Preferred dividends payable 10,270
Deferred revenue 68,850
------------
416,812
Deferred Revenue 88,740
Due to Stockholder 261,117
Minority Interest 19,509
------------
786,178
Stockholders' Equity (Deficit)
Capital Stock 1,031,109
Additional Paid in Capital 3,487,472
Accumulated Other Comprehensive Income 4,715
Accumulated Deficit (4,605,965)
------------
(82,669)
------------
$ 703,509
============
2
HOMELIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
(UNAUDITED)
2004 2003
------------ ------------
REVENUE
Royalty and franchise fees $ 114,961 $ 76,424
Warranty fees 21,035 31,719
Other income 21,225 51,621
------------ ------------
157,221 159,764
DIRECT COSTS 26,260 45,857
------------ ------------
130,961 113,907
------------ ------------
EXPENSES
Salaries and fringe benefits 52,678 72,601
General and administrative 63,690 42,433
Occupancy 14,814 14,875
Financial 4,920 (327)
Depreciation 17,436 15,036
Amortization 12,963 12,963
------------ ------------
166,501 157,581
------------ ------------
LOSS BEFORE MINORITY INTEREST (35,540) (43,674)
Minority interest -- 5,818
------------ ------------
NET LOSS (35,540) (37,856)
Preferred dividends (500) --
------------ ------------
NET LOSS APPLICABLE TO COMMON
SHARES (36,040) (37,856)
============ ============
BASIC AND FULLY DILUTED LOSS
PER COMMON SHARE $ (0.01) $ (0.01)
============ ============
WEIGHTED-AVERAGE NUMBER OF
COMMON SHARES 6,108,586 6,108,586
3
HOMELIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
(UNAUDITED)
2004 2003
------------ ------------
REVENUE
Royalty and franchise fees $ 354,242 $ 341,174
Warranty fees 82,284 133,502
Other income 56,496 129,007
------------ ------------
493,022 603,683
DIRECT COSTS 81,889 148,210
------------ ------------
411,133 455,473
------------ ------------
EXPENSES
Salaries and fringe benefits 173,919 224,153
General and administrative 215,115 194,482
Occupancy 44,017 45,775
Financial 7,753 2,720
Depreciation 49,296 46,118
Impairment loss on purchased
franchise rights -- 110,000
Amortization 38,889 38,889
------------ ------------
528,989 662,137
------------ ------------
LOSS BEFORE MINORITY INTEREST (117,856) (206,664)
Minority interest -- 7,878
------------ ------------
NET LOSS (117,856) (198,786)
Preferred dividends (1,500) --
------------ ------------
NET LOSS APPLICABLE TO COMMON
SHARES (119,356) (198,786)
============ ============
BASIC AND FULLY DILUTED LOSS
PER COMMON SHARE $ (0.02) $ (0.03)
============ ============
WEIGHTED-AVERAGE NUMBER OF
COMMON SHARES 6,108,586 6,108,586
4
HOMELIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
(UNAUDITED)
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (117,856) $ (198,786)
Adjustments to reconcile net loss to net cash
from operating activities
Depreciation 49,299 46,118
Amortization 38,889 38,889
Change in value of minority interest -- (7,878)
Impairment loss on purchased franchise rights -- 20,000
Impairment loss on goodwill of subsidiary -- 90,000
Changes in assets and liabilities
Accounts receivable 3,078 3,023
Prepaid expenses and deposits (875) 125
Accounts payable (17,175) 15,291
Reserve for warranty (8,842) 4,184
Due to stockholder 38,085 --
Deferred revenue (16,935) (20,985)
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(32,332) (10,019)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets -- (1,876)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from (repayments on) bank
indebtedness, net (3,130) (7,674)
------------ ------------
NET CHANGE IN CASH (35,462) (19,569)
Cash, beginning of period 123,794 113,475
------------ ------------
CASH, END OF PERIOD $ 88,332 $ 93,906
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Interest paid $ 7,053 $ 2,051
============ ============
Income taxes paid $ -- $ --
============ ============
5
HOMELIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. MANAGEMENT'S PLAN AND FUTURE OPERATIONS
At February 29, 2004, 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. Management is currently reviewing all options in respect to finding a
possible solution for future growth and profitability of the company. The
board and management is in discussions with professional advisors as to the
direction and options the company can take in the future.
2. 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 pursuing potential mergers/acquisitions.
3. The company is considering issuing stock to major shareholders in return
for working capital and to retire existing debt. (see Subsequent Event
Footnote 4)
The accompanying financial statements do not include any adjustments to the
recoverability and classification of recorded asset amounts and
classification of liabilities that might be necessary in the event that the
Company is unable to continue as a going concern.
NOTE 2. BASIS OF CONSOLIDATED FINANCIAL STATEMENTS PRESENTATION
The condensed consolidated financial statements of HomeLife, Inc. and
Subsidiaries (the "Company") included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Certain information and
footnote disclosures normally included in financial statements prepared in
conjunction with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. These condensed financial statements should be
read in conjunction with the annual audited financial statements and the
notes thereto included in the Company's Form 10-KSB Annual Report , and
other reports filed with the SEC.
The accompanying unaudited interim financial statements reflect all
adjustments of a normal and recurring nature which are, in the opinion of
management, necessary to present fairly the financial position, results of
operations and cash flows of the Company for the interim periods presented.
The results of operations for these periods are not necessarily comparable
to, or indicative of, results of any other interim period of or for the
fiscal year taken as a whole. Certain financial information that is not
required for interim financial reporting purposes has been omitted.
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been
reclassified to conform with the current year presentation.
6
NOTE 3. STOCK OPTION GRANTS
The Company has a stock option plan under which employees, non-employee
directors, consultants and investors may be granted options to purchase
shares of the Company's common stock. Options have varying vesting and
expiration dates.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations in accounting
for its employee stock options. Accordingly, no compensation expense has
been recognized for its employee stock options. During the year ended May
31, 2003, the Company adopted the disclosure provisions of SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure".
The following table illustrates the effect on net earnings and earnings per
share had the Company adopted the fair value based method of accounting for
stock-based employee compensation for all periods presented:
Nine months ended February 29, 2004 2004 2003 2003
------------ ------------ ------------ ------------
As Reported Pro-Forma As Reported Pro-Forma
------------ ------------ ------------ ------------
Net loss for common shares $ (119,356) $ (119,356) $ (198,786) $ (198,786)
Basic and fully diluted loss
per Common share $ (0.01) $ (0.01) $ (0.03) $ (0.03)
NOTE 4. SUBSEQUENT EVENT
On March 24, 2004, the Board of Directors approved a resolution to issue
6,263,300 shares of its common stock to a major shareholder for extinguishment
of $250,532 debt. The conversion of the shares were made at a six month average
stock price of $0.04 per share. The shares were issued on March 30, 2004.
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 fiscal year 2002.
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.
7
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 FEBRUARY 29, 2004 (UNAUDITED) COMPARED TO THE THREE MONTHS
- -----------------------------------------------------------------------------
ENDED FEBRUARY 28, 2003 (UNAUDITED).
- ------------------------------------
REVENUES. The Company generated gross sales of $157,221 for the quarter
ended February 29, 2004 compared to gross sales of $159,764 for the quarter
ended February 28, 2003. Revenue by business segment is shown below:
February 29, 2004 February 28, 2003
Amount % Amount %
------ - ------ -
Royalty & franchise fees $ 114,961 73 $ 76,424 48
Home warranty sales 21,035 13 31,719 20
Other 21,225 14 51,621 32
----------- --- ---------- --
TOTAL $ 157,221 100 $ 159,764 100
=========== === ========== ===
Overall revenues were comparable for the two periods.
Royalty fees & franchise fees combined increased from the prior fiscal year due
to more transactions in the current fiscal year. The real estate market in
Michigan is still stagnant but the market in California is still gaining steam.
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. The Company has sold fewer policies in the third quarter of 2004
compared to third quarter of 2003.
DIRECT COSTS. Direct costs have decreased from the prior year, due to the
overall lower costs associated with the warranty revenue. Commissions paid for
real estate sales are also lower in conjunction with fewer sales. Gross margin
is higher in the current year, primarily due to lower costs associated with the
warranty revenue.
SALARIES AND FRINGE BENEFITS. Salaries and fringe benefits decreased from
$72,601 for the three months ended February 28, 2003 to $52,678 for the three
months ended February 29, 2004. This decrease of $19,923 was the result of two
employees who left the company and have not been replaced.
GENERAL AND ADMINISTRATIVE. General and administrative costs increased from
$42,433 for the quarter ended February 28, 2003 to $63,690 for the quarter ended
February 29, 2004. The increase was primarily due to higher legal fees incurred
in the current year.
OCCUPANCY. Occupancy costs were comparable for the two periods.
FINANCIAL. Financial costs increased over the prior year third quarter due
to the recording of interest on the note due to shareholder..
DEPRECIATION. Depreciation of fixed assets was comparable for both periods.
IMPAIRMENT LOSS. There was no impairment loss recognized during the third
quarter of the current fiscal year.
AMORTIZATION. Amortization of intangibles was comparable for both periods.
8
NINE MONTHS ENDED FEBRUARY 29, 2004 (UNAUDITED) COMPARED TO THE NINE MONTHS
- ----------------------------------------------------------------------------
ENDED FEBRUARY 28, 2003 (UNAUDITED).
- ------------------------------------
REVENUES. The Company generated gross sales of $493,022 for the nine months
ended February 29, 2004 compared to gross sales of $603,683 for the nine months
ended February 28, 2003. Revenue by business segment is shown below:
February 29, 2004 February 28, 2003
Amount % Amount %
------ - ------ -
Royalty & franchise fees $ 354,242 72 $ 341,174 57
Home warranty sales 82,284 17 133,502 22
Other 56,496 11 129,007 21
--------- --- --------- --
TOTAL $ 493,022 100 $ 603,683 100
========= === ========= ===
Overall sales in the current year were lower compared to the prior year.
Royalty fees & franchise fees combined increased slightly over the prior fiscal
year due to more transactions in the current fiscal year. The majority of the
increase in transactions came in the third quarter. The real estate market in
California is doing well but the market in Michigan is still slow.
Home warranty sales were lower in the current year compared to the same period
in the prior year due to a general downturn in the Michigan real estate market.
The Company has sold fewer policies in the first nine months of 2004 compared to
the first nine months of 2003.
DIRECT COSTS. Direct costs have decreased from the prior year, due to the
overall decrease in revenues and lower costs associated with the warranty
revenue. Gross margin is higher in the current year, primarily due to lower
costs associated with the warranty revenue.
SALARIES AND FRINGE BENEFITS. Salaries and fringe benefits decreased from
$224,153 for the nine months ended February 28, 2003 to $173,919 for the nine
months ended February 29, 2004. This decrease of $50,234 was the result of two
employees who left the company and have not been replaced.
GENERAL AND ADMINISTRATIVE. General and administrative costs were higher in
the current fiscal year due to increased legal fees and business promotion over
the prior year.
OCCUPANCY. Occupancy costs were comparable for the two periods.
FINANCIAL. Financial costs increased over the prior year third quarter due
to the recording of interest on the amount due to shareholder.
DEPRECIATION. Depreciation of fixed assets was comparable for both periods.
IMPAIRMENT LOSS. There was no impairment loss recognized during the current
fiscal year.
AMORTIZATION. Amortization of intangibles was comparable for both periods.
9
LIQUIDITY AND CAPITAL RESOURCES. The Company has lines of credit with two banks
with available credit of $95,000. The capital requirements of the Company are
for operating expenses and to service and use of its lines of credit. In the
prior fiscal year, the Company recorded a loss on its marketable security as the
share price had 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, write down of
goodwill, 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 $269,382 as of February 29, 2004. 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. No
payments were received in the prior fiscal year or the first three quarters of
the current fiscal year.
ITEM 3. CONTROLS AND PROCEDURES
Based on the evaluation of the Company's disclosure controls and procedures by
Andrew Cimerman, the Company's Chief Executive Officer and Marie M. May, the
Company's Chief Financial Officer, as of a date within 45 days of the filing
date of this quarterly report, such officers have concluded that the Company's
disclosure controls and procedures are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities and Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported, within the time period specified by the
Securities and Exchange Commission's rules and forms.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
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 breach of contract. Settlement discussions between the parties are in
progress and a final settlement agreed to by both parties is expected during the
current fiscal year.
In addition to the above lawsuits, the sellers of Builders Realty (Calgary)
Ltd., through another business entity, have filed a lawsuit against Builders
Realty (Calgary) Ltd. for unpaid rents and commissions and damages incurred at
rental offices. Management is defending its position, with any further action
with this case being dependent on the outcome of the above mentioned lawsuits.
10
On July 31, 2003, several realtors formally employed by Builders Realty
(Calgary) Ltd. filed a lawsuit against the company seeking payment of unpaid
commissions. These commissions the Company is holding in a trust fund as
required by a court order. The company's defense position in regards to this
case will be dependent on the outcome of the above mentioned lawsuits.
The company is involved in a lawsuit with a franchisee of Red Carpet Keim, a
wholly-owned subsidiary of the company. 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. Additionally, the company has filed a
counter claim against the franchisee for non-payment of royalty fees and
franchise fees. During the year ended May 31, 2003, a court settlement offer was
declined by the respective parties. Subsequently, the parties have taken the
above mentioned matter to binding arbitration and expect to settle the matter
during the current fiscal year or beginning of next fiscal year.
Should any expenditures be incurred by the company for the resolution of any of
the above mentioned lawsuits, 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.
ITEM 3. DEFAULTS 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:
31 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
None.
11
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: April 13, 2004
-------------------------------------------- --------------
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: April 13, 2004
-------------------------------------------- --------------
Chief Executive Officer, President, Director
12