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, 2006
[ ] 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.)
1503 South Coast Drive, Suite 204, Costa Mesa, CA 92626
- ------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(714) 241-3030
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 |_|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
The issuer had 12,371,886 common shares outstanding as of August 31, 2006
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 August 31, 2006 (Unaudited) 1.
Consolidated Statements of Operations for the three months ended 3.
August 31, 2006 and 2005 (Unaudited)
Consolidated Statements of Cash Flows for the three months ended 4.
August 31, 2006 and 2005 (Unaudited)
Notes to Consolidated Financial Statements 5.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation 6.
Item 3. Controls and Procedures 8.
PART II - OTHER INFORMATION 8.
Item 1. Legal Proceedings 8.
Item 2. Changes in Securities and Use of Proceeds 9.
Item 3. Defaults Upon Senior Securities 9.
Item 4. Submission of Matters to a Vote of Security Holders 9.
Item 5. Other Information 9.
Item 6. Exhibits and Reports on Form 8-K 9.
(a) Exhibits
(b) Reports on Form 8-K
Signatures. 10.
PART I - FINANCIAL INFORMATION
HOMELIFE, INC.
Consolidated Balance Sheet
At August 31, 2006
(unaudited)
ASSETS
Current Assets
Cash $ 77,297
Marketable securities, at fair value 900
Accounts receivable, net 15,122
Prepaid expenses and deposits 31,147
--------
Total Current Assets 124,466
Property and Equipment, net 143
Other Assets
Goodwill 225,943
Other Intangible Assets, net 30,022
--------
Total Assets $380,574
========
1
HOMELIFE, INC.
Consolidated Balance Sheet (Continued)
At August 31, 2006
(unaudited)
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Bank indebtedness $ 93,086
Accounts payable 187,988
Reserve for warranty 44,890
Deferred revenue 35,900
-----------
Total Current Liabilities 361,864
Other Liabilities
Due to Stockholder 179,595
-----------
Total Liabilities 541,459
Minority Interest 20,843
Stockholders' Deficit
Capital Stock 1,037,372
Additional Paid in Capital 3,731,741
Accumulated Other Comprehensive Loss (1,747)
Accumulated Deficit (4,949,094)
-----------
Total Stockholders' Deficit (181,728)
Total Liabilities and Stockholders' Deficit $ 380,574
2
HOMELIFE, INC.
Consolidated Statements of Operations
Three months ended August 31, 2006 and 2005
(unaudited)
2006 2005
------------ ------------
REVENUE
Royalty and franchise fees $ 91,585 $ 150,302
Warranty fees 23,066 30,471
Brokerage Income -- 29,983
Other income 3,269 796
-------------------------------
Total Revenue 117,920 211,552
DIRECT COSTS 9,155 63,589
-------------------------------
GROSS PROFIT 108,765 147,963
-------------------------------
EXPENSES
Salaries and fringe benefits 42,866 62,395
General and administrative 55,690 92,823
Occupancy 12,244 11,466
Financial 5,188 4,311
Depreciation 1,865 15,000
Amortization 12,963 12,963
-------------------------------
Total Expenses 130,816 198,958
-------------------------------
NET LOSS (22,051) (50,995)
BASIC AND FULLY DILUTED LOSS $ (0.00) $ (0.00)
PER COMMON SHARE
===============================
WEIGHTED-AVERAGE NUMBER OF 12,371,886 12,371,886
COMMON SHARES
3
HOMELIFE, INC.
Consolidated Statements of Cash Flows
Three months ended August 31, 2006 and 2005
(unaudited)
2006 2005
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(22,051) $(50,995)
Adjustments to reconcile net loss to net cash from operating activities
Depreciation 1,865 15,000
Amortization 12,963 12,963
Changes in assets and liabilities
Accounts receivable (5,086) 6,910
Prepaid expenses and deposits -- (240)
Accounts payable 22,098 23,885
Reserve for warranty (2,063) --
Deferred revenue (4,380) --
----------------------
Net Cash Flows from Operating Activities 3,346 7,523
----------------------
CASH FLOWS FROM INVESTING ACTIVITIES -- --
----------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from lines of credit, net 12,853 (1,321)
Due to stockholder 8,886 7,738
Repayments on note payable (1,164) (790)
Net Cash Flows from Financing Activities 20,575 5,627
NET CHANGE IN CASH 23,921 13,150
Cash, beginning of period 53,376 75,360
CASH, END OF PERIOD $ 77,297 $ 88,510
======================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Interest paid $ 1,174 $ 1,433
======================
Income taxes paid $ -- $ --
======================
4
HOMELIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. MANAGEMENT'S PLAN AND FUTURE OPERATIONS
At August 31, 2006, 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, and adverse key financial ratios.
Management's plans to mitigate these adverse conditions and events
include:
- attempting to raise additional funding through private and public
offering,
- investigating and pursuing potential mergers/acquisitions,
- the core business of franchising nationwide
- making efforts to reduce unnecessary operating expenses on a
monthly basis
The accompanying consolidated 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 consolidated 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
consolidated financial statements should be read in conjunction with the
annual audited consolidated 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 consolidated 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 consolidated financial statements have
been reclassified to conform with the current year presentation. The
reclassifications made to the prior year have no impact on the net income
(loss), or overall presentation of the consolidated financial statements.
5
Note 3. LETTER OF INTENT
On September 11, 2006 the Company entered into an Agreement and Plan of
Merger with MIT Holding, Inc. This agreement provides the following: (1)
tax free reorganization with MIT Holding, Inc. whereby MIT becomes the
wholly owned subsidiary of HomeLife; (2) $250,000 payment to the Company
to pay present liabilities; (3) Andrew Cimerman will retain 240,000 shares
of the Company common stock after a 4.2 to 1 reverse stock split; Mr.
Cimerman will retire a certain amount of shares since he will own more
than 240,000 shares after the 4.2 to 1 reverse stock split and the assets
will be spun off to him in consideration for retirement of such shares.
The transaction has a closing date of September 29, 2006, with a final
closing date of October 31, 2006. Closing will occur after MIT's required
financial statements are completed and the Company has undertaken a
fairneess opinion for the spin off of the assets to Mr. Cimerman.
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.
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.
6
Three Months Ended August 31, 2006 (unaudited) compared to the Three Months
Ended August 31, 2005 (unaudited).
Revenues. The Company generated gross sales of $117,920 for the quarter
ended August 31, 2006 compared to gross sales of $211,552 for the quarter ended
August 31, 2005. Revenue by business segment is shown below:
August 31, 2006 August 31, 2005
Amount % Amount %
-------- -------- -------- --------
Royalty & franchise fees $ 91,585 78 $150,302 71
Home warranty sales 23,066 20 30,471 14
Brokerage income -- -- 29,983 14
Other 3,269 2 796 1
-------- -------- -------- --------
TOTAL $117,920 100 $211,552 100
======== ======== ======== ========
Royalty fees & franchise fees were lower in the current quarter due to the
overall slow down in the real estate market. Fewer offices and fewer sales have
led to the decline. Home warranty fees were lower in the current quarter
compared to the prior year due to fewer contracts written and a lower per
contract average than in the prior year. There was no brokerage income during
the current fiscal year first quarter.
Direct Costs. Direct costs on total revenue in the current quarter are
lower than the first quarter last year due to no brokerage income and therefore
no brokerage commissions. Additionally, warranty claims for the first quarter
were lower than the same quarter last year.
Salaries and fringe benefits. Salaries and fringe benefits decreased from
$62,395 for the three months ended August 31, 2005 to $42,866 for the three
months ended August 31, 2006. This decrease is a result of one less employee in
Michigan and a lower salary for a California employee during the current year.
General and administrative. General and administrative costs are lower in
the current fiscal quarter compared to prior year due to less marketing &
promotion, professional fees and office expense.
Occupancy. Occupancy costs were comparable for the similar periods.
Financial. Financial costs were higher for the quarter ended August 31,
2006 due to the accrued interest on the higher average outstanding amount due to
shareholder.
Depreciation. Depreciation of fixed assets was lower during the quarter
ended August 31, 2006 as many assets became fully depreciated.
Amortization. Amortization of intangibles was comparable for both periods.
Liquidity and capital resources. The Company has lines of credit with two banks
with available credit of $95,000 and a term loan of $25,000. The capital
requirements of the Company are for operating expenses and to service and the
use of its lines of credit. The Company has recorded significant operating
losses in the prior two years. These losses are primarily due to increased
direct costs and operating expenses. 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 $237,398 as of August 31, 2006. 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 financing through private and public offerings.
7
Application of Critical Accounting Policies. The Company's financial
statements and accompanying notes are prepared in accordance with generally
accepted accounting principles in the United States. Preparing financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue, and expenses. These estimates
and assumptions are affected by management's application of accounting policies.
Critical accounting policies for the Company include revenue recognition,
goodwill and accounting for income taxes.
The Company recognizes revenue in accordance with Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements". The Company recognizes
revenue when it is realized or realizable and earned. 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.
The Company accounts for income tax under the provisions of Statement of
Financial Accounting Standards No. 109, which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the consolidated financial statements or tax returns.
Deferred income taxes are provided using the liability method. Under the
liability method, deferred income taxes are recognized for all significant
temporary differences between the tax and financial statement bases of assets
and liabilities. In addition, the Company is required to record all deferred tax
assets, including future tax benefits of capital losses carried forward, and to
record a "valuation allowance" for any deferred tax assets where it is more
likely than not that the asset will not be realized.
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
None.
8
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:
Entry into a Material Definitive Agreement, Financial Statements and
Exhibits - filed September 15, 2006
9
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 16, 2006
-------------------------------------------- -----------------
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 16, 2006
-------------------------------------------- -----------------
Chief Executive Officer, President, Director
10