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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED MAY 31, 2000
Commission File Number #000-1024048
HOMELIFE, INC.
(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 Number)
4100 NEWPORT PLACE, SUITE 730
NEWPORT BEACH, CA 92660
(Address of principal executive offices) (Zip code)
(949) 660-1919
(Issuer's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
(None)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.001 per share
Check whether Registrant (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 [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
the Form 10-KSB. [X]
Registrant's revenues for its fiscal year ended May 31, 2000, were $3,450,918.
As of May 31, 2000, Registrant had 5,637,358 shares of its $.001 par value
Common Stock issued and outstanding with an aggregate market value of the common
stock held by non-affiliates of $591,308. This calculation is based upon the
closing sales price of $0.22 per share on May 31, 2000.
Transitional Small Business Disclosure Format (check one). Yes [ ] No [X]
The following documents are incorporated herein by reference: Registration
Statement on Form 10-SB, filed with the SEC on November 2, 1999 is incorporated
in Part IV, Item 13(a).
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TABLE OF CONTENTS
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PART I PAGE
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Item 1 Description of Business 1
Item 2 Description of Property 6
Item 3 Legal Proceedings 6
Item 4 Submission of Matters to a Vote of Security Holders 7
PART II
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Item 5 Market for Common Equity and Related Stockholder Matters 7
Item 6 Management's Discussion and Analysis 8
Item 7 Financial Statements 13
Item 8 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 13
PART III
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Item 9 Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act 13
Item 10 Executive Compensation 15
Item 11 Security Ownership of Certain Beneficial Owners and
Management 17
Item 12 Certain Relationships and Related Transactions 17
PART IV
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Item 13 Exhibits and Reports on Form 8-K 19
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
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A. BUSINESS DEVELOPMENT
1. FORM AND YEAR OF ORGANIZATION
HomeLife, Inc. ("HomeLife") was incorporated in 1995 under the laws of the
state of Nevada. The terms "HomeLife" or the "Company" shall refer to HomeLife,
Inc. and all of its controlled subsidiary corporations. The Company provides a
broad range of services to its franchisees, licensees and consumers in the real
estate marketplace. HomeLife utilizes both its proprietary "SuperSystem"
marketing system and business combinations and acquisitions to grow as a real
estate services company.
2. ANY BANKRUPTCY, RECEIVERSHIP OR SIMILAR PROCEEDING
Not Applicable.
3. ANY MATERIAL RECLASSIFICATION, MERGER, CONSOLIDATION, OR PURCHASE
OR SALE OF A SIGNIFICANT AMOUNT OF ASSETS NOT IN THE ORDINARY COURSE OF BUSINESS
The Company's growth is largely attributable to business combinations and
acquisitions. The Company was initially incorporated in 1995 for the purpose of
merging with Management Dynamics, Inc. a publicly owned New Jersey corporation.
Upon completing this merger, in November 1995, HomeLife purchased 100% of the
issued and outstanding shares and partnership interests respectively of HomeLife
Realty Services, Inc. and HomeLife Realty U.S. Limited Partnership (California)
in exchange for common and preferred shares of the Company. At the time of this
acquisition, the Company assumed contracts of the purchased entities to provide
franchise services, as the franchisor, to approximately 60 real estate franchise
offices.
In August 1996, HomeLife Realty Services acquired 93.33% and 82.72%
respectively of the outstanding stock of Michigan-based Red Carpet Keim and
Guardian Home Warranty Company. With this acquisition, the Company acquired the
franchise name "Red Carpet" for the state of Michigan, and began providing
franchise services, as franchisor, to approximately 60 real estate offices of
Red Carpet Keim. Guardian Home Warranty Company, a provider of home warranty
coverage, changed its name to MaxAmerica Home Warranty Company in March 1999.
In November 1996, the Company incorporated FamilyLife Realty Services, Inc.
in Michigan as a wholly owned subsidiary.
In January 1997, FamilyLife Realty Services, Inc. acquired the assets of
Salt Lake City based franchisor, S & S Acquisition Corp. This acquisition
included: (a) the trademarks "Red Carpet" for all states other than Michigan,
and "National Real Estate Services"; (b) the licensing agreements of Red Carpet
Real Estate Services and National Real Estate Services, adding approximately 58
real estate franchise offices for which the Company provides franchisor
services; and (c) real estate computer technology entitled House by Mouse and
Virtual Assistant. House by Mouse is an Internet based software system which
real estate professionals and consumers may utilize to identify residential real
estate listings according to geographical and other profile data, obtained by
the Company's real estate offices. Virtual Assistant is an Internet based system
utilized by HomeLife's agents to create marketing brochures and other
literature.
In August of 1997, the Company acquired the real estate operations and
licensing agreements and trademarks of Network Real Estate, Inc., including its
12 Northern California real estate brokerage offices and its "high-end" luxury
division of "International Estates," a Network Real Estate, Inc. trade name.
In November 1997, HomeLife incorporated MaxAmerica Financial Services, Inc.
MaxAmerica Financial Services, Inc. provides mortgage financing services to the
Company's real estate customers. MaxAmerica Financial Services, Inc. acts as a
mortgage brokerage while funding and processing the loans through Allstate
Funding. MaxAmerica Financial Services, Inc. has a Joint Venture Agreement with
Allstate Funding wherein Mortgage Capital Resources agrees to process and fund
loans for MaxAmerica Financial Services, Inc. Allstate Funding is not affiliated
with the Company.
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.
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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 of 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.
As a consequence of the foregoing, the company presently operates through
the following:
o Wholly-Owned Subsidiaries
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HomeLife Realty Services, Inc., FamilyLife Realty Services, Inc.,
MaxAmerica Financial Services, Inc., Red Carpet Broker Network, Inc.,
National Sellers Network, Inc., Builders Realty (Calgary) Ltd. , Aspen
Benson & May LLC., HomeLife California Realty, Inc. and HomeLife
Properties, Inc.
o Majority-Owned Subsidiaries
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The Keim Group Ltd. and MaxAmerica Home Warranty Company - 93.33% and
82.72% respectively.
B. BUSINESS OF ISSUER
The company offers consumer-oriented real estate brokerage and finance
services through subsidiaries and franchises. It presently operates in nine
states in the United States and the province of Alberta, Canada.
1. PRINCIPAL PRODUCTS AND SERVICES AND THEIR MARKET
A. SERVICES AND LOCATIONS
The Company maintains its corporate office in Newport Beach, California,
and maintains regional offices in Troy, Michigan and Calgary, Alberta, Canada.
HomeLife operates through various subsidiaries and companies servicing its
franchised tradenames. Through its subsidiary, HomeLife Realty Services, Inc.,
the Company, services approximately 43 real estate offices in the State of
California. Through Red Carpet Keim, the Company services approximately 52 real
estate offices in the State of Michigan and through its tradenames, Red Carpet
Real Estate Services, Network Real Estate and National Real Estate Services,
services approximately 72 real estate offices in various states. The Company
also operates two full service real estate brokerage offices in Calgary,
Alberta, Canada, employing 62 agents, under the name "Builders Realty (Calgary)
Ltd.". In addition to the above, the Company offers the following real estate
services through its various subsidiaries:
o FRANCHISE SERVICES - Name recognition, advertising, training, and
recruiting for franchise offices.
o MORTGAGE FINANCING - through its subsidiary, MaxAmerica Financial
Services, Inc.
o RETAIL REAL ESTATE BROKERAGE SERVICES - The Company owns and operates
a full service retail real estate brokerage through its subsidiary
Builders Realty (Calgary) Ltd.
o HOME WARRANTY - HomeLife provides home warranty coverage through its
subsidiary MaxAmerica Home Warranty Company.
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B. FRANCHISE AND LICENSING OPERATIONS
HomeLife operates its real estate services through franchises. The
franchise allows independently operated real estate offices to have national
brand name recognition and to share in regional advertising. HomeLife franchisor
management periodically visits each real estate office to conduct in-house sales
and marketing training. The franchisor also trains the real estate office
manager on how to recruit new sales personnel.
Franchises are granted to licensed brokers to operate under the business
system and plan developed by HomeLife and to use one of the following HomeLife
trademarks for such operations: HomeLife, HomeLife (Words & Design), HomeLife
Realty Services and HomeLife Realty, and such other and substitute trade names,
trademarks, service marks, graphics and logotypes as may from time to time be
designated by HomeLife.
Franchises are operated in Arizona, California, Florida, Illinois,
Michigan, Nevada, New York, South Carolina, Texas, and Wisconsin and comprise
approximately 167 offices. The franchise relationship is governed by the
franchise offering circular applicable to the state in which the franchisee
operates and according to the terms and conditions of the "Participating
Independent Broker Franchise Agreement". The terms of the franchise agreements
vary depending upon the market in which the franchisee operates. However, the
typical initial franchise fee is $12,500 with each additional office's initial
fee being $5,000. From time to time, HomeLife offers incentive or bonus plans to
attract new franchise members. These programs may directly or indirectly
decrease initial franchise fees of those franchisees entitled to such bonuses or
incentives.
The Franchise Agreement also requires the payment of "Other Fees." These
fees include monthly franchise fees on a fixed fee or percentage of gross
revenues basis, termed royalty fees and advertising contributions. Other fees
also include transfer fees, training fees, interest on overdue accounts, fees
related to accounting and bookkeeping system materials, and renewal fees. There
are also fees that may be incurred under special circumstances such as
indemnification responsibilities, insurance costs, costs of enforcing the
franchise agreements and audit costs.
In addition to the above fees, the franchisee has certain obligations under
the Franchise Agreement including but not limited to compliance with standards
and policies set forth in operating manuals, territorial development and sales
quotas, initial and on-going training and certain advertising and participation
requirements. In exchange for the franchisee's obligations and fees, HomeLife
provides training programs, the use of its marketing system, its business system
and plan, on-going education, advertising and general support to its
franchisees.
HomeLife also operates its business through licensing of the HomeLife
trademarks. According to the terms of the standard licensing agreement,
licensees are obligated to pay a membership fee to HomeLife's Red Carpet Real
Estate Services in exchange for the right to use certain trademarks and service
marks and to operate its business under the Red Carpet trade name to HomeLife,
and HomeLife is obligated to provide these licensees with the right to use its
proprietary trademarks and service marks.
C. MORTGAGE FINANCING
The company offers mortgage brokerage services through it's subsidiary
MaxAmerica Financial Services, Inc. Loan referrals are generated from the
Company's real estate franchise offices, as well as through mortgage loan
brokers. In this regard, MaxAmerica Financial Services, Inc. has established
relationships with a number of loan funding sources to which it refers
residential loan applicants. Prior to such referral, the Company qualifies
prospective borrowers to assure compliance with existing loan underwriting
criteria, selects the appropriate financing referral, and assists clients in
preparing loan application packages.
D. RETAIL REAL ESTATE BROKERAGE SERVICES
The company is engaged in providing real estate brokerage services to
buyers and sellers of residential property through its subsidiary, Builders
Realty (Calgary) Ltd., which comprises 2 offices in Calgary, Alberta, Canada.
These operations are similar to those of franchisee, i.e. representing buyers
and sellers in transactions, soliciting listings, providing comparison reports,
preparing real estate purchase and sale agreements, marketing and advertising
listed properties, assisting clients through the marketing, appraisal,
inspection and closing process, and related services. The difference with
Builders Realty (Calgary) Ltd. is that this is a company-owned operation, as
opposed to a franchise.
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E. HOME WARRANTY SERVICES
The company offers home warranty coverage through its MaxAmerica Home
Warranty Company. Home warranty coverage is typically purchased by the seller of
the home, for the benefit of the purchaser. This coverage protects major
appliances in the home for a period of up to one year from the date of purchase
of the home. Repairs or replacements are contracted out to local repair
companies.
2. DISTRIBUTION METHODS
The Company's niche in the market is maintained through the development of
its proprietary marketing system. This community based marketing system, called
the "SuperSystem" replaces the outdated marketing methods of cold calling and
door knocking to obtain real estate listings and potential buyers. The
SuperSystem is made available to the Company's corporately owned and franchised
brokerage offices. The elimination of cold calling and door knocking has
attracted two types of franchisees; franchisees new to operating a franchise;
and those who terminated other franchise agreements with the Company's
competitors to become a franchisee of the Company.
Management believes that the real estate market will continue to experience
sustained growth. HomeLife's business plan includes focusing upon the
acquisition of three types of real estate brokerage firms:
o the continuing acquisition of real estate brokerage companies
with 2 to 20 offices,
o real estate companies who are financially weak and lack a good
marketing system, and
o real estate companies without strong name brand recognition,
which could utilize the existing trademarks of HomeLife.
In addition to this proprietary system, the acquisition by the Company of
companies with both recognizable tradenames, such as Red Carpet, and existing
franchise locations has enabled the company to gain immediate market share in
its office locations.
3. STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCT OR SERVICE
None.
4. COMPETITION
HomeLife faces competition from numerous companies, some of which are more
established, benefit from greater market recognition, have greater financial and
marketing resources, and a broader geographical base than the Company.
The real estate franchise industry is large and composed of many other
companies. Companies such as Century 21, Prudential, Coldwell Banker, Better
Homes and Gardens, ERA, and RE/Max, provide services similar to the services
provided by HomeLife. Such competition may diminish the Company's market share
or its ability to gain entry into certain markets, and may consequently have a
material adverse effect on the Company.
Management believes that the Company has the following advantages over its
competition:
* A unique lead generating system provided to its franchisees.
* Lower cost of the Company's products to franchisees and the increased
benefit realized from the placement of its advertising dollars.
* Consistent use and acquisition of new technology to provide its
services to its franchisees.
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5. SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company is not dependent on any raw materials. As a service business,
it relies primarily on the efforts of its employees and agents to generate
sales. All software which comprises a material component of its services is
developed through various outside contractors.
6. DEPENDENCE ON ONE OR FEW MAJOR CUSTOMERS
The company offers its services primarily to consumers in the various
regional markets where it maintains a presence, i.e. individual home owners,
purchasers and buyers. As a consequence, its business activities are primarily
transactional in nature and not dependent upon long-term relationships with
customers. Further, as a retail-based business, its customer base is broad and
diverse.
7. PATENTS, TRADEMARKS, LICENSES AND FRANCHISES
The Company owns more than 40 copyrights on unique marketing concepts which
include printed materials for buying and selling property, and point of sale and
sales follow up techniques. The Company licenses exclusive rights, from Jerome's
Magic World, Inc., to use its exclusively developed animated characters for its
real estate service business for a period of eight years commencing October 30,
1995 and ending October 30, 2003 at a cost of $10,000 per year. Thereafter, the
license is automatically renewable for additional eight year periods at the fair
market value. These characters include Jerome the Gnome, Crok `N Roll, The Waz,
King D Lish and Rock Head.
The Company licenses the following trademarks from HomeLife Securities,
Inc.: "Blueprint to Selling Your Home," "Blueprint to Buying a Home," "Family
Life Realty Services," "Family HomeLife Realty Services," "Family HomeLife
Realty Services" (words only), "Focus 20/20" (words and design), "Higher
Standards" (words only), "HomeLife" (words only), "HOMELIFE" (words and design),
"HomeLife Higher Standards" (words and design), "HomeLife Realty Services," and
"It's What Everyone's Looking For" (words only). These marks are licensed for a
period of eight years at no cost to the company. The license commenced on
October 30, 1995 and expires on October 30, 2003. Thereafter, the license may be
renewed at fair market value for additional eight year periods.
HomeLife has developed its Community Marketing SuperSystem, a
lead-generating, community-based marketing system that eliminates cold calling
and door-knocking used by traditional realtors. The marketing system involves
use of the fictional character "Jerome the Gnome" and an accompanying cash
sweepstakes. Jerome is a child-friendly mascot, a "child magnet" who appeals to
children. Real estate offices hire a person to wear a life size "Jerome the
Gnome" costume to act as HomeLife's goodwill ambassador at shopping malls, and
community events, such as business openings, in parks and plazas to promote the
HomeLife name. The Jerome the Gnome character and accompanying sweepstakes
encourages clients to complete cards listing personal information and real
estate needs. The sweepstakes is an annual, national sweepstakes offering a
$25,000 cash prize. Through Jerome the Gnome, the Company attracts families,
helping them identify their real estate needs, spreading goodwill and promoting
HomeLife as the "Family Values Company". The system was developed over several
years and test marketed successfully in 80 real estate offices in Southern
California. Thousands of buyer and seller leads were generated for these
affiliates, who in turn offer customers the opportunity to buy, sell, or
re-finance their home or property.
8. NEED FOR GOVERNMENT APPROVAL
The Company's franchise operations are subject to various state laws and
regulations concerning the disclosure obligations of franchisors and other
aspects of the relationship between franchisor and franchisee. In addition, all
personnel who provide real estate brokerage and/or mortgage services are
generally required to be licensed by the states and/or provinces in which such
services are performed. Otherwise, no government approval is required for any of
the Company's current operations.
9. EFFECT OF ANY EXISTING OR PROPOSED GOVERNMENT APPROVAL
As noted above the company is required to comply with state laws governing
franchise operations, and the Company's professional staff is required to be
licensed by state real estate authorities. Otherwise, except for normal
government regulation that any business encounters, the Company's business is
not affected by any government regulations.
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10. RESEARCH AND DEVELOPMENT COSTS
HomeLife has no research or development costs outside of the expense of
developing software for its internet applications, which are expensed in the
year they occur.
11. COST AND EFFECTS OF COMPLIANCE WITH ENVIRONMENT LAWS AND REGULATIONS
The Company is not involved in a business which involves the use of
materials in a manufacturing stage where such materials are likely to result in
the violation of any existing environmental rules and/or regulations. Further,
the Company does not own any real property which would lead to liability as a
land owner. Therefore, the Company does not anticipate that there will be any
costs associated with the compliance of environmental laws and regulations.
12. EMPLOYEES
As of the date of this registration statement, HomeLife employs 16
full-time employees. The Company hires independent contractors on an "as needed"
basis only. The Company has no collective bargaining agreements with its
employees. The Company has approximately 167 franchise offices. The Company
plans on hiring additional staff in the immediate future and in the long term,
as needed, based on its growth rate.
13. RECENT ACCOUNTING PRONOUNCEMENTS
In 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position No. 98-5 (SOP 98-5), "Reporting on the Costs of Start-up
Activities". SOP 98-5 was issued to provide guidance on financial reporting of
start-up costs and organization costs and requires such costs to be expensed as
incurred. SOP 98-5 is effective for financial statements for years beginning
after December 15, 1998. The company adopted the new requirements of SOP 98-5 in
fiscal year 2000 and wrote off organization costs with net book value of
$48,955.
ITEM 2 - PROPERTIES
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The company leases a 2,630 square foot office in Newport Beach, California.
The lease term expires in June, 2001. The company is obligated on leases for its
other premises located in Troy, Michigan, which expires in January, 2002 and for
two HomeLife Builders Realty offices located in Calgary, Alberta, Canada. The
HomeLife Builders Realty leases expire in October, 2001 and August, 2002. Annual
lease payments exclusive of property taxes and insurance for all locations
through 2002 is $214,767.
ITEM 3 - LEGAL PROCEEDINGS
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The company is currently involved in two lawsuits.
The company is involved in a lawsuit with Network Real Estate, Inc., a real
estate broker, where Network Real Estate, Inc. has filed an action against the
company claiming that the company has failed to pay Network Real Estate, Inc.
the remaining balance of $80,000 pursuant to the Agreement for purchase of
Network Real Estate, Inc. licensing agreements and trademarks. On March 7, 2000,
the company filed a cross-complaint against Network Real Estate, Inc. and
International Estates, Inc, claiming that they failed to provide ownership of
International Estates trademark pursuant to the agreement. Settlement
negotiations are in progress and if finalized as proposed, the company will be
dismissed from the complaint by Network Real Estate, Inc. and Network Real
Estate, Inc. will pursue the company's claims against International Estates,
Inc. Pursuant to the settlement negotiations, Network Real Estate, Inc. did
submit 146,667 common shares for cancellation totaling to $58,667 on October 1,
1999. In management's opinion, this matter will not have a material effect on
the financial position of the company.
On April 15, 1999, the Company, as plaintiff, filed an action in the Court
of Queen's Bench of Alberta, Canada. The action is against the sellers of
Builders Realty (Calgary) Ltd., seeking to reduce the purchase price paid for
Builders Realty (Calgary) Ltd., namely 36,000 shares of the Company's common
stock, totalling $158,040 and $158,040 cash for a total purchase price of
$316,000. The defendants, Cecil Avery and Joyce Travis, have filed a counter
lawsuit for damages of $238,275 (CN$356,699). In management's opinion, this
matter will not have a material affect on the financial position of the company.
Management believes that there are no other material litigation matters
pending or threatened against the company.
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ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
PART II
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ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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A. MARKET INFORMATION
The Company's common stock is traded in the over-the-counter bulletin board
under the symbol HMLF.
The following table sets forth the high and low bid prices for the
Company's common stock for fiscal years 1999 and 2000 (ended May 31), by
quarter. The prices below reflect inter-dealer quotations, without retail
mark-up, mark-down or commissions and may not represent actual transactions:
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1999 High Low
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Quarter ended
August 31 $ 2.85 $ 1.25
November 30 $ 1.45 $ 0.31
February 28 $ 0.66 $ 0.31
May 31 $ 0.57 $ 0.32
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2000
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Quarter ended
August 31 $ 0.42 $ 0.31
November 30 $ 0.34 $ 0.20
February 28 $ 0.30 $ 0.17
May 31 $ 1.05 $ 0.17
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B. HOLDERS
As of May 31, 2000, there were approximately 1,006 holders of the Company's
Common Stock, as reported by the Company's transfer agent.
C. DIVIDENDS
The Company has not paid any dividends on its Common stock. The Company
currently intends to retain any earnings for use in its business, and therefore
does not anticipate paying cash dividends in the foreseeable future. The Company
has paid $3,120 in Preferred dividends on its Class AA Preferred stock for the
period ended May 31, 1999, and $2,520 in Preferred dividends on its Class AA
Preferred stock for the period ended May 31, 2000. The reduction in dividends is
due to the conversion of Preferred stock into Common stock.
D. RECENT SALES OF UNREGISTERED SECURITIES AND USE OF PROCEEDS
The Company has not sold any unregistered securities over the 12 month
period ended May 31, 2000.
Earlier sales of unregistered securities are disclosed in the Company's
Form 10-SB.
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ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS
---------------------------------------------
The following is management's discussion and analysis of HomeLife's
financial condition and results of operations for the fiscal years ended May 31,
2000 and 1999. 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. The following table sets
forth, for the periods indicated, selected financial information for the
Company.
OVERVIEW
HomeLife, Inc. is a real estate services provider including franchisor and
licensor. HomeLife, Inc. utilizes both its proprietary "Super System" marketing
system and its business combinations and acquisitions to fuel development as a
fast growing real estate services company. The Company has experienced growth
primarily through its acquisitions of and combinations with various other
companies. This includes the acquisition in August 1996 of the Keim Group of
Companies and MaxAmerica Home Warranty Company (Michigan) adding 60 real estate
offices and a home warranty company in Michigan. In 1997, the Company purchased
certain assets of S & S Acquisition Corp., providing the company with Red Carpet
Real Estate Services and National Real Estate Services, adding 58 real estate
offices. The acquisition of the real estate computer technology of House by
Mouse and Virtual Assistant provided the Company with the ability to enhance its
Internet communication services to its franchises. In July 1997, the Company
acquired the licensing agreements, trademarks and franchise offices of Network
Real Estate, Inc. This acquisition provided the Company with an additional 12
offices in Northern California and access to the "high-end" luxury division of
"International Estates". In February 1998, the Company acquired Builders Realty
(Calgary), Ltd., providing access to the Alberta, Canada market in both retail
real estate and mortgage loans. On September 15, 1998, the Company purchased the
stock of the investment banking firm of Aspen, Benson and May, LLC for Common
stock.
From time to time, the Company has entered into strategic alliances with
various companies in order to explore the cross-marketing of their services to
customers of the Company or its franchises. To date, these strategic alliances
have not included any funding agreements or other liabilities on the part of the
Company. Since the end of its last fiscal year, HomeLife has formed strategic
alliances with Home Value Check, LLC, and Allstate Funding. Home Value Check,
LLC provides Internet based appraisals for lenders and consumers of the
Company's services. Allstate Funding provides loan processing and underwriting
for MaxAmerica Financial Services, Inc., the real estate mortgage brokerage
subsidiary of HomeLife.
Management believes the growth fueled by these acquisitions and
combinations will continue to fuel growth in 2000. However, certain key factors
that are necessary in maintaining and exceeding the current growth rates are as
follows:
o Acquiring national recognition by acquiring regional franchises;
o Targeting high achieving-high market share regional brokerage houses;
o Continually updating its marketing techniques; and
o Improving services available to its franchises.
PLAN OF OPERATION
HomeLife's business plan is to acquire, as the franchisor or master
franchisor, regional real estate brokerage companies throughout North America.
The newly acquired companies will have the choice of retaining their regional
identities, or changing their name to a HomeLife brand. This allows the
companies to enjoy the benefits of its regional identity while at the same time
securing the support of a publicly traded national real estate company. HomeLife
also intends to introduce mortgage banking as a service to agents and brokers.
The Company intends to enter into the business by way of merger, acquisition,
joint venture or strategic alliance. It also intends to provide a variety of
ancillary real estate related products and services to the industry over the
next five years. Such services will include beginning to offer title and escrow
services; and entering into other areas such as an Internet shopping mall.
Expanding into ancillary services will allow the Company to use its franchise
network to market other products and services to the existing customers. While
the Company has currently implemented some of these plans, there is no assurance
that the Company will complete all of these plans or that it will continue
providing such services.
8
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, selected financial
information for the Company:
================================================================================
Year Ended Year Ended
May 31, 2000 May 31, 1999
(audited) (audited)
--------------------------------------------------------------------------------
Statement of Operations Data
Revenue $ 3,450,918 $ 4,154,125
Net Loss $ (761,413) $ (960,120)
Net Loss per share $ (.15) $ (.23)
--------------------------------------------------------------------------------
Balance Sheet Data
Current Assets $ 612,027 $ 984,507
Total Property & Equipment, Net $ 414,679 $ 480,993
Total Assets $ 2,292,943 $ 3,135,293
Total Current Liabilities $ 626,977 $ 882,844
Accumulated Deficit $(2,989,096) $(2,227,683)
Total Stockholder's Equity $ 1,230,114 $ 1,660,605
================================================================================
FISCAL YEAR ENDED MAY 31, 2000 (AUDITED) COMPARED TO FISCAL YEAR ENDED MAY 31,
1999 (AUDITED)
REVENUES. The Company generated gross sales of $3,450,918 for the fiscal
year ended May 31, 2000 compared to gross sales of $4,154,125 for the fiscal
year ended May 31, 1999. Revenue by business segment is shown below:
For the year ended For the year ended
May 31, 2000 May 31, 1999
Amount % Amount %
------ - ------ -
Real estate brokerage $2,036,892 59.0 $2,632,251 63.4
Royalty fees 679,365 19.7 720,574 17.3
Franchise fees 112,128 3.2 61,600 1.5
Mortgage financing 90,520 2.6 199,451 4.8
Home warranty sales 255,522 7.5 228,353 5.5
Other 276,491 8.0 311,896 7.5
---------- ---------- ---------- ----------
TOTAL $3,450,918 100.0 $4,154,125 100.0
The largest decrease in revenue from fiscal year 1999 was from real estate
brokerage. This decrease of $595,359 from $2,632,251 for the fiscal year ended
May 31, 1999 to $2,036,892 for the fiscal year ended May 31, 2000 accounted for
the majority of the overall decrease in revenue between the years. During the
current year, the Company lost approximately 10 brokers to retirement in the
Calgary office of Builders Realty. The total number of brokers in that office at
May 31, 2000 was 62 who generated lower sales than in the prior year.
Royalty fees decreased from $720,574 in fiscal year 1999 to $679,365 for fiscal
year 2000. This decrease of 6% relates to some royalty fees that were reduced
upon renewal in accordance with industry practices as well as fewer franchise
offices in the current year. The current year total number of franchise offices
was 167 offices compared to 180 offices in the prior year.
Franchise fees were $112,128 and $61,600 for the fiscal years ended May 31, 2000
and 1999, respectively. Although the number of franchises sold were 14 in fiscal
year 2000 and 12 in fiscal year 1999, the prior year franchise revenue was lower
due to a write down related to the master franchise in Germany.
9
<PAGE>
Revenue from mortgage financing was $108,931 or 55% lower for the year ended May
31, 2000 compared to 1999. The Company financed 25 loans in fiscal year 2000
compared to 85 loans financed in fiscal year 1999. The decrease in number of
loans financed and associated revenue was due to the loss of an in house sales
representative responsible for selling the mortgage financing. The position was
vacant for almost half of the fiscal year and replaced shortly before the fiscal
year end.
Home warranty sales were $259,350 and $228,353 for the fiscal years ended May
31, 2000 and 1999, respectively. This increase of $30,997, or 14%, results from
an increase in the number of warranty contracts sold from 712 in fiscal year
1999 to 753 in fiscal year 2000. The Company hired an outside sales
representative in fiscal year 2000 which accounted for the increase in number of
contracts sold.
DIRECT COSTS. Direct costs for the year ended May 31, 2000 was $2,127,237
compared to $2,791,997 for the year ended May 31, 1999. Consistent with the
decrease in revenues mainly attributable to lower real estate brokerage
revenues, direct costs is lower in the current year due to lower sales
commissions associated with this revenue.
GROSS PROFIT PERCENTAGE. Gross profit percentage increased from 33% for the
year ended May 31, 1999 to 38% for the year ended May 31, 2000. This increase is
primarily due to lower real estate commissions earned and paid to brokers and
agents in fiscal year 2000. Lower commissions were earned in the current year
due to the decrease in real estate brokerage sales.
SALARIES AND FRINGE BENEFITS. Salaries and fringe benefits were comparable
at $637,485 and $641,981 for the fiscal years ended May 31, 2000 and 1999,
respectively. Although the Company has three more full time employees at year
end than in the prior year, the timing of their hiring has brought the expense
to a comparable amount with prior year.
GENERAL AND ADMINISTRATIVE. General and administrative costs decreased from
$1,158,249 for the year ended May 31, 1999 to $894,568 for the year ended May
31, 2000. The decrease was primarily due to a decrease in the use of outside
consultants and an overall monitoring of Company expenses.
OCCUPANCY COSTS. Occupancy costs increased $9,618 or 6%, from fiscal year
1999. This increase results from annual increases as stated in the occupancy
lease agreements.
FINANCIAL. Financial costs for the year ended May 31, 2000 were $57,268
compared to $103,923 for the year ended May 31, 1999. Prior year financial costs
were higher due to the write down of promotional marketing materials,
approximately $103,000.
AMORTIZATION. Amortization of intangibles for the year ended May 31, 2000
increased $87,650 to $328,864 from $241,214 for the year ended May 31, 1999.
This increase in the current year is the result of the Company adopting SOP 98-5
and due to the reduction in the estimate of the useful lives of the trademarks
and franchise rights from 20 years to 10 years in 1999. The adoption of SOP 98-5
amounted to a write off of organization costs with net book value of $48,955 and
the change in the estimate amounted to approximately an additional $36,000
amortized during the current year.
MINORITY INTEREST. The reduction in net loss due to minority interest was
$11,462 for the year ended May 31, 2000 due to a combined net loss for Keim and
MaxAmerica Home Warranty. In the prior year, these two companies combined for a
net profit, which generated minority interest as an expense item, reducing the
net income amount.
PREFERRED DIVIDENDS. Preferred Dividends were $2,520 in the year ended May
31, 2000 versus $3,120 for the year ended May 31, 1999. This decrease of $600
was due to the conversion of preferred stock into common stock.
LIQUIDITY AND CAPITAL RESOURCES. HomeLife's primary source of liquidity is
positive cash flow from its current operations. In addition it has 3,750 shares
of Voice Mobility Inc. as a marketable security, and lines of credit with two
banks in the amounts of CN$50,000 and $25,000. The capital requirements of the
Company are for operating expenses and to service and use of its lines of
credit. The Company has recorded a loss on its marketable security as the share
price has declined in the public market from the purchase share price. The
Company has recorded significant operating losses in the prior three years.
These losses are primarily due to amortization and depreciation of acquisitions
made in prior years, loss on investments made in prior years, and write down of
marketing materials purchased in prior years. Cash flow is cumulatively positive
for the past three years, and it is projected that operations for the coming
years can be funded out of future cash flows. The company does not have any
derivative instruments or hedging activities therefore, the company believes
that SFAS No. 133 will have no material impact on the company's financial
statements or notes thereto.
10
<PAGE>
FOREIGN OPERATIONS. Foreign operations consist of the sale of a master
franchise agreement to an individual in Germany. Payment 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 re-structure 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
operations.
YEAR ENDED MAY 31, 1999 (AUDITED) COMPARED TO THE YEAR ENDED MAY 31, 1998
(RESTATED).
REVENUES. The Company generated gross sales of $4,154,125 for the year
ended May 31, 1999 compared to gross sales of $1,968,628 for the year ended May
31, 1998. Revenue by business segment is shown below:
For the year ended For the year ended
May 31, 1999 May 31, 1998
Amount % Amount %
------ - ------ -
Real estate brokerage 2,632,251 63.4 647,279 32.9
Royalty fees 720,574 17.3 788,446 40.0
Franchise fees 61,600 1.5 126,500 6.4
Mortgage financing 199,451 4.8 0 0
Home warranty sales 228,353 5.5 261,552 13.3
Other 311,896 7.5 144,851 7.4
---------- ---------- ---------- ----------
TOTAL 4,154,125 100.0 1,968,628 100.0
========== ========== ========== ==========
This significant increase in revenue of $2,185,497 was primarily due to an
increase in real estate commission from Builders Realty (Calgary), Ltd., which
was acquired late in 1998. At the time of the acquisition there were
approximately 80 sales representatives associated with Builders Realty,
(Calgary) Ltd. In May 1999, there were approximately 70 sales representatives in
the office. This decrease in sales representatives was the result of the loss of
approximately 50 sales representatives over that period, offset by the addition
of 40 sales representatives from the acquisition of HomeLife Higher Standards in
January 1999.
Royalty fees decreased from $788,446 for the year ended May 31, 1998 to $720,574
for the year ended May 31, 1999. Although the number of franchise offices
remained approximately the same at 180 offices, the royalty fees on some
contracts were reduced by approximately 10% upon renewal in accordance with
industry practices.
Franchise fees decreased from $126,500 for fiscal year 1998 to $61,600 for
fiscal year 1999. This decrease was primarily due to the sale of two master
franchises for $65,000 in 1998 with no comparable sales in 1999. The number of
franchises sold was 12 in 1998 and 1999.
Revenue from mortgage financing was $199,451 for the year ended May 31, 1999
from the financing of 85 loans. There was no mortgage financing revenue for the
year ended May 31, 1998. Loan fees are recognized as income when the loan is
closed and funded at the close of escrow.
Home warranty sales decreased from $261,552 for the year ended May 31, 1998 to
$228,353 for the year ended May 31, 1999. Although the number of warranty
contracts sold increased from 601 in 1998 to 712 in 1999, the average cost of
the contract decreased, resulting in lower home warranty sales for 1999. The
decrease in the average cost per contract was an effort to stay competitive in
the market while attempting to generate higher volume.
GROSS PROFIT PERCENTAGE. Gross profit percentage decreased from 59.0% for
the year ended May 31, 1998 to 32.8% for the year ended May 31, 1999. This
decrease is primarily due to higher real estate commissions earned and higher
real estate commissions paid to brokers and agents in 1999. Real estate
commissions paid to brokers are approximately 95% of real estate commissions
earned, and the higher the real estate commissions earned are, as a percentage
of total sales, the lower the gross profit percentage.
DIRECT COSTS. Direct costs for the year ended May 31, 1999 was $2,791,997
compared to $805,542 for the year ended May 31, 1998. This increase of
$1,986,455 was primarily due to the increase in sales commissions paid to agents
of HomeLife Builders Realty, as a result of higher real estate commissions
generated.
11
<PAGE>
SALARIES AND FRINGE BENEFITS. Salaries and fringe benefits for the year
ended May 31, 1999 were $641,981 compared to $479,165 for the year ended May 31,
1998. This increase of $162,816 was primarily the result of paying salaries to
employees of Builders Realty, (Calgary) Ltd., for a full year in 1999, versus
paying salaries for a partial year in 1998.
GENERAL AND ADMINISTRATIVE. General and administrative costs for the year
ended May 31, 1999 were $1,158,249 versus $477,393 for the year ended May 31,
1998. This increase of $680,856 was primarily due to an increase in the use of
outside consultants, an increase in computer expenses, a write down of $150,498
of a note receivable.
OCCUPANCY COSTS. Occupancy costs for the year ended May 31, 1999 was
$166,263 compared to $108,559 for the year ended May 31, 1998. This increase of
$57,704 was primarily the result of rent paid for a full year in 1999 versus
paying rent for a partial year in 1998 for Builders Realty, (Calgary) Ltd .
FINANCIAL. Financial costs for the year ended May 31, 1999 were $103,923
compared to $67,806 for the year ended May 31, 1998. The increase in fiscal year
1999 mainly relates to a write down of approximately $103,000 related to
promotional marketing materials.
AMORTIZATION. Amortization of intangibles for the year ended May 31, 1999
was $241,214 compared to $194,112 for the year ended May 31, 1998. This increase
of $47,102 was primarily the result of amortizing the cost of the purchase of
Builders Realty, (Calgary) Ltd. for a full year in 1999 versus amortizing the
cost for a partial year in 1998 and changing the estimate of the remaining
useful life of all trademarks and franchise rights from 20 years to 10 years.
MINORITY INTEREST. The reduction in net income due to minority interest was
$7,498 for the year ended May 31, 1999 versus $9,177 for the year ended May 31,
1998. This decrease of $1,679 was due to lower revenues for The Keim Group Ltd.,
partially offset by higher revenues from MaxAmerica Home Warranty Company.
PREFERRED DIVIDENDS. Preferred dividends were $3,120 in fiscal year 1999
versus $13,000 for fiscal year 1998. This decrease of $9,880 was due to the
conversion of Preferred stock into Common stock.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 7. FINANCIAL STATEMENTS
----------------------------
The Financial Statements that constitute Item 7 are included at the end of
this report beginning on Page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
--------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
HomeLife, engaged the accounting firm of Schwartz Levitsky Feldman llp as
its accountant in May 1999. We had no previous relationship with the accounting
firm, and did not consult with them in any manner. The previous accounting firm
was Biller, Frith-Smith & Archibald. The change in accounting firms was
primarily due to the illness, and incapacitation of a partner at the predecessor
firm. The accountant's report of the past two years contained no adverse opinion
or disclaimer of opinion. The decision to change accountants was made by the
management of the Company, and approved by the Board of Directors of the
Company. There was no disagreement with the former accountant on accounting
principles or practices or auditing scope or procedure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
--------------------------------------------------------------------------------
WITH SECTION 16(A) OF THE EXCHANGE ACT
--------------------------------------
The directors and officers of the company are as follows:
NAME AGE POSITION
---- --- --------
Andrew Cimerman 52 President and Director
Terry A. Lyles, Ph.D. 41 Director
F. Bryson Farrill 72 Director
Charles Goodson 45 Vice President
Marie May 33 Chief Financial Officer and Secretary
ANDREW CIMERMAN, 52, PRESIDENT AND DIRECTOR, has held the positions of Director
and President since April 1996. For 7 years prior thereto, he was the founder
and majority shareholder of HomeLife Securities, Inc. and its wholly owned
subsidiary HomeLife Realty Services, Inc. Mr. Cimerman is the founder, President
and majority shareholder of: Simcoe Fox Developments, Ltd., a private
development company located in Toronto, Ontario, Canada; HomeLife Cimerman Real
Estate Ltd., a Toronto based real estate company; Jerome's Magic World, Inc.,
the owner of certain animated characters; and, majority shareholder and
President of Realty World America, Inc. Mr. Cimerman owns HomeLife Realty
Services Inc., a Canadian affiliate which operates a real estate franchise
company in Canada. HomeLife Securities is a separate company from HomeLife, Inc.
and HomeLife Securities licenses certain "HomeLife" trademarks and service marks
to HomeLife, Inc. Mr. Cimerman brings over 30 years of real estate service
experience to the company, and is a strong and committed leader focused on the
growth and success of the company.
TERRY A. LYLES, PH.D, 41, DIRECTOR joined the company as a director in August
1997. Dr. Lyles is a national and international speaker and trainer to
professional athletes, Fortune 500 Companies, schools, universities and public
audiences. Dr. Lyles' program is to reach people around the world with the
message of "balance and excellence." For the past 16 years, Dr. Lyles has
traveled across the United States and around the world conveying this profound
message of "Life Accountability" and "A Better You." Dr. Lyles has conducted a
weekly radio program "A Better You" since May 1, 1994, which is currently heard
by over 1 million people in 65 nations. Dr. Lyles holds a Ph.D degree in
Psychology from Wayne State University in Detroit, Michigan.
F. BRYSON FARRILL, 72, DIRECTOR joined the company as a director in February
1997. Mr. Farrill has been in the securities industry for the past 33 years. Mr.
Farrill has held various senior positions, including that of President and
Chairman of McLeod, Young, Weir International, an investment dealer in Toronto,
Canada. He was also the Chairman of Scotia McLeod (USA) Inc. for eleven years.
Mr. Farrill's broad experience is not only utilized in the United States and
Canada but has served to direct the expansion of McLeod, Young, Weir Ltd. into
Europe and Asia through an extensive network of branch offices.
13
<PAGE>
CHARLES GOODSON, 45, VICE PRESIDENT has been employed by the company, or its
subsidiary companies since March 1992. Mr. Goodson had 16 years of commercial
banking experience prior to joining HomeLife Realty Services. He is a licensed
realtor. Mr. Goodson earned his B.S. degree in Business Administration from
California State University, Northridge.
MARIE M. MAY, 33, CHIEF FINANCIAL OFFICER AND SECRETARY has been with the
company since July 2000. Ms. May has 11 years experience in finance & accounting
mainly related to small emerging businesses. Prior to joining HomeLife Ms. May
was Chief Financial Officer for Medical Data International, Inc, a provider of
healthcare business information. Ms. May is a certified public accountant and
received her B.S. degree in Accounting from Pepperdine University in 1989.
(B) COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of the
Company's Common Stock, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission ("SEC"). Officers, directors and
greater than ten percent stockholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file. Based solely on
its review of the copies of such forms received by it, or written
representations from certain reporting persons, the Company believes that during
its 2000 fiscal year, all such filing requirements applicable to its officers,
directors, and greater than 10% beneficial owners were complied with.
14
<PAGE>
ITEM 10 - EXECUTIVE COMPENSATION
--------------------------------
(A) SUMMARY OF COMPENSATION
The following officers of the Company receive the following annual cash
salaries and other compensation:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Other
Name Annual Restricted
and Compen- Stock Options LTIP All Other
Principal Position Year Salary Bonus sation Awards SARs Payouts Compensation
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Andrew Cimerman, 2000 $20,000 - - - - - -
President, Director
Charles Goodson Vice 2000 $84,000 - - - - - -
President
Marie M. May, Chief 2000 $30,000 - - - - - -
Financial Officer,
Secretary
F. Bryson Farrill, 2000 *(1) - - - - - 4,000
Director
Terry A. Lyles, Director 2000 *(1) - - - - - 4,000
All Officers and 2000 $134,000 - - - - - 8,000
Directors as a group
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Farrill and Mr. Lyles each have an option to purchase 50,000 shares of
the company's common stock. These options are fully vested and may be
exercised at the price of $3.00 per share.
(B) OPTIONS/SAR GRANTS IN THE LAST FISCAL YEAR
None.
15
<PAGE>
(C) AGGREGATE OPTIONS/SAR GRANTS
While the company has not enacted a formal stock option plan for its
directors and senior executives, the company has granted certain directors and
officers options to purchase common stock of the company. Board of Directors
members, Mr. F. Bryson Farrill and Dr. Terry Lyles, were granted options to
purchase 50,000 shares of common stock of the company each. The exercise price
of the option is $3.00 per share. These options are fully vested and
exercisable. Former employee, Gabrielle Jeans, has been granted an option to
purchase 30,000 shares of common stock at the exercise price of $5.00 per share.
Ms. Jeans' options are also fully vested and exercisable.
The following table describes the above options:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Shares Value Number of Unexercised Value of Unexercised In-the-money
Name Acquired On Realized Options/sars of Fy-end (#) Options/sars of Fy-end ($)
Exercise (#) ($) Exercisable/unexercisable Exercisable/unexercisable
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
F. Bryson Farrill, Director 50,000 0 50,000 $3.00
----------------------------------------------------------------------------------------------------------------------------------
Terry Lyles, Ph.D., Director 50,000 0 50,000 $3.00
----------------------------------------------------------------------------------------------------------------------------------
Gabrielle Jeans, Former employee 30,000 0 30,000 $5.00
----------------------------------------------------------------------------------------------------------------------------------
Total 130,000 0 130,000 --
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(D) LONG TERM INCENTIVE PLAN (LTIP)
None.
(E) COMPENSATION OF DIRECTORS
During the current fiscal year, F. Bryson Farrill, and Terry Lyles, Ph.D.,
both directors, were each issued 10,000 shares of the Company's common stock as
compensation for their services. These shares were issued at the fair market
value, which amounted to $.40 per share for a total of $4,000 compensation to
each director.
(F) EMPLOYMENT AGREEMENTS
On October 25, 1995 the Company entered in an employment agreement with
Andrew Cimerman. The agreement is for a five year term, with an option to renew
it for another five years. Mr. Cimerman's duties under the agreement include
performing all those executive and managerial duties that are necessary for
running and directing the Company's operations.
(G) REPORT ON RE-PRICING OF STOCK OPTIONS/SARS
Over the last fiscal year, the Company has not re-priced any of its
previously granted stock options/SARs.
16
<PAGE>
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of May 31, 2000: (i) each stockholder
known by the Company to be the beneficial owner of more than five percent of the
outstanding Common Stock, (ii) each director of the Company and (iii) all
directors and officers as a group.
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF CLASS
OF BENEFICIAL OWNER OF BENEFICIAL OWNER(1)
Andrew Cimerman(2) 2,949,594(3) 52%
Marie M. May(2) 0 0
Charles Goodson(2) 0 0
F. Bryson Farrill(2) 60,000(4) 1%
Terry Lyles(2) 60,000(4) 1%
All Officers and
Directors as a group 3,069,594 54%
------------------
1. Except as otherwise indicated, the Company believes that the beneficial
owners of Common Stock listed above, based on information furnished by such
owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable. Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect
to securities. Shares of Common Stock subject to options or warrants
currently exercisable, or exercisable within 60 days, are deemed
outstanding for purposes of computing the percentage of the person holding
such options or warrants, but are not deemed outstanding for purposes of
computing the percentage of any other person.
2. c/o Company's address: 4100 Newport Place, Suite 730, Newport Beach, CA
92660.
3. 249,594 of these shares are held in the name of Cimerman Real Estate Ltd.
Cimerman Real Estate Ltd. was created as a Real Estate Sales Company. Mr.
Cimerman has certain voting powers associated with the shares held by
Cimerman Real Estate Ltd., as 100% of the financial benefits derived from
the shares held by Cimerman Real Estate Ltd. are for the benefit of Mr.
Cimerman.
4. Includes 50,000 options to purchase Common Stock
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
---------------------------------------------------------
B. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Cimerman is President and majority shareholder of HomeLife Cimerman
Real Estate Ltd. HomeLife Cimerman Real Estate Ltd.'s business activities
consist of real estate sales in Toronto, Canada. The activities of HomeLife
Cimerman Real Estate Ltd. are managed by the on-site management. These
activities do not demand a large portion of Mr. Cimerman's time and effort. Any
corporate opportunities that would be available to both the Company and to
HomeLife Cimerman Real Estate Ltd. is presented to HomeLife's Board of Directors
for consideration and for approval by a disinterested majority of the Board of
Directors.
The President and majority shareholder of the Company, Andrew Cimerman is
the sole shareholder and President of Realty World America, Inc. Realty World
America, Inc. is a real estate services company providing services to
franchises. Any transactions undertaken by Mr. Cimerman on behalf of Realty
World America, Inc. which may constitute a corporate opportunity are first
presented to the company's board of directors for approval by a disinterested
majority.
Mr. Cimerman is also the sole shareholder of Jerome's Magic World, Inc.,
the owner of certain characters licensed to the company. The license of these
characters to the Company is for an eight year term expiring in October 2003, at
$10,000 per year to the Company. Thereafter it is renewable for additional eight
year terms at the fair market value. Mr. Cimerman is sole shareholder and
President of HomeLife Securities, Inc. HomeLife Securities, Inc. licenses
certain "HomeLife" trademarks and service marks to the Company. The term of the
licensing agreement is eight years commencing October 1995 at no cost to the
Company. Thereafter, the license is renewable for additional eight year terms at
the fair market value.
Mr. Cimerman is President and majority shareholder of Simcoe Fox
Developments. Simcoe Fox Developments' business activities consist of holding
real estate investment property. The activities of Simcoe Fox Developments does
not demand a large portion of Mr. Cimerman's time and effort, and any corporate
opportunities that would be available to both the company and to Simcoe Fox
Developments is presented to HomeLife's Board of Directors for consideration and
for approval by a disinterested majority of the Board of Directors.
17
<PAGE>
The Company was formed through the purchase of HomeLife Realty Services,
Inc., and HomeLife Realty U.S. Limited Partnership from Andrew Cimerman, the
current President of the Company. Mr. Cimerman received 10,000 shares of Class A
Preferred stock with certain voting power and with a face value of $1,000,000
for the sale of HomeLife US Partnership to the Company, and 2,500,000 shares of
Common stock for the sale of HomeLife Realty Services, Inc. to the Company.
18
<PAGE>
PART IV
-------
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
------------------------------------------
(A) EXHIBITS
3.1 Articles of Incorporation of HomeLife, Inc., a Nevada corporation, dated
October 9, 1995*
3.2 Certificate of Amendment of Articles of Incorporation of HomeLife, Inc.,
a Nevada corporation, dated July 2, 1997*
3.3 Certificate of Amendment of Articles of Incorporation of HomeLife, Inc.,
a Nevada corporation, dated September 1, 1998*
3.4 Bylaws of HomeLife, Inc., dated October 10, 1995*
4.1 Certificate of Designated Class A Preferred Stock*
4.2 Certificate of Designated Class AA Preferred Stock*
10.1 Lease Agreement dated November 1, 1996 for the office located in Calgary,
Alberta, Canada*
10.2 Lease Agreement dated September 1, 1997 for the office located in
Airdrie, Alberta, Canada*
10.3 Lease Agreement dated January 15, 1999 for the office located in Newport
Beach, California*
10.4 Lease Agreement dated April 12, 1990 for the office located in Newport
Beach, California*
10.5 First Addendum to Lease dated April 12, 1990 for the property located in
Newport Beach, California*
10.6 Second Addendum to Lease dated July 8, 1993 for the property located in
Newport Beach, California*
10.7 Third Addendum to Lease dated July 17,1996 for the property located in
Newport Beach, California*
10.8 Builder's Realty Stock Purchase Agreement dated February 27, 1998*
10.9 Agreement for Purchase of Network Real Estate, Inc. Licensing Agreement
and Trademarks, dated June 12, 1998*
10.10 Stock Purchase Agreement, dated July 23, 1998*
10.11 Asset Purchase Agreement, dated January 16, 1997*
10.12 Option Agreement, dated July 10, 1996*
10.13 Asset Purchase Agreement, dated April 13, 1998*
10.14 Loan Purchase Agreement, dated July 7, 1998*
10.15 Agreement and Plan of Acquisition, dated April 15, 1996*
10.16 Agreement and Plan of Acquisition, dated April 15, 1996*
10.18 Form of Participating Independent Broker Franchise Agreement*
10.19 Form of Broker Membership Agreement*
10.20 Stock Purchase Agreement, dated September 10, 1998*
10.21 Employment Agreement between HomeLife, Inc. and Andrew Cimerman*
10.22 Trademark License Agreement between HomeLife, Inc. and Jerome's Magic
World, Inc.*
10.23 HomeLife Higher Standards Asset Purchase Agreement, dated January 20,
1999*
10.24 Acquisition Agreement between Bright Financial Corporation and MaxAmerica
Financial Services, Inc.*
21 List of Subsidiaries*
---------------------------
*Incorporated by reference from Registration Statement on Form 10-SB filed by
the Company on November 2, 1999.
(B) REPORTS ON FORM 8-K
The Company has not filed any Form 8-K Report over the last fiscal year.
19
<PAGE>
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: September 8, 2000
----------------------------- -----------------
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: September 8, 2000
----------------------------- -----------------
Chief Executive Officer,
President, Director
20
<PAGE>
HOMELIFE, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MAY 31, 2000 AND MAY 31, 1999
TOGETHER WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
HOMELIFE, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MAY 31, 2000 AND MAY 31, 1999
TOGETHER WITH REPORT OF INDEPENDENT AUDITORS
TABLE OF CONTENTS
Report of Independent Auditors 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Cash Flows 4
Consolidated Statements of Stockholders' Equity 5
Notes to Consolidated financial statements 6 - 27
<PAGE>
SCHWARTZ LEVITSKY FELDMAN LLP
CHARTERED ACCOUNTANTS
TORONTO, MONTREAL, OTTAWA
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Homelife, Inc.
We have audited the accompanying consolidated balance sheets of Homelife, Inc.
(incorporated in Nevada) as of May 31, 2000 and 1999 and the related
consolidated statements of operations, cash flows and changes in stockholders'
equity for each of the years then ended May 31, 2000 and 1999. These
consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Homelife, Inc. as of May 31, 2000 and 1999 and the consolidated results of its
operations and its cash flows for each of the years then ended, in conformity
with generally accepted accounting principles in the United States of America.
Toronto, Ontario Schwartz Levitsky Feldman llp
August 4, 2000 Chartered Accountants
| 1167 Caledonia Road
| Toronto, Ontario M6A 2X1
| Tel: 416 785 5353
| Fax: 416 785 5663
<PAGE>
HOMELIFE, INC.
Consolidated Balance Sheets
As at May 31, 2000 and 1999
(Amounts expressed in U.S. dollars)
2000 1999
$ $
ASSETS
CURRENT ASSETS
Cash 248,064 327,637
Marketable securities, at fair value 20,625 194,875
Accounts receivable (note 3) 116,700 168,033
Notes receivable (note 4) 176,000 215,803
Prepaid expenses and deposits (note 5) 50,638 78,159
---------------------------
612,027 984,507
PROPERTY AND EQUIPMENT (note 6) 414,679 480,993
GOODWILL (note 7) 643,790 661,273
OTHER ASSETS (note 8) 372,630 666,203
CASH HELD IN TRUST (note 9) 249,817 342,317
---------------------------
2,292,943 3,135,293
===========================
<PAGE>
HOMELIFE, INC.
Consolidated Balance Sheets
As at May 31, 2000 and 1999
(Amounts expressed in U.S. dollars)
2000 1999
$ $
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (note 10) 14,000 16,960
Accounts payable (note 11) 346,597 459,662
Advances from a stockholder (note 12) - 143,472
Note payable - 10,000
Reserve for warranty 58,461 51,500
Dividends payable 5,770 4,170
Deferred revenue 202,149 197,080
---------------------------
626,977 882,844
---------------------------
DEFERRED REVENUE 154,119 206,149
TRUST LIABILITY (note 9) 249,817 342,317
MINORITY INTEREST 31,916 43,378
---------------------------
1,062,829 1,474,688
---------------------------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (note 13) 1,036,629 1,043,288
ADDITIONAL PAID IN CAPITAL (note 13) 3,182,304 2,846,093
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)(note 16) 277 (1,093)
DEFICIT (2,989,096) (2,227,683)
---------------------------
1,230,114 1,660,605
---------------------------
2,292,943 3,135,293
===========================
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
HOMELIFE, INC.
Consolidated Statements of Operations
For the years ended May 31, 2000, 1999 and 1998
(Amounts expressed in U.S. dollars)
2000 1999 1998
$ $ $
REVENUE
Royalty and franchise fees 791,493 782,174 914,946
Warranty fees 255,522 228,353 261,552
Mortgage financing fees 90,520 199,451 -
Real estate brokerage 2,036,892 2,632,251 647,279
Other income 276,491 311,896 144,851
------------------------------------------
3,450,918 4,154,125 1,968,628
DIRECT COSTS 2,127,237 2,791,997 805,542
------------------------------------------
1,323,681 1,362,128 1,163,086
------------------------------------------
EXPENSES
Salaries and fringe benefits 637,455 641,981 479,165
General and administrative 894,568 1,158,249 477,393
Occupancy 175,881 166,263 108,559
Financial 57,268 103,923 67,806
Amortization 328,864 241,214 194,112
------------------------------------------
2,094,036 2,311,630 1,327,035
------------------------------------------
LOSS BEFORE MINORITY INTEREST (770,355) (949,502) (163,949)
Minority interest 11,462 (7,498) (9,177)
------------------------------------------
LOSS BEFORE INCOME TAXES (758,893) (957,000) (173,126)
Income taxes (note 14) - - -
------------------------------------------
NET LOSS (758,893) (957,000) (173,126)
Preferred dividends (2,520) (3,120) (13,000)
------------------------------------------
NET LOSS APPLICABLE TO COMMON
SHARES (761,413) (960,120) (186,126)
==========================================
BASIC AND FULLY DILUTED LOSS
PER COMMON SHARE (0.15) (0.23) (0.05)
==========================================
WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES 4,940,155 4,255,557 3,944,707
==========================================
3
<PAGE>
HOMELIFE, INC.
Consolidated Statements of Cash Flows
For the years ended May 31, 2000, 1999 and 1998
(Amounts expressed in U.S. dollars)
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss (758,893) (957,000) (173,126)
Adjustments to reconcile net loss to net cash provided
by (used in) used in operating activities
Depreciation and amortization 328,864 241,214 194,112
Minority interest (11,462) 7,498 9,177
Loss on trading securities 90,731 103,125 --
Stock based compensation -- 38,500 79,341
Changes in reserve for warranty 6,961 7,600 (10,100)
Decrease in accounts receivable 51,333 63,677 395,449
(Increase) decrease in notes receivable 39,803 235,357 (711,160)
(Increase) decrease in prepaid expenses 27,521 212,722 (172,023)
Increase (decrease) in accounts payable (113,065) 234,994 59,080
(Increase) decrease in deferred revenue (46,961) (932) 246,770
------------------------------------
(385,168) 186,755 (82,480)
------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (10,162) (44,088) (14,702)
Sale of marketable securities 83,519 -- --
Acquisition of goodwill -- -- (158,040)
Acquisition of trademarks -- (42,061) --
------------------------------------
73,357 (86,149) (172,742)
------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided by (required for) bank indebtedness (2,960) 16,960 (4,478)
Cash required for notes payable (10,000) -- (9,792)
Cash (required for) provided by advances from stockholder (143,472) (24,904) 180,332
Cash provided by issuance of capital stock 388,220 22,275 82,500
Cash required for dividends (920) (9,930) (2,020)
------------------------------------
230,868 4,401 246,542
------------------------------------
EFFECT OF FOREIGN CURRENCY
EXCHANGE RATE CHANGES 1,370 (1,093) --
------------------------------------
NET INCREASE (DECREASE) IN CASH (79,573) 103,914 (8,680)
Cash, beginning of year 327,637 223,723 232,403
------------------------------------
CASH, END OF YEAR 248,064 327,637 223,723
------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Interest paid 2,387 254 3,004
====================================
Income taxes paid 16,000 -- 5,089
====================================
</TABLE>
4
<PAGE>
HOMELIFE, INC.
Consolidated Statements of Stockholders Equity
For the years ended May 31, 2000, 1999 and 1998
(Amounts expressed in U.S. dollars)
<TABLE>
<CAPTION>
Class A Class AA
Common Stock Preference Stock-6% Preferred Stock-8% Paid in Accumulated Cumulative
Shares Amount Shares Amount Shares Amount Capital Deficit translation
$ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MAY 31, 1997 3,920,785 3,920 10,000 1,000,000 -- -- 2,424,804 (1,081,437) --
Issuance of common stock (note 13) 576,690 61 -- -- -- -- 207,321 -- --
Issuance of preferred stock (note 13) -- -- -- -- 325 162,500 -- -- --
Compensation and licensing arrangement -- -- -- -- -- -- 30,000 -- --
Net loss applicable to common shares -- -- -- -- -- -- -- (186,126) --
--------------------------------------------------------------------------------------------
BALANCE, MAY 31, 1998 4,497,475 3,981 10,000 1,000,000 325 162,500 2,662,125 (1,267,563) --
Issuance of common stock (note 13) 66,750 67 -- -- -- -- 30,708 -- --
Compensation and licensing
arrangement -- -- -- -- -- -- 30,000 -- --
Conversion of preferred stock
to common stock (note 13) 239,707 240 -- -- (247) 123,260 -- --
Foreign currency translation -- -- -- -- -- -- -- -- (1,093)
Net loss applicable to common shares -- -- -- -- -- -- -- (960,120) --
--------------------------------------------------------------------------------------------
BALANCE, MAY 31, 1999 4,803,932 4,288 10,000 1,000,000 78 39,000 2,846,093 (2,227,683) (1,093)
Issuance of common stock (note 13) 820,756 828 -- -- -- -- 298,724 -- --
Compensation and licensing arrangement -- -- -- -- -- -- 30,000 -- --
Conversion of preferred stock to
common stock (note 13) 12,670 13 -- -- (15) (7,500) 7,487 -- --
Foreign currency translation -- -- -- -- -- -- -- -- 1,370
Net loss applicable to common shares -- -- -- -- -- -- -- (761,413) --
--------------------------------------------------------------------------------------------
BALANCE, MAY 31, 2000 5,637,358 5,129 10,000 1,000,000 63 31,500 3,182,304 (2,989,096) 277
============================================================================================
</TABLE>
5
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
1. BASIS OF CONSOLIDATED FINANCIAL STATEMENTS PRESENTATION
These consolidated financial statements consolidate, using the purchase
method, the accounts of the company and its subsidiaries listed below:
a) Wholly-owned subsidiaries
HomeLife Realty Services, Inc., FamilyLife Realty Services, Inc.,
MaxAmerica Financial Services, Inc., Red Carpet Broker Network, Inc.,
National Sellers Network, Inc., Homelife Builders Realty (Calgary)
Ltd, Aspen Benson & May Investment Bankers LLC., Homelife California
Realty, Inc. and Homelife Properties, Inc.
b) Majority-owned subsidiaries
The Keim Group Ltd. ("Keim") and MaxAmerica Home Warranty Company
("MaxAmerica") - 93 1/3% 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
consolidated financial statements include the financial results of the
subsidiaries to May 31, 2000, 1999 and 1998.
Business acquisitions by the company since June 1, 1997 were as
follows:
a) Effective on August 20, 1997, the company acquired the real
estate operations, including the licencing agreements and
trademarks, of Network Real Estate, Inc., a real estate broker,
for $100,000 as follows:
Cash $ 10,000
Note payable, 8%, due October 25, 1997 10,000
160 Class AA convertible, redeemable preferred
shares of the company carrying 8% cumulative
dividend; convertible after 12 months from
date of issue (see note 13) 80,000
------------
100,000
Less: 146,667 common shares submitted for
cancellation on October 1, 1999 totaling
$58,667. Accordingly trademarks recorded
were reduced by $58,667 (see note 13 and 15) (58,667)
------------
$ 41,333
============
The company had the option of buying back the Class AA Preferred
shares at $5 per share prior to August 20, 1998 but did not
exercise the option.
The assets acquired were recorded as trademarks and will be
amortized over 10 years on a straight-line basis
6
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
1. BASIS OF CONSOLIDATED FINANCIAL STATEMENTS PRESENTATION (cont'd)
b) On February 27, 1998, the company acquired all issued shares of
Builders Realty (Calgary) Ltd., a Canadian real estate broker, for
$316,080 as follows:
Cash $ 158,040
36,000 Common shares of the company 158,040
------------
$ 316,080
============
The company agreed to issue additional common shares to stockholders
should the market price per common share be less than $5 after 12
months from date of issue, so that the market value of total common
shares issued for this acquisition would be $158,040. (see notes 13
and 15)
The assets acquired were recorded as follows:
Net tangible current assets $ 25,900
Goodwill 290,180
------------
$ 316,080
============
The goodwill will be amortized over 40 years on a straight-line line
basis.
c) On September 15, 1998, the company purchased all the issued shares of
an inactive holding company, Aspen Benson and May Investment Bankers
LLC., for common stock in the amount of $77,500 to be issued in
January 2000. At the time of purchase, Aspen Benson and May Investment
Bankers LLC. had negligible assets and revenue.
Effectively, the acquisition allowed the company to pay the vendor a
salary of $77,500 from September 10, 1998 to December 31, 1999 by the
issuance of the company's common stock.
The company has recorded a salary expense of $45,000 in May 31, 1999
and $32,500 in May 31, 2000, with the corresponding liability
satisfied by the issuance of common stock in January 2000.
The number of common shares to be issued was based on the average
month end stock price for the company for September 1998 to December
1999.
d) On January 20, 1999, Builders Realty (Calgary) Ltd. purchased the real
estate brokerage business including licensing agreements and
trademarks of HomeLife Higher Standards, a franchise owned by a party
unrelated to the company, operating in Calgary, Alberta, Canada, for
$42,061 cash in fourteen monthly instalments of $2,714 and a final
payment of $4,065.
The assets acquired were recorded as follows:
Trademarks $ 42,061
============
These trademarks will be amortized over 10 years on a straight-line
basis.
7
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
1. BASIS OF CONSOLIDATED FINANCIAL STATEMENTS PRESENTATION (cont'd)
e) During the fiscal year May 31, 1998, the company acquired, by cash of
$5,000 in total, all issued shares of several newly incorporated
companies. These new companies include MaxAmerica Financial Services,
Inc. which will be originating real estate loans, Homelife California
Realty, Inc. which will be a full service real estate operation,
Homelife Properties, Inc. which will be a real estate holding company
and Red Carpet Broker Network, Inc. and National Sellers Network,
Inc., which will be licensing real estate brokerages
Business acquisitions by the company prior to June 1, 1997 were as
follows:
a) Prior to June 1, 1997, the company acquired the following:
The net assets of Homelife U. S. Partnership, a real estate
operation, for $1,000,000.
All the issued shares of Homelife Realty Services, Inc., a real
estate operation, for $250,000.
93 1/3% and 82.72% respectively of the issued common shares of
The Keim Group, Ltd. and Guardian Home Warranty Company
(subsequently re-named MaxAmerica Home Warranty Company), real
estate and home warranty operations, for $766,250.
The net assets of S & S Acquisition Corp. a real estate
operation, for $400,000.
All the issued shares of Familylife Realty Services, Inc., a
newly incorporated company to engage in real estate operations,
for $1,000.
Homelife U.S. Partnership and Homelife Realty Services Inc. were
entities owned by a company controlled by the president of
Homelife, Inc. The assets acquired below are reflected at
historical cost and no goodwill was reflected on these
acquisitions.
b) The combined assets acquired were as follows:
Current assets $ 162,000
Note receivable 494,899
Prepaid printed advertising materials 320,000
Property and equipment 369,696
Goodwill 409,142
Trademarks and franchise rights 661,513
------------
$ 2,417,250
============
The combined consideration given was as follows:
Cash $ 583,893
10,000 Class A Preferred shares - par value of $100 1,000,000
2,616,662 Common shares -
- par value of $0.001 2,617
- paid in capital 830,740
Warrant (see note 13) --
------------
$ 2,417,250
============
8
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
i) 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, Builders Realty (Calgary) Ltd.
The company is a provider of home warranty coverage through its
subsidiary, Guardian Home Warranty Company.
ii) Significant Group Concentrations of Credit Risk
The company's accounts receivable and notes receivable are primarily
from franchisees in the real estate brokerage industry.
iii) 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.
iv) Marketable Securities
Marketable securities represent trading securities which have been
reflected at their fair market value at the year end.
v) 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.
vi) 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.
9
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
vii) 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
viii) Goodwill
Goodwill is the excess of cost over the value of tangible assets
acquired. It is amortized on the straight-line basis over 40 years.
ix) 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 (20 years in 1998)
x) 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 May 31, 2000,
management expects its long-lived assets to be fully recoverable.
xi) Revenue Recognition
Income from the sale of franchises is recognized over a 5-year period.
Master franchise agreement fees are recognized over 10 years Royalty
income stemming from the gross commissions on the sales of real estate
by the franchise offices is recognized at the date of receipt; this is
due to the complexity of attempting to forecast the actual closing
date of the properties. Warranty income is recognized over the term of
the contract which is usually 12 months; anticipated obligations which
represent incurred but not reported losses (IBNR) under these warranty
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.
10
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
xii) Income taxes
The company accounts for income tax under the provisions of Statement
of Financial Accounting Standards No. 109, which requires recognition
of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the 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.
xiii) 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 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 he amount an employee
must pay to acquire the stock. See note 13 (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 2000 and 1999.
xiv) 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 affect at the balance sheet
date and income and expenses accounts are translated using an average
exchange rate prevailing during each reporting period. No
representation is made that the Canadian dollar amounts could have
been, or could be, converted 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 foreign currency
translation in stockholders' equity.
11
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
xv) Net Income (loss) and Fully Diluted Net Income (loss) Per Weighted
Average Common Stock
Net income (loss) per common stock is computed by dividing net income
(loss) for the year by the weighted average number of common stock
outstanding during the year.
Fully diluted net income (loss) per common stock is computed by
dividing net income (loss) for the year by the weighted average number
of common stock outstanding during the year, assuming, except where
the result would be anti-dilutive, that all convertible preferred
shares were converted, the contingent common stock were issued, the
warrant was exercised and the stock options granted were exercised
(see note 13).
xvi) Use of Estimates
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles 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
consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
xvii) Recent Accounting Pronouncements
In 1998, the company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." SFAS 130 requires
companies to disclose comprehensive income in their consolidated
financial statements. In addition to items included in net income,
comprehensive income includes items currently charged or credited
directly to stockholders' equity, such as the change in unrealized
appreciation (depreciation) of securities. SFAS 131 established new
standards for reporting operating segments, products and services,
geographic areas and major customers. Segments are defined consistent
with the basis management used internally to assess performance and
allocate resources.
On March 4, 1998, the AICPA Accounting Standards Executive Committee
issued Statement of Position No. 98-1 (SOP 98-1), "Accounting for the
Cost of Computer Software developed or obtained for internal use." SOP
98-1 was issued to address diversity in practice regarding whether and
under what conditions the costs of internal-use software should be
capitalized. SOP 98-1 is effective for consolidated financial
statements for years beginning after December 15, 1998. In 1999, the
company adopted the new requirements of SOP 98-1 which did not have a
significant effect on net earnings during that year.
In 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position No. 98-5 (SOP 98-5), "Reporting on the Costs of
Start-up Activities". SOP 98-5 was issued to provide guidance on
financial reporting of start-up costs and organization costs and
requires such costs to be expensed as incurred. SOP 98-5 is effective
for consolidated financial statements for years beginning after
December 15, 1998. The company adopted the new requirements of SOP
98-5 in the fiscal year 2000 and wrote off organization costs with net
book value of $48,955.
12
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
xvii) Recent Accounting Pronouncements (cont'd)
In June 1998 SFAS No. 133, as amended, "Accounting for Derivative
Instruments and Hedging Activities" was issued, to be effective for
fiscal quarters and fiscal years beginning after June 15, 2000 but
this was extended to fiscal years beginning January 1, 2001 by SFAS
No. 137. The company does not have any derivative instruments or
hedging activities, therefore the company believes that SFAS No. 137
will have no material impact on the company's consolidated financial
statements or notes thereto.
3. ACCOUNTS RECEIVABLE
2000 1999
$ $
Accounts receivable 121,950 195,523
Less: Allowance for doubtful accounts (5,250) (27,490)
-----------------------
Accounts receivable, net 116,700 168,033
=======================
4. NOTES RECEIVABLE
2000 1999
$ $
Note receivable from a franchisee arising from the
sale of an existing franchise agreement. The note
is unsecured and bears interest at a rate of 3%
per year. The note is payable on demand. 176,000 200,000
Note receivable from a franchisee arising from the
sale of a master franchise agreement. Note is
unsecured and non-interest bearing. The note is
discounted at the rate of 6% and is payable in
annual instalments due through the year 2003. The
note receivable was been written down to net
realizable value. The note receivable was received
during the year. -- 5,303
Notes receivable from franchisees for franchise
fees. These notes are unsecured, non-interest
bearing and payable in instalments over one year.
The notes receivable has been written off during
the year. -- 10,500
-----------------------
176,000 215,803
Less: Current portion 176,000 215,803
-----------------------
-- --
=======================
13
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
5. PREPAID EXPENSES AND DEPOSITS
2000 1999
$ $
Promotional materials and supplies 42,302 50,120
Prepaid expenses - 13,451
Deposits 8,336 14,588
-----------------------
50,638 78,159
=======================
6. PROPERTY AND EQUIPMENT
2000 1999
$ $
Furniture and fixtures 336,147 277,579
Computer equipment and software 625,926 625,599
Leasehold improvements 28,398 9,270
Automobile 19,865 19,865
-----------------------
Cost 1,010,336 932,313
=======================
Less: Accumulated amortization
Furniture and fixtures 233,956 157,606
Computer equipment and software 324,177 272,525
Leasehold improvements 17,659 1,324
Automobile 19,865 19,865
-----------------------
595,657 451,320
-----------------------
Net book value 414,679 480,993
=======================
Amortization for the year amounted to $76,476 ($127,806 in 1999).
14
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
7. GOODWILL
2000 1999
$ $
Cost 699,322 699,322
Less: Accumulated amortization 55,532 38,049
-----------------------
643,790 661,273
=======================
Amortization for the year amounted to $17,483 ($17,482 in 1999).
8. OTHER ASSETS
2000 1999
$ $
Trademarks and franchise rights 702,846 761,513
Organization costs 106,462 106,462
-----------------------
Cost 809,308 867,975
-----------------------
Less: Accumulated amortization
Trademarks and franchise rights 330,216 144,265
Organization costs 106,462 57,507
-----------------------
436,678 201,772
-----------------------
Net book value 372,630 666,203
=======================
Amortization for the year amounted to $234,906 ($95,926 in 1999).
9. CASH HELD IN TRUST AND TRUST LIABILITY
Cash held in trust are deposits received in connection with the opening of
escrow accounts for the sale of real estate. The deposits are recorded as
trust liabilities and are refunded when the real estate is sold or the
escrow is closed according to the terms of the escrow agreement.
15
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
10. BANK INDEBTEDNESS
At May 31, 2000 and 1999, the company's available line of credit under the
bank loan agreement amounted to $33,400 (CDN$50,000). The operating credit
facility bears interest at the bank's prime lending rate plus 2% per annum
with interest payable monthly. As security, the company has provided a
general assignment of book debts, a general security agreement constituting
a first charge over all present and future personal property of the
company, a subordination agreement with respect to amounts owed by the
borrower to the shareholders of $33,400 (CDN$50,000), and a guarantee by
the major shareholder of the company of $33,400 (CDN$50,000).
At May 31, 2000, the Company had an available line of credit under the bank
loan agreement amounting to $25,000. The unsecured operating credit
facility bears interest at rate of 16% per annum.
There were $14,000 funds borrowed as at year end
11. ACCOUNTS PAYABLE
2000 1999
$ $
Trade payable 262,126 377,375
Accrued expenses 84,471 82,287
-----------------------
346,597 459,662
=======================
12. ADVANCES FROM A STOCKHOLDER
The advances were from the company's president and majority stockholder,
were non-interest bearing, were without specific terms of repayment. Had
the advances been valued at the current value of cash flows at the
company's current rate of borrowing, the advances would be valued at
$164,125 in 1999. Interest of $8,218 would have been imputed for 1999.
During the year, 502,594 common shares were issued towards repayment of the
advances from the stockholder.
16
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
13. CAPITAL STOCK
a) Authorized
100,000 Class A Preference 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 the 125% of
the face value of the Class AA shares as compared with the market
price of the common stock.
10,000,000 Common shares of $0.001 par value
Issued
2000 1999
$ $
10,000 Class A Preferred shares 1,000,000 1,000,000
63 Class AA Preferred shares (78-1999) 31,500 39,000
5,637,358 Common shares (4,803,932-1999) 5,129 4,288
-----------------------
1,036,629 1,043,288
=======================
17
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
13. CAPITAL STOCK (cont'd)
b) Shares issued during the years ended in May 31, 2000, 1999 and 1998
were as follows:
Capital Paid in
Number stock capital
$ $
i) Class AA Preferred shares
On August 20, 1997, 160 Class AA
Preferred shares were issued to
acquire the business of Network
Real Estate Inc. (see note 1) 160 80,000 --
During the year ended May 31,
1998, 165 class AA Preferred
shares were issued for cash 165 82,500 --
------------------------------
325 162,500 --
==============================
On October 7, 1998, 247 Class AA
Preferred shares were converted
to 239,707 common shares at
their face value (247) (123,500) --
==============================
On September 30, 1999, 15 Class
AA preferred shares were
converted to 12,670 common
shares at their face value (15) (7,500) --
==============================
18
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
13. CAPITAL STOCK (cont'd)
b) Shares issued during the years ended in May 31, 2000, 1999 and 1998
were as follows:
Capital Paid in
Number stock capital
$ $
ii) Common shares
On February 27, 1998, the
company issued 36,000 common
shares for $158,040 to acquire
the issued shares of Builders
Realty (Calgary) Ltd. (see
note 1) 36,000 36 158,004
During the year ended May 31,
1998, 25,690 common shares were
issued in consideration of
services rendered at the fair
market value of the shares
issued 25,690 25 49,317
During the year ended May 31,
1998, 250,000 common shares were
issued for promissory notes,
non-interest bearing, payable on
October 8, 2000, totaling
$485,000 250,000 250 484,750
During the year ended May 31,
1998, 265,000 common shares were
issued for promissory notes,
non-interest bearing, payable on
October 8, 2000, totaling
$250,000 265,000 265 249,735
Promissory note receivable,
due October 8, 2000 -- (250) (484,750)
Promissory note receivable,
due October 8, 2000 -- (265) (249,735)
------------------------------
576,690 61 207,321
==============================
On October 8, 1999, the Company signed an agreement with a former
director who had the $250,000 promissory note disclosed in (b)
(ii). The agreement allowed the Company to exchange the
promissory note for 100,000 shares of Pioneer Growth Corp.
("Pioneer"), a company non-affiliated with the former director.
However, the former director could re-acquire the Pioneer shares
within one year by paying $250,000 in cash, or returning the
265,000 shares of HomeLife common stock initially acquired. In
addition, the former director has guaranteed the value of the
Pioneer shares would be at least $250,000 on October 8, 2000, or
he would make up the difference in value in cash or by exercising
his option to return HomeLife shares equal to the amount.
In light of the option provided to the former director to return
all of part of the HomeLife shares initially acquired as well as
his right to re-acquire the Pioneer shares, the Company will
continue to reflect the promissory note receivable until the
option and the right expires on October 8, 2000. At that time,
the Company will either record the Pioneer shares as an asset at
their fair value, or the cash received in place of the Pioneer
shares. Any shares of HomeLife common shares received in
settlement of the note will be cancelled.
In the event that the issuer fails to make up for any diminution
in the fair value of the Pioneer shares, the Company will cancel
a proportionate number of its common shares previously issued to
issuer. If the Company continues to own Pioneer shares subsequent
to October 8, 2000, the Company will reflect any changes in fair
value through earnings on a quarterly basis.
19
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
13. CAPITAL STOCK (cont'd)
ii) Common shares (cont'd)
Capital Paid in
Number stock capital
$ $
During the year ended May 31, 1999,
7,250 common shares were issued in
accordance with the agreement for the
acquisition of Keim and MaxAmerica
(note 1) 7,250 7 (7)
During the year ended May 31, 1999,
10,000 common shares were issued in
consideration of services rendered at
the fair market value of the shares
issued 10,000 10 8,490
During the year ended May 31, 1999.
49,500 common shares were issued. The
fair market value of the shares at
the time of issue was $22,275 49,500 50 22,225
------------------------------
66,750 67 30,708
==============================
On October 7, 1998, the company
issued 239,707 common shares for
$123,500 on the conversion of 247
Class AA preferred shares 239,707 240 123,260
==============================
20
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
13. CAPITAL STOCK (cont'd)
ii) Common shares (cont'd)
Capital Paid in
Number stock capital
$ $
On October 1, 1999, the company
cancelled 146,667 common shares for
the value of $58,667 (note 1 (a)) (146,667) (147) (58,520)
During the year ended May 31, 2000,
502,594 common shares were issued
towards repayment of advances from
the stockholder (note 12) 502,594 502 142,970
During the year ended May 31, 2000,
472,614 common shares were issued in
consideration of services rendered at
the fair market value of the shares
issued 472,614 473 214,275
During the year ended May 31, 2000,
5,000 common shares were issued. The
fair market value of the shares at
the time of issue was $1,100. 5,000 5 1,095
During the year ended May 31, 2000,
12,785 common shares were cancelled.
The fair market value of the shares
at the time of cancellation was
$2,173. (12,785) (12) (2,161)
Net subscription receivable/(payable) -- 7 1,065
------------------------------
820,756 828 298,724
==============================
On September 30, 1999, the company
issued 12,670 common shares for
$7,500 on the conversion of 15 Class
AA preferred shares 12,670 13 7,487
==============================
21
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
13. CAPITAL STOCK (cont'd)
c) Contingent shares to be issued
In the purchase agreement for the acquisition of Builders Realty
(Calgary) Ltd., the Company issued common stock as part of the
purchase price (see note 1). The value of the common stock issued was
set at $5 per share which was substantially higher than the current
market value. The company agreed that if the actual market value of
the stock did not reach $5 per share within one year, the stockholders
of Builders Realty (Calgary) Ltd., would be issued either additional
common shares of Homelife, Inc. or cash to complete the transaction
(see note 15).
d) 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.
e) Stock options
On September 18, 1998, the board of directors of the company adopted a
stock option plan (the "plan") for its directors, employees, and
consultants. An authorized number of shares of common stock of the
company which 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.
22
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
13. CAPITAL STOCK (cont'd)
f) Stock option plan
As at May 31, 2000, 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
Pro-forma information regarding net income and earnings per share is
required by FAS No. 123 - "Accounting for Stock Based Compensation"
and has been determined as if the company had accounted for its
employee stock options based on fair values at the grant date for
options granted. The Company's pro-forma information for the year
ended May 31, 2000 and 1999 would have been as follows:
<TABLE>
<CAPTION>
2000 2000 1999 1999
----------- ----------- ----------- -----------
AS REPORTED PRO-FORMA AS REPORTED PRO-FORMA
----------- ----------- ----------- -----------
$ $ $ $
<S> <C> <C> <C> <C>
Net loss (761,413) (761,413) (960,120) (1,082,974)
Basic and fully diluted loss
per common share (0.15) (0.15) (0.23) (0.25)
</TABLE>
The fair value of each option grant used for purposes of estimating
the pro-forma amounts summarized above is based on the grant date
using the Black-Scholes option pricing model and the following
assumptions: the risk-free interest rates used was 5%, expected
dividends was 0%; expected life was 5 years; and expected volatility
ranged from 54% to 59%. The weighted-average grant date fair value of
options granted during 1999 was $5.00; and 1998 was $3.00.
Compensation cost for stock options granted in fiscal year 1998 would
have been less than $6,000 and was not considered material.
g) 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 63 Class AA preferred shares to common shares
iii. Exercise of warrant which entitles holder to acquire 200,000
common shares at $6 per share
iv. Exercise of stock options to acquire 130,000 issuance of common
shares
v. Common stock which may be required [note 13(c)]
23
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
14. INCOME TAXES
2000 1999 1998
$ $ $
a) Current - - -
Deferred - - -
-------------------------------------
- - -
=====================================
b) The components of deferred income taxes are comprised as follows:
Losses carried-forward 665,000 465,000 165,000
Valuation allowance (665,000) (465,000) (165,000)
-------------------------------------
- - -
=====================================
c) At May 31, 2000. The company had non-capital losses available for
carry-forward of approximately $1,950,000. These losses expire after
May 31, 2007.
15. CONTINGENT LIABILITIES
i) The company is involved in a lawsuit with Network Real Estate, Inc., a
real estate broker, where Network Real Estate, Inc. has filed an
action against the company claiming that the company has failed to pay
Network Real Estate, Inc. the remaining balance of $80,000 pursuant to
the Agreement for purchase of Network Real Estate, Inc. licensing
agreements and trademarks [see note 1 (a)]. On March 7, 2000, the
company filed a cross-complaint against Network Real Estate, Inc. and
International Estates, Inc, claiming that they failed to provide
ownership of International Estates trademark pursuant to the
agreement. Settlement negotiations are in progress and if finalized as
proposed, the company will be dismissed from the complaint by Network
Real Estate, Inc. and Network Real Estate, Inc. will pursue the
company's claims against International Estates, Inc. Pursuant to the
settlement negotiations, Network Real Estate, Inc. did submit 146,667
common shares for cancellation totaling to $58,667 on October 1, 1999
[see note 1 (a)]. In management's opinion, this matter will not have a
material effect on the financial position of the company.
ii) 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 damages of $238,275 (Cdn$356,699). In
management's opinion, this matter will not have a material affect on
the financial position of the company.
24
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
16. COMPREHENSIVE INCOME
The company has adopted statement of financial accounting standards No. 130
"Reporting Comprehensive Income" as of January 1, 1998 which requires new
standards for reporting and display of comprehensive income and its
components in the consolidated financial statements. However, it does not
affect net income or total stockholders' equity. The components of
comprehensive income are as follows:
2000 1999 1998
$ $ $
Net loss (758,893) (957,000) (173,126)
Other comprehensive (loss) gain
Foreign currency translation
adjustments 1,370 (1,093) -
-------------------------------------
Comprehensive loss (757,523) (958,093) (173,126)
=====================================
17. SEGMENTED INFORMATION
Segmented information has been provided for the company on the basis of
different geographic areas and different services. The revenue for Canada
is substantially all derived from real estate brokerage.
a) Revenue by Geographic Area
2000 1999 1998
$ $ $
United States of America 1,165,289 1,324,230 1,280,735
Canada 2,285,629 2,829,895 687,893
------------------------------------
3,450,918 4,154,125 1,968,628
====================================
b) Net loss by Geographic Area
United States of America (712,402) (885,022) (177,923)
Canada (46,491) (71,978) 4,797
------------------------------------
(758,893) (957,000) (173,126)
====================================
c) Identifiable Assets by Geographic Area
United States of America 1,995,601 2,646,270 3,553,672
Canada 297,342 489,023 556,350
------------------------------------
2,292,943 3,135,293 4,110,022
====================================
25
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
17. SEGMENTED INFORMATION (cont'd)
2000 1999 1998
$ $ $
d) Amortization by Geographic Area
United States of America 318,965 221,416 188,917
Canada 9,899 19,798 5,197
---------------------------------------
328,864 241,214 194,114
=======================================
e) Revenue by industry
Real Estate Franchise 791,493 782,174 914,946
Real Estate Brokerage 2,036,892 2,632,251 647,279
Mortgage Financing 90,520 199,451 --
Home Warranty 255,522 228,353 261,663
Other Income 276,491 311,896 144,851
---------------------------------------
Total 3,450,918 4,154,125 1,968,628
=======================================
f) Net loss by industry
Real Estate Franchise (797,357) (1,005,003) (156,909)
Real Estate Brokerage (46,491) (71,978) 4,794
Mortgage Financing 12,986 (114) (37,000)
Home Warranty 62,245 130,622 22,547
Other 9,724 (10,527) (6,558)
---------------------------------------
Total (758,893) (957,000) (173,126)
=======================================
g) Identifiable assets by industry
Real Estate Franchise 1,731,695 2,130,027 3,399,137
Real Estate Brokerage 297,342 489,023 556,350
Mortgage Financing 55,983 151,624 1,803
Home Warranty 143,778 344,630 141,865
Other 64,145 19,989 10,867
---------------------------------------
Total 2,292,943 3,135,293 4,110,022
=======================================
h) Amortization by industry
Real Estate Franchise 317,452 204,563 172,108
Real Estate Brokerage 9,899 19,798 5,195
Mortgage Financing -- 5,412 5,356
Home Warranty 1,513 11,441 11,453
---------------------------------------
Total 328,864 241,214 194,112
=======================================
26
<PAGE>
HOMELIFE, INC.
Notes to Consolidated financial statements
May 31, 2000
(Amounts expressed in U.S. dollars)
18. COMMITMENTS
The company has operating leases for premises which extend through August
31, 2002. Future minimum rental payments as of May 31, 2000 under the
operating lease agreements are as follows:
2001 $ 134,371
2002 82,838
2003 5,653
----------
$ 222,862
==========
19. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. Although the change in date has
occurred, it is not possible to conclude that all aspects of the Year 2000
Issue that may affect the entity, including those related to customers,
suppliers, or other third parties, have been fully resolved.
20. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING CTIVITIES
a) The company repaid advances from the shareholder of $143,472 by
issuing 502,594 common shares.
b) The company cancelled 146,667 common shares, reducing its trademarks
acquired totalling $58,667.
21. RELATED PARTY TRANSACTIONS
2000 1999
$ $
Licensing expense paid to a company controlled
by the President 10,000 10,000
Advances from a stockholder (note 12) - 143,472
Notes receivable - franchise (note 4) 176,000 215,803
22. FINANCIAL STATEMENT PRESENTATION
Certain reclassifications of 1999 and 1998 amounts have been made in order
to facilitate comparison with the current year.
27
