UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3 TO FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT
TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934
HOMELIFE, INC.
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(Name of Small Business Issuer in its charter)
Nevada 33-0680443
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(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
4100 Newport Place, Suite 730
Newport Beach CA 92660
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(Address of principal executive offices) (Zip Code)
(949) 660-1919
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(Issuer's Telephone Number, Including Area Code)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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None None
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Securities to be registered pursuant to section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of Class)
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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 HomeLife 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
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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 Allstate Funding 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) Ltd. is a two office residential real estate company
located in Calgary, Alberta, Canada. Builders Realty (Calgary) Ltd. changed its
trade name to HomeLife Builders Realty and operates as a wholly owned subsidiary
of HomeLife, Inc.
In April 1998, the Company incorporated National Sellers Network, Inc., as
a Nevada corporation, to function as a real estate licensing company for the
National Real Estate Services trade name. National Sellers Network, Inc. is a
wholly owned subsidiary of the Company. Also in April 1998, the Company
incorporated Red Carpet Broker Network, Inc., as a Nevada corporation, to
function as a real estate licensing company for the Red Carpet Real Estate
Services trade name. Red Carpet Real Estate Services, Inc. is also a wholly
owned subsidiary of the Company.
In August 1998, the Company incorporated HomeLife Properties, Inc. as a
Nevada corporation to function as a buyer and seller of real property. This
company currently has no operations and is a wholly owned subsidiary of
HomeLife, Inc.
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 eight
states in the United States and the province of Alberta, Canada.
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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.
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, Illinios,
Michigan, Nevada, 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.
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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.
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.
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In addition to this proprietary system, the acquisition by the Company of
companies with both recognizable trade names, 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:
o A unique lead generating system provided to its franchisees.
o Lower cost of the Company's products to franchisees and the increased
benefit realized from the placement of its advertising dollars.
o Consistent use and acquisition of new technology to provide its
services to its franchisees.
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 homeowners,
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",
"FamilyLife 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
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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 at no cost to the
Company. 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, (a) the Company is required to comply with state laws governing
franchise operations, and (b) the Company's professional staff is required to be
licensed by state real estate authorities. Otherwise, except for normal
government regulations that any business encounters, the Company's business is
not affected by any government regulations.
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
landowner. Therefore, the Company does not anticipate that there will be any
costs associated with the compliance of environmental laws and regulations.
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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 decided to adopt the new requirements of
the SOP 98-5 in the fiscal year 2000. Should the company have adopted the new
requirements in the current fiscal year, organization costs with net book value
of $48,955 would have been written off, net loss and net loss applicable to
common shares would have increased by $48,955, resulting in a basic and fully
diluted loss per common share of $0.24 instead of $0.23 in the 1999 fiscal year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
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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 1999. 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.
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A. 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.
B. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of HomeLife's
financial condition and results of operations. Detailed information is contained
in the financial statements included with this document. This section contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this document should be read as being applicable
to all related forward-looking statements wherever they appear in this document.
The following table sets forth, for the periods indicated, selected financial
information for the Company.
YEAR ENDED MAY 31, 1999 COMPARED TO THE YEAR ENDED MAY 31, 1998.
REVENUES. The Company generated gross sales of $4,154,125 for the period
ended May 31, 1999 compared to gross sales of $1,968,628 for the period ended
May 31, 1998. Revenue by business segment is shown below:
For the period ended For the period ended
May 31, 1999 May 31, 1998
(restated)
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
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TOTAL 4,154,125 100.0 1,968,628 100.0
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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. Real estate brokerage income is recognized at the close of escrow.
Revenue received or receivable, from the sale of franchises, master franchises
and warranties, which are not recognized as income, are recorded on the balance
sheet as deferred revenue.
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Royalty fees decreased from $788,446 for the period ended May 31, 1998 to
$720,574 for the period 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. This practice is expected to continue, leading to a
reduction in royalty fees from existing franchise offices.
Franchise fees decreased from $126,500 for the period ended May 31, 1998 to
$61,600 for the period ended May 31, 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 period ended May 31, 1999
from the financing of 85 loans. There was no mortgage financing revenue for the
period 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 period ended May 31, 1998 to
$228,353 for the period 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 period ended May 31, 1998 to 32.8% for the period 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.
COST OF SALES. Cost of sales for the period ended May 31, 1999 was
$2,791,997 compared to $805,542 for the period ended May 31, 1998. This increase
of $1,986,455 was primarily due to the increase in sales commissions paid to
agents of Builders Realty (Calgary) Ltd., as a result of higher real estate
commissions generated.
SALARIES AND FRINGE BENEFITS. Salaries and fringe benefits for the period
ended May 31, 1999 were $641,981 compared to $479,165 for the period 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 period
ended May 31, 1999 were $1,158,249 versus $477,393 for the period 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 period ended May 31, 1999 was
$166,263 compared to $108,559 for the period 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 period ended May 31, 1999 were $103,923
compared to $67,806 for the period ended May 31, 1998. The increase in fiscal
year 1999 mainly relates to a write down of promotional marketing materials.
AMORTIZATION. Amortization of intangibles for the period ended May 31, 1999
was $241,214 compared to $194,112 for the period 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 period ended May 31, 1999 versus $9,177 for the period 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.
9
<PAGE>
PREFERRED DIVIDENDS. Preferred dividends were $3,120 in the period ended
May 31, 1999 versus $13,000 for the period ended May 31, 1998. This decrease of
$9,880 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 CDN$50,000 and $25,000. The capital requirements of the
Company are for operating expenses, use of its lines of credit, and debt service
on 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 promotional and marketing materials purchased in prior years due
to outdated advertising campaigns. 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.
FOREIGN OPERATIONS. Foreign operations consist of the sale of a master
franchise agreement to an individual in Germany. Payment for this agreement was
scheduled to be made in 12 quarterly payments beginning in October 1999. Only
partial payments have been received, however, 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 it is
anticipated to have no adverse consequences to the operations of the Company,
since it has no commitments of capital or other resources to its foreign
operations
SIX MONTHS ENDED NOVEMBER 30, 1999 COMPARED TO THE SIX MONTHS ENDED NOVEMBER 30,
1998.
REVENUES. The Company generated gross sales of $1,918,640 for the period
ended November 30, 1999 versus $2,576,832 for the period ended November 30,
1998. Revenue by business segment is shown below:
November 30, 1999 November 30, 1998
Amount % Amount %
------ - ------ -
Real estate brokerage 1,102,970 57.5 1,835,833 71.2
Royalty fees 412,786 21.5 429,863 16.7
Franchise fees 30,779 1.6 31,200 1.2
Mortgage financing 38,634 2.0 0 0.0
Home warranty sales 156,729 8.2 137,938 5.4
Other 176,742 9.2 141,998 5.5
---------- ------ ---------- ------
TOTAL 1,918,640 100.0 2,576,832 100.0
========== ====== ========== ======
Real estate brokerage commissions decreased from $1,835,833 for the period ended
November 30, 1998 to $1,102,970 for the period ended November 30, 1999. This
decrease is the result of a decrease in sales representatives from 80 in
November 1998 to 70 in November 1999, and a reduction in the number of escrows
closed per sales representative.
Royalty fees decreased from $429,863 for the period ended November 30, 1998 to
$412,786 for the period ended November 30, 1999. Although the number of
franchise offices remained approximately the same at 180 offices, the royalty
fees on some contracts were reduced upon renewal.
10
<PAGE>
Franchise fees decreased from $31,200 for the period ended November 30, 1998 to
$30,779 for the period ended November 30, 1999. The number of franchises sold
was 7 in 1998 and 6 in 1999.
Mortgage financing revenue was $38,634 for the period ended November 30, 1999
from the financing of 19 loans. There was no mortgage financing revenue for the
period ended November 30, 1998.
Home warranty sales increased from $137,938 for the period ended November 30,
1998 to $156,729 for the period ended November 30, 1999. The number of warranty
contracts sold was 408 in 1998 compared to 448 in 1999.
COST OF SALES. Cost of sales for the period ended November 30, 1999 was
$1,186,544 compared to $1,859,648 for the period ended November 30, 1998. This
decrease of $673,104 was primarily due to the decrease in sales commissions paid
to agents of Builders Realty (Calgary) Ltd., as a result of lower real estate
commissions generated.
GROSS PROFIT PERCENTAGE. Gross profit percentage increased from 27.8% for
the period ended November 30, 1998 to 38.2% for the period ended November 30,
1999. This increase is primarily due to lower real estate commissions earned and
lower real estate commissions paid to brokers and agents in 1999.
SALARIES & FRINGE BENEFITS. Salary and fringe benefits for the period ended
November 30, 1999 were $290,841 compared to $249,732 for the period ended
November 30, 1998. This increase of $41,109 was primarily the result of an
independent contractor becoming an employee of the Company.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$298,067 for the period ended November 30, 1999 compared to $485,172 for the
period ended November 30, 1998. This decrease of $187,105 was primarily the
result of outside services in 1998 that did not reoccur in 1999.
OCCUPANCY. Occupancy for the period ended November 30, 1999 was $85,041
compared to $75,772 for the period ended November 30, 1998. This increase of
$9,269 was due to an escalation in an ongoing lease at one office location.
FINANCIAL. Financial expenses were $150,905 for the period ended November
30, 1999 versus $51,783 for the period ended November 30, 1998. The amount for
the period ended November 30, 1999 is due to a loss on a marketable investment
in common stock held by the Company, and a loss on currency conversions for the
Company's Canadian operations when the results are converted from Canadian
dollars to US dollars. The amount for the period ended November 30, 1998 is the
result of a loss on a marketable investment in common stock held by the Company
and a loss on currency conversions for the Company's Canadian operations when
the results are converted from Canadian dollars to US dollars.
AMORTIZATION. Amortization expenses were $88,562 for the period ended
November 30, 1999 versus $102,607 for the period ended November 30, 1998.
Although the Company adopted SOP 98-5 effective June 1, 1999 and wrote off
organization costs in the amount of $48,955 the overall decrease in amortization
was primarily due to assets that became fully amortized during the period ended
November 30, 1998.
MINORITY INTEREST. The decrease in net income due to a minority interest
was $3,612 for the period ended November 30, 1999 compared to $4,952 for the
period ended November 30, 1998. This decrease of $1,340 was due to lower
revenues for The Keim Group Ltd.
PREFERRED DIVIDENDS. Preferred dividends were $1,560 for both the period
ended November 30, 1999 and November 30, 1998.
11
<PAGE>
ITEM 3. DESCRIPTION OF PROPERTY
------- -----------------------
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 Builders Realty, (Calgary) Ltd. offices located in Calgary, Alberta, Canada.
The Builders Realty, (Calgary) Ltd. leases expire in October, 2001 and in
August, 2002. Annual lease payments exclusive of property taxes and insurance
for all locations through 2002 is $433,494.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------- --------------------------------------------------------------
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common stock, as of the date hereof for: (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) each officer of the Company and; (iv) all directors and officers as a
group. Unless otherwise indicated, the address for each stockholder is 4100
Newport Place, Suite 730, Newport Beach, CA 92660.
NAME NUMBER OF PERCENTAGE
SHARES BENEFICIALLY
OWNED(1)
Andrew Cimerman 2,500,000 49.02%
Horwitz & Beam 250,000(2) 4.90%
F. Bryson Farrill 50,000 *
Terry Lyles, Ph.D 50,000 *
Charles Goodson 0 0%
William Slivka 0 0%
Brinx Capital 200,000 3.92%
All officers and directors as a 2,600,000 50.98%
group (3 persons)
*Less than 1%
---------------
(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. The beneficial owner of Brinx
Capital, Inc. is James Briscoll.
12
<PAGE>
(2) These shares are subject to immediate registration on Form S-8, provided
that the issuee has agreed: (a) not to re-sell any of such shares for a
period of 90 days following effectiveness of the Form S-8; (b) at the
expiration of such 90 day period, not to re-sell more than 25,000 shares
per month for a period of ten (10) consecutive months and; (c) the shares
can be repurchased by HomeLife for $125,000 in cash for a period of 90 days
following the effective date of Form 10-SB. Craig Beam, a partner in
Horwitz & Beam, will have ultimate control over the voting and disposition
of these shares.
The following shares were issued to consultants and service providers:
Issuee No. Shares Date of Grant
------ ---------- -------------
The Charleston Group 100,000 shares 10/30/97
Brinx Capital 100,000 shares 5/7/98
Gary Brown 10,000 shares 5/7/98
Equity Capital 50,000 shares 5/7/98
Mission Financial 100,000 shares 5/7/98
Marion Stanton 20,000 shares 8/18/98
Vicky Eubanks 10,000 shares 10/8/98
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
------- ------------------------------------------------------------
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 44 Vice President
William Slivka 51 Chief Financial Officer
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, Ontario, Canada 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.
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 15 years, Dr. Lyles has
traveled across the United States and around the world conveying his 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. in Psychology
from Wayne State University in Detroit, Michigan.
13
<PAGE>
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 32 years. Mr.
Farrill has held various senior positions, including that of President and
Chairman of McLeod, Young, Weir International, an investment dealer in Toronto,
Ontario, 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. Mr. Farrill
has been retired for the past six years.
CHARLES GOODSON, 45, VICE PRESIDENT, has been employed by the Company, or its
subsidiary companies since March 1992. Mr. Goodson had 15 years of commercial
banking experience prior to joining HomeLife Realty Services, Inc. He is a
licensed realtor. Mr. Goodson earned his B.S. Degree in Business Administration
from California State University, Las Angeles.
WILLIAM SLIVKA, 51, CHIEF FINANCIAL OFFICER, has been with the Company since
September 1998. Mr. Slivka has 20 years experience in the securities and
investment banking industry. He worked for the Heritage Group, as its financial
operations principal from November 1994 through June 1998. He has earned MBA and
MS Degrees from the Pennsylvania State University. He is a certified financial
planner and a licensed real estate broker.
ITEM 6.
-------
A. EXECUTIVE COMPENSATION
----------------------
The following officers of the Company receive the following annual cash
salaries and other compensation:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Principal Position Year Annual Bonus Awards
Salary
Restricted Securities
Stock Awards Underlying
Options
<S> <C> <C> <C> <C> <C>
Andrew Cimerman, President 1999 $20,000 $-0- -0- -0-
Gabrielle Jeans, Vice President 1999 $72,000 $-0- -0- -0-
Charles Goodson, Vice President 1999 $69,500 $-0- -0- -0-
William Slivka, CFO 1999 $60,000 $-0- -0- -0-
All Officers as a Group (4 1999 $221,500 $-0- -0- -0-
persons)
</TABLE>
------------------------------------
B. STOCK OPTIONS
-------------
While the Company has not enacted a formal stock option plan for its
directors and/or senior executives, the Company has granted certain directors
and officers options to purchase Common stock of the Company. No options were
granted to employees in the latest fiscal year. 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 Vice
President, Gabrielle Jeans, was 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.
14
<PAGE>
The following table describes the aggregated exercises of options in the
last fiscal year, and fiscal year-end option values:
<TABLE>
<CAPTION>
Shares acquired on Value Number of Value of
Name exercise of options Realized securities unexercised
underlying in-the-money
unexercised options at
options fiscal year
at fiscal end
year end
<S> <C> <C> <C> <C>
F. Bryson Farrill, Director None $0 50,000 $0
Terry Lyles, Ph.D., Director None $0 50,000 $0
Gabrielle Jeans, Vice None $0 30,000 $0
President
Total None $0 130,000 $0
</TABLE>
ITEM 7. 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, Ontario, 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 majority 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.,
which owns 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
no cost 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, Ltd. Simcoe Fox Developments, Ltd.'s business activities consist
of holding real estate investment property. The activities of Simcoe Fox
Developments, Ltd. 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, Ltd. is presented to HomeLife's Board of
Directors for consideration and for approval by a disinterested majority of the
Board of Directors.
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 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.
15
<PAGE>
ITEM 8. DESCRIPTION OF REGISTRANT'S SECURITIES
------- --------------------------------------
The authorized capital stock of the company consists of 20,000,000 shares
of Common stock, $.001 par value; 100,000 shares of convertible Class A
Preferred stock; 2,000 shares of Class AA Preferred stock; and 100,000 shares of
Class AAA Preferred stock. The Company's Transfer Agent is Oxford Transfer &
Registrar, 317 S.W. Alder, Suite 1120, Portland, Oregon, 97204.
The following summary of certain terms of the Company's securities does not
purport to be complete and is subject to, and qualified in its entirety by, the
provisions of the Company's Articles of Incorporation and Bylaws, which are
included as exhibits to the Registration Statement, of which this Prospectus is
a part, and the provisions of applicable law.
COMMON STOCK
As of the date hereof, there are 4,803,932 shares of Common stock, 200,000
warrants to purchase Common stock and 130,000 options to purchase Common stock
issued and outstanding. After the conversion of the issued and outstanding
Preferred stock there would be 5,978,039 shares of Common stock issued and
outstanding. Holders of Common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. At all
elections of directors of the company, each holder of stock possessing voting
power is entitled to as many votes as equal to the number of his or her shares
of stock subject to preferences that may be applicable to any then outstanding
Preferred stock, holders of Common stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. (See Part II, Item 1 C, "Dividends"). In the event of a
liquidation, dissolution or winding up of the Company, holders of Common stock
are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any then outstanding Preferred
Stock. Holders of Common stock have no right to convert their Common stock into
any other securities. The Common stock has no preemptive or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
Common stock. All outstanding shares of Common stock are, and the Common stock
to be outstanding upon completion of this Offering will be, duly authorized,
validly issued, fully paid and nonassessable.
PREFERRED STOCK
The 100,000 authorized Class A Preferred shares have no par value, a 6%
non-cumulative dividend and voting rights equal to 1,000 votes per share, as
compared to 1 vote per share of Common stock. The Class A Preferred shares are
convertible to Common shares at the option of the holder at a price equal to the
face value of the shares. In the event of a liquidation, dissolution or winding
up of the company, holders of Class A Preferred stock are entitled to share
ratably with all other holders of Class A Preferred stock in all assets
remaining after payment of liabilities, and prior to any distributions to
holders of Class AA Preferred Stock, Class AAA Preferred Stock, and of Common
stock.
The 2,000 authorized Class AA Preferred shares have a $500 par value and an
8% cumulative dividend. These shares are non-voting, redeemable by the Company
at any time, at face value, and convertible at the option of the shareholder
after 12 months from the date of issuance to Common shares at a price equal to
125% of the face value of the Class AA Preferred shares, as compared with the
then market price of the Common stock. In the event of a liquidation,
dissolution or winding up of the company, holders of Class AA Preferred stock
are entitled to share ratably with all other holders of Preferred stock in all
assets remaining after payment of liabilities, and prior to any distributions to
holders of Class AAA Preferred Stock and of Common stock.
The 100,000 authorized Class AAA Preferred shares carry no dividend rights
and have a face value of $500 per share. These shares, which were established as
a class of Preferred stock in July, 1999, are convertible into one hundred
shares of Common stock per one share of Preferred stock, after a period of three
years from the date of issue. In the event of a liquidation, dissolution or
winding up of the Company, holders of Class AAA Preferred stock are entitled to
share ratably with all other holders of Preferred stock in all assets remaining
after payment of liabilities, and prior to any distributions to holders of
Common stock.
16
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS' COMMON EQUITY AND
----------------------------------------------------------------------
OTHER STOCKHOLDERS MATTERS
--------------------------
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 1998 and 1999 (ended May 31), and for
the period ended November 30, 1999, by quarter. The prices below reflect
inter-dealer quotations, without retail mark-up, mark-down or commissions and
may not represent actual transactions:
Low High
Quarter ended Bid Bid
-----------------------------------------------------
8/31/97 1.30 4.15
11/30/97 2.80 4.75
2/28/98 1.80 5.50
5/31/98 1.30 2.00
8/31/98 1.25 2.85
11/30/98 .31 1.45
2/28/99 .31 .66
5/31/99 .32 .57
8/31/99 .31 .42
11/30/99 .20 .34
02/29/00 .17 .30
B. HOLDERS
As of October 26, 1999, there were approximately 1,011 holders of Company
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 $13,000 in Preferred dividends on its Class AA Preferred stock for the
period ended May 31, 1998, and $3,120 in Preferred dividends on its Class AA
Preferred stock for the period ended May 31, 1999. The reduction in dividends is
due to the conversion of Preferred stock into Common stock.
ITEM 2. LEGAL PROCEEDINGS
------- -----------------
The Company is currently involved in one lawsuit.
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. The defendants, Cecil Avery and Joyce Travis, have filed a counter
lawsuit for damages of $223,872 (CN$330,000). In management's opinion, this
matter will not have a material affect on the financial position of the Company.
Management believes that there is no other material litigation matter
pending or threatened against the Company.
17
<PAGE>
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
------- ---------------------------------------------
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, Firth-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. A letter from the
predecessor accountant is included in the Audited Financial Statements for
Fiscal Years ended May 31, 1998 and 1999.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
------- ---------------------------------------
In October 1995, the Company issued 1,037,859 shares of Common stock to
Stockholders of Management Dynamics, Inc. as consideration for the acquisition
of Management Dynamics, Inc. This transaction was exempt from the registration
provisions of the Act by virtue of Section 4(2) of the Act, as transactions by
an issuer not involving any public offering.
In November 1995, the Company issued 81,595 shares of its Common stock to
98 non-U.S. investors in consideration of payment of $326,380. This transaction
was exempt from the registration provisions of the Act by virtue of Regulation S
of the Act, as transactions by an issuer not involving any public offering and
including non-U.S. residents.
In January 1996, the Company issued 44,636 shares of its Common stock to 38
investors for payment of $178,544. Less than 35 of these investors were
nonaccredited investors within the meaning of Regulation D. This transaction was
exempt from the registration provisions of the Act by virtue of Section 4(2) of
the Act and Rule 504 of Regulation D, as transactions by an issuer not involving
any public offering.
In May 1996, 2,500,000 shares of Common stock and 10,000 shares of Class A
Preferred stock was issued to Andrew Cimerman for the acquisition of HomeLife
Realty Services, Inc. and HomeLife Realty U.S. Limited Partnership. This
transaction was exempt from the registration provisions of the Act by virtue of
Section 4(2) of the Act as transactions by an issuer not involving any public
offering.
Also in May 1996, 21,250 shares of Common stock were issued for
consideration of $85,000 to The Charleston Group. This transaction was exempt
from registration pursuant to Rule 504 of Regulation D of the Act as
transactions by an issuer not involving any public offering.
In June 1996, the Company issued 21,998 shares of Common stock for $22,895
to an individual investor pursuant to Rule 504 of Regulation D of the Act as
transactions by an issuer not involving any public offering.
In August 1996, 46,662 shares of Common stock were issued to the
stockholders of The Keim Group Ltd. for the acquisition of The Keim Group Ltd.
This transaction was exempt from the registration provisions of the Act by
virtue of Section 4(2) of the Act, as transactions by an issuer not involving a
public offering.
In January 1997, 70,000 shares of Common stock were issued to S & S
Acquisition Corp. for the acquisition of the assets of S & S Acquisition Corp.
This transaction was exempt from the registration provisions of the Act by
virtue of Section 4(2) of the Act, as transactions by an issuer not involving a
public offering.
In March 1997, the Company issued 117,233 shares of Common stock for
$101,155 to non-U.S. resident investors pursuant to Regulation S of the Act.
This transaction was exempt from the registration provisions of the Act by
virtue of Section 4(2) of the Act, as transactions by an issuer not involving a
public offering and Regulation S of the Act as transactions involving non-U.S.
investors.
18
<PAGE>
In July 1997, the Company issued 160 shares of Class AA Preferred stock for
the acquisition of tradenames and licensing agreements of Network Real Estate,
Inc. This transaction was exempt from the registration provisions of the Act by
virtue of Section 4(2) of the Act, as transactions by an issuer not involving a
public offering.
In August 1997, the Company issued 165 shares of Class AA Preferred stock
for $162,500 to 33 investors in a private offering pursuant to Regulation D of
the Act. This transaction was exempt from the registration provisions of the Act
by virtue of Section 4(2) of the Act, as transactions by an issuer not involving
a public offering.
In February 1998, the Company issued 36,000 shares of Common stock to
stockholders of Builders Realty, (Calgary) Ltd. for the acquisition of Builders
Realty, (Calgary) Ltd. This transaction was exempt from the registration
provisions of the Act by virtue of Section 4(2) of the Act, as transactions by
an issuer not involving a public offering.
In September 1998, the Company issued shares of Common stock to Aspen
Benson and May, LLC. in exchange for the membership interests of that company.
The number of shares will be determined by the future share price until January
2000. This transaction was exempt from the registration provision of the Act by
virtue of section 4(2) of the Act, as transactions by an issuer not involving a
public offering.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
------- -----------------------------------------
The Nevada Revised Statutes and the Company's Bylaws authorize
indemnification of a director, officer, employee or agent of the Company against
expenses incurred by him or her in connection with any action, suit, or
proceeding to which such person is named a party by reason of having acted or
served in such capacity, except for liabilities arising from such person's own
misconduct or negligence in performance of duty. In addition, even a director,
officer, employee or agent of the Company who was found liable for misconduct or
negligence in the performance of duty may obtain such indemnification if, in
view of all the circumstances in the case, a court of competent jurisdiction
determines such person is fairly and reasonably entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers, or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Commission, such indemnification is against public policy as expressed in
the Act and is therefore unenforceable.
PART F/S
FINANCIAL STATEMENTS
The following financial statements are included herein:
o Audited Financial Statements for Fiscal Years ended May 31, 1998 and
1999.
o Unaudited Financial Statements as of and for the period ended November
30, 1999.
o Quarterly Report on Form 10-Q for the period ended February 29, 2000
(amendment No. 1)
19
<PAGE>
PART III
ITEM 1 AND
------
ITEM 2. INDEX TO EXHIBITS AND DESCRIPTION OF EXHIBITS
------- ---------------------------------------------
Exhibit
-------
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
4.3 Certificate of Designated Class AAA 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
10.18 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.
16 Letter from Biller, Firth-Smith & Archibald dated April 26, 2000.
21 List of Subsidiaries
Note: All exhibits identified above were submitted with the original filing.
20
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
HOMELIFE, INC.
By: Andrew Cimerman
Andrew Cimerman
Its: President
Signature Title Date
/s/ Andrew Cimerman President, Director September 7, 2000
-------------------
Andrew Cimerman
21
<PAGE>
HOMELIFE, INC.
CONSOLIDATED BALANCE SHEETS
AS OF NOVEMBER 30, 1999 AND 1998
(UNAUDITED)
1999 1998
---- ----
ASSETS
Current Assets
Cash $ 269,264 $ 278,567
Marketable securities, at fair value 42,188 375,000
Accounts receivable 177,124 288,279
Notes receivable 215,803 527,160
Prepaid expenses and deposits 78,574 258,727
-------------------------
782,953 1,727,733
Property and Equipment 453,363 571,025
Goodwill 655,555 684,123
Other Assets 621,417 962,078
Cash Held in Trust 242,498 205,756
-------------------------
$2,755,786 $4,150,715
=========================
22
<PAGE>
HOMELIFE, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF NOVEMBER 30, 1999 AND 1998
(UNAUDITED)
1999 1998
---- ----
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Bank indebtedness $ -- $ --
Accounts payable 302,726 275,710
Advances from stockholder 143,568 340,166
Note payable 0 10,000
Reserve for warranty 62,400 55,100
Dividends payable 3,390 9,010
Deferred revenue 134,123 105,802
-----------------------------
696,207 795,788
Deferred Revenue 331,392 34,232
Trust Liability 242,498 220,756
Minority Interest 41,722 40,832
-----------------------------
1,311,819 1,091,608
Stockholders' Equity
Capital Stock 1,037,428 1,167,270
Additional Paid in Capital 2,784,093 2,242,781
Accumulated Other Comprehensive Loss (1,093) (295)
Accumulated Deficit (2,376,461) (350,649)
-----------------------------
1,443,967 3,059,107
-----------------------------
$ 2,755,786 $ 4,150,715
=============================
23
<PAGE>
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998
(UNAUDITED)
1999 1998
---- ----
REVENUE
Royalty and franchise fees $ 443,565 $ 461,063
Warranty fees 156,729 137,938
Mortgage financing fees 38,634 --
Real estate brokerage 1,102,970 1,835,833
Other income 176,742 141,998
------------------------------
1,918,640 2,576,832
COST OF SALES 1,186,544 1,859,648
------------------------------
732,096 717,184
==============================
EXPENSES
Salaries and fringe benefits 290,841 249,732
General and administrative 298,067 485,172
Occupancy 85,041 75,772
Financial 150,905 51,783
Amortization 88,562 102,607
------------------------------
913,416 965,066
------------------------------
LOSS BEFORE MINORITY INTEREST (181,320) (247,882)
Minority interest (3,612) (4,952)
------------------------------
LOSS BEFORE INCOME TAX
RECOVERY (184,932) (252,834)
Income tax recovery -- --
------------------------------
NET LOSS (184,932) (252,834)
Preferred dividends (1,560) (1,560)
------------------------------
NET LOSS APPLICABLE TO COMMON
SHARES (186,492) (254,394)
==============================
BASIC AND FULLY DILUTED LOSS
PER COMMON SHARE $ (0.04) $ (0.05)
==============================
WEIGHTED-AVERAGE NUMBER OF
COMMON SHARES 4,476,822 4,753,507
==============================
24
<PAGE>
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998
(UNAUDITED)
1999 1998
$ $
CASH FLOWS FROM OPERATION ACTIVITIES
Net loss (186,492) (254,394)
Adjustments to reconcile net loss to net cash used
in operation activities
Depreciation and amortization 88,562 102,607
Minority interest 3,612 4,952
Loss on trading securities 150,905 52,143
Changes in assets and liabilities
Decrease (increase) in accounts and other receivable 9,091 56,569
Decrease (increase) in notes receivable -- (384,000)
Decrease (increase) in prepaid expenses 415 (32,514)
Increase (decrease) in accounts payable 156,936 (51,042)
Increase (decrease) in reserve for warranty (10,900) (11,200)
Increase (decrease) in notes payable 10,000 0
Increase in deferred revenue (62,286) 249,127
-------------------------
Net cash provided by (used in) operating activities 159,843 (267,752)
-------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (55,868) (180,579)
Sales of intellectual assets 95,815 139,146
Purchases of marketable securities (152,687) --
Sales of marketable securities -- 375,000
-------------------------
Net cash provided by (used in) investing activities (112,740) 333,567
-------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in bank indebtedness (16,960) --
Increase (decrease) in advances from stockholder (50,096) (9,790)
Increase (decrease) in preferred stock issuance (36,860) 789
Increase (decrease) in dividends payable (1,560) (1,970)
-------------------------
Net cash provided by (used in) financing activities (105,476) (10,971)
-------------------------
NET INCREASE (DECREASE) IN CASH (58,373) 54,844
Cash, beginning of year 327,637 223,723
-------------------------
CASH, END OF PERIOD $ 269,264 $ 278,567
=========================
Supplemental Disclosure of Cash Flow Information
Interest paid 176 456
Income taxes paid -- --
25
<PAGE>
HOMELIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1999
(UNAUDITED)
NOTE 1. BASIS OF CONSOLIDATED FINANCIAL STATEMENTS PRESENTATION
In the opinion of the Company's management, the accompanying condensed
consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position at November 30, 1999 and results of operations for six months ended
November 30, 1999 and 1998.
These 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., Builders Realty (Calgary) Ltd., Aspen Benson & May LLC., HomeLife
California Realty, Inc., and HomeLife Properties, Inc.
b) Majority-owned subsidiaries
The Keim Group Ltd., and MaxAmerica Home Warranty Company - 93.33% and 82.72%
respectively.
On consolidation, all material intercompany accounts have been eliminated.
Consolidation commenced with the effective dates of acquisition of the
operations of the subsidiary companies and these financial statements include
the financial results of the subsidiaries for the six months ended November 30,
1999 and 1998.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principal Activities
HomeLife, Inc. together with its subsidiaries is a leading provider of services
to the real estate and mortgage loan industries. The Company engages in the
following activities:
The Company franchises full service real estate brokerage offices and provides
operational and administrative services to its franchisees under the names,
HomeLife Realty Services, National Real Estate Service, Red Carpet Real Estate
Services, Red Carpet Keim, Network Real Estate and International Estates.
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,
MaxAmerica Home Warranty Company.
26
<PAGE>
HOMELIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1999
(UNAUDITED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
(b) Accounting Changes
Effective June 1, 1999 the Company adopted 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. Accordingly,
the Company wrote off existing organization costs of $48,955 which are reflected
in the presented financial statements.
NOTE 3. 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
1999 1998
$ $
United States of America 815,670 740,999
Canada 1,102,970 1,835,833
-------------------------
1,918,640 2,576,832
=========================
b) Net Income (Loss) by Geographic Area
United States of America (213,164) (270,169)
Canada 26,672 15,775
-------------------------
(186,492) (254,394)
=========================
c) Identifiable Assets by Geographic Area
United States of America 2,550,101 3,702,044
Canada 405,138 448,671
-------------------------
2,955,239 4,150,715
=========================
d) Amortization by Geographic Area
United States of America 74,286 65,603
Canada 3,087 3,172
-------------------------
77,373 68,775
=========================
27
<PAGE>
HOMELIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1999
(UNAUDITED)
NOTE 3. SEGMENTED INFORMATION - (CONTINUED)
1999 1998
$ $
d) Revenue by industry
Real Estate Franchise 443,565 461,063
Real Estate Brokerage 1,102,970 1,835,833
Mortgage Financing 38,634 --
Home Warranty 156,729 137,938
Other 176,742 141,998
-------------------------
Total 1,918,640 2,576,832
=========================
e) Net income (loss) by industry
Real Estate Franchise (39,968) (255,049)
Real Estate Brokerage 26,672 15,775
Mortgage Financing (148,591) --
Home Warranty (17,332) (10,521)
Other (7,273) (4,599)
-------------------------
Total (186,492) (254,394)
=========================
f) Identifiable assets by industry
Real Estate Franchise 2,268,152 3,547,079
Real Estate Brokerage 405,138 448,671
Mortgage Financing 49,039 --
Home Warranty 151,007 125,477
Other 81,903 29,488
-------------------------
Total 2,955,239 4,150,715
=========================
g) Amortization by industry
Real Estate Franchise 68,875 60,793
Real Estate Brokerage 3,087 3,172
Mortgage Financing -- --
Home Warranty 5,411 4,810
-------------------------
Total 77,373 68,775
=========================
28
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended February 29, 2000
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act;
For the transition period from _________ to __________
Commission File Number #000-1024048
HOMELIFE, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 33-0680443
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4100 Newport Place, Suite 730, Newport Beach, CA 92660
------------------------------------------------ ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(949) 660-1919
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The issuer had 5,100,070 shares outstanding for the period ended February
29, 2000.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
HOMELIFE, INC.
INDEX
PAGE NO.
--------
PART I - FINANCIAL INFORMATION 1.
Item 1. Financial Statements 1.
Consolidated Balance Sheets as of February 29, 2000
(unaudited) and May 31, 1999 (revised audited) 1.
Comparative Unaudited Consolidated Statements of
Operations for the three months ended February 29,
2000 and February 28, 1999 3.
Comparative Unaudited Consolidated Statements of
Operations for the nine months ended February 29,
2000 and February 28, 1999 4.
Comparative Unaudited Consolidated Statements of Cash
Flows for the three months ended February 29, 2000
and February 28, 1999 5.
Comparative Unaudited Consolidated Statements of Cash
Flows for the 9 months ended February 29, 2000 and
February 28, 1999 6.
Notes to Unaudited Consolidated Financial Statements 7.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation. 14.
PART II - OTHER INFORMATION 18.
Item 1. Legal Proceedings. 18.
Item 2. Changes in Securities and Use of Proceeds. 18.
Item 3. Defaults Upon Senior Securities. 18.
Item 4. Submission of Matters to a Vote of Security Holders. 18.
Item 5. Other Information. 18.
Item 6. Exhibits and Reports of Form 8-K. 18.
(a) Exhibits
(b) Reports on Form 8-K
<PAGE>
PART I - FINANCIAL INFORMATION
HOMELIFE, INC.
CONSOLIDATED BALANCE SHEETS
AS OF FEBRUARY 29, 2000 AND MAY 31, 1999
(unaudited) (revised audited)
February May
2000 1999
---- ----
ASSETS
Current Assets
Cash $193,103 $327,637
Marketable securities, at fair value 115,413 194,875
Accounts receivable 204,644 168,033
Notes receivable 219,303 215,803
Prepaid expenses and deposits 76,395 78,159
----------------------------
808,858 984,507
Property and Equipment 434,320 480,993
Goodwill 644,350 661,273
Other Assets 577,066 666,203
Cash Held in Trust 250,124 342,317
----------------------------
$2,714,718 $3,135,293
============================
1
<PAGE>
HOMELIFE, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF FEBRUARY 29, 2000 AND MAY 31, 1999
(unaudited) (revised audited)
February May
2000 1999
---- ----
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Bank indebtedness $29,890 $16,960
Accounts payable 356,993 459,662
Advances from stockholder 143,472 143,472
Note payable 0 10,000
Reserve for warranty 51,100 51,500
Dividends payable 2,470 4,170
Deferred revenue 197,080 197,080
----------------------------
781,005 882,844
Deferred Revenue 206,149 206,149
Trust Liability 250,124 342,317
Minority Interest 42,982 43,378
----------------------------
1,280,260 1,474,688
Stockholders' Equity
Capital Stock 1,043,288 1,043,288
Additional Paid in Capital 2,846,093 2,846,093
Accumulated Other Comprehensive Loss (1,093) (1,093)
Accumulated Deficit (2,453,830) (2,227,683)
----------------------------
1,434,458 1,660,605
----------------------------
$2,714,718 $3,135,293
============================
2
<PAGE>
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(UNAUDITED)
For the three For the three
months ended months ended
February 29, February 28,
2000 1999
REVENUE
Royalty and franchise fees $206,432 $145,856
Warranty fees 44,655 79,398
Mortgage financing fees 25,697 --
Real estate brokerage 400,864 380,542
Other income 50,056 122,544
---------------------------
727,713 728,340
COST OF SALES 426,621 396,650
---------------------------
301,092 331,690
---------------------------
EXPENSES
Salaries and fringe benefits 181,069 162,257
General and administrative 115,877 242,586
Occupancy 43,232 41,931
Financial (72,808) 26,159
Amortization 76,453 51,304
---------------------------
343,823 524,237
---------------------------
LOSS BEFORE MINORITY INTEREST (42,731) (192,547)
Minority interest 3,216 (1,930)
---------------------------
LOSS BEFORE INCOME TAX RECOVERY (39,515) (194,477)
Income tax recovery -- --
---------------------------
NET LOSS (39,515) (194,477)
Preferred dividends (140) (780)
---------------------------
NET LOSS APPLICABLE TO COMMON
SHARES (39,655) (195,257)
===========================
BASIC AND FULLY DILUTED LOSS
PER COMMON SHARE $(0.01) $(0.05)
===========================
WEIGHTED-AVERAGE NUMBER OF
COMMON SHARES 4,956,848 4,177,545
3
<PAGE>
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(UNAUDITED)
For the nine For the nine
months ended months ended
February 29, February 28,
2000 1999
REVENUE
Royalty and franchise fees $ 649,997 $ 606,919
Warranty fees 201,384 217,336
Mortgage financing fees 64,331 --
Real estate brokerage 1,503,834 2,216,375
Other income 226,807 264,542
--------------------------
2,646,353 3,305,172
COST OF SALES 1,613,165 2,256,298
--------------------------
1,033,188 1,048,874
--------------------------
EXPENSES
Salaries and fringe benefits 471,910 411,989
General and administrative 413,944 727,758
Occupancy 128,273 117,703
Financial 78,097 77,942
Amortization 165,015 153,911
--------------------------
1,257,239 1,489,303
--------------------------
LOSS BEFORE MINORITY INTEREST (224,051) (440,429)
Minority interest (396) (6,882)
--------------------------
LOSS BEFORE INCOME TAX RECOVERY (224,447) (447,311)
Income tax recovery -- --
--------------------------
NET LOSS (224,447) (447,311)
Preferred dividends (1,700) (2,340)
--------------------------
NET LOSS APPLICABLE TO COMMON
SHARES (226,147) (449,651)
==========================
BASIC AND FULLY DILUTED LOSS
PER COMMON SHARE $ (0.05) $ (0.11)
==========================
WEIGHTED-AVERAGE NUMBER OF
COMMON SHARES 4,956,848 4,177,545
4
<PAGE>
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
For the three For the three
months ended months ended
February 29, February 28,
2000 1999
$ $
CASH FLOWS FROM OPERATION ACTIVITIES
Net loss (39,655) (195,257)
Adjustments to reconcile net loss to net cash used
in operation activities
Depreciation and amortization 63,379 51,304
Minority interest (3,216) 1,930
Gain on trading securities (71,443) (247,018)
Changes in assets and liabilities
Decrease (increase) in accounts and other receivable (45,702) (46,776)
Decrease (increase) in notes receivable (3,500) 776,500
Decrease (increase) in prepaid expenses 1,349 161,210
Increase (decrease) in accounts payable (259,605) 34,007
Increase (decrease) in reserve for warranty 10,500 65,200
Increase (decrease) in notes payable (20,000) 0
Increase in deferred revenue 62,286 (173,955)
-------------------------
(305,607) 427,145
-------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment 55,868 199,881
Purchases of intellectual assets (95,815) (107,195)
Purchases of marketable securities 152,687 (375,000)
-------------------------
112,740 (282,314)
-------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in bank indebtedness 29,890 16,960
Increase (decrease) in advances from stockholder 50,096 (177,114)
Increase (decrease) in common stock issuance 36,860 15,917
Increase (decrease) in dividends payable (140) (7,180)
-------------------------
116,706 (151,417)
-------------------------
NET INCREASE (DECREASE) IN CASH (76,161) (6,586)
Cash, beginning of period 269,264 278,567
-------------------------
CASH, END OF PERIOD $ 193,103 $ 271,981
-------------------------
5
<PAGE>
HOMELIFE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(Unaudited) (Unaudited)
February 29, February 28,
2000 1999
$ $
CASH FLOWS FROM OPERATION ACTIVITIES
Net loss (226,147) (449,651)
Adjustments to reconcile net loss to net cash
used in operation activities
Depreciation and amortization 151,941 153,911
Minority interest 396 6,882
Loss/ (gain) on trading securities 79,462 (194,875)
Changes in assets and liabilities
Decrease (increase) in accounts and
other receivable (36,611) 9,793
Decrease (increase) in notes receivable (3,500) 392,500
Decrease (increase) in prepaid expenses 1,764 128,696
Increase (decrease) in accounts payable (102,669) (17,035)
Increase (decrease) in reserve for warranty (400) 54,000
Increase (decrease) in notes payable (10,000) 0
Increase in deferred revenue 0 75,172
-------------------------
(145,764) 159,393
-------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment 0 19,302
Purchases of intellectual assets 0 31,951
-------------------------
0 51,253
-------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in bank indebtedness 12,930) 16,960
Increase (decrease) in advances from stockholder 0 (186,904)
Increase (decrease) in common stock issuance 0 16,706
Increase (decrease) in dividends payable (1,700) (9,150)
-------------------------
11,230 (162,388)
-------------------------
NET INCREASE (DECREASE) IN CASH (134,534) 48,258
Cash, beginning of year 327,637 223,723
-------------------------
CASH, END OF PERIOD $ 193,103 $ 271,981
-------------------------
6
<PAGE>
HOMELIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited for the nine months ended February 29, 2000)
NOTE 1. REVISIONS TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements for the period ended May 31, 1999 have
been revised in order to provide additional information to readers and
reclassify financial statement amounts to provide more precise information and
better comparison with prior years.
NOTE 2. BASIS OF REVISED CONSOLIDATED FINANCIAL STATEMENTS PRESENTATION
In the opinion of the Company's management, the accompanying condensed
consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position at February 29, 2000 and results of operations for nine months ended
February 29, 2000 and 1999.
These 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., Builders Realty (Calgary) Ltd., Aspen Benson & May LLC., HomeLife
California Realty, Inc., and HomeLife Properties, Inc.
b) Majority-owned subsidiaries
The Keim Group Ltd., and MaxAmerica Home Warranty Company - 93.33% and 82.72%
respectively.
On consolidation, all material intercompany accounts have been eliminated.
Consolidation commenced with the effective dates of acquisition of the
operations of the subsidiary companies and these financial statements include
the financial results of the subsidiaries for the period ended February 29, 2000
and May 31, 1999.
The assets acquired were recorded as trademarks and will be amortized over 10
years on a straight-line basis.
On February 27, 1998, the Company acquired all issued shares of Builders Realty
(Calgary) Ltd., a Canadian real estate broker, for $316,080 in cash and stock.
The goodwill will be amortized over 40 years on a straight-line line basis.
On September 15, 1998, the Company purchased all the issued shares of an
inactive holding company, Aspen Benson and May 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 LLC. had negligible assets and revenue.
On January 20, 1999, Builders Realty (Calgary) Ltd. purchased the real estate
brokerage business including licensing agreements and trademarks of HomeLife
Higher Standards operating in Calgary, Alberta, Canada, for $42,061 cash in
fourteen monthly installments of $2,714 and a final payment of $4,065.
During the period ended 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; Red Carpet Broker Network, Inc., and National
Sellers Network, Inc., which will be licensing real estate brokerages.
7
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NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principal Activities
HomeLife, Inc. together with its subsidiaries is a leading provider of services
to the real estate and mortgage loan industries. The Company engages in the
following activities:
The Company franchises full service real estate brokerage offices and provides
operational and administrative services to its franchisees under the names,
HomeLife Realty Services, National Real Estate Service, Red Carpet Real Estate
Services, Red Carpet Keim, Network Real Estate and International Estates.
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,
MaxAmerica Home Warranty Company.
(b) Significant Group Concentrations of Credit Risk
The Company's accounts receivable and notes receivable are primarily from
franchisees in the real estate brokerage industry.
(c) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, amounts due to banks and any
other highly liquid investments purchased with a maturity of three months or
less. The carrying amount approximates fair value because of the short maturity
of those instruments.
(d) Marketable Securities
Marketable securities represent trading securities which have been reflected at
their fair market value at the year-end.
(e) Advertising Costs
Advertising costs represent prepaid preprinted advertising materials which have
been amortized over three years. For the period ended February 29, 2000, there
are no unamortized advertising costs.
(f) Other Financial Instruments
The carrying amount of the Company's other financial instruments approximates
fair value because of the short maturity of these instruments or the current
nature of interest rates borne by these instruments.
(g) Long-term Financial Instruments
The fair value of each of the Company's long-term financial assets and debt
instruments is based on the amount of future cash flows associated with each
instrument discounted using an estimate of what the Company's current borrowing
rate for similar instruments of comparable maturity would be.
8
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(h) Amortization of Property and Equipment
Amortization of property and equipment is provided using the straight-line
method as follows:
Furniture and fixtures 7 years Computer equipment and software 7 years Leasehold
improvements 7 years Automobile 4 years
(i) Goodwill
Goodwill is the excess of cost over the value of tangible assets acquired. It is
amortized on the straight-line basis over 40 years.
(j) Amortization of Other Assets
Amortization of other assets is on a straight-line basis over their estimated
useful lives as follows: Trademarks and franchise rights 10 years
(k) Impairment
The Company's policy is to record an impairment loss against the balance of a
long-lived asset in the period when it is determined that the carrying amount of
the asset may not be recoverable. This determination is based on an evaluation
of such factors as the occurrence of a significant event, a significant change
in the environment in which the business assets operate or if the expected
future non-discounted cash flows of the business was determined to be less than
the carrying value of the assets. If impairment is deemed to exist, the assets
will be written down to fair value. Management also evaluates events and
circumstances to determine whether revised estimates of useful lives are
warranted. As of February 29, 2000, management expects its long-lived assets to
be fully recoverable.
(l) Revenue Recognition
Income from the sale of franchises is recognized over a 5-year period. Master
franchise agreement fees are recognized over 10 years. Royalty income stemming
from the gross commissions on the sales of real estate by the franchise offices
is recognized at the date of receipt; this is due to the complexity of
attempting to forecast the actual closing date of the properties. Warranty
income is recognized over the term of the contract which is usually 12 months;
anticipated obligations under these warranties have been recorded as reserve for
warranty and are based on past 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
are not recognized as income, are recorded on the balance sheet as deferred
revenue.
(m) 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 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.
(n) Stock-Based Compensation
In December 1995, SFAS No. 123, Accounting for Stock-Based compensation, was
issued. It introduced the use of a fair value-based method of accounting for
stock-based compensation. It encourages, but does not require, companies to
recognize compensation expense for stock-based compensation to employees based
on the new fair value accounting rules. Companies that choose not to adopt the
new rules will continue to apply the existing accounting rules contained
9
<PAGE>
in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. However, SFAS No. 123 requires companies that choose not to adopt the
new fair value accounting rules to disclose pro forma net income and earnings
per share under the new method. SFAS No. 123 is effective for financial
statements for fiscal years beginning after December 15, 1995. The Company has
adopted the disclosure provisions of SFAS No. 123 for both employee stock based
compensation. The Company's stock option plan prior to 1997 which vested
immediately and therefore there were no expense amounts to be reflected in the
current financial statements. The Company has used the fair value approach for
stock option plan granted to non-employees according to EITF 96-18.
(o) Foreign Currency Translation
Builders Realty (Calgary) Ltd., a wholly owned subsidiary, maintains its books
and records in Canadian dollars. Income and expenses are translated at the rate
in affect on the transaction dates. Transaction gain and losses are included in
the determination of earnings for the year.
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
rates. Adjustments resulting from the translation are included in the cumulative
translation adjustments section in stockholders' equity.
(p) Net Income (Loss) and Fully Diluted Net Income (Loss) Per Weighted Average
Common Stock
Net income (loss) per Common stock is computed by dividing net income (loss) for
the year by the weighted average number of Common stock outstanding during the
year.
Fully diluted net income (loss) per Common stock is computed by dividing net
income (loss) for the year by the weighted average number of Common stock
outstanding during the year, assuming, except where the result would be
anti-dilutive, that all convertible Preferred shares were converted, the
contingent Common stock were issued, the warrant was exercised and the stock
options granted were exercised. The shares to be issued have not been included
in the calculation as the number of shares to be issued is not determinable.
(q) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principals in the United States of America requires management to
make estimates and assumptions that affect certain reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(r) Accounting Changes
Effective June 1, 1999 the Company adopted 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. Accordingly,
the Company wrote off existing organization costs of $48,955 which are reflected
in the presented financial statements.
NOTE 4. 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.
10
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NOTE 5. BANK INDEBTEDNESS
For the period ended February 29, 2000 and May 31, 1999, the Company's available
line of credit under the bank loan agreement amounted to $33,920 (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 $33,920 (CDN$50,000), and a guarantee by the major
shareholder of the company of $33,920 (CDN$50,000).
At February 29, 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.
NOTE 6. ADVANCES FROM A STOCKHOLDER
The advances are from the Company's president and majority stockholder, are
non-interest bearing, are without specific terms of repayment and are not
expected to repaid before June 1, 2000.
NOTE 7. CAPITAL STOCK
(a) Authorized
100,000 Class A Preferred shares of no par value, 6% non cumulative dividend,
voting, convertible to Common shares at the option of the shareholder at a price
equal to the face value of the Class A shares. Each Class A Preferred share
carries 1,000 votes as compared with 1 vote for each Common share
2,000 Class AA Preferred shares of $500 par value, 8% cumulative dividend,
non-voting, redeemable at face value by the Company. Convertible after 12 months
from the date of issuance, at the option of the shareholder, to Common shares at
a price equal to 125% of the face value of the Class AA shares as compared with
the market price of the Common stock.
20,000,000 Common shares of $0.001 par value
(b) Issued
10,000 Class A Preferred shares
78 Class AA Preferred shares (325 - 1999)
5,109,764 Common shares (4,803,932 - 1999)
(c) Warrant
On January 16, 1997, the Company granted a warrant to S & S Acquisition Corp. as
part of the consideration for the acquisition of its assets. The warrant
entitles S & S Acquisition Corp. to acquire, from January 31, 1998 to January
31, 2002, up to 200,000 Common shares of the Company at $6 per share. The number
of Common shares and the price per share are adjusted proportionately with the
increase in the number of Common shares issued by the Company. As the market
value of the Common share of the Company was significantly lower than $6 per
share, no value was assigned to the warrant.
(d) Stock options
On September 18, 1998, the Board of Directors of the Company adopted a stock
option plan (the "plan") for its directors, employees, and consultants. An
authorized number of shares of Common stock of the Company, which 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.
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(e) Stock option plan
For the period ended May 31, 1999 options to various directors of the Company to
acquire 140,000 Common stock had been granted under the stock option plan with
the following terms:
100,000 Common shares at $3 per share
30,000 Common shares at $5 per share
10,000 Common shares at $1 per share, expiring July 10, 1999.
As the exercise prices were higher than the market values on the dates of the
grant, no compensation expenses were recorded by the Company.
(f) Earnings per share
The fully diluted earnings per share does not included the issuance of shares
which would be anti-dilutive arising from the following:
Conversion of 10,000 Class A Preferred shares to Common shares; conversion of 78
Class AA Preferred shares to Common shares; exercise of a warrant which entitles
holder to acquire 200,000 Common shares at $6 per share; exercise of stock
options to acquire issuance of 140,000 Common shares.
NOTE 8. COMMITMENTS
The Company has operating leases for premises which extend through August 31,
2002. Future minimum rental payments as of February 29, 2000 under the operating
lease agreements are as follows:
2000 $167,333
2001 $168,083
2002 $122,817
2003 $ 19,920
--------
TOTAL $478,153
========
NOTE 9. 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
$ $
United States of America 960,566 929,536
Canada 1,685,787 2,375,636
-------------------------
2,646,353 3,305,172
=========================
b) Net Income (Loss) by Geographic Area
United States of America (236,334) (414,155)
Canada 10,187 (35,496)
-------------------------
(226,147) (449,651)
=========================
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2000 1999
$ $
c) Identifiable Assets by Geographic Area
United States of America 2,297,047 2,852,580
Canada 417,671 282,713
-------------------------
2,714,718 3,135,293
=========================
d) Amortization by Geographic Area
United States of America 112,037 24,090
Canada 4,023 2,202
-------------------------
116,060 26,292
=========================
d) Revenue by industry
Real Estate Franchise 659,103 727,121
Real Estate Brokerage 1,685,787 2,375,636
Mortgage Financing 64,331 --
Home Warranty 204,102 189,460
Other 33,030 12,955
-------------------------
Total 2,646,353 3,305,172
=========================
e) Net income (loss) by industry
Real Estate Franchise (231,917) (423,337)
Real Estate Brokerage 10,187 (35,496)
Mortgage Financing 4,830 --
Home Warranty 2,208 22,136
Other (11,455) (12,954)
-------------------------
Total (226,147) (449,651)
=========================
f) Identifiable assets by industry
Real Estate Franchise 2,139,574 2,684,723
Real Estate Brokerage 417,671 282,713
Mortgage Financing 7,585 --
Home Warranty 134,281 154,742
Other 15,607 13,115
-------------------------
Total 2,714,718 3,135,293
=========================
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2000 1999
$ $
g) Amortization by industry
Real Estate Franchise 111,010 24,090
Real Estate Brokerage 4,023 2,202
Mortgage Financing -- --
Home Warranty 1,027 --
-------------------------
Total 116,060 26,292
=========================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company has experienced growth primarily through its acquisitions of
and combinations with various other companies. This includes the acquisition in
August 1996 of the Keim Group of Companies and MaxAmerica Home Warranty Company
(Michigan) adding 60 real estate offices and a home warranty company in
Michigan. In 1997, the company purchased certain assets of S & S Acquisition
Corp. providing the company with Red Carpet Real Estate Services and National
Real Estate Services adding 58 real estate offices. The acquisition of the real
estate computer technology of House by Mouse and Virtual Assistant provided the
Company with the ability to enhance its Internet communication services to its
franchises. In July 1997, the Company acquired the licensing agreements,
trademarks and franchise offices of Network Real Estate, Inc. This acquisition
provided the Company with an additional 12 offices in Northern California and
access to the "high-end" luxury division of "International Estates". In February
1998, the Company acquired Builders Realty (Calgary) Ltd. providing access to
the Alberta, Canada market in both retail real estate and mortgage loans. 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
provides Internet based appraisals for lenders and consumers of the Company's
services. Allstate Funding provides loan processing and underwriting for
MaxAmerica, the real estate mortgage brokerage subsidiary of HomeLife.
The following is management's discussion and analysis of HomeLife's
financial condition and results of operations. Detailed information is contained
in the financial statements included with this document. This section contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this document should be read as being applicable
to all related forward-looking statements wherever they appear in this document.
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THREE MONTHS ENDED FEBRUARY 29, 2000 (UNAUDITED) COMPARED TO THE THREE MONTHS
--------------------------------------------------------------------------------
ENDED FEBRUARY 28, 1999 (UNAUDITED).
------------------------------------
REVENUES. The Company generated gross sales of $727,713 for the quarter
ended February 29, 2000 compared to gross sales of $728,340 for the quarter
ended February 28, 1999. Revenue by business segment is shown below:
February 29, 2000 February 28, 1999
Amount % Amount %
------ - ------ -
Real estate brokerage 400,864 55.1 380,542 52.2
Royalty & franchise fees 206,432 28.4 145,856 20.0
Mortgage financing 25,697 3.5 0 0
Home warranty sales 44,655 6.1 79,398 10.9
Other 50,056 6.9 122,544 16.9
---------- ------ ---------- ------
TOTAL 727,713 100 728,340 100
========== ====== ========== ======
Real estate brokerage commissions increased from $380,542 for the quarter ended
February 28, 1999 to $400,864 for the quarter ended February 29, 2000. This
increase of $20,322 or 5%, is a result of an increase in the number of escrows
per broker, as the number of brokers was approximately unchanged. During the
first calendar quarter of 2000, the housing market in Canada was on an upswing,
accounting for the increase in number of escrows closed per broker.
Royalty fees & franchise fees combined increased $60,576 from $145,856 for the
three months ended February 28, 1999 to $206,432 for the three months ended
February 29, 2000. As the franchise fees were approximately the same for both
periods, this increase relates to the royalty fees and is the result of an
increase in the number of franchise offices.
Mortgage financing fees were $25,697 for the quarter ended February 29, 2000. No
mortgages were brokered in 1999, as the mortgage subsidiary was awaiting
approval from the Department of Housing and Urban Development.
Home warranty sales decreased were $44,655 and $79,398 for the quarters ended
February 29, 2000 and February 28, 1999, respectively. This decrease was due to
fewer contracts sold and the average cost of the warranty contract in 2000 being
lower than in 1999.
COST OF SALES. Cost of sales for the current quarter was $426,621 compared
to $396,650 for the same prior year quarter. This increase is a result of higher
sales commissions were paid by Builders Realty (Calgary) Ltd. due to an increase
in brokerage real estate sales.
SALARIES AND FRINGE BENEFITS. Salaries and fringe benefits increased from
$162,257 for the three months ended February 28, 1999 to $181,069 for the three
months ended February 29, 2000. This increase of $18,812 was primarily the
result of salary increases to existing employees, and the hiring of an
additional employee.
GENERAL AND ADMINISTRATIVE. General and administrative costs for the
quarter ended February 29, 2000 were $115,877 versus $242,586 for the quarter
ended February 28, 1999. This decrease of $126,709 was primarily due to a
concentrated effort to reduce costs which mainly included a decrease in the use
of outside consultants
OCCUPANCY. There was a slight increase in occupancy costs for the
comparable third fiscal quarters which is a result of the escalation clauses in
the lease agreements.
FINANCIAL. Financial costs for the quarter ended February 29, 2000 were a
credit of $72,808 compared to the expense of $26,159 for the quarter ended
February 28, 1999. The credit primarily relates to a gain on the marketable
investment and currency conversions whereas the expense primarily relates to a
loss on a marketable investment and a loss on currency conversions.
AMORTIZATION. Amortization of intangibles was $76,453 for the three months
ended February 29, 2000 compared to $51,304 for the three months ended February
28, 1999. This increase was primarily a result of some assets the change in the
estimate of the useful lives of the trademarks and franchise rights from 20 year
to 10 years in 1999.
15
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MINORITY INTEREST. The reduction in net loss due to minority interest was
$3,216 in the quarter ended February 29, 2000 versus a n increase in the net
loss of $1,930 for the quarter ended February 28, 1999. This difference is the
result of Keim Group Ltd. and MaxAmerica Home Warranty Company, combined, being
profitable in the prior year quarter and recording a loss in the current year
quarter.
NINE MONTHS ENDED FEBRUARY 29, 2000 (UNAUDITED) COMPARED TO THE NINE MONTHS
--------------------------------------------------------------------------------
ENDED FEBRUARY 28, 1999 (UNAUDITED).
------------------------------------
REVENUES. The Company generated gross sales of $2,646,353 for the nine
months ended February 29, 2000 compared to gross sales of $3,305,172 for the
nine months ended February 28, 1999. Revenue by business segment is shown below:
February 29, 2000 February 28, 1999
Amount % Amount %
------ - ------ -
Real estate brokerage 1,503,834 56.9 2,216,375 67.1
Royalty fees 615,205 23.2 572,374 17.3
Franchise fees 34,792 1.3 34,545 1.0
Mortgage financing 64,331 2.4 0 0
Home warranty sales 201,384 7.6 217,336 6.6
Other 226,807 8.6 264,542 8.0
---------- ------ ---------- ------
TOTAL 2,646,353 100 3,305,172 100
========== ====== ========== ======
Real estate brokerage commissions decreased from $2,216,375 for the period ended
February 28, 1999 to $1,503,834 for the period ended February 29, 2000. This
decrease is a result of a decrease in the number of escrows per broker, as the
number of brokers was approximately unchanged.
Royalty fees increased form $572,374 for the period ended February 28, 1999 to
$615,205 for the period ended February 29, 2000. This increase is the result of
an increase in the number of franchise offices.
Franchise fees were approximately the same for both periods.
Mortgage financing fees were $64,331 for the period ended February 29, 2000. No
mortgages were brokered in 1999, as the mortgage subsidiary was awaiting
approval from the Department of Housing and Urban Development.
Home warranty sales decreased from $217,336 for the period ended February 28,
1999 to $201,384 for the period ended February 29, 2000. This decrease of
$15,952 was due to the average cost of the warranty contract in 2000 being lower
than in 1999.
COST OF SALES. Cost of sales for the period ended February 29, 2000 was
$1,613,165 compared to $2,256,298 for the period ended February 28, 1999. This
decrease of $643,133 was primarily due to lower sales commissions paid by
Builders Realty (Calgary) Ltd. This was due to a decrease in sales commissions
paid per agent, combined with a decrease in the number of agents.
SALARIES AND FRINGE BENEFITS. Salaries and fringe benefits were $471,910
for the period ended February 29, 2000 compared to $411,989 for the period ended
February 28, 1999. This increase of $59,921 was primarily the result of salary
increases to existing employees, and the hiring of an additional employee.
GENERAL AND ADMINISTRATIVE. General and administrative costs for the period
ended February 29, 2000 were $413,944 versus $727,758 for the period ended
February 28, 1999. This decrease of $313,814 was primarily due to a decrease in
the use of outside consultants and a decrease in depreciation expenses.
16
<PAGE>
OCCUPANCY. Occupancy for the period ended February 29, 2000 was $128,273
compared to $117,703 for the period ended February 28, 1999. This increase of
$10,570 is as stated in occupancy lease agreements for annual increases.
FINANCIAL. Financial costs for the period ended February 29, 2000 were
$78,097 compared to $77,942 for the period ended February 28, 1999. Both
expenses were the result of a loss on a marketable investment, and a loss on
currency conversions.
AMORTIZATION. Amortization of intangibles was $165,015 for the period ended
February 29, 2000 compared to $153,911 for the period ended February 28, 1999.
This increase was mainly the result of the adoption of SOP 98-5.
MINORITY INTEREST. The increase in net lossdue to minority interest was
$396 in the period ended February 29, 2000 versus $6,882 for the period ended
February 28, 1999. This decrease of $6,486 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 $1,700 in the period ended
February 29, 2000 versus $2,340 for the period ended February 28, 1999. This
decrease of $640 was due to a reduction in the number of outstanding shares of
Preferred stock when some of the owners of Preferred stock converted their
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 CDN$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
promotional and marketing materials purchased in prior years due to outdated
advertising campaigns. 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.
FOREIGN OPERATIONS. Foreign operations consist of the sale of a master
franchise agreement to an individual in Germany. Payment for this agreement was
scheduled to be made in 12 quarterly payments beginning in October 1999. Only
partial payments have been received. However, 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 it is
anticipated to have no adverse consequences to the operations of the Company,
since it has no commitments of capital or other resources to its foreign
operations.
17
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
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. - Builders Realty (Calgary) Ltd. v. Joyce Travis and Cecil Avery in the
Provincial Court of Alberta Canada. The sellers of Builders Realty (Calgary)
Ltd. have filed a counter lawsuit for damages of $223,872 (CDN $330,000). In
management's opinion, this matter will not have a material affect on the
financial position of the Company.
Management believes that there is no other material litigation matter pending or
threatened against the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
None.
(b) Reports on Form 8-K:
None.
18
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
HOMELIFE, INC.
(REGISTRANT)
Dated September 8, 2000 /s/ Andrew Cimerman
------------------------------------
Andrew Cimerman,
Chief Executive Officer and Director
19
<PAGE>
HOMELIFE, INC.
REVISED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MAY 31, 1999 AND MAY 31, 1998
TOGETHER WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
HOMELIFE, INC.
REVISED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MAY 31, 1999 AND MAY 31, 1998
TOGETHER WITH REPORT OF INDEPENDENT AUDITORS
TABLE OF CONTENTS
Report of Independent Auditors 1
Revised Consolidated Balance Sheets 2
Revised Consolidated Statements of Operations 3
Revised Consolidated Statements of Cash Flows 4
Revised Consolidated Statements of Stockholders' Equity 5
Notes to Revised Consolidated Financial Statements 6 - 31
<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 revised consolidated balance sheet of Homelife,
Inc. (incorporated in Nevada) as of May 31, 1999 and the related revised
consolidated statements of operations, cash flows and changes in stockholders'
equity for the year then ended. These revised financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of Homelife, Inc. as of May 31, 1998 were audited by other auditors
where report dated June 29, 1998, expressed an unqualified opinion on these
statements before restatement. We also audited the adjustments described in note
17 that were applied to restate the 1998 financial statements. In our opinion,
such adjustments are appropriate and have been properly applied.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 audit provides a reasonable basis for our opinion.
In our opinion, the revised financial statements referred to above present
fairly, in all material respects, the financial position of Homelife, Inc. as of
May 31, 1999 and the results of its operations and its cash flows for the year
then ended, in conformity with generally accepted accounting principles in the
United States of America.
Toronto, Ontario " Schwartz Levitsky Feldman llp "
August 13, 1999 Chartered Accountants
except for notes 1 and 15 b (ii)
as to which the date
is July 7, 2000
|1167 Caledonia Road
|Toronto, Ontario M6A 2X1
|Tel: 416 785 5353
|Fax: 416 785 5663
<PAGE>
[LETTERHEAD]
To the Board of Directors and Stockholders of
HomeLife Inc.
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated balance sheet of HomeLife Inc. and
subsidiaries as of May 31, 1998 and the related consolidated statements of
income, stockholders' equity and cash flows for the year ended May 31, 1998. All
information included in these financial statements is the responsibility of the
management of HomeLife, Inc. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HomeLife, Inc and subsidiaries
as of May 31, 1998 and the results of its operations and its cash flows for the
year ended May 31, 1998 in conformity with generally accepted accounting
principles.
/s/ Biller, Frith-Smith & Archibald
Tarzana, California
June 29, 1998
<PAGE>
HOMELIFE, INC.
Revised Consolidated Balance Sheets
As at May 31, 1999 and 1998
(Amounts expressed in U.S. dollars)
1999 1998
(revised (restated
see note 1) see note 17)
$ $
ASSETS
CURRENT ASSETS
Cash 327,637 223,723
Marketable securities, at fair value 194,875 --
Accounts receivable (note 4) 168,033 231,710
Notes receivable (note 5) 215,803 480,859
Prepaid expenses and deposits (note 6) 78,159 290,881
984,507 1,227,173
NOTES RECEIVABLE (note 5) -- 430,301
PROPERTY AND EQUIPMENT (note 7) 480,993 554,654
GOODWILL (note 8) 661,273 678,755
OTHER ASSETS (note 9) 666,203 730,125
CASH HELD IN TRUST (note 10) 342,317 489,014
------------------------
3,135,293 4,110,022
========================
<PAGE>
HOMELIFE, INC.
Revised Consolidated Balance Sheets
As at May 31, 1999 and 1998
(Amounts expressed in U.S. dollars)
1999 1998
(revised (restated
see note 1) see note 17)
$ $
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (note 11) 16,960 -
Accounts payable (note 12) 459,662 224,668
Advances from a stockholder (note 13) 143,472 330,376
Note payable (note 14) 10,000 10,000
Reserve for warranty 51,500 43,900
Dividends payable 4,170 10,980
Deferred revenue 197,080 159,741
------------------------
882,844 779,665
------------------------
DEFERRED REVENUE 206,149 244,420
TRUST LIABILITY (note 10) 342,317 489,014
MINORITY INTEREST 43,378 35,880
------------------------
1,474,688 1,548,979
------------------------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (note 15) 1,043,288 1,166,481
ADDITIONAL PAID IN CAPITAL (note 15) 2,846,093 2,662,125
ACCUMULATED OTHER COMPREHENSIVE LOSS (note 19) (1,093) --
DEFICIT (2,227,683) (1,267,563)
------------------------
1,660,605 2,561,043
------------------------
3,135,293 4,110,022
========================
The accompanying notes are an integral part of these revised consolidated
financial statements.
2
<PAGE>
HOMELIFE, INC.
Revised Consolidated Statements of Operations
For the years ended May 31,
(Amounts expressed in U.S. dollars)
1999 1998
(revised (restated
see note 1) see note 17)
$ $
REVENUE
Royalty and franchise fees 782,174 914,946
Warranty fees 228,353 261,552
Mortgage financing fees 199,451 --
Real estate brokerage 2,632,251 647,279
Other income 311,896 144,851
------------------------
4,154,125 1,968,628
COST OF SALES 2,791,997 805,542
------------------------
1,362,128 1,163,086
------------------------
EXPENSES
Salaries and fringe benefits 641,981 479,165
General and administrative 1,158,249 477,393
Occupancy 166,263 108,559
Financial 103,923 67,806
Amortization 241,214 194,112
------------------------
2,311,630 1,327,035
------------------------
LOSS BEFORE MINORITY INTEREST (949,502) (163,949)
Minority interest (7,498) (9,177)
------------------------
LOSS BEFORE INCOME TAX RECOVERY (957,000) (173,126)
Income tax recovery (note 16) - -
------------------------
NET LOSS (957,000) (173,126)
Preferred dividends (3,120) (13,000)
------------------------
NET LOSS APPLICABLE TO COMMON
SHARES (960,120) (186,126)
========================
BASIC AND FULLY DILUTED LOSS
PER COMMON SHARE (0.23) (0.05)
========================
WEIGHTED-AVERAGE NUMBER OF COMMON
SHARES 4,255,557 3,944,707
========================
3
<PAGE>
HOMELIFE, INC.
Revised Consolidated Statements of Cash Flows
For the years ended May 31, 1999, 1998 and 1997
(Amounts expressed in U.S. dollars)
1999 1998
(revised (restated
see note 1) see note 17)
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (957,000) (173,126)
Adjustments to reconcile net loss to net
cash provided by (used in) used in
operating activities
Depreciation and amortization 241,214 194,112
Minority interest 7,498 9,177
Loss on trading securities 103,125 --
Stock based compensation 38,500 79,341
Changes in reserve for warranty 7,600 (10,100)
Changes in assets and liabilities
Increase in accounts receivable 63,677 395,449
Decrease (increase) in notes receivables 235,357 (711,160)
Decrease (increases) in prepaid expenses 212,722 (172,023)
Increase in accounts payable 234,994 59,080
Increase (decrease) in deferred revenue (932) 246,770
------------------------
186,755 (82,480)
------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (44,088) (14,702)
Acquisition of goodwill -- (158,040)
Acquisition of trademarks (42,061) --
------------------------
(86,149) (172,742)
------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided by (required for)
bank indebtedness 16,960 (4,478)
Cash required for notes payable -- (9,792)
Cash provided by (required for)
advances from stockholder (24,904) 180,332
Cash provided by issuance of capital stock 22,275 82,500
Cash required for dividends (9,930) (2,020)
------------------------
4,401 246,542
------------------------
EFFECT OF FOREIGN CURRENCY
EXCHANGE RATE CHANGES (1,093) --
------------------------
NET INCREASE (DECREASE) IN CASH 103,914 (8,680)
Cash, beginning of year 223,723 232,403
------------------------
CASH, END OF YEAR 327,637 223,723
------------------------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Interest paid 254 3,004
========================
Income taxes paid -- 5,089
========================
4
<PAGE>
HOMELIFE, INC.
Revised Consolidated Statements of Stockholders Equity
For the years ended May 31, 1999 and 1998
(Amounts expressed in U.S. dollars)
<TABLE>
<CAPTION>
Accumulated
Class A Class AA Deficit
Common Stock Preference Stock-6% Preferred Stock-8% Paid in (revised Cumulative
Shares Amount Shares Amount Shares Amount Capital see note 1) translation
(restated (restated (restated adjustments
see note 17) see note 17) see note 17)
$ $ $ $ $ $
<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 15 and 17) 576,690 61 -- -- -- -- 207,321 -- --
Issuance of preferred stock
(note 15) -- -- -- -- 325 162,500 -- -- --
Compensation and licensing
arrangement (note 17) -- -- -- -- -- -- 30,000 -- --
Net loss -- -- -- -- -- -- -- (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 15) 66,750 67 -- -- -- -- 30,708 -- --
Compensation and licensing
arrangement -- -- -- -- -- -- 30,000 -- --
Conversion of preferred stock
to common stock (note 15) 239,707 240 -- -- (247) (123,500) 123,260 -- --
Foreign currency translation -- -- -- -- -- -- -- -- (1,093)
Net loss -- -- -- -- -- -- -- (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)
==================================================================================================
</TABLE>
5
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
1. REVISIONS TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as at May 31, 1999 have been revised
in order to reflect the following:
i) The adoption of the accounting policy, in the prior years, of
recognizing warranty fees income over the terms of the contracts;
ii) A change in 1999 in management's estimate of the remaining useful
life of all trademarks and franchise rights from 20 years to 10
years;
iii) A change in management's estimate of the net realizable value of a
note receivable; and
iv) The adoption of the accounting policy of recognizing foreign exchange
loss as cumulative translation adjustments in stockholders' equity
instead of as expenses in the statement of operations, on the
translation of the financial statements of wholly-owned subsidiary
from Canadian dollars into United States dollars.
Consequently, the following 1999 amounts have been revised:
i) Warranty fees income has increased by $104,161 to $228,353;
ii) Amortization of trademarks and franchise rights has increased by
$36,000 to $74,552;
iii) General and administration expenses have increased by $150,498 to
$1,158,249;
iv) Loss before income tax recovery has increased by $81,244 to
$(957,000);
v) Net loss has increased by $81,244 to $(957,000);
vi) Net loss applicable to common share has increased by $81,244 to
$(960,120);
vii) Basic and fully diluted loss per common share has increased from
$(0.21) per share to $(0.23) per share;
viii) Notes receivable have decreased by $150,498 to $215,803;
ix) Other assets have decreased by $36,000 to $666,203;
x) Accumulated other comprehensive loss has increased by $1,093 to
$(1,093); and
xi) Deficit has increased by $185,405 to $(2,227,683).
2. BASIS OF REVISED CONSOLIDATED FINANCIAL STATEMENTS PRESENTATION
These 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., 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. and MaxAmerica Home Warranty Company - 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
financial statements include the financial results of the subsidiaries
to May 31, 1999 and 1998.
6
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
2. BASIS OF REVISED CONSOLIDATED FINANCIAL STATEMENTS PRESENTATION (cont'd)
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 (see note 14) 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 15) 80,000
---------
$ 100,000
=========
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
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 15
and 18)
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.
7
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
2. BASIS OF REVISED CONSOLIDATED FINANCIAL STATEMENTS PRESENTATION (cont'd)
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 to May 31, 1999,
with the corresponding liability to be satisfied by the issuance of
common stock in January 2000.
The number of common shares to be issued will be 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.
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.
8
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
2. BASIS OF REVISED CONSOLIDATED FINANCIAL STATEMENTS PRESENTATION (cont'd)
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 15) --
-----------
$ 2,417,250
===========
9
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
3. 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.
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) Advertising Costs
Advertising costs represent prepaid preprinted advertising materials
which have been amortized over three years. At the end of May 31,
1999, there is no unamortized advertising costs.
vi) 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.
10
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
vii) 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.
viii) 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
ix) 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.
x) 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)
Organization costs 5 years
xi) 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, 1999,
management expects its long-lived assets to be fully recoverable.
11
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
xii) 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.
xiii) 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 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.
xiv) Stock-Based Compensation
In December 1995, SFAS No. 123, Accounting for Stock-Based
Compensation, was issued. It introduced the use of a fair value-based
method of accounting for stock-based compensation. It encourages, but
does not require, companies to recognize compensation expense for
stock-based compensation to employees based on the new fair value
accounting rules. Companies that choose not to adopt the new rules
will continue to apply the existing accounting rules contained in
Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. However, SFAS No. 123 requires companies that
choose not to adopt the new fair value accounting rules to disclose
pro forma net income and earnings per share under the new method.
SFAS No. 123 is effective for financial statements for fiscal years
beginning after December 15, 1995. The company has adopted the
disclosure provisions of SFAS No. 123 for 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 15 (h) 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 financial statements. The company will use
the fair value approach for stock option plan granted to
non-employees according to EITF 96-18. As of May 31, 1999, there were
no stock options granted to non-employees.
12
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
xv) 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 rates. Adjustments resulting from the
translation are included in the cumulative translation adjustments in
stockholders' equity.
xvi) 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 15). The shares to be issued [see note 2(c)] have
not been included in the calculation as the number of shares to be
issued is not determinable.
xvii) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principals in the United States of America
requires management to make estimates and assumptions that affect
certain reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
13
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
xviii) Accounting Changes
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 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 Development or Obtained for International
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 financial statements
for years beginning after December 15, 1998. In 1999, the company
adopted the new requirements of the SOP 98-1 which did not have
significant effect on net earnings during 1999.
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 decided to adopt the new requirements of the SOP 98-5 in
the fiscal year 2000. Should the company have adopted the new
requirements in the current fiscal year, organization costs with net
book value of $48,955 would have been written off, net loss and net
loss applicable to common shares would have increased by $48,955,
resulting in a basic and fully diluted loss per common share of $0.24
instead of $0.23 in the 1999 fiscal year.
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. 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.
4. ACCOUNTS RECEIVABLE
1999 1998
$ $
Accounts receivable 195,523 251,625
Less: Allowance for doubtful accounts (27,490) (19,915)
-----------------------
Accounts receivable, net 168,033 231,710
=======================
14
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
5. NOTES RECEIVABLE
1999 1998
$ $
Note receivable from HomeLife Securities,
Inc, a company owned by the company
president, unsecured, non-interest bearing.
Payment in full was extended from December
31, 1997 to June 30, 1998 -- 162,000
Note receivable from Ward Enterprises, Inc.,
an unrelated party, unsecured non-interest
bearing, and payable in $100,000 increments
at April 1, 1998, July 1, 1998 and December
31, 1998. These note payments were extended
by ninety days during 1998. In 1999, the
company received marketable securities valued
at $300,000 as payment. -- 300,000
Note receivable from Ward Enterprises, Inc.,
an unrelated party, unsecured, non-interest
bearing, and payable on December 31, 1997.
This note was extended to June 30, 1998. In
1999, the company received marketable
securities valued at $74,500 as payment. -- 74,500
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 after April 12, 2000 200,000 200,000
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 has been written down to net
realizable value 5,303 155,801
Notes receivable from franchisees for
franchise fees. These notes are unsecured,
non-interest bearing and payable in
instalments over one year 10,500 18,859
-----------------------
215,803 911,160
Less: Current portion 215,803 480,859
-----------------------
-- 430,301
=======================
15
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
6. PREPAID EXPENSES AND DEPOSITS
1999 1998
(restated
see note 17)
$ $
Promotional materials and supplies 50,120 251,625
Prepaid expenses 13,451 30,195
Deposits 14,588 9,061
-----------------------
78,159 290,881
=======================
7. PROPERTY AND EQUIPMENT
1999 1998
(restated
see note 17)
$ $
Furniture and fixtures 277,579 275,811
Computer equipment and software 625,599 582,492
Leasehold improvements 9,270 --
Automobile 19,865 19,865
-----------------------
Cost 932,313 878,168
=======================
Less: Accumulated amortization
Furniture and fixtures 157,606 118,205
Computer equipment and software 272,525 190,262
Leasehold improvements 1,324 --
Automobile 19,865 15,047
-----------------------
451,320 323,514
-----------------------
Net book value 480,993 554,654
=======================
Amortization for the year amounted to $127,806 ($125,452 in 1998).
16
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
8. GOODWILL
1999 1998
(restated
see note 17)
$ $
Cost 699,322 699,322
Less: Accumulated amortization 38,049 20,567
-----------------------
661,273 678,755
=======================
Amortization for the year amounted to $17,482 ($12,043 in 1998).
9. OTHER ASSETS
1999 1998
(restated
see note 1)
$ $
Trademarks and franchise rights 761,513 761,513
Organization costs 106,462 74,458
-----------------------
Cost 867,975 835,971
=======================
Less: Accumulated amortization
Trademarks and franchise rights 144,265 69,713
Organization costs 57,507 36,133
-----------------------
201,772 105,846
-----------------------
Net book value 666,203 730,125
=======================
Amortization for the year amounted to $95,926 ($56,617 in 1998).
10. 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.
17
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
11. BANK INDEBTEDNESS
At May 31, 1999 and 1998, the company's available line of credit under the
bank loan agreement amounted to $33,920 (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 $33,920 (CDN$50,000), and a guarantee by
the major shareholder of the company of $33,920 (CDN$50,000).
12. ACCOUNTS PAYABLE
1999 1998
(restated
see note 17)
$ $
Trade payable 377,375 100,485
Accrued expenses 82,287 124,183
-----------------------
459,662 224,668
=======================
13. ADVANCES FROM A STOCKHOLDER
The advances are from the company's president and majority stockholder, are
non-interest bearing, are without specific terms of repayment and are not
expected to repaid before June 1, 2000. 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 and $342,811 in 1998. Interest
of $8,218 would have been imputed for 1999, $10,152 for 1998 and $2,283 for
1997.
14. NOTE PAYABLE
The note payable bears interest at 8% and has been overdue since October
25, 1997.
18
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
15. CAPITAL STOCK
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
1999 1998
(restated
see note 17)
$ $
10,000 Class A Preferred shares 1,000,000 1,000,000
78 Class AA Preferred shares (325 - 1998) 39,000 162,500
4,803,932 Common shares (4,497,475 - 1998) 4,288 3,981
-----------------------
1,043,288 1,166,481
=======================
19
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
15. CAPITAL STOCK (cont'd)
b) Shares issued during the years ended in May 31, 1999 and 1998 were as
follows:
Capital Paid in
Number stock capital
(restated (restated
see note 17) see note 17)
$ $
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 2) 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) --
===================================
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 2) 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
20
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
15. CAPITAL STOCK (cont'd)
ii) Common shares (cont'd)
Capital Paid in
Number stock capital
(restated (restated
see note 17) see note 17)
$ $
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
==================================
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
2) 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
==================================
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 atleast
$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.
21
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
15. 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 2). 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 18).
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.
f) Treasury stock
During the year ended May 31, 1997, the company transferred 630,500
treasury common shares to Ward Enterprises, Inc. for the following;
No. of Amount
Share $
Consulting for stock issues 250,000 245,000
Shares of HOA -- --
Notes receivable 380,500 374,500
------------------------
630,500 619,500
========================
The gain on the sale of treasury stock of $545,000 has been reflected
in paid in capital. The consulting fees have been charged against paid
in capital as they were paid to help the company negotiate and issue
new capital stock.
g) Outstanding common shares
The transfer agent reflects a total of 4,878,932 common shares
outstanding, 75,000 of which are held by MaxAmerica Financial
Services, Inc., a wholly-owned subsidiary. The investment and share
capital have been eliminated on consolidation. The total common shares
outstanding is 4,803,932 (4,497,475 in 1998).
22
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
15. CAPITAL STOCK (cont'd)
h) Stock option plan
As at May 31, 1999. options to various employees of the company to
acquire 140,000 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
10,000 common shares at $1 per share, expiring July 10, 1999.
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, 1999 would have been as follows:
1999 1998
----------- -----------
As Reported Pro-Forma
----------- -----------
Net loss $ (960,120) $(1,082,974)
Basic and fully diluted loss
per common share $ (0.23) $ (0.25)
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.
i) Earnings per share
The fully diluted earnings per share does not included 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 78 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 140,000 issuance of common
shares
v. Common stock which may be required [note 15(c)]
23
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
16. INCOME TAXES
1999 1998 1997
(revised (restated (restated
see note 1) see note 17) see note 17)
$ $ $
a) Current -- -- --
Deferred -- -- --
-----------------------------------
-- -- --
===================================
b) The components of deferred income taxes are comprised as follows:
Losses carried-forward 465,000 165,000 78,000
Valuation allowance (465,000) (165,000) (78,000)
-----------------------------------
-- -- --
===================================
c) At May 31, 1999. the company had non-capital losses available for
carry-forward of approximately $1,350,000. These losses expire after
May 31, 2006.
17. PRIOR PERIOD ADJUSTMENTS
The following indicates the impact on the prior years' consolidated
statements of operations of the following prior period adjustments:
1999 1998
$ $
a) In the year ended May 31, 1998, the
company recognized as net franchise fees
income, the sale of a Germany Area
Franchise for $155,801. As the company's
franchise agreement is for 10 years,
this income should have been recognized
over 10 years. The company recorded a
prior period adjustment to franchise
fees income of $140,000 in 1999. 140,000 --
b) In the year ended May 31, 1998, the
company also recognized as franchise
fees income, the sale of an Illinois,
USA franchise for $200,000. As the
franchise agreement is for 5 years, this
income should have been recognized over
5 years. The company recorded a prior
period adjustment to franchise fees
income of $160,000 in 1999. 160,000 --
24
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
17. PRIOR PERIOD ADJUSTMENTS (cont'd)
1999 1998
$ $
c) In the year ended May 31, 1997, the
company recognized a gain on sale of
investments of $180,000 on the sale of
the company's investment in HOA Property
Management for $300,000 in the form of a
note receivable from Ward Enterprises,
Inc. During the same period, the company
also sold 630,500 treasury common stock
for a note of $74,500 from Ward
Enterprises, Inc. The financial
statements have been adjusted to reflect
a loss on the sale of HOA shares of
$120,000 and a related increase in paid
in capital of $300,000. -- 300,000
d) In prior years, warranty income is
recognized when the warranty contract is
signed by the customer. In the current
year, the company changed,
retroactively, its accounting policy to
recognizing warranty income over the
term of the contract. In 1999, the
company recorded a prior period
adjustment of $104,161 to deferred
revenue and to warranty fees income.
$176,685 has been charged against
warranty fees income in 1996 and prior
years. (53,230) (19,294)
e) In prior years, the company did not
amortize, goodwill based on the value
and estimated lives of these assets. In
1999, the company recorded a prior
period adjustment in the form of a
charge to amortization of $11,494. 2,970 8,524
f) In 1996, the company acquired printed
advertising materials of $320,000 as
part of a business acquisition. The
company has been amortizing these
prepaid expenditures over a period of 6
to 7 years. In 1999, the company
recognized that these advertising
materials should have been amortized
over 3 years from acquisition and
recorded a prior period adjustment in
the form of a charge to advertising of
$123,112. $9,112 has been charged to
1996. 57,000 57,000
25
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
17. PRIOR PERIOD ADJUSTMENTS (cont'd)
1999 1998
$ $
g) Prior to June 1, 1998, the company
failed to reflect proper compensation
for services provided by its president.
In 1999, the directors of company
determined that the value of the annual
compensation for the services rendered
should be $20,000. The company recorded
$50,000 for services rendered from
December 1, 1995 to May 31, 1998 as a
prior period adjustment in 1999 and a
corresponding increase in paid in
capital. $10,000 has been charged to
1996. 20,000 20,000
h) The company did not reflect the annual
cost of the licensing arrangement with
Jerome' s Magic World, Inc., a company
controlled by the president of the
company, commencing in 1997. In 1999,
the company determined the annual value
of the license would be $10,000 and
recorded $20,000 for licensing expenses
for 1997 and 1998. 10,000 10,000
i) In 1998, the company failed to record
the issuance of 25,600 common shares for
services rendered. 49,317 --
j) Income tax provisions for 1998 and 1997
were adjusted accordingly to reflect the
prior period adjustments listed above. (73,000) (16,000)
-----------------------
313,057 360,230
=======================
Other prior period adjustments that have no impact on prior year'
consolidated statements of operations are as follows:
k) During the year ended May 31, 1997, the company transferred 630,500
treasury common shares to Ward Enterprises, Inc. (see note 15 (f)) and
recorded $74,500 in stockholders' equity. As the fair value of the
transaction should have been $619,500, the difference of $545,000 was
adjusted to paid in capital. Also, as 250,000 of the 630,500 treasury
common shares transferred were for consulting services relating to
stock issuance by the company, $245,000 was charged to paid in
capital.
26
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
17. PRIOR PERIOD ADJUSTMENTS (cont'd)
l) During the year ended May 31, 1998, the company issued 576,690 common
shares and recorded $576 in common stock and $158,004 in paid in
capital. As the fair value of these common shares issued should have
been $942,382, an adjustment for additional paid in capital of
$783,802 was recorded. However, as promissory notes receivable for
515,000 of these common shares issued were still outstanding,
adjustments to common stock of $515 and to paid in capital of $734,485
were also recorded. (see note 15 (b)(ii)).
m) During the year ended May 31, 1998. the company also issued 300,000
common shares for subscriptions receivable of $750,000. The company
recorded $300 in common stock and $749,700 in paid in capital for this
issuance. As these subscriptions were subsequently cancelled after May
31, 1998, the company cancelled the recorded amounts accordingly.
n) Loss per share
The Basic and fully diluted loss per common share arising from prior
period adjustments for 1998 is $.08.
18. CONTINGENT LIABILITIES
The Company is involved in a lawsuit with National Real Estate Services of
Illinois, Inc., where the company alleges that National Real Estate has
breached its master franchise agreement. National has filed a cross
complaint that the company has breached its master franchise agreement by
not providing services, and has asked for actual damages of three million
dollars and punitive damages of ten million dollars. In management's
opinion, this matter will not have a material effect on the financial
position of the company.
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 $20,352 (Cdn$30,000). In management's
opinion, this matter will not have a material affect on the financial
position of the company.
19. 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 financial statements. However, it does nor affect net
income or total stockholders' equity. The components of comprehensive
income are as follows:
1999 1998 1997
(revised
see note 1)
$ $ $
Net loss (957,000) (173,126) (303,468)
Other comprehensive loss
Foreign currency translation
adjustments (1,093) -- --
------------------------------------
Comprehensive loss (958,093) (173,126) (303,468)
====================================
27
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
20. 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
1999 1998
(revised
see note 1)
$ $
United States of America 1,324,230 1,280,735
Canada 2,829,895 687,893
---------------------------
4,154,125 1,968,628
===========================
b) Net loss by Geographic Area
United States of America (885,022) (177,923)
Canada (71,978) 4,797
---------------------------
(957,000) (173,126)
===========================
c) Identifiable Assets by Geographic Area
United States of America 2,646,270 3,553,672
Canada 489,023 556,350
---------------------------
3,135,293 4,110,022
===========================
d) Amortization by Geographic Area
United States of America 221,416 188,917
Canada 19,798 5,195
---------------------------
241,214 194,112
===========================
28
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
20. SEGMENTED INFORMATION (cont'd)
1999 1998
(revised
see note 1)
$ $
d) Revenue by industry
Real Estate Franchise 782,174 976,403
Real Estate Brokerage 2,632,251 687,893
Mortgage Financing 199,451 26,260
Home Warranty 228,353 264,132
Other 311,896 13,940
---------------------------
Total 4,154,125 1,968,628
===========================
e) Net loss by industry
Real Estate Franchise (1,005,003) (156,909)
Real Estate Brokerage (71,978) 4,794
Mortgage Financing (114) (37,000)
Home Warranty 130,622 22,547
Other (10,527) (6,558)
---------------------------
Total (957,000) (173,126)
===========================
f) Identifiable assets by industry
Real Estate Franchise 2,130,027 3,399,137
Real Estate Brokerage 489,023 556,350
Mortgage Financing 151,624 1,803
Home Warranty 344,630 141,865
Other 19,989 10,867
---------------------------
Total 3,135,293 4,110,022
===========================
g) Amortization by industry
Real Estate Franchise 204,563 172,108
Real Estate Brokerage 19,798 5,195
Mortgage Financing 5,412 5,356
Home Warranty 11,441 11,453
---------------------------
Total 241,214 194,112
===========================
29
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
21. COMMITMENTS
The company has operating leases for premises which extend through August
31, 2002. Future minimum rental payments as of May 31, 1999 under the
operating lease agreements are as follows:
2000 $ 167,333
2001 168,083
2002 122,817
2003 19,920
------------
$ 478,153
============
22. 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. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect a company's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the company,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
23. SUBSEQUENT EVENTS
On July 22, 1999 the Board of Directors of the company approved the
authorization of 100,000 shares of Class AAA preferred stock, which is not
entitled to any dividend, with a face value of $500 per share, and is
convertible into one-hundred shares of common stock per one share of
preferred stock after a period of three years from the date of issue.
On August 12, 1999 the Company, signed a letter of intent to purchase 60%
of the stock of Bright Financial Corporation for 1,200 shares of Class AAA
Preferred Stock Valued at $600,000. The letter of intent has expired with
no action taken.
24. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
a) The company exchanged common shares for acquisitions totaling
$238,040.
b) The note receivable in the amount of $162,000 was repaid through the
reduction of the loan payable stockholder.
c) The company exchanged a note receivable for its investment in trading
securities.
30
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
25. RELATED PARTY TRANSACTIONS
1999 1998
$ $
Licencing expense paid to a company controlled
by the President (note 17h) 10,000 10,000
Notes receivable - affiliated company (note 5) -- 162,000
Advances from a stockholder (note 13) 143,472 330,376
Notes receivables - franchises (note 5) 215,803 374,660
26. FINANCIAL STATEMENT PRESENTATION
Certain reclassifications of 1998 and 1997 amounts have been made in order
to facilitate comparison with the current year.
31
