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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 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:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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<S> <C>
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
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% and 83%
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, a provider of home
warranty coverage, changed its name to MaxAmerica Home Warranty 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 acts as a mortgage brokerage while funding and processing the loans
through Mortgage Capital Resource. MaxAmerica Financial Services, Inc. has a
Loan Purchase Agreement with Mortgage Capital Resource wherein Mortgage
Capital Resource agrees to process and fund loans for MaxAmerica Financial
Services, Inc. Mortgage Capital Resources is not affiliated with the Company.
In February 1998, the company acquired Builders Realty. Builders
Realty is a two office residential real estate company located in Calgary,
Alberta, Canada. Builders Realty changed its 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 Service trade name. National Sellers Network,
Inc. is a wholly owned subsidiary of the Company. Also in April 1998, the
company incorporated Red Carpet Broker Network, Inc., as a Nevada
corporation, to function as a real estate licensing company for the Red
Carpet Real Estate Services trade name. Red Carpet Real Estate Services, Inc.
is also a wholly owned subsidiary of the Company.
In August 1998, the Company incorporated HomeLife Properties, Inc.
as a Nevada corporation to function as a buyer and seller of real property.
This company currently has no operations and is a wholly owned subsidiary of
HomeLife.
In September 1998, the company acquired the investment banking firm
of Aspen, Benson & May, LLC. Aspen, Benson & May 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.
The master franchisee has sold one franchise office in Germany and has
established the HomeLife name in that country.
In January of 1999, the Company's HomeLife Builder's Realty
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:
- WHOLLY-OWNED SUBSIDIARIES
HomeLife Realty Services, Inc., FamilyLife Realty Services,
Inc., MaxAmerica Financial Services, Inc., Red Carpet Broker
Network, Inc., National Sellers Network, Inc., HomeLife
Builders Realty (Calgary) Ltd, Aspen Benson & May Investment
Bankers LLC., Homelife California Realty, Inc. and Homelife
Properties, Inc.
- MAJORITY-OWNED SUBSIDIARIES
The Keim Group Ltd. and MaxAmerica Home Warranty Company - 93%
and 83% 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.
1. PRINCIPAL PRODUCTS AND SERVICES AND THEIR MARKET
a. SERVICES AND LOCATIONS
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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 50 real estate offices in
the State of California. Through Red Carpet Keim, the company services
approximately 60 real estate offices in the State of Michigan and through its
tradenames, Red Carpet Real Estate Services, Network Real Estate and National
Real Estate Service, services approximately 70 real estate offices in various
states. The Company also operates two full service real estate brokerage
offices in Calgary, Alberta, Canada, employing 90 agents, under the name
"HomeLife Builders Realty". In addition to the above, the Company offers the
following real estate services through its various subsidiaries.
- FRANCHISE SERVICES - Name recognition, advertising, training,
and recruiting for franchise offices.
- MORTGAGE FINANCING - through its subsidiary, Mortgage
Financial Services.
- RETAIL REAL ESTATE BROKERAGE SERVICES - The Company owns and
operates a full service retail real estate brokerage through
its subsidiary Builders Realty, Ltd.
- 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 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, Connecticut, Florida,
Michigan, Nevada, South Carolina, and Texas and comprise approximately 180
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
$9,500 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, royalty fees and advertising contributions. Other fees also
include transfer fees, training fees, interest on overdue accounts, fees related
to accounting and bookkeeping system materials, and renewal fees. There are also
fees that may be incurred under special circumstances such as indemnification
responsibilities, insurance costs, costs of enforcing the franchise agreements
and audit costs.
In addition to the above fees, the franchisee has certain obligations
under the Franchise Agreement including but not limited to compliance with
standards and policies set forth in operating manuals, territorial development
and sales quotas, initial and on-going training and certain advertising and
participation requirements. In exchange for the franchisee's obligations and
fees, HomeLife provides training programs, the use of its marketing system, its
business system and plan, on-going education, advertising and general support to
its franchisees.
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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.
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c. MORTGAGE FINANCING
The company offers mortgage brokerage services through is subsidiary
MaxAmerica Financial Services. 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 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, 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. This difference in
Builders Realty 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 purchase. This coverage protects major
appliances in the Home for a period of up to one year from he date of purchase
of he 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 the 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:
- the continuing acquisition of real estate brokerage companies with
2 to 20 offices,
- real estate companies who are financially weak and lack a good
marketing system, and
- real estate companies without strong name brand recognition, which
could utilize the existing trademarks of HomeLife.
In addition to this proprietary system, the acquisition by the Company
of companies with both recognizable tradenames, such as Red Carpet, and existing
franchise locations has enabled the company to gain immediate market share in
its office locations.
3. STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCT OR
SERVICE
In the past twelve months HomeLife, has established websites to
enhance the operations of its business. The MaxAmerica Home Warranty website
markets home warranty policies to residents of Michigan. The MaxAmerica
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Financial Services' website generates leads for mortgage loans nationally,
and HomeLife's Shopping website sells retail merchandise through referrals to
over 200 stores.
4. COMPETITION
HomeLife faces competition from numerous companies, some of which
are more established, benefit from greater market recognition, have greater
financial and marketing resources, and a broader geographical base than the
Company.
The real estate franchise industry is large and composed of many
other companies. Companies such as Century 21, Prudential, Coldwell Banker,
Better Homes and Gardens, ERA, and RE/Max, provide services similar to the
services provided by HomeLife. Such competition may diminish the Company's
market share or its ability to gain entry into certain markets, and may
consequently have a material adverse effect on the Company.
Management believes that the Company has the following advantages
over its competition:
- A unique lead generating system provided to its franchisees.
- Lower cost of the Company's products to franchisees and the
increased benefit realized from the placement of its
advertising dollars.
- Consistent use and acquisition of new technology to provide
its services to its franchisees.
5. SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company is not dependent on any raw materials. As a service
business, it relies primarily on the efforts of its employees and agents to
generate sales. All software which comprises a material component of its
services is developed through various outside contractors.
6. DEPENDENCE ON ONE OR FEW MAJOR CUSTOMERS
The company offers its services primarily to consumers in the various
regional markets where it maintains a presence, I.E. individual home owners,
purchasers and buyers. As a consequence, its business activities are primarily
transactional in nature and not dependent upon long-term relationships with
customers. Further, as a retail-based business, its customer base is broad and
diverse.
7. PATENTS, TRADEMARKS, LICENSES AND FRANCHISES
The Company owns more than 40 copyrights on unique marketing concepts
which include printed materials for buying and selling property, and point of
sale and sales follow up techniques. The Company licenses exclusive rights, from
Jerome's Magic World, 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. Thereafter, the license is automatically
renewable for additional eight year periods at the fair market value. These
characters include Jerome the Gnome, Crok `N Roll, The Waz, King D Lish and Rock
Head.
The Company licenses the following trademarks from HomeLife Securities,
Inc.: "Blueprint to Selling Your Home," "Blueprint to Buying a Home," "Family
Life HR," "Family HomeLife Realty Services," "Family HomeLife Realty Services"
(words only), "Focus 20/20" (words and design), "Higher Standards" (words only),
"HomeLife" (words only), "HOMELIFE" (words and design), "HomeLife Higher
Standards" (words and design), "HomeLife Realty Services," and "It's What
Everyone's Looking For" (words only). These marks are licensed for a period of
eight years at no cost to the company. The license commenced on October 30, 1995
and expires on October 30, 2003. Thereafter, the license may be renewed at fair
market value for additional eight year periods.
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HomeLife has developed Community Market Super System-TM-, 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 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 $30,00 cash
prizes. Through Jerome, 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 regulation 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 land owner. Therefore, the company does not anticipate that
there will be any costs associated with the compliance of environmental laws
and regulations.
12. EMPLOYEES
As of the date of this registration statement, HomeLife employs 13
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 180 franchise offices with an
estimated 2,600 agents. The company plans on hiring additional staff in the
immediate future and in the long term, as needed, based on its growth rate.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
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
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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 Service 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 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
Mortgage Capital Resources. Home Value Check provides internet based
appraisals for lenders and consumers of the Company's services. Mortgage
Capital Resource provides loan processing and underwriting for MaxAmerica,
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:
- Acquiring national recognition by acquiring regional franchises;
- Targeting high achieving-high market share regional brokerage houses;
- Continually updating its marketing techniques; and
- Improving services available to its franchises.
A. PLAN OF OPERATIONS
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 offering title & 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 period indicated, selected financial information for the Company.
YEAR ENDING MAY 31, 1999 COMPARED TO THE YEAR ENDING MAY 31, 1998.
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REVENUES. The Company generated gross sales of $4,049,964 for the year
ending May 31, 1999 compared to gross sales of $1,915,398 for the year ending
May 31, 1998. Revenue by business segment is shown below:
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May 31, 1999 May 31, 1998
<S> <C> <C> <C> <C>
Real estate brokerage 2,632,251 65.0 647,279 33.8
Royalty fees 720,574 17.8 788,446 41.2
Franchise fees 61,600 1.5 126,500 6.6
Mortgage financing 199,451 4.9 0
Home warranty sales 124,192 3.1 208,322 10.8
Other 311,896 7.7 144,851 7.6
TOTAL 4,049,964 100.0 1,1915,398 100.0
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This significant increase in revenue of $2,134,566 was primarily due to an
increase in real estate commission from Builders Realty which was acquired
late in 1998. At the time of the acquisition there were approximately 80
brokers associated with Builders Realty. In May 1999 there were approximately
70 brokers in the office. This decrease in brokers was the result of the
acquisition of HomeLife Higher Standards in January 1999, adding
approximately 40 brokers, offset by the loss of approximately 50 brokers over
that period.
Royalty fees decreased from $788,446 for the period ending May 31, 1998 to
$720,574 for the period ending May 31, 1999. Although the number of franchise
offices remained approximately the same at 180 offices, the franchise fees on
some contracts were reduced upon renewal.
Franchise fees decreased from $126,500 for the period ending May 31, 1998 to
$61,600 for the period ending 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 11 in 1999.
Revenue form Mortgage financing was $199,451 for the period ending May 31,
1999 from the financing of 85 loans. There was no Mortgage financing revenue
for the period ending May 31, 1998.
Home warranty sales decreased from $208,322 for the period ending May 31,
1998 to $124,192 for the period ending May 31, 1999. This decrease was
primarily due to a reclassification $124,192 from warranty sales to deferred
revenue in 1999. The number of warranty contracts sold was 601 in 1998
compared to 717 in 1999.
GROSS PROFIT PERCENTAGE. Gross profit percentage decreased from
57.9% for the period ending May 31, 1998 to 31.1% for the period ending May
31, 1999. This decrease is primarily due to higher real estate commissions
eared and higher real estate commission paid to brokers and agents in 1999.
Real estate commissions paid to brokers are approximately 95% of real estate
commissions earned, and the higher 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 year ending May 31, 1999 was
$2,791,997 compared to $805,542 for the year ending May 31, 1998. This
increase of $1,986,455 was primarily due to the increase in sales commissions
paid to agents of Builders Realty as a result of higher real estate
commissions generated.
SALARIES AND FRINGE BENEFITS. Salaries and fringe benefits for the
year ending May 31, 1999 were $680,481 for the year ending May 31, 1999
compared to 558,506 for the year ending May 31, 1998. This increase of
$121,975 was primarily the result of paying salaries to employees of Builders
Realty for a full year in 1999, versus paying salaries for a partial year in
1998
STOCK BASED COMPENSATION. Stock-based compensation is compensation
for services paid for by HomeLife stock, This amount decreased from $79,341
for the year ending May 31, 1998 to $38,500 for the year ending May 31, 1999
due to fewer persons receiving stock-based compensation.
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GENERAL AND ADMINISTRATIVE. General and administrative costs for the
year ending May 31, 1999 were $970,344 for the year ending May 31, 1999 versus
$398,052 for the year ending May 31, 1998. This increase of $572,292 was
primarily due to an increase in the use of outside consultants, an increase in
computer expenses, and a write down of $103,208 for deferred revenue related to
the purchase of marketing materials.
OCCUPANCY COSTS. Occupancy costs for the year ending May 31, 1999
was $166,263 compared to $108,559 for the year ending 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.
FINANCIAL. Financial costs for the year ending May 31, 1999 were
$103,923 compared to $67,806 for the year ending May 31, 1998. The amount for
the year ending May 31, 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 year ending May 31, 1998 is the
result of a write-down of inventory due to obsolescence of marketing
materials, 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 of intangibles for the year ending May
31, 1999 was $205,214 for the year ending May 31, 1999 compared to $194,112
for the year ending May 31, 1998. This increase of $11,102 was a primarily a
result of amortizing the cost of the purchase of Builders Realty for a full
year in 1999 versus amortizing the cost for a partial year in 1998.
MINORITY INTEREST. The reduction in net income due to minority
interest was $7,498 in the year ending May 31, 1999 versus $9,177 for the
year ending May 31, 1998. This decrease of $1,679 was due to lower revenues
for the Keim Group, partially offset by higher revenues from MaxAmerica Home
Warranty.
PREFERRED DIVIDENDS. Preferred Dividends were $3,120 in the year
ending May 31, 1999 versus $13,000 for the year ending 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 18,750 shares of Voice Mobility Inc. as a marketable security, and lines
of credit with two banks in the amounts of CN$50,000 and $20,000. 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 inventory purchased in prior years. Cash flow
is cumulatively positive for the past three years, and it is projected that
operations for the coming years can be funded out of future cash flows.
FOREIGN OPERATIONS. Foreign operations consist of the sale of a
master franchise agreement to an individual in Germany. Payment for this
agreement were scheduled to be made in 12 quarterly payments beginning in
October 1999. Only partial payments have been received, however, and the
company is now in negotiations with the obligor to re-structure this
obligation. Continued default of this agreement will deprive the Company of
the anticipated payments, but is anticipated to have no adverse consequences
to the operations of the Company, since it has no commitments of capital of
other resources to its foreign operations.
10
<PAGE>
SIX MONTHS ENDING NOVEMBER 30, 1999 COMPARED TO THE SIX MONTHS ENDING NOVEMBER
30, 1998.
REVENUES. The Company generated gross sales of $1,918,640 for the six
months ending November 30. 1999 versus $2,576,832 for the six months ending
November 30, 1998. . Revenue by business segment is shown below:
<TABLE>
<CAPTION>
May 31, 1999 May 31, 1998
<S> <C> <C> <C> <C>
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
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
</TABLE>
Real estate brokerage commissions decreased from $1,835,833 for the period
ending November 30, 1998 to $1,102,970 for the period ending November 30, 1999.
This decrease is the result of a decrease in brokers from 80 in November 1998 to
70 in November 1999, and a reduction in the number of escrows closed per broker.
Royalty fees decreased from $429,863 for the period ending November 30, 1998 to
$412,786 for the period ending November 30, 1999. Although the number of
franchise offices remained approximately the same at 180 offices, the franchise
fees on some contracts were reduced upon renewal.
Franchise fees decreased from $31,200 for the period ending November 30, 1998 to
$30,779 for the period ending November 30, 1999. The number of franchises sold
was 7 in 1998 and 6 in 1999.
Revenue form Mortgage financing was $38,634 for the period ending November 30,
1999 from the financing of 19 loans. There was no Mortgage financing revenue for
the period ending November 30, 1998.
Home warranty sales increased from $137,938 for the period ending November 30,
1998 to $156,729 for the period ending 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 six months ending November 30,
1999 was $1,186,544 compared to $1,859,648 for the six months ending November
30, 1998. This decrease of $658,192 was primarily due to the decrease in sales
commissions paid to agents of Builders Realty as a result of lower real estate
commissions generated.
GROSS PROFIT PERCENTAGE. Gross profit percentage increased from 27.8%
for the period ending November 30, 1998 to 38.2% for the period ending November
30, 1999. This increase is primarily due to lower real estate commissions eared
and lower real estate commission paid to brokers and agents in 1999. Real estate
commissions paid to brokers are approximately 95% of real estate commissions
earned, and the higher real estate commissions earned are as a percentage of
total sales, the lower the gross profit percentage.
SALARIES & FRINGE BENEFITS. Salary and fringe benefits for the six
months ending November 30, 1999 were $290,841 compared to $249,732 for the six
months ending 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 six months ending November 30, 1999 compared to $485,172 for
the six months ending November 30, 1998. This decrease of $187,105 was primarily
the result of outside services in 1998 that did not reoccur in 1999.
11
<PAGE>
OCCUPANCY. Occupancy for the six months ending November 30, 1999 was
$85,041 compared to $75,772 for the six months ending 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 $150,05 for the six months ending
November 30, 1999 versus $51,783 for the six months ending November 30, 1998.
The amount for the six months ending November 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 six months
ending November 1998 is the result 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 $39,607 for the six months
ending November 30, 1999 versus $102,607 for the six months ending November 30,
1998. This decrease of $63,000 was primarily due to assets that became fully
amortized during the six months ending November 30, 1998.
MINORITY INTEREST. The decrease in net income due to minority interest
was $3,612 in the six months ending November 30, 1999 compared to $4,952 for the
six months ending November 30, 1998. This decrease of $1,340 was due lower
revenues for the Keim Group.
PREFERRED DIVIDENDS. Preferred dividends were $1,560 for both the six
months ending November 30, 1999 and November 30, 1998.
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 offices located in Calgary, Alberta,
Canada. The Builders leases expire in October, 2001 and August, 2002. Annual
lease payments exclusive of property taxes and insurance for all locations
through 2002 is $433,494.
12
<PAGE>
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.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES PERCENTAGE
BENEFICIALLY
OWNED(1)
<S> <C> <C>
Andrew Cimerman 2,500,000 52.04%
Horwitz & Beam 250,000(2) 100%
F. Bryson Farrill 50,000 *
Terry Lyles, Ph.D 50,000 *
Gabrielle Jeans 15,000 *
Charles Goodson 0 0%
William Slivka 0 0%
Brinx Capital 200,000 4.16%
All officers and directors as a 2,615,000 54.43%
group (7 persons)
</TABLE>
*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.
(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, and (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.
13
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The directors and officers of the company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Andrew Cimerman 51 President and Director
Terry A. Lyles, Ph.D. 40 Director
F. Bryson Farrill 71 Director
Gabrielle Jeans 48 Vice President
Charles Goodson 43 Vice President
William Slivka 50 Chief Financial Officer
</TABLE>
ANDREW CIMERMAN, 51, PRESIDENT AND DIRECTOR, has held the positions of
Director and President since April 1996. For 7 years prior thereto, he was
the founder and majority shareholder of HomeLife Securities, Inc. and its
wholly owned subsidiary HomeLife Realty Services, Inc. Mr. Cimerman is the
founder, President and majority shareholder of: Simcoe Fox Developments,
Ltd., a private development company located in Toronto, Ontario, Canada;
HomeLife Cimerman Real Estate Ltd., a Toronto based real estate company;
Jerome's Magic World, Inc., the owner of certain animated characters; and,
majority shareholder and President of Realty World America, Inc. Mr. Cimerman
brings over 30 years of real estate service experience to the company, and is
a strong and committed leader focused on the growth and success of the
company.
TERRY A. LYLES, PH.D, 40, 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 this
profound message of "Life Accountability" and "A Better You." Dr. Lyles has
conducted a weekly radio program "A Better You" since May 1, 1994, which is
currently heard by over 1 million people in 65 nations. Dr. Lyles holds a
Ph.D degree in Psychology from Wayne State University in Detroit, Michigan.
F. BRYSON FARRILL, 71, 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, 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.
GABRIELLE JEANS, 48, VICE PRESIDENT, has been employed by the company, or its
subsidiary companies since August 1992. She has been employed by the
subsidiary, HomeLife Realty Services, Inc. as Director of Sales and training.
She brings over 22 years of experience in the realty industry to the company
including the invaluable experience of owning and managing her own real
estate brokerage firm with over 100 agents.
CHARLES GOODSON, 44, 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. He is a
licensed realtor. Mr. Goodson earned his B.S. degree in Business
Administration from California State University, Northridge.
14
<PAGE>
WILLIAM SLIVKA, 50, 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 has earned an MBA and a MS degrees from the
Pennsylvania State University. He is a certified financial planner and a
licensed real estate broker.
15
<PAGE>
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 Stock Securities
Awards Underlying
Options (1)
<S> <C> <C> <C> <C> <C>
Andrew Cimerman, President 1999 $20,000 $-0- -0- -0-
Gabrielle Jeans, Vice President 1999 $72,000 $-0- -0- 30,000
Charles Goodson, Vice President 1999 $72,000 $-0- -0- -0-
William Slivka 1999 $60,000 $-0-
All Officers as a Group (4 persons) 1999 $209,000 $-0- -0- 30,000
</TABLE>
------------------------------------
B. STOCK OPTIONS
While the company has not enacted a formal stock option plan for its
directors and senior executives, the company has granted certain directors and
officers options to purchase common stock of the company. 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. Vice President,
Gabrielle Jeans, has been granted an option to purchase 30,000 shares of common
stock at the exercise price of $5.00 per share. Ms. Jeans' options are also
fully vested and exercisable.
The following table describes the above options:
<TABLE>
<CAPTION>
Number of securities Exercise on Expiration Vesting
Name underlying options base price Date
($/share)
<S> <C> <C> <C> <C>
F. Bryson Farrill, Director 50,000 $3.00 None Fully Vested
Terry Lyles, Ph.D., Director 50,000 $3.00 None Fully Vested
Gabrielle Jeans, Vice President 30,000 $5.00 None Fully Vested
Total 130,000 -- --
</TABLE>
16
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
A. CERTAIN RELATIONSHIPS
Mr. Cimerman is President and majority shareholder of HomeLife Cimerman
Real Estate Ltd. HomeLife Cimerman Real Estate Ltd.'s business activities
consist of real estate sales in Toronto, Canada. The activities of HomeLife
Cimerman Real Estate Ltd. are managed by the on-site management. These
activities do not demand a large portion of Mr. Cimerman's time and effort. Any
corporate opportunities that would be available to both the Company and to
HomeLife Cimerman Real Estate Ltd. is presented to HomeLife's Board of Directors
for consideration and for approval by a disinterested majority of the Board of
Directors.
The President and majority shareholder of the Company, Andrew
Cimerman is the sole shareholder and President of Realty World America, Inc.
Realty World America, Inc. is a real estate services company providing
services to franchises. Any transactions undertaken by Mr. Cimerman on behalf
of Realty World America, Inc. which may constitute a corporate opportunity
are first presented to the company's board of directors for approval by a
disinterested majority.
Mr. Cimerman is also the sole shareholder of Jerome's Magic World,
Inc., the owner of certain characters licensed to the company. The license of
these characters to the Company is for an eight year term expiring in October
2003, at 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. Simcoe Fox Developments' business activities consist of holding
real estate investment property. The activities of Simcoe Fox Developments
does not demand a large portion of Mr. Cimerman's time and effort, and any
corporate opportunities that would be available to both the company and to
Simcoe Fox Developments is presented to HomeLife's Board of Directors for
consideration and for approval by a disinterested majority of the Board of
Directors.
The Company was formed through the purchase of HomeLife Realty
Services, Inc., and HomeLife US Partnership from Andrew Cimerman, the current
President of the Company. Mr. Cimerman received 100,000 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.
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
17
<PAGE>
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 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 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.
18
<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 six months 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:
<TABLE>
<CAPTION>
Low High
Quarter ended Bid Bid
------------------------------------------------------------------
<S> <C> <C>
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
------------------------------------------------------------------
</TABLE>
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 ending May 31, 1998, and $3,120 in preferred
dividends on its Class AA preferred stock for the period ending 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 Actions 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 $20,352 (Cdn$30,000). In management's opinion, this matter
will not have a material affect on the financial position of the company.
Management believes that there are no other material litigation matters
pending or threatened against the company.
19
<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. 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. 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
financial statement.
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 Services, US 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 Keim Group Ltd. for the acquisition of 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.
20
<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 Ltd. for the acquisition of Builders
Realty 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. 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 12. 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:
- - Audited Financial Statements for Fiscal Years ended May 31, 1998 and
1999.
- - Unaudited Financial Statements as of and for the six months ended
November 30, 1999.
21
<PAGE>
PART III
ITEM 1 AND
ITEM 2. INDEX TO EXHIBITS AND DESCRIPTION OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
- -------
<S> <C>
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
10.16 Agreement and Plan of Acquisition, dated April 15, 1996
10.18 Form of Participating Independent Broker Franchise Agreement
10.19 Form of Broker Membership Agreement
10.20 Stock Purchase Agreement, dated September 10, 1998
10.21 Employment Agreement between HomeLife, Inc. and Andrew Cimerman
10.22 Trademark License Agreement between HomeLife, Inc. and Jerome's Magic
World, Inc.
10.23 HomeLife Higher Standards Asset Purchase Agreement, dated January 20,
1999
10.24 Acquisition Agreement between Bright Financial Corporation and
MaxAmerica Financial Services, Inc.
21 List of Subsidiaries
</TABLE>
- -----------------
* Filing with this Amendment.
22
<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
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Andrew Cimerman President, Director January 25, 2000
- ----------------------
Andrew Cimerman
/s/ William Slivka Chief Financial Officer January 25, 2000
- -------------------
William Slivka
</TABLE>
23
<PAGE>
HOMELIFE, INC.
REVISED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MAY 31, 1999 AND MAY 31, 1998
TOGETHER WITH REPORT OF INDEPENDENT AUDITORS
24
<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
<TABLE>
<S> <C>
Report of Independent Auditors 26
Revised Consolidated Balance Sheets 28
Revised Consolidated Statements of Operations 30
Revised Consolidated Statements of Cash Flows 31
Revised Consolidated Statements of Stockholders' Equity 32
Notes to Revised Consolidated Financial Statements 33 - 55
</TABLE>
25
<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. 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
August 13, 1999 Chartered Accountants
except for note 1 as to
which the date is
December 22, 1999
1167 Caledonia Road
Toronto, Ontario M6A 2X1
Tel: 416 785 5353
Fax: 416 785 5663
26
<PAGE>
BILLER, FRITH-SMITH & ARCHIBALD
DECEMBER 16, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
RE: HOMELIFE, INC.
DEAR SIRS:
BASED ON THE NEW INFORMATION BROUGHT TO OUR ATTENTION BY THE ACCOUTNING FIRM OF
SCHWARTZ LEVITSKY FELDMAN, WE BELIEVE THE REVISED FINANCIAL STATEMETNS FAIRLY
PRESENT THE FINANCIAL POSITION FOR THE YEAR ENDED MAY 31, 1997 AND MAY 31, 1998.
SINCERELY,
BILLER, FIRTH-SMITH & ARCHIBALD
/s/ James Biller
JAMES BILLER, CPA
27
<PAGE>
HOMELIFE, INC.
Revised Consolidated Balance Sheets
As at May 31, 1999 and 1998
(Amounts expressed in U.S. dollars)
<TABLE>
<CAPTION>
1999 1998
(restated
see note 17)
$ $
<S> <C> <C>
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) 235,500 480,859
Prepaid expenses and deposits (note 6) 78,159 290,881
-------------------------
1,004,204 1,227,173
NOTES RECEIVABLE (note 5) 130,801 430,301
PROPERTY AND EQUIPMENT (note 7) 480,993 554,654
GOODWILL (note 8) 661,273 678,755
OTHER ASSETS (note 9) 702,203 730,125
CASH HELD IN TRUST (note 10) 342,317 489,014
-------------------------
3,321,791 4,110,022
=========================
</TABLE>
APPROVED ON BEHALF OF THE BOARD
Director
Director
28
<PAGE>
HOMELIFE, INC.
Revised Consolidated Balance Sheets
As at May 31, 1999 and 1998
(Amounts expressed in U.S. dollars)
<TABLE>
<CAPTION>
1999 1998
(restated
see note 17)
$ $
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (note 11) 16,960 -
Accounts payable (note 12) 459,662 224,668
Advances from 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 55,580
-------------------------
882,844 675,504
DEFERRED REVENUE 206,149 244,420
TRUST LIABILITY (note 10) 342,317 489,014
MINORITY INTEREST 43,378 35,880
-------------------------
1,474,688 1,444,818
-------------------------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (note 15) 1,043,288 1,166,481
ADDITIONAL PAID IN CAPITAL (note 15) 2,846,093 2,662,125
DEFICIT (2,042,278) (1,163,402)
--------------------------
1,847,103 2,665,204
--------------------------
3,321,791 4,110,022
==========================
</TABLE>
The accompanying notes are an integral part of these revised consolidated
financial statements.
29
<PAGE>
HOMELIFE, INC.
Revised Consolidated Statements of Operations
For the years ended May 31,
(Amounts expressed in U.S. dollars)
<TABLE>
<CAPTION>
1999 1998
(restated
see note 17)
$ $
<S> <C> <C>
REVENUE
Royalty and franchise fees 782,174 914,946
Warranty fees 124,192 208,322
Mortgage financing fees 199,451 -
Real estate brokerage 2,632,251 647,279
Other income 311,896 144,851
-------------------------
4,049,964 1,915,398
COST OF SALES 2,791,997 805,542
-------------------------
1,257,967 1,109,856
-------------------------
EXPENSES
Salaries and fringe benefits 641,981 479,165
Stock based compensation 38,500 79,341
General and administrative 970,344 398,052
Occupancy 166,263 108,559
Financial 103,923 67,806
Amortization 205,214 194,112
-------------------------
2,126,225 1,327,035
-------------------------
LOSS BEFORE MINORITY INTEREST (868,258) (217,179)
Minority interest (7,498) (9,177)
-------------------------
LOSS BEFORE INCOME TAX RECOVERY (875,756) (226,356)
Income tax recovery (note 16) - -
-------------------------
NET LOSS (875,756) (226,356)
Preferred dividends (3,120) (13,000)
-------------------------
NET LOSS APPLICABLE TO COMMON
SHARES (878,876) (239,356)
=========================
BASIC AND FULLY DILUTED LOSS
PER COMMON SHARE (0.21) (0.06)
=========================
WEIGHTED-AVERAGE NUMBER OF COMMON
SHARES 4,255,557 3,944,707
=========================
</TABLE>
30
<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)
<TABLE>
<CAPTION>
1999 1998
(restated
see note 17)
$ $
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (875,756) (226,356)
Adjustments to reconcile net loss to net
cash provided by (used in) used in operating activities
Depreciation and amortization 205,214 194,112
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 84,859 (711,160)
Decrease (increases) in prepaid expenses 212,722 (172,023)
Increase in accounts payable 234,994 59,080
Increase in deferred revenue 103,229 300,000
-------------------------
185,662 (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
-------------------------
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
=========================
</TABLE>
31
<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>
Class A Class AA
Common Stock Preference Stock - 6% Preferred Stock - 8%
Shares Amount Shares Amount Shares Amount
(restated
see note 17)
$ $ $
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MAY 31, 1997 3,920,785 3,920 10,000 1,000,000 - -
Issuance of common stock
(note 15 and 17) 576,690 61 - - - -
Issuance of preferred stock (note 15) - - - - 325 162,500
Compensation and licensing
arrangement (note 17) - - - - - -
Net loss - - - - - -
------------------------------------------------------------------
BALANCE, MAY 31, 1998 4,497,475 3,981 10,000 1,000,000 325 162,500
Issuance of common stock (note 15) 66,750 67 - - - -
Compensation and licensing
arrangement - - - - - -
Conversion of preferred stock
to common stock (note 15) 239,707 240 - - (247) (123,500)
Net loss - - - - - -
------------------------------------------------------------------
BALANCE, MAY 31, 1999 4,803,932 4,288 10,000 1,000,000 78 39,000
==================================================================
<CAPTION>
Paid in Accumulated Treasury Stock
Capital Deficit
(restated (restated Shares Amount
see note 17) see note 17)
$ $ $
<S> <C> <C> <C> <C>
BALANCE, MAY 31, 1997 2,424,804 (924,046) - -
Issuance of common stock
(note 15 and 17) 207,321 - - -
Issuance of preferred stock (note 15) - - - -
Compensation and licensing
arrangement (note 17) 30,000 - - -
Net loss - (239,356) - -
----------------------------------------------------
BALANCE, MAY 31, 1998 2,662,125 (1,163,402) - -
Issuance of common stock (note 15) 30,708 - - -
Compensation and licensing
arrangement 30,000 - - -
Conversion of preferred stock
to common stock (note 15) 123,260 - - -
Net loss - (878,876) - -
----------------------------------------------------
BALANCE, MAY 31, 1999 2,846,093 (2,042,278) - -
====================================================
</TABLE>
32
<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 provide additional information to readers and reclassify
financial statement amounts to provide more precise information and better
comparison with prior years.
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 and 1997.
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:
<TABLE>
<CAPTION>
<S> <C>
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
===============
</TABLE>
33
<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)
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 20 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:
<TABLE>
<S> <C>
Cash $ 158,040
36,000 Common shares of the company 158,040
------------
$ 316,080
============
</TABLE>
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:
<TABLE>
<S> <C>
Net tangible current assets $ 25,900
Goodwill 290,180
-----------
$ 316,080
===========
</TABLE>
The goodwill will be amortized over 40 years on a straight-line line
basis.
c) On September 15, 1998, the company purchased all the issued shares of
an inactive holding company, Aspen Benson and May Investment Bankers
LLC., for common stock in the amount of $77,500 to be issued in
January 2000. At the time of purchase, Aspen Benson and May Investment
Bankers LLC. had negligible assets and revenue.
Effectively, the acquisition allowed the company to pay the vendor a
salary of $77,500 from September 10, 1998 to December 31, 1999 by the
issuance of the company's common stock.
The company has recorded a salary expense of $45,000 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.
34
<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)
d) 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 instalments of $2,714 and
a final payment of $4,065.
The assets acquired were recorded as follows:
<TABLE>
<S> <C>
Trademarks $ 42,061
=============
</TABLE>
These trademarks will be amortized over 20 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.
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 Reealty Services Inc. were
entities owned by a company controlled by the president of Homelife,
Inc.
35
<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)
b) The combined assets acquired were as follows:
<TABLE>
<S> <C>
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
============
</TABLE>
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.
36
<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)
i) Principal Activities (cont'd)
The company owns and operate 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.
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;
<TABLE>
<S> <C>
Furniture and fixtures 7 years
Computer equipment and software 7 years
Leasehold improvements 7 years
Automobile 4 years
</TABLE>
37
<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)
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:
<TABLE>
<S> <C>
Trademarks and franchise rights 20 years
Organization costs 5 years
</TABLE>
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.
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 under
these warranty 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 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.
38
<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)
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 both employee and
non-employee stock based compensation.
xv) Foreign Currency Translation
Builders Realty (Calgary) Ltd., a wholly-owned subsidiary, maintains
its books and records in Canadian dollars. Foreign currency
transactions are translated using the temporal method. Under this
method, all monetary items are translated into Canadian funds at the
rate of exchange prevailing at balance sheet date. Non-monetary items
are translated at historical rates. 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.
(1999 - $798 expense, 1998 - $0)
The translation of the financial statements of this wholly-owned
subsidiary from Canadian dollars into United States dollars is
performed for the convenience of the reader. 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 determination of earnings for the
year.
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 determinible.
39
<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)
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.
4. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
Accounts receivable 195,523 251,625
Less: Allowance for doubtful accounts (27,490) (19,915)
-----------------------
Accounts receivable, net 168,033 231,710
=======================
</TABLE>
5. NOTES RECEIVABLE
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
Note receivable from HomeLife Securities, Inc, 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. 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., 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 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
</TABLE>
40
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
5. NOTES RECEIVABLE (cont'd)
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
Note receivable 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 155,801 155,801
Notes receivable from existing franchises for franchise fees.
These notes are unsecured, non-interest bearing and payable
in installments over one year 10,500 18,859
-----------------------
366,301 911,160
Less: Current portion 235,500 480,859
-----------------------
130,801 430,301
=======================
</TABLE>
6. PREPAID EXPENSES AND DEPOSITS
<TABLE>
<CAPTION>
1999 1998
(restated
see note 17)
$ $
<S> <C> <C>
Promotional materials and supplies 50,120 251,625
Prepaid expenses 13,451 30,195
Deposits 14,588 9,061
-----------------------
78,159 290,881
=======================
</TABLE>
7. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1999 1998
(restated
see note 17)
$ $
<S> <C> <C>
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
=======================
</TABLE>
41
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
7. PROPERTY AND EQUIPMENT (cont'd)
<TABLE>
<CAPTION>
1999 1998
(restated
see note 17)
$ $
<S> <C> <C>
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
=======================
</TABLE>
Amortization for the year amounted to $127,806 ($125,452 in 1998).
8. GOODWILL
<TABLE>
<CAPTION>
1999 1998
(restated
see note 17)
$ $
<S> <C> <C>
Cost 699,322 699,322
Less: Accumulated amortization 38,049 20,567
-----------------------
661,273 678,755
=======================
</TABLE>
Amortization for the year amounted to $17,482 ($12,043 in 1998).
9. OTHER ASSETS
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
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 108,265 69,713
Organization costs 57,507 36,133
-----------------------
165,772 105,846
-----------------------
Net book value 702,203 730,125
=======================
</TABLE>
Amortization for the year amounted to $59,926 ($56,617 in 1998).
42
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
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.
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
<TABLE>
<CAPTION>
1999 1998
(restated
note 17)
$ $
<S> <C> <C>
Trade payable 377,375 100,485
Accrued expenses 82,287 124,183
------------------------
459,662 224,668
========================
</TABLE>
13. ADVANCES FROM STOCKHOLDER
The advances are from a majority stockholder and 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 inputed 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.
43
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
15. CAPITAL STOCK
a) Authorized
100,000 Class A Preference shares of no par value, 6% non cumulative
dividend, voting, convertible to common shares at the option of the
shareholder at a price equal to the face value of the Class A shares. Each
Class A Preferred share carries 1,000 votes as compared with 1 vote for
each common share
2,000 Class AA preferred shares of $500 par value, 8% cumulative dividend,
non-voting, redeemable at face value by the company, convertible after 12
months from the date of issuance, at the option of the shareholder, to
common shares at a price equal to the 125% of the face value of the Class
AA shares as compared with the market price of the common stock.
10,000,000 Common shares of $0.001 par value
<TABLE>
<CAPTION>
Issued
1999 1998
(restated
see note 17)
$ $
<S> <C> <C>
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
=========================
</TABLE>
44
<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:
<TABLE>
<CAPTION>
Capital Paid in
Number stock capital
(restated (restated
see note 17) see note 17)
$ $
<S> <C> <C> <C>
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) -
=====================================
ii) Common shares
On February 27, 1998, the company issued 36,000 common
shares for $158,040 to acquire the issued
shares of Builders Realty (Calgary) Ltd. (see note 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 December 31, 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 December 31,
2000, totaling $250,000 265,000 265 249,735
</TABLE>
45
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
15. CAPITAL STOCK (cont'd)
<TABLE>
Capital Paid in
Number stock capital
(restated (restated
see note 17) see note 17)
$ $
<S> <C> <C> <C>
ii) Common shares (cont'd)
Subscriptions receivable - (515) (734,485)
------------------------------------------
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 acquisiton 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
==========================================
</TABLE>
On October 8, 1999, the promissory note receivable in the amount of
$250,000 was exchanged for 100,000 shares of Pioneer Growth Corp. The
company may re-acquire its shares in exchange of the shares of Pioneer
Growth Corp. during the 12 months subsequent to October 8, 1999. There are
no conditions which could restrict the re-acquisition of shares.
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).
46
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
15. CAPITAL STOCK (cont'd)
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;
<TABLE>
<CAPTION>
No. of Amount
Share $
<S> <C> <C>
Consulting for stock issues 250,000 245,000
Shares of HOA - -
Notes receivable 380,500 374,500
------------------------
630,500 619,500
========================
</TABLE>
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).
47
<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 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.
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)]
16. INCOME TAXES
<TABLE>
<CAPTION>
1999 1998 1997
(restated (restated
see note 17) see note 17)
$ $ $
<S> <C> <C> <C>
a) Current - - -
Deferred - - -
-------------------------------------------
- - -
===========================================
b) The components of deferred income taxes are
comprised as follows:
Losses carried-forward 436,000 185,000 71,000
Valuation allowance (436,000) (185,000) (71,000)
-------------------------------------------
- - -
===========================================
</TABLE>
c) At May 31, 1999. the company had non-capital losses available for
carry-forward of approximately $1,280,000. These losses expire after May
31, 2006.
48
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
17. PRIOR PERIOD ADJUSTMENTS
The following indicates the impact on the prior years' consolidated
statements of operations of the following prior period adjustments:
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
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 -
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, 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
e) 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
</TABLE>
49
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
17. PRIOR PERIOD ADJUSTMENTS (cont'd)
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
f) 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
g) 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
h) In 1998, the company failed to record the issuance of 25,600
common shares for services rendered. 49,317 -
i) Income tax provisions for 1998 and 1997 were adjusted
accordingly to reflect the prior period adjustments listed above (73,000) (16,000)
----------------------------
366,287 379,524
============================
</TABLE>
Other prior period adjustments that have no impact on prior year'
consolidated statements of operations are as follows:
j) 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.
50
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
17. PRIOR PERIOD ADJUSTMENTS (cont'd)
k) 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 subscriptions 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))
l) 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.
m) Loss per share
The Basic and fully diluted loss per common share arising from prior period
adjustments for 1998 is $.09.
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:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Net loss (875,756) (226,356) (322,762)
Other comprehensive income - - -
------------- ------------- -------------
Comprehensive loss (875,756) (226,356) (322,762)
============= ============= =============
</TABLE>
51
<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
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
United States of America 1,220,069 1,227,505
Canada 2,829,895 687,893
-------------------------
4,049,964 1,915,398
=========================
b) Net loss by Geographic Area
United States of America (802,685) (231,153)
Canada (73,071) 4,797
-------------------------
(875,756) (226,356)
=========================
c) Identifiable Assets by Geographic Area
United States of America 2,832,768 3,553,672
Canada 489,023 556,350
-------------------------
3,321,791 4,110,022
=========================
d) Amortization by Geographic Area
United States of America 185,416 188,917
Canada 19,798 5,195
-------------------------
205,214 194,112
=========================
</TABLE>
52
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
20. SEGMENTED INFORMATION (cont'd)
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
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 124,192 210,902
Other 311,896 13,940
-----------------------------
Total 4,049,964 1,915,398
=============================
e) Net loss by industry
Real Estate Franchise (818,505) (156,909)
Real Estate Brokerage (73,071) 4,794
Mortgage Financing (114) (37,000)
Home Warranty 26,461 (30,683)
Other (10,527) (6,558)
-----------------------------
Total (875,756) (226,356)
=============================
Real Estate Franchise 2,316,525 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 3,321,791 4,110,022
=============================
g) Amortization by industry
Real Estate Franchise 168,563 172,108
Real Estate Brokerage 19,798 5,195
Mortgage Financing 5,412 5,356
Home Warranty 11,441 11,453
Other - -
-----------------------------
Total 205,214 194,112
=============================
</TABLE>
53
<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:
<TABLE>
<S> <C>
2000 $ 167,333
2001 168,083
2002 122,817
2003 19,920
------------------
$ 478,153
==================
</TABLE>
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 it investment in trading
securities.
54
<PAGE>
HOMELIFE, INC.
Notes to Revised Consolidated Financial Statements
(Amounts expressed in U.S. dollars)
May 31, 1999
25. RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
Licencing expense 10,000 10,000
Notes receivable - affiliated company - 162,000
Advances from a stockholder 143,472 330,376
</TABLE>
26 FINANCIAL STATEMENT PRESENTATION
Certain reclassifications of 1998 and 1997 amounts have been made in order
to facilitate comparison with the current year.
55
<PAGE>
HOMELIFE, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF NOVEMBER 30, 1999
56
<PAGE>
HOMELIFE, INC.
Consolidated Balance Sheets
As at November 30, 1999 and May 31, 1999
(Amounts expressed in U.S. dollars)
<TABLE>
<CAPTION>
November May
1999 1999
$ $
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash 269,264 327,637
Marketable securities, at fair value 42,188 194,875
Accounts receivable 176,910 168,033
Notes receivable 235,500 235,500
Prepaid expenses and deposits 78,574 78,159
--------------------------
802,436 1,004,204
NOTES RECEIVABLE 130,801 130,801
PROPERTY AND EQUIPMENT 453,363 480,993
GOODWILL 655,555 661,273
OTHER ASSETS 670,586 702,203
CASH HELD IN TRUST 242,498 342,317
--------------------------
2,955,239 3,321,791
==========================
</TABLE>
57
<PAGE>
HOMELIFE, INC.
Consolidated Balance Sheets
As at November 30, 1999 and May 31, 1998
(Amounts expressed in U.S. dollars)
<TABLE>
<CAPTION>
November May
1999 1999
$ $
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 3,390 16,960
Accounts payable 369,856 459,662
Advances from stockholder 143,472 143,472
Note payable - 10,000
Reserve for warranty 62,400 51500
Dividends payable 3,390 4,170
Deferred revenue 197,080 197,080
-------------------------
779,588 882,844
DEFERRED REVENUE 206,149 206,149
TRUST LIABILITY 242,498 342,317
MINORITY INTEREST 46,990 43,378
-------------------------
1,275,225 1,474,688
-------------------------
STOCKHOLDERS' EQUITY
CAPITAL STOCK 1,043,288 1,043,288
ADDITIONAL PAID IN CAPITAL 2,846,093 2,846,093
DEFICIT (2,209,367) (2,042,278)
-------------------------
1,680,014 1,847,103
-------------------------
2,955,239 3,321,791
=========================
</TABLE>
58
<PAGE>
HOMELIFE, INC.
Consolidated Statements of Operations
For the six months ended November 30, 1999 and November 30, 1998
(Amounts expressed in U.S. dollars)
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
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 1,186,096 1,859,648
-------------------------
732,544 717,184
-------------------------
EXPENSES
Salaries and fringe benefits 290,841 249,732
Stock based compensation 30,000 19,250
General and administrative 298,067 485,172
Occupancy 85,041 75,772
Financial 150,905 51,962
Amortization 39,607 102,607
-------------------------
894,461 984,495
-------------------------
LOSS BEFORE MINORITY INTEREST (161,917) (267,311)
Minority interest (3,612) (4,952)
-------------------------
LOSS BEFORE INCOME TAX RECOVERY (165,529) (272,263)
Income tax recovery - -
-------------------------
NET LOSS (165,529) (272,263)
Preferred dividends (1,560) (1,560)
-------------------------
NET LOSS APPLICABLE TO COMMON
SHARES (167,089) (273,823)
=========================
BASIC AND FULLY DILUTED LOSS
PER COMMON SHARE (0.03) (0.06)
=========================
WEIGHTED-AVERAGE NUMBER OF COMMON
SHARES 4,803,932 4,650,704
=========================
</TABLE>
59
<PAGE>
HOMELIFE, INC.
Consolidated Statements of Cash Flows
For the years ended November 31, 1999 and May 31, 1999
(Amounts expressed in U.S. dollars)
<TABLE>
<CAPTION>
November May
1999 1999
$ $
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss (165,529) (875,756)
Adjustment to reconcile net loss to net
Cash provided by (uses in) operating activities
Depreciation and amortization 64,965 205,214
Minority interest 3,612 7,498
Loss on trading securities 152,687 103,125
Stock based compensation 38,500
Changes in reserve for warranty 10,900 7,600
Changes in assets and liabilities
Decrease (increase) in accounts receivable (8,877) 63,677
Decrease (increase) in notes receivables 84,859
Decrease (increases) in prepaid expenses 415 212,722
Increase (decrease) in accounts payable (89,806) 234,722
Increase (decrease in notes payable (10,000)
Increase in deferred revenue - 103,299
------------------------
(42,463) 185,662
------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment - (44,088)
Acquisition of goodwill -
Acquisition of trademarks - (42,061)
------------------------
(44,813) (86,149)
------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Cash provided by (required for) bank indebtedness (13,570) 16,960
Cash required for notes payable - -
Cash provided by (required for) advances from stockholder (24,904)
Cash provided by issuance of capital stock 22,275
Cash required for dividends (2,340) (9,930)
------------------------
(15,910) 4,401
------------------------
NET INCREASE (DECREASE) IN CASH (58,373) 103,914
Cash, beginning of period 327,637 232,403
------------------------
CASH, END OF YEAR 269,264 327,637
------------------------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Interest paid 1,438 254
========================
Income taxes paid -
========================
</TABLE>
60
<PAGE>
EXHIBIT 4.3
FORM OF CERTIFICATE OF DESIGNATION
CLASS AAA PREFERRED STOCK
<PAGE>
CERTIFICATE OF DESIGNATION
(Class AAA Preferred Stock)
ANDREW CIMERMAN and ROBERT CASHMAN each certify that he is the
President and Secretary, respectively, of HOMELIFE, INC., a Nevada corporation
(hereinafter referred to as the "Corporation" or the "Company"); that, pursuant
to the Corporation's Articles of Incorporation, and Nevada General Corporation
Law, the Board of Directors of the Corporation adopted the following resolutions
as of July 22, 1999; at which point none of the Class AA Preferred Stock had
been issued.
1. CREATION AND DESIGNATION OF CLASS AA PREFERRED STOCK. As of
July 22, 1999, the Company created a series of preferred stock consisting of
100,000 shares and designated as the "Class AAA Preferred Stock," having the
voting powers, preferences, relative, participating, optional and other special
rights and the qualifications, limitations and restrictions thereof that are set
forth below. Each share of Class AAA Preferred Stock has a face value of $500.00
per share (the "Face Value").
2. CONVERSION. The holders of the Class AAA Preferred Stock
(collectively, "Holders", each a "Holder") shall have conversion rights as
follows:
(a) RIGHT TO CONVERT. Each share of Class AAA Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
after the third anniversary of the date of issuance of such share, at the office
of the Company or any transfer agent for such stock, into one hundred (100)
shares of the Company's Common Stock.
(b) MECHANICS OF CONVERSION. Before any holder of Class
AAA Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Company or of any transfer agent for the
Class AAA Preferred Stock, and shall give written notice to the Company at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Company shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Class AAA
Preferred Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Class AAA Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock as of such date. If the conversion is in connection with an
underwritten offering of securities registered pursuant to the Securities Act of
1933, the conversion may, at the option of any holder tendering Class AAA
Preferred Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive the Common Stock upon conversion of the Class
AAA Preferred Stock shall not be deemed to have converted such Class AAA
Preferred Stock until immediately prior to the closing of such sale of
securities.
(c) NOTICES OF RECORD DATE. In the event of any taking by
the Company of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Company
shall mail to each holder of Class AAA Preferred Stock, at least twenty (20)
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
(d) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Company shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Class AAA Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Class AAA Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Class AAA Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Preferred Stock, the Company will take such
corporate action as may, in
<PAGE>
the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes, including, without limitation, engaging in best
efforts to obtain the requisite shareholder approval on any necessary
amendment to this Certificate of Designation.
(e) NOTICES. Any notice required by the provisions of
this Section 2 to be given to the Holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Company.
3. DIVIDEND PROVISIONS. The Holders of shares of Class AAA
Preferred Stock shall have no preferential right to dividends, but shall be
entitled to receive dividends, if at all, only when and as declared by the Board
of Directors out of any funds at the time legally available therefor. Each share
of Class AAA Preferred Stock shall rank on a parity with each other share of
Class AAA Preferred Stock with respect to dividends.
4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or
winding up of the Company, either voluntary or involuntary, subject to the
rights of series of Preferred Stock that may from time to time come into
existence and subject to the rights, preferences and priorities of the holders
of shares of Class A Preferred Stock, and the holders of Class AA Preferred
Stock, the Holders of Class AAA Preferred Stock shall be entitled to receive,
pari passu among them, but prior and in preference to any distribution of any of
the assets of the Company to the holders of Common Stock by reason of their
ownership thereof, an amount per share equal to the sum of (i) the Face Value
for each outstanding share of Class AAA Preferred Stock and (ii) an amount equal
to any declared but unpaid and accrued dividends on such share. If upon the
occurrence of such event, the assets and funds thus distributed among the
Holders of the Class AAA Preferred Stock shall be insufficient to permit the
payment to such Holders of the full aforesaid preferential amounts, then the
entire assets and funds of the Company legally available for distribution shall
be distributed ratably among the Holders of the Class AAA Preferred Stock in
accordance with the priorities set forth herein and in proportion to the
preferential amount each such holder is otherwise entitled to receive.
(b) After the distributions described in subsection (a)
above have been paid, subject to the rights of series of Preferred Stock which
may from time to time come into existence and subject to the rights, preferences
and priorities of the holders of shares of Class A Preferred Stock and the Class
AA Preferred Stock, the remaining assets of the Company available for
distribution to shareholders shall be distributed among the Holders of Class AAA
Preferred Stock and the holders of Common Stock pro rata based on the number of
shares of Common Stock held by each (as if all such shares of Class AAA
Preferred Stock had been converted to Common Stock).
(c) (i) For purposes of this Section 4, a
liquidation, dissolution or winding up of the Company shall be deemed to be
occasioned by, or to include, (A) the acquisition of the Company by another
entity by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation, but excluding
any merger affected exclusively for the purpose of changing the domicile of the
Company); or (B) a sale of all or substantially all of the assets of the
Company; UNLESS the Company's shareholders of record as constituted immediately
prior to such acquisition or sale will, immediately after such acquisition or
sale (by virtue of securities issued as consideration for the Company's
acquisition or sale or otherwise) hold at least fifty percent (50%) of the
voting power of the surviving or acquiring entity.
(ii) In any of such events, if the consideration
received by the Company is other than cash, its value will be deemed its fair
market value. Any securities shall be valued as follows:
(A) Securities not subject to
investment letter or other similar restrictions on free marketability covered by
(B) below:
(1) If traded on a securities
exchange or through NASDAQ National Market, the value shall be deemed to be the
average of the closing prices of the securities on such exchange over the 30-day
period ending three (3) days prior to the closing;
3
<PAGE>
(2) If actively traded
over-the-counter, the value shall be deemed to be the average of the closing bid
or sale prices (whichever is applicable) over the 30-day period ending three (3)
days prior to the closing; and
(3) If there is no active
public market, the value shall be the fair market value thereof, as determined
by the Board of Directors.
(B) The method of valuation of
securities subject to investment letter or other restrictions on free
marketability (other than restrictions arising solely by virtue of a
shareholder's status as an affiliate or former affiliate) shall be to make an
appropriate discount from the market value determined as above in (A) (1), (2)
or (3) to reflect the approximate fair market value thereof, as determined by
the Board of Directors.
(iii) In the event the requirements of this
subsection 4(c) are not complied with, the Company shall forthwith either:
(A) cause such closing to be postponed
until such time as the requirements of this Section 4 have been complied with;
or
(B) cancel such transaction, in which
event the rights, preferences and privileges of the Holders of the Class AAA
Preferred Stock shall revert to and be the same as such rights, preferences and
privileges of such series existing immediately prior to the date of the first
notice referred to in subsection 4(c)(iv) hereof.
(iv) The Company shall give each holder of record
of Class AAA Preferred Stock written notice of such impending transaction not
later than twenty (20) days prior to the shareholders' meeting called to approve
such transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such Holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 4, and the Company shall thereafter give such Holders prompt notice
of any material changes. The transaction shall in no event take place sooner
than twenty (20) days after the Company has given the first notice provided for
herein or sooner than ten (10) days after the Company has given notice of any
material changes provided for herein; provided, however, that such periods may
be shortened upon the written consent of the Holders of Class AAA Preferred
Stock that are entitled to such notice rights or similar notice rights and that
represent at least a majority of the voting power of all then outstanding shares
of such Class AAA Preferred Stock.
5. MISCELLANEOUS PROVISIONS. The Class AAA Preferred Shares have
no voting rights and no sinking fund has or will be established to provide for
dividends.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designation of Class AAA Preferred Stock to be duly executed by its President
and attested to by its Secretary and has caused its corporate seal to be affixed
hereto, this ____ day of _____________, 1999.
____________________________________ Attest: ____________________________
Andrew Cimerman Robert Cashman
President Secretary
4
