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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended March 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2001
Commission File Number 000-26659
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Homestore.com, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 95-4438337
(State of Other Jurisdiction (I.R.S. Employer
Incorporation or of Organization) Identification Number)
30700 Russell Ranch Road
Westlake Village, California 91362
(Address of Principal Executive Office) (Zip Code)
(805) 557-2300
(Registrant's Telephone Number, Including Area Code)
-----------------
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
At April 30, 2001, the registrant had 107,490,834 shares of its common
stock outstanding.
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INDEX
THIS 10-Q/A IS BEING FILED FOR THE PURPOSE OF AMENDING AND RESTATING ITEMS 1 AND
2 OF PART I OF FORM 10-Q TO REFLECT THE RESTATEMENT OF OUR CONSOLIDATED
FINANCIALS AS OF AND FOR THE PERIOD ENDED MARCH 31, 2001. WE HAVE MADE NO
FURTHER CHANGES TO THE PREVIOUSLY FILED FORM 10-Q OTHER THAN TO THE BALANCE
SHEET AS OF DECEMBER 31, 2000, WHICH WAS PREVIOUSLY RESTATED IN THE ANNUAL
REPORT ON FORM 10-K/A FILED ON MARCH 12, 2001. ALL INFORMATION IN THIS FORM
10-Q/A IS AS OF MARCH 31, 2001 AND DOES NOT REFLECT ANY SUBSEQUENT INFORMATION
OR EVENTS OTHER THAN THE AFOREMENTIONED RESTATEMENT AND THE DESCRIPTION OF
LITIGATION IN NOTE 14 TO THE CONSOLIDATED FINANCIAL STATEMENTS.
Page
----
PART I--FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Homestore.com, Inc. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets.................................... 1
Unaudited Consolidated Statements of Operations.......................... 2
Unaudited Consolidated Statements of Cash Flows.......................... 3
Notes to Unaudited Condensed Consolidated Financial Statements........... 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 14
SIGNATURES.......................................................................... 24
i
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
HOMESTORE.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
2001 2000
----- ----
(Unaudited)
ASSETS (Restated)
Current assets:
Cash and cash equivalents................................................................ $ 270,743 $ 167,576
Short-term investments................................................................... 19,078 75,295
Marketable equity securities............................................................. 4,459 247
Accounts receivable, net................................................................. 46,905 32,028
Current portion of notes receivable...................................................... 7,299 5,123
Current portion of prepaid distribution expense.......................................... 46,557 49,140
Other current assets..................................................................... 17,133 16,710
----------- ---------
Total current assets................................................................. 412,174 346,119
Prepaid distribution expense, net of current portion......................................... 145,732 159,226
Property and equipment, net.................................................................. 69,012 43,483
Intangible assets, net....................................................................... 982,698 194,274
Restricted cash.............................................................................. 103,409 103,409
Other long-term assets....................................................................... 28,060 46,839
----------- ---------
Total assets......................................................................... $ 1,741,085 $ 893,350
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................................... $ 35,357 $ 13,162
Accrued liabilities...................................................................... 85,595 45,473
Deferred revenue from related parties.................................................... 29,027 -
Deferred revenue......................................................................... 66,674 33,846
----------- ---------
Total current liabilities............................................................ 216,653 92,481
Distribution obligation...................................................................... 193,551 189,848
Other........................................................................................ 4,919 7,542
----------- ---------
Total liabilities.................................................................... 415,123 289,871
----------- ---------
Commitments and contingencies (Note 13)
Stockholders' equity:
Convertible preferred stock..............................................................
Common stock............................................................................. 107 83
Additional paid-in capital............................................................... 1,867,616 1,027,423
Treasury stock........................................................................... (17,531) (16,556)
Notes receivable from stockholders....................................................... (6,006) (7,938)
Deferred stock-based charges............................................................. (114,386) (97,724)
Accumulated other comprehensive loss..................................................... (2,242) (23)
Accumulated deficit...................................................................... (401,596) (301,786)
----------- ---------
Total stockholders' equity........................................................... 1,325,962 603,479
----------- ---------
Total liabilities and stockholders' equity........................................... $ 1,741,085 $ 893,350
=========== =========
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
1
HOMESTORE.COM, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended
March 31,
---------
2001 2000
---- ----
(Restated) (Restated)
Revenues (including non-cash equity charges, see note 10)........................................... $ 61,341 $ 37,662
Revenues from related parties........................................................................ 2,477 -
-------- --------
Total revenues....................................................................................... 63,818 37,662
Cost of revenues (including non-cash equity charges, see note 10).................................... 27,805 10,758
-------- --------
Gross profit......................................................................................... 36,013 26,904
-------- --------
Operating expenses:
Sales and marketing (including non-cash equity charges, see note 10)............................ 58,799 38,271
Product development (including non-cash equity charges, see note 10)............................ 5,484 2,026
General and administrative (including non-cash equity charges, see note 10)..................... 22,367 11,822
Amortization of intangible assets............................................................... 33,763 8,392
Acquisition and reorganization charges.......................................................... 7,065 --
-------- --------
Total operating expenses................................................................... 127,478 60,511
-------- --------
Loss from operations................................................................................. (91,465) (33,607)
Interest income, net................................................................................. 4,451 4,409
Other expense, net................................................................................... (12,796) (14)
-------- --------
Net loss............................................................................................. $(99,810) $(29,212)
======== ========
Basic and diluted net loss per share................................................................. $ (1.05) $ (.39)
======== =========
Shares used to calculate basic and diluted net loss per share........................................ 94,925 74,052
======== =========
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
2
HOMESTORE.COM, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended
March 31,
---------
2001 2000
---- ----
Cash flows from operating activities: (Restated)
Net loss............................................................................................... $ (99,810) $ (29,212)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation........................................................................................... 4,237 675
Amortization of intangible assets...................................................................... 33,762 8,392
Accretion of distribution obligation................................................................... 3,703 --
Provision for doubtful accounts........................................................................ 1,526 277
Stock-based charges.................................................................................... 21,389 10,814
Write-down of investments.............................................................................. 11,092 --
Other non-cash items................................................................................... 512 32
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable............................................................................... 2,723 (13,222)
Prepaid distribution expense...................................................................... 6,780 (13,608)
Other assets...................................................................................... 7,735 (1,108)
Accounts payable and accrued liabilities.......................................................... 26,559 2,997
Deferred revenue from related parties............................................................. 29,027 -
Deferred revenue.................................................................................. 12,443 3,728
--------- ---------
Net cash provided by (used in) operating activities.................................................... 61,678 (30,235)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment.................................................................... (10,757) (2,613)
Purchases of short-term investments.................................................................... (20,229) --
Maturities of short-term investments................................................................... 75,492 --
Purchases of cost and equity investments............................................................... -- (11,650)
Acquisitions, net of cash acquired..................................................................... (30,652) (11,298)
Other.................................................................................................. -- 754
--------- ---------
Net cash provided by (used in) investing activities.................................................... 13,854 (24,807)
--------- ---------
Cash flows from financing activities:
Proceeds from payment of stockholders' notes........................................................... 956 71
Proceeds from exercise of stock options, warrants and share issuances under employee
stock purchase plan................................................................................. 29,597 4,927
Net proceeds from issuance of common and preferred stock............................................... - 428,943
Repayment of notes payable............................................................................. (468) (37,525)
Issuance of notes receivable........................................................................... (2,450) (1,000)
--------- ---------
Net cash provided by financing activities.............................................................. 27,635 395,416
--------- ---------
Increase in cash and cash equivalents.................................................................. 103,167 340,374
Cash and cash equivalents, beginning of period......................................................... 167,576 90,382
--------- ---------
Cash and cash equivalents, end of period............................................................... $ 270,743 $ 430,756
========= =========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
3
HOMESTORE.COM, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
HOMESTORE.COM, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS:
Homestore.com, Inc. ("Homestore" or the "Company") has created an online
marketplace that is the leading destination on the Internet for home and real
estate-related information, products and services, based on the number of
visitors, time spent on the web sites and number of property listings. Through
its network of web sites, the Company provides a wide variety of information and
tools for consumers, and is the leading supplier of online media and technology
solutions for real estate industry professionals, advertisers and providers of
home and real estate-related products and services. To provide consumers with
real estate listings, access to real estate professionals and other home and
real estate-related information and resources, the Company has established
relationships with key industry participants. These participants include real
estate market leaders such as the National Association of REALTORS(R) ("NAR"),
the National Association of Home Builders ("NAHB"), the largest Multiple Listing
Services ("MLSs"), the NAHB Remodelors Council, the National Association of the
Remodeling Industry ("NARI"), the American Institute of Architects ("AIA"), the
Manufactured Housing Institute ("MHI"), real estate franchises, brokers,
builders and agents. The Company also has distribution agreements with a number
of leading Internet portal web sites.
2. BASIS OF PRESENTATION:
The Company's interim financial statements have been prepared in accordance
with generally accepted accounting principles including those for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and note
disclosures required by generally accepted accounting principles for complete
financial statements. These statements are unaudited and, in the opinion of
management, all adjustments (which include only normal recurring adjustments)
considered necessary for a fair presentation, have been included. These
financial statements should be read in conjunction with the audited financial
statements and notes thereto included in the Company's Form 10-K/A for the year
ended December 31, 2000 filed with the Securities and Exchange Commission
("SEC") on March 12, 2002. That form 10-K/A reflects a restatement of the
December 31, 2000 balance sheet which is presented herein on the restated basis
in this Form 10-Q/A. The results of operations for these interim periods are not
necessarily indicative of the operating results for a full year. Certain
reclassifications have been made to the prior year financial statements to
conform to the current year presentation. These financial statements have been
restated from a previously filed Form 10-Q as described in Note 4.
Since inception, the Company has incurred losses from operations. As of
March 31, 2001, the Company had an accumulated deficit of $401.6 million, cash
and cash equivalents of $270.7 million and short-term investments of $19.1
million. The Company has no material financial commitments other than those
under operating lease agreements and distribution and marketing agreements. The
Company currently anticipates that its existing cash and cash equivalents, and
any cash generated from operations will be sufficient to fund the Company's
operating activities, capital expenditures and other obligations through at
least the next 12 months. However, in the longer term, the Company faces
significant risks associated with the successful execution of its business
strategy and may need to raise additional capital in order to fund more rapid
expansion, to expand its marketing activities, to develop new or enhance
existing services or products, to satisfy our obligation to AOL and to respond
to competitive pressures or to acquire complementary services, businesses or
technologies. If the Company is not successful in generating sufficient cash
flow from operations, the Company may need to raise additional capital through
public or private financing, strategic relationships or other arrangements. This
additional capital, if needed, might not be available on terms acceptable to the
Company, or at all. The failure to raise sufficient capital when needed could
have a material adverse effect on the Company's business, results of operations
and financial condition. If additional capital were raised through the issuance
of equity securities, the percentage of the Company's stock owned by the
Company's then-current stockholders would be reduced. Furthermore, such equity
securities might have rights, preferences or privileges senior to those of the
Company's common and preferred stock. In addition the Company's liquidity could
be adversely impacted by the litigation referred to in Note 14.
3. RECENT ACCOUNTING DEVELOPMENTS:
Effective January 1, 2001, the Company adopted SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities." The statement requires the
recognition of all derivatives as either assets or liabilities in the balance
sheet and the measurement of those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the
4
planned use of the derivative and the resulting designation. Because the Company
does not currently hold any derivative instruments and does not engage in
hedging activities, the adoption of SFAS No. 133 in the first quarter of 2001
did not have an impact on the Company's financial position, results of
operations or cash flows.
As described in Note 4, the Company elected to early adopt EITF 01-9
"Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor's Products)".
4. RESTATEMENT AND ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT:
On December 21, 2001, the Company announced that the Audit Committee of its
Board of Directors was conducting an inquiry of certain of the Company's
accounting practices and that the results of the inquiry to date determined that
certain of its financial statements would require restatement. The Audit
Committee retained independent counsel and independent accountants to assist in
connection with the inquiry. On January 2, 2002, the Company concluded, based on
preliminary findings of the inquiry, that its financial statements for each of
the three quarters ended, September 30, 2001 would be restated. On February 13,
2002, the Company concluded, based upon preliminary findings of the inquiry,
that its financial statements, as of, and for the year ended December 31, 2000,
including certain interim periods, would be restated. On March 11, 2002, the
Audit Committee concluded its inquiry. The results of the inquiry determined
that for the three-month period ended March 31, 2001, certain transactions
resulting in revenue recognition of $24.5 million had been improperly recorded
as independent cash transactions, when, in fact, they were reciprocal exchanges
that should have been evaluated as barter transactions. The Company determined
that there was insufficient support to establish the fair value of these barter
exchanges and thus the related revenue has been reversed. Although the ultimate
impact of these adjustments will be to reduce both revenues and expenses,
because some of the transactions take place over several accounting periods, and
because certain payments for goods and services by the Company were capitalized
when initially recorded, operating results for the year 2001 and future periods
are impacted. The effect of reversing the revenue associated with certain of
these transactions required offsetting adjustments to various asset and
liability accounts, including: accounts receivable, notes receivable, property
and equipment, other assets, accrued liabilities and deferred revenue. In
addition, the results of the inquiry determined that for the three-month period
ended March 31, 2001, revenue of $15.6 million was improperly recognized on the
sale of certain software products and services. The transactions did not meet
the revenue recognition requirements of SOP 97-2 due to the existence of other
performance commitments and, accordingly, the revenue should have been deferred
through March 31, 2001.
The restated financial statements also include the effects of the Company's
early adoption of EITF 01-9, "Accounting for Consideration Given by a Vendor to
a Customer (Including a Reseller of the Vendor's Products)" which was issued in
February 2002. This consensus requires companies to report certain consideration
given by a vendor to a customer as a reduction in revenue. Upon adoption,
companies are required to retroactively reclassify such amounts in previously
issued financial statements to comply with the income statement display
requirements of the consensus. The Company has adopted this consensus and the
effect on the three-month period ended March 31, 2001 was to reduce previously
reported revenue and expense by $1.6 million with no effect on net loss or net
loss per share. The effect on the three-month period ended March 31, 2000 was to
reduce previously reported revenue and expense by $0.9 million.
As a result of these items, for the three-month period ended March 31,
2001, the Company has reduced its previously reported revenue by $41.7 million
and increased its net loss from $67.1 million to $99.8 million and increased its
net loss per share of $(.71) to $(1.05). For the three-month period ended March
31, 2000, the Company has reduced its previously reported revenue by $0.9
million and there was no effect on its net loss or its net loss per share.
Additionally, the Company reclassified $13.4 million in previously reported
cash and cash equivalents to restricted cash as a result of certain
collateralized lease and other obligations.
Following are reconciliations of the Company's financial position and
results of operations and cash flows from financial statements previously filed
to these restated financial statements.
5
PAGE>
HOMESTORE.COM, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONSOLIDATED BALANCE SHEET
(in thousands)
March 31, 2001
--------------
As
--
Reported Adjustments Restated
-------- ----------- --------
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 284,152 $ (13,409) $ 270,743
Short-term investments............................................. 19,078 - 19,078
Marketable equity securities....................................... 4,459 - 4,459
Accounts receivable, net........................................... 59,227 (12,322) 46,905
Current portion of notes receivable................................ 7,299 - 7,299
Current portion of prepaid distribution expense.................... 46,557 - 46,557
Other current assets............................................... 34,083 (16,950) 17,133
----------- ---------- -----------
Total current assets.......................................... 454,855 (42,681) 412,174
Prepaid distribution expense, net of current portion.................... 145,732 - 145,732
Property and equipment, net............................................. 71,341 (2,329) 69,012
Intangible assets, net.................................................. 991,052 (8,354) 982,698
Restricted cash......................................................... 90,000 13,409 103,409
Other assets............................................................ 31,543 (3,483) 28,060
----------- ---------- -----------
Total assets.................................................. $ 1,784,523 $ (43,438) $ 1,741,085
=========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 35,257 $ 100 $ 35,357
Accrued liabilities................................................ 85,156 439 85,595
Deferred revenue from related parties............................ - 29,027 29,027
Deferred revenue................................................... 76,226 (9,552) 66,674
----------- ---------- -----------
Total current liabilities..................................... 196,639 20,014 216,653
Distribution obligation................................................. 193,551 - 193,551
Other................................................................... 4,919 - 4,919
----------- ---------- -----------
Total Liabilities............................................. 395,109 20,014 415,123
----------- ---------- -----------
Commitments and contingencies (Note 13)
Stockholders' equity:
Common stock....................................................... 107 - 107
Additional paid-in capital......................................... 1,867,616 - 1,867,616
Treasury stock..................................................... (17,531) - (17,531)
Notes receivable from stockholders................................. (6,006) - (6,006)
Deferred stock-based charges....................................... (114,480) 94 (114,386)
Accumulated other comprehensive income............................. (2,242) - (2,242)
Accumulated deficit................................................ (338,050) (63,546) (401,596)
----------- ---------- -----------
Total stockholders' equity.................................... 1,389,414 (63,452) 1,325,962
----------- ---------- -----------
Total liabilities and stockholders' equity.................... $ 1,784,523 $ (43,438) $ 1,741,085
=========== ========== ===========
6
HOMESTORE.COM, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended March 31, 2001
---------------------------------
As Accounting
Reported Adjustments Change Restated
-------- ----------- ------ --------
Revenues.............................................................. $ 105,491 $ (42,576) $ (1,574) $ 61,341
Revenues from related parties......................................... - 2,477 - 2,477
--------- --------- --------- ---------
Total revenues........................................................ 105,491 (40,099) (1,574) 63,818
Cost of revenues...................................................... 28,028 - (223) 27,805
--------- --------- --------- ---------
Gross profit.......................................................... 77,463 (40,099) (1,351) 36,013
--------- --------- --------- ---------
Operating expenses:
Sales and marketing.............................................. 67,013 (6,863) (1,351) 58,799
Product development.............................................. 5,484 - - 5,484
General and administrative....................................... 22,916 (549) - 22,367
Amortization of intangible assets................................ 33,788 (25) - 33,763
Acquisition and reorganization charges........................... 7,065 - - 7,065
--------- --------- --------- ---------
Total operating expenses.............................................. 136,266 (7,437) (1,351) 127,478
--------- --------- --------- ---------
Loss from operations.................................................. (58,803) (32,662) - (91,465)
Interest income, net.................................................. 4,451 - - 4,451
Other expense, net.................................................... (12,796) - - (12,796)
--------- --------- --------- ---------
Net loss applicable to common stockholders............................ $ (67,148) $ (32,662) $ - $ (99,810)
========= ========= ========= =========
Basic and diluted net loss per share.................................. $ (.71) $ (.34) $ - $ (1.05)
========= ========= ========= =========
Shares used to calculate basic and diluted net loss per share......... 94,925 94,925 94,925 94,925
========= ========= ========= =========
Three Months Ended March 31, 2000
---------------------------------
As Accounting
Reported Change Restated
-------- ------ --------
Revenues.............................................................. $ 38,599 $ (937) $ 37,662
Cost of revenues...................................................... 10,758 - 10,758
--------- --------- ---------
Gross profit.......................................................... 27,841 (937) 26,904
--------- --------- ---------
Operating expenses:
Sales and marketing.............................................. 39,208 (937) 38,271
Product development.............................................. 2,026 - 2,026
General and administrative....................................... 11,822 - 11,822
Amortization of intangible assets................................ 8,392 - 8,392
Acquisition-related and other charges............................ - - -
--------- --------- ---------
Total operating expenses.............................................. 61,448 (937) 60,511
--------- --------- ---------
Loss from operations.................................................. (33,607) - (33,607)
Interest income, net.................................................. 4,409 - 4,409
Other expense, net.................................................... (14) - (14)
--------- --------- ---------
Net loss applicable to common stockholders............................ $ (29,212) $ - $ (29,212)
========= ========= =========
Basic and diluted net loss per share.................................. $ (.39) $ - $ (.39)
========= ========= =========
Shares used to calculate basic and diluted net loss per share......... 74,052 74,052 74,052
========= ========= =========
7
HOMESTORE.COM, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Three Months Ended March 31, 2001
------------------------------------
As Reported Adjustments Restated
----------- ----------- --------
Cash flows from operating activities:
Net loss.......................................................................... $ (67,148) $ (32,662) $ (99,810)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation...................................................................... 4,486 (249) 4,237
Amortization of intangible assets................................................. 33,788 (26) 33,762
Accretion of distribution obligation.............................................. 3,703 - 3,703
Provision for doubtful accounts................................................... 1,526 - 1,526
In-process research and development............................................... -- - -
Stock-based charges............................................................... 21,295 94 21,389
Write-down of investments......................................................... 11,092 - 11,092
Other non-cash items.............................................................. (4,488) 5,000 512
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable............................................................... 2,846 (123) 2,723
Prepaid distribution expense...................................................... 6,780 - 6,780
Other assets...................................................................... 3,113 4,622 7,735
Accounts payable and accrued liabilities.......................................... 21,947 4,612 26,559
Deferred revenue from related parties............................................. 29,027 29,027
Deferred revenue.................................................................. 31,648 (19,205) 12,443
----------- ----------- ---------
Net cash provided by operating activities......................................... 70,588 (8,910) 61,678
----------- ----------- ---------
Cash flows from investing activities:
Purchases of property and equipment............................................... (11,757) 1,000 (10,757)
Purchases of short-term investments............................................... (20,229) - (20,229)
Maturities of short-term investments.............................................. 75,492 - 75,492
Purchases of cost and equity investments.......................................... - - -
Acquisitions, net of cash acquired................................................ (38,562) 7,910 (30,652)
----------- ----------- ---------
Net cash provided by investing activities......................................... 4,944 8,910 13,854
----------- ----------- ---------
Cash flows from financing activities:
Proceeds from payment of stockholders' notes...................................... 956 - 956
Proceeds from exercise of stock options, warrants and share issuances
under employee stock purchase plan............................................. 29,597 - 29,597
Net proceeds from issuance of common and preferred stock.......................... - - -
Transfer to restricted cash....................................................... - - -
Repayment of notes payable........................................................ (468) - (468)
Issuance of notes receivable...................................................... (2,450) - (2,450)
Subsidiary equity transactions.................................................... - - -
----------- ----------- ---------
Net cash provided by financing activities......................................... 27,635 - 27,635
----------- ----------- ---------
Change in cash and cash equivalents............................................... 103,167 - 103,167
Cash and cash equivalents, beginning of period.................................... 180,985 (13,409) 167,576
----------- ----------- ---------
Cash and cash equivalents, end of period.......................................... $ 284,152 $ (13,409) $ 270,743
=========== =========== =========
8
HOMESTORE.COM, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS:
The increase in stockholders' equity during the first quarter of 2001 was
primarily the result of the acquisitions of Move.com, Inc. and Welcome Wagon
International, Inc., or collectively referred to as the Move.com Group in which
the Company issued approximately 21.4 million shares of its common stock and
assumed approximately 3.2 million outstanding stock options of Move.com, Inc.
The acquisition resulted in an increase to additional paid-in capital of
approximately $780.0 million.
The components of comprehensive loss are as follows (in thousands):
Three Months Ended
March 31,
---------
2001 2000
---- ----
(Restated) (Restated)
Net loss.......................................................................................... $ (99,810) $ (29,212)
Unrealized gains (losses) on marketable equity securities......................................... (1,902) 4,437
Foreign currency translation...................................................................... (317) --
---------- ---------
Comprehensive loss................................................................................ $ (102,029) $ (24,775)
========== =========
In connection with a marketing agreement providing for a multi-faceted
marketing program, the Company issued 600,000 shares of its common stock, the
fair market value of which was $11.1 million on the date of issuance of the
shares. The $11.1 million was recorded as deferred stock-based charges and is
being amortized over the five-year term of the agreement. The counterparty to
the marketing agreement also entered into a marketing and web services agreement
with the Company for $15.0 million in cash which is payable over the five-year
term of the agreement. The Company is recording these transactions on a net
basis.
6. ACQUISITION AND REORGANIZATION CHARGES:
In the first quarter of 2001, the Company incurred one-time acquisition and
reorganization charges of $7.1 million from the acquisition of the Move.com
Group. Included in these charges were stay bonuses, severance, and facilities
shut-down costs associated with this acquisition. No accruals have been made for
expenses incurred beyond March 31, 2001.
7. IMPAIRMENT OF INVESTMENTS:
During the three-month period ended March 31, 2001, the Company recorded a
charge of approximately $11.1 million based on the impairment of a portion of
the Company's portfolio of cost investments. The impairment of these investments
to their net realizable values was based on a review of the companies' financial
conditions, cash flow projections and operating performances.
8. ACQUISITIONS:
In January 2001, the Company acquired certain assets and licenses and
assumed certain liabilities from Internet Pictures Corporation ("iPIX") for $8.1
million in cash and a note in the amount of $2.25 million. The acquisition has
been accounted for as a purchase. The acquisition cost has been preliminarily
allocated to the assets acquired based on their respective fair values. The
excess of purchase consideration over net tangible assets acquired of
approximately $8.1 million has been preliminarily allocated to goodwill and
other identifiable intangible assets and is being amortized on a straight-line
basis over the estimated useful lives ranging from three to five years. The
results of operations for iPIX for periods prior to the acquisition were not
material to the Company and accordingly, pro forma results of operations have
not been presented.
In January 2001, the Company acquired certain assets and assumed certain
liabilities from Computers for Tracts, Inc. ("CFT") for approximately $4.5
million in cash and 162,850 shares of the Company's common stock valued at $5.0
million. The acquisition has been accounted for as a purchase. The acquisition
cost has been preliminarily allocated to the assets acquired based on their
respective fair values. The excess of purchase consideration over net tangible
assets acquired of approximately $8.1 million has been preliminarily allocated
to goodwill and other identifiable intangible assets and is being amortized on a
straight-line basis over the estimated useful lives ranging from three to five
years. The results of operations for CFT for periods prior to the acquisition
were not material to the Company and accordingly, pro forma results of
operations have not been presented.
9
HOMESTORE.COM, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In February 2001, the Company acquired all the outstanding shares of
HomeWrite, Inc. ("HomeWrite") in exchange for 196,549 shares of the Company's
common stock valued at $5.6 million and assumed the HomeWrite Stock option plan
consisting of 196,200 stock options with an estimated fair value of $4.5
million. The acquisition has been accounted for as a purchase. The acquisition
cost has been preliminarily allocated to the assets acquired based on their
respective fair values. The excess of purchase consideration over net tangible
assets acquired of approximately $11.8 million has been preliminarily allocated
to goodwill and other identifiable intangible assets and is being amortized on a
straight-line basis over the estimated useful lives ranging from three to five
years. The results of operations for HomeWrite for periods prior to the
acquisition were not material to the Company and accordingly, pro forma results
of operations have not been presented.
In February 2001, the Company acquired certain assets and assumed certain
liabilities from Homebid.com, Inc. ("Homebid") for approximately $3.5 million in
cash. The acquisition has been accounted for as a purchase. The acquisition cost
has been preliminarily allocated to the assets acquired based on their
respective fair values. The excess of purchase consideration over net tangible
assets acquired of approximately $2.5 million has been preliminarily allocated
to goodwill and other identifiable intangible assets and is being amortized on a
straight-line basis over the estimated useful lives ranging from three to five
years. The results of operations for Homebid for periods prior to the
acquisition were not material to the Company and accordingly, pro forma results
of operations have not been presented.
9. RELATED PARTY TRANSACTIONS:
In February 2001, the Company completed the acquisitions of the Move.com
Group from Cendant Corporation ("Cendant") in an all stock transaction valued at
$757.3 million. In connection with the acquisition, the Company issued an
aggregate of 21.4 million shares of the Company's common stock in exchange for
all the outstanding shares of capital stock of the Move.com Group and assumed
approximately 3.2 million outstanding stock options of Move.com, Inc. Cendant is
restricted in its ability to sell the Homestore.com shares it received in the
acquisition and has agreed to vote such shares on all corporate matters in
proportion to the voting decisions of all other stockholders. In addition,
Cendant has agreed to a ten-year standstill agreement that, under most
conditions, prohibits Cendant from acquiring additional Homestore.com shares.
The acquisition has been accounted for as a purchase. The acquisition cost has
been preliminarily allocated to assets acquired and liabilities assumed based on
estimates of their respective fair values. The excess of purchase consideration
over net tangible assets acquired of $799.2 million has been preliminarily
allocated to goodwill and other identifiable intangible assets and is being
amortized on a straight-line basis over estimated lives ranging from two to
fifteen years.
In connection with and contingent upon the closing of the acquisition of
the Move.com Group, the Company entered into a series of commercial agreements
for the sale of various technology and subscription-based products to Real
Estate Technology Trust ("RETT"), an independent trust established in 1996 to
provide technology services and products to Cendant's real estate franchisees
that is considered a related party of the Company. Under the commercial
agreements, RETT committed to purchase $75.0 million in products to be delivered
to agents, brokers and other Cendant real estate franchisees over the next three
years. Revenues from RETT and Cendant in the three-month period ended March 31,
2001 were $2.5 million and are reported separately in these financial
statements. It is not practical to determine the related costs of such revenues.
The following summarized unaudited pro forma financial information includes
the acquisition of the Move.com Group as if it had occurred at the beginning of
each period (in thousands, except per share amounts):
Three Months Ended
March 31,
---------
2001 2000
---- ----
(Restated) (Restated)
Revenues.......................................................................................... $ 76,765 $ 56,703
Net loss.......................................................................................... (127,259) (98,592)
Net loss per share:
Basic and diluted............................................................................ $ (1.20) $ (1.03)
Weighted average shares...................................................................... 105,843 95,414
10. STOCK-BASED CHARGES:
10
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25,
compensation expense is recognized over the vesting period based on the
difference, if any, on the date of grant between the fair value of the Company's
stock and the exercise price on the date of grant. The Company accounts for
stock issued to non-employees in accordance with the provisions of SFAS No. 123
and Emerging Issues Task Force ("EITF") No. 96-18 "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods and Services."
The following chart summarizes the stock-based charges that have been
included in the following captions for each of the periods presented (in
thousands):
Three Months Ended
March 31,
--------
2001 2000
---- ----
(Restated) (Restated)
Revenues......................................................................................... $ 1,351 $ 937
Cost of revenues................................................................................. 105 198
Sales and marketing.............................................................................. 19,299 8,486
Product development.............................................................................. 99 186
General and administrative....................................................................... 535 1,007
-------- -------
$ 21,389 $10,814
======== =======
11. NET LOSS PER SHARE:
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated (in thousands, except per share
amounts):
Three Months Ended
March 31,
--------
2001 2000
---- ----
(Restated) (Restated)
Numerator:
Net loss........................................................................................ $ (99,810) $ (29,212)
========= =========
Denominator:
Weighted average shares outstanding............................................................. 94,925 74,052
========= =========
Basic and diluted net loss per share................................................................. $ (1.05) $ (.39)
========= =========
12. SEGMENT INFORMATION
Segment information is presented in accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
standard is based on a management approach, which requires segmentation based
upon the Company's internal organization and disclosure of revenue and operating
expenses based upon internal accounting methods. The Company operates in two
principal business segments and has other business lines which are aggregated as
"other". This is consistent with the data that is made available to the
Company's management to assess performance and make decisions. The two business
segments consist of professional subscriptions and advertising. The expenses
presented below for the two business segments and other exclude an allocation of
certain significant operating expenses that the Company views as inseparable,
including marketing expenses, such as Internet portal distribution and off-line
branding; new product development costs; web site design and maintenance;
listings content aggregation; customer care operations; billing and collections;
data center hosting costs; corporate expenses, such as finance, legal, internal
business systems, human resources and sales; amortization of intangible assets;
stock-based charges; and acquisition and reorganization related charges. There
are no inter-segment revenues. Assets and liabilities are not allocated to
segments for internal reporting purposes.
Summarized information by segment as excerpted from the internal management
reports is as follows (in thousands):
11
Three Months Ended
March 31,
-----------------------
2001 2000
---------- ----------
(Restated) (Restated)
Revenues:
Professional subscriptions................................................................... $ 42,992 $ 22,892
Advertising.................................................................................. 14,080 14,770
Other........................................................................................ 6,746 -
--------- ---------
63,818 37,662
========= =========
Operating expenses:
Professional subscriptions................................................................... 25,441 11,429
Advertising.................................................................................. 12,012 1,340
Other........................................................................................ 5,006 -
Unallocated.................................................................................. 112,824 58,500
--------- ---------
155,283 71,269
--------- ---------
Loss from operations.............................................................................. $ (91,465) $ (33,607)
========= =========
Revenues from professional subscriptions for the three-month period ended
March 31, 2001 included $2.5 million of revenue from related parties. There were
none in fiscal 2000. In connection with acquisitions in 2001, the Company
expanded its segment presentation to include a third, "other" segment. The
Company's Welcome Wagon business constitutes $6.7 million of revenue and $5.0
million of expense, respectively, in the three-month period ended March 31,
2001, of those amounts included in the "other" classification.
13. COMMITMENTS AND CONTINGENCIES:
From time to time, the Company has been party to various litigation and
administrative proceedings relating to claims arising from its operations in the
normal course of business. Management believes that the resolution of these
matters will not have a material adverse effect on the Company's business,
results of operations, financial condition or cash flows.
On April 25, 2000, the Company received a request for information
pertaining to its business from the Antitrust Division of the U.S. Department of
Justice, ("DOJ"). The request sought information about the Company's business as
it relates to Internet realty sites in the United States, and the Company has
responded to that request. Following their review under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 of the Company's acquisition of the Move.com
Group from Cendant, the DOJ notified the Company in February 2001 that it would
not oppose the closing of the acquisition, but intended to continue its
investigation of certain Homestore.com agreements, including certain agreements
between the Company and Cendant. The Company is continuing to cooperate with the
DOJ with respect to that investigation.
14. SUBSEQUENT EVENTS:
Litigation
Beginning in December 2001 numerous separate complaints purporting to be
class actions were filed in various jurisdictions alleging that the Company and
certain of its officers and directors violated certain provisions of the
Securities Exchange Act of 1934. The complaints contain varying allegations,
including that the Company made materially false and misleading statements with
respect to our 2000 and 2001 financial results in our filings with the SEC,
analysts reports, press releases and media reports. The complaints seek an
unspecified amount of damages. These cases are still in the preliminary stages,
and it is not possible for the Company to quantify the extent of its potential
liability, if any. An unfavorable outcome in these cases could have a material
adverse effect on our business, financial condition, cash flows and results of
operations. In addition, the costs of defending any litigation can be high and
divert management's attention from the day to day operations of the Company's
business.
In January 2002 the Company was notified that the SEC had issued a formal
order of private investigation in connection with matters relating to the
restatement of the Company's financial results. The SEC has requested that the
Company provide them with certain documents concerning the restatement of the
Company's financial results. The Company is cooperating with the SEC in
connection with this investigation and its outcome cannot be determined.
12
In February 2002, the Company was notified by Nasdaq of its intent to
institute proceedings against the Company to delist its stock from the Nasdaq
National Stock Market because, as a result of the restatement, its financial
statements had not been filed with the SEC on a timely basis. The Company has
requested a hearing on the matter and is working to update its financial
statements prior to the hearing. However, the Company cannot assure you that its
common stock will continue to be traded on the Nasdaq National Stock Market. In
the event the Company's common stock is delisted from the Nasdaq National
Market, it could be more difficult to trade the Company's common stock, and the
Company cannot assure that a market for its common stock will develop or be
sustained.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-Q/A and the following "Management's Discussion and Analysis of
Financial Condition and Results of Operations" include "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. This Act provides a "safe harbor" for forward-looking statements to
encourage companies to provide prospective information about themselves so long
as they identify these statements as forward-looking and provide meaningful
cautionary statements identifying important factors that could cause actual
results to differ from the projected results. All statements other than
statements of historical fact that we make in this Form 10-Q/A are
forward-looking. In particular, the statements herein regarding industry
prospects and our future results of operations or financial position are
forward-looking statements. Forward-looking statements reflect our current
expectations and are inherently uncertain. Our actual results may differ
significantly from our expectations. Factors that could cause or contribute to
such differences include those discussed below, as well as those discussed in
our annual report on Form 10-K, as amended on Form 10-K/A, for the year ended
December 31, 2000.
On December 21, 2001, we announced that the Audit Committee of our Board of
Directors was conducting an inquiry of certain of our accounting practices and
that the results of the inquiry to date determined that certain of our financial
statements would require restatement. The Audit Committee retained independent
counsel and independent accountants to assist in connection with the inquiry. On
January 2, 2002, we concluded, based on preliminary findings of the inquiry,
that our financial statements for each of the three quarters ended September
30, 2001 would be restated On February 13, 2002, we concluded, based upon
preliminary findings of the inquiry, that our financial statements, as of, and
for the year ended December 31, 2000, including certain interim periods, would
be restated. On March 11, 2002, the Audit Committee concluded its inquiry. The
results of the inquiry determined that for the three-month period ended March
31, 2001, certain transactions resulting in revenue recognition of $24.5 million
had been improperly recorded as independent cash transactions, when, in fact,
they were reciprocal exchanges that should have been evaluated as barter
transactions. We determined that there was insufficient support to establish the
fair value of these barter exchanges and thus the related revenue has been
reversed. Although the ultimate impact of these adjustments will be to reduce
both revenues and expenses, because some of the transactions take place over
several accounting periods, and because certain payments for goods and services
by us were capitalized when initially recorded, operating results for the year
2001 and future periods are impacted. The effect of reversing the revenue
associated with certain of these transactions required offsetting adjustments to
various asset and liability accounts, including: accounts receivable, notes
receivable, property and equipment, other assets, accrued liabilities and
deferred revenue. In addition, the results of the inquiry determined that for
the three-month period ended March 31, 2001, revenue of $15.6 million was
improperly recognized on the sale of certain software products and services. The
transactions did not meet the revenue recognition requirements of SOP 97-2 due
to the existence of other performance commitments and, accordingly, the revenue
should have been deferred through March 31, 2001.
The restated financial statements also include the effects of our early
adoption of EITF 01-09, "Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendor's Products)" which was issued in
February 2002. This consensus requires companies to report certain consideration
given by a vendor to a customer as a reduction in revenue. Upon adoption,
companies are required to retroactively reclassify such amounts in previously
issued financial statements to comply with the income statement display
requirements of the consensus. We have adopted this consensus and the effect on
the three-month period ended March 31, 2001 was to reduce previously reported
revenue and expense by $1.6 million with no effect on net loss or net loss per
share. The effect on the three-month period ended March 31, 2000 was to reduce
previously reported revenue and expense by $0.9 million.
The consolidated financial statements for the three months ended March 31,
2001 contained herein have been restated to incorporate these adjustments. (See
Note 4 to the Consolidated Financial Statements.) As a result of these items,
for the three-month period ended March 31, 2001, we have reduced our previously
reported revenue by $41.7 million and increased our net loss from $67.1 million
to $99.8 million and increased our net loss per share of $(.71) to $(1.05). For
the three-month period ended March 31, 2000, we have reduced our previously
reported revenue by $0.9 million and there was no effect on our net loss or our
net loss per share.
14
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended March 31, 2001 Three Months Ended March 31, 2000
--------------------------------- ---------------------------------
As Accounting As Accounting
Reported Adjustments Change Restated Reported Change Restated
-------- ----------- ------ -------- -------- ------
Revenues.............................. $ 105,491 $ (42,576) $ (1,574) $ 61,341 $ 38,599 $ (937) $ 37,662
Revenues from related parties......... - 2,477 - 2,477 - - -
--------- --------- -------- -------- -------- ------ --------
Total revenues........................ 105,491 (40,099) (1,574) 63,818 38,599 (937) 37,662
Cost of revenues...................... 28,028 - (223) 27,805 10,758 - 10,758
--------- --------- -------- -------- -------- ------ --------
Gross profit.......................... 77,463 (40,099) (1,351) 36,013 27,841 (937) 26,904
--------- --------- -------- -------- -------- ------ --------
Operating expenses:
Sales and marketing.............. 67,013 (6,863) (1,351) 58,799 39,208 (937) 38,271
Product development.............. 5,484 - - 5,484 2,026 - 2,026
General and administrative....... 22,916 (549) - 22,367 11,822 - 11,822
Amortization of intangible
assets........................ 33,788 (25) - 33,763 8,392 - 8,392
Acquisition and reorganization
charges 7,065 - - 7,065 - - -
--------- --------- -------- -------- -------- ------ --------
Total operating expenses.............. 136,266 (7,437) (1,351) 127,478 61,448 (937) 60,511
--------- --------- -------- -------- -------- ------ --------
Loss from operations.................. (58,803) (32,662) - (91,465) (33,607) - (33,607)
Interest income, net.................. 4,451 - - 4,451 4,409 - 4,409
Other expense, net.................... (12,796) - - (12,796) (14) - (14)
--------- --------- -------- -------- -------- ------ --------
Net loss applicable to common
stockholders.......................... $ (67,148) $ (32,662) - $(99,810) $(29,212) - $(29,212)
========= ========= ======== ======== ======== ====== ========
Basic and diluted net loss per share.. $ (.71) $ (.34) - $ (1.05) $ (.39) - (.39)
========= ========= ======== ======== ======== ====== ========
Shares used to calculate basic and
diluted net loss per share............ 94,925 94,925 94,925 94,925 74,052 74,052 74,052
========= ========= ======== ======== ======== ====== ========
Overview
Homestore.com, Inc., or Homestore, has created an online marketplace that
is the leading destination on the Internet for home and real estate-related
information, products and services, based on the number of visitors, time spent
on the web sites and number of property listings. Through our family of web
sites, Homestore provides a wide variety of information and tools for consumers,
and is the leading supplier of online media and technology solutions for real
estate industry professionals, advertisers and providers of home and real
estate-related products and services. To provide consumers with real estate
listings, access to real estate professionals and other home and real
estate-related information and resources, we have established relationships with
key industry participants. These participants include real estate market leaders
such as the National Association of REALTORS(R), or the NAR, the National
Association of Home Builders, or the NAHB, the largest Multiple Listing
Services, or MLSs, the NAHB Remodelors Council, the National Association of the
Remodeling Industry(R), or NARI, the American Institute of Architects, or AIA,
the Manufactured Housing Institute, or MHI, real estate franchises, brokers,
builders and agents. We also have distribution agreements with a number of
leading Internet portal web sites.
Basis of Presentation
Initial Business and RealSelect Holding Structure. We were incorporated in
1993 under the name of InfoTouch Corporation, or InfoTouch, with the objective
of establishing an interactive network of real estate "kiosks" for consumers to
search for homes. In 1996, we began to develop the technology to build and
operate real estate related Internet sites. Effective December 4, 1996, we
entered into a series of agreements with the NAR and several investors. Under
these agreements, we transferred technology and assets relating to advertising
the listing of residential real estate on the Internet to a newly-formed
company, NetSelect LLC, or LLC, in exchange for a 46% ownership interest in LLC.
The investors contributed capital to a newly-formed company, NetSelect, Inc., or
NSI, which owned 54% of LLC. LLC received capital funding from NSI and in turn
contributed the assets and technology contributed by InfoTouch as well as the
NSI capital to a newly formed entity, RealSelect, Inc., or RealSelect, in
exchange for common stock representing an 85% ownership interest in RealSelect.
Also effective December 4, 1996, RealSelect entered into a number of formation
agreements with and issued cash and common stock representing a 15% ownership
interest in RealSelect to the NAR in exchange for the rights to operate the
REALTOR.com(R) web site and pursue commercial opportunities relating to the
listing of real estate on the Internet.
15
The agreements governing RealSelect required us to terminate our remaining
activities, which were insignificant at that time, and dispose of our remaining
assets and liabilities, which we did in early 1997. Accordingly, following the
formation, NSI, LLC and InfoTouch were shell holding companies for their
investments in RealSelect.
Our initial operating activities primarily consisted of recruiting
personnel, developing our web site content and raising our initial capital. We
developed our first web site, REALTOR.com(R), in cooperation with the NAR and
actively began marketing our advertising products and services to real estate
professionals in January 1997.
Reorganization of Holding Structure. Under the formation agreements of
RealSelect, the reorganization of the initial holding structure was provided for
at an unspecified future date. On February 4, 1999, NSI stockholders entered
into a non-substantive share exchange with and were merged into InfoTouch. In
addition, LLC was merged into InfoTouch. We refer to this transaction as the
Reorganization. The share exchange lacked economic substance and, therefore, was
accounted for at historical cost. For a further discussion relating to the
accounting for the Reorganization, see Notes 1, 2 and 3 of Homestore.com's Notes
to the Consolidated Financial Statements included in the annual report on Form
10-K for the year ended December 31, 2000. We (InfoTouch) changed our corporate
name to Homestore.com, Inc. in August 1999.
Acquisitions. In January 2001, we acquired certain assets and licenses and
assumed certain liabilities from Internet Pictures Corporation, or iPIX for $8.1
million in cash and a note in the amount of $2.25 million. In January 2001, we
acquired certain assets and assumed certain liabilities from Computers for
Tracts, Inc. for approximately $4.5 million in cash and 162,850 shares of the
our common stock valued at approximately $5.0 million. In February 2001, we
acquired all the outstanding shares of HomeWrite, Inc. in exchange for 196,549
shares of our common stock valued at $5.6 million and assumed the HomeWrite
stock option plan consisting of 196,200 stock options with an estimated fair
value of $4.5 million. In February 2001, we acquired certain assets and assumed
certain liabilities from Homebid.com, Inc. for approximately $3.5 million in
cash. In February 2001, we completed the acquisitions of Move.com, Inc. and
Welcome Wagon International, Inc, or collectively referred to as the Move.com
Group, from Cendant Corporation, or Cendant, in an all stock transaction valued
at approximately $757.3 million. In connection with the acquisitions, we issued
an aggregate of 21.4 million shares of our common stock in exchange for all the
outstanding shares of capital stock of the Move.com Group, and assumed
approximately 3.2 million outstanding stock options of Move.com, Inc. Cendant is
restricted in its ability to sell the Homestore.com shares it received in the
acquisition and has agreed to vote such shares on all corporate matters in
proportion to the voting decisions of all other stockholders. In addition,
Cendant has agreed to a ten-year standstill agreement that, under most
conditions, prohibits Cendant from acquiring additional Homestore.com shares.
The acquisitions described above have been accounted for as purchases in
accordance with generally accepted accounting principles.
In connection with and contingent upon the close of the acquisition of the
Move.com Group, we entered into a series of commercial agreements for the sale
of various technology and subscription-based products to Real Estate Technology
Trust ("RETT"), an independent trust established in 1996 to provide technology
services and products to Cendant's real estate franchisees that is considered a
related party of the Company. Under the commercial agreements, RETT committed to
purchase $75.0 million in products to be delivered to agents, brokers and other
Cendant real estate franchisees over the next three years. Revenues from RETT
and Cendant in the three-month period ended March 31, 2001 were $2.5 million and
are reported separately in these financial statements. It is not practical to
determine the cost of such revenues.
We anticipate an increase in absolute dollars for revenues, cost of
revenues, operating expenses and amortization of intangibles in connection with
the Move.com Group acquisition.
We may seek to continue to expand our current offerings by acquiring
additional businesses, technologies, product lines or service offerings from
third parties. We may be unable to identify future acquisition targets and may
be unable to complete future acquisitions. Even if we complete an acquisition,
we may have difficulty in integrating it with our current offerings, and any
acquired features, functions or services may not achieve market acceptance or
enhance our brand loyalty. Integrating newly acquired organizations and products
and services could be expensive, time consuming and a strain on our resources.
Three Months Ended March 31, 2001 and 2000
Revenues
Revenues increased to $63.8 million for the three months ended March 31,
2001 from revenues of $37.7 million for the three months ended March 31, 2000.
The increase was primarily due to increased revenue from professional
subscriptions as well as an increase in advertising revenue.
Subscription revenues, which represented approximately 67% of total
revenues for the three months ended March 31, 2001, grew 88% from the three
months ended March 31, 2000. The growth in revenue from professional
subscriptions was due to
16
increases in the number of professionals on the Homestore.com family of web
sites, including sales of subscription-based products related to an independent
trust. The number of professional subscriptions increased by 237% to
approximately 359,000 compared to totals for the three months ended March 31,
2000 and was driven, in part by the acquisitions of the Move.com Group and iPIX.
Advertising revenues, which represented approximately 22% of total
revenues for the three months ended March 31, 2001, declined 5% from the three
months ended March 31, 2000. The decrease was driven primarily by a softening in
the online advertising market in general. If this softening continues or
worsens, our advertising revenues could be adversely affected.
Other revenues which represented approximately 11% of total revenues for
the three months ended March 31, 2001 were new revenues from companies acquired
in 2001. These acquired companies operated primarily in the direct marketing
business.
Cost of Revenues
Cost of revenues, including non-cash stock-based charges, increased to
$27.8 million for the three months ended March 31, 2001 from cost of revenues of
$10.8 million for the three months ended March 31, 2000. The increase was due
primarily to our overall increased sales volume, increased salaries, increase in
royalties, and hosting costs during the three months ended March 31, 2001 as
compared to the three months ended March 31, 2000. We anticipate continuing
increases in cost of revenues in absolute dollars as our revenues increase and
we continue to make capital investments to increase the capacity of our family
of web sites in order to accommodate traffic increases.
Gross margin percentage for the three months ended March 31, 2001 was
56.4%, which declined from gross margin percentage of 71.4% for the three months
ended March 31, 2000. The decrease in gross margin percentage was primarily due
to a decrease in advertising revenues which historically have larger gross
margins.
Operating Expenses
Sales and marketing. Sales and marketing expenses, including non-cash
stock-based charges, increased to $58.8 million for the three months ended March
31, 2001 from sales and marketing of $38.3 million for the three months ended
March 31, 2000. The increase was due to a significant increase in costs
associated with Internet portal distribution agreements, and marketing and
listing agreements. The increase was also due to increased salaries and
commissions. Stock-based charges increased by $10.8 million to $19.3 million for
the three months ended March 31, 2001 from $8.5 million for the three months
ended March 31, 2000 primarily due to amortization of stock-based charges
relating to Internet portal distribution agreements.
Product development. Product development expenses, including non-cash
stock-based charges, increased to $5.5 million for the three months ended March
31, 2001 from product development of $2.0 million for the three months ended
March 31, 2000. The increase in product development costs was due to increased
costs associated with the continuing expansion of the Homestore.com web sites
and the integration of our acquisitions into our family of web sites.
General and administrative. General and administrative expenses, including
non-cash stock-based charges, increased to $22.4 million for the three months
ended March 31, 2001 from general and administrative expenses of $11.8 million
for the three months ended March 31, 2000. The increase was primarily due to
hiring key management personnel and increased staffing levels required to
support our significant growth and expanded operations and infrastructure as
well as increases in legal and other professional fees. Facility costs increased
primarily due to our new corporate and central service offices.
Amortization of intangible assets. Amortization of intangible assets was
$33.8 million for the three months ended March 31, 2001 from amortization of
$8.4 million for the three months ended March 31, 2000. The increase in
amortization was due to the acquisitions in subsequent quarters of fiscal year
2000, primarily the acquisition of the Move.com Group.
Acquisition and reorganization charges. One-time acquisition and
reorganization charges were $7.1 million for the three months ended March 31,
2001 and they relate to the stay bonuses, severance and facilities shut-down
costs associated with the acquisition of the Move.com Group. No accruals have
been made for expenses incurred beyond March 31, 2001.
Stock-based charges. The following chart summarizes the stock-based charges
that have been included in the following captions for each of the periods
presented (in thousands):
17
Three Months
Ended
March 31,
---------
2001 2000
---- ----
(Restated) (Restated)
Revenues....................................................... $ 1,351 $ 937
Cost of revenues............................................... 105 198
Sales and marketing............................................ 19,299 8,486
Product development............................................ 99 186
General and administrative..................................... 535 1,007
-------- --------
$ 21,389 $ 10,814
======== ========
Stock-based charges increased by $10.6 million to $21.4 million for the
three months ended March 31, 2001 from $10.8 million for the three months ended
March 31, 2000 primarily as a result of amortization relating to Internet portal
distribution agreements.
Other Expense, Net
Other expense, net, increased to $12.8 million for the three months ended
March 31, 2001 from other expense, net of $14,000 for the three months ended
March 31, 2000. The increase primarily related to an $11.1 million write-down of
a portion, of our portfolio of cost investments to reflect their net realizable
values based on our review of the companies' financial conditions, cash flow
projections and operating performances. It also includes the accretion of a
marketing and distribution agreement of $3.7 million, offset by miscellaneous
other income.
Income Taxes
As a result of operating losses and our inability to recognize a benefit
from our deferred tax assets, we have not recorded a provision for income taxes
for the three months ended March 31, 2001 and 2000. As of December 31, 2000, we
had $190.8 million of net operating loss carryforwards for federal income tax
purposes, which expire beginning in 2007. We have provided a full valuation
allowance on our deferred tax assets, consisting primarily of net operating loss
carryforwards, due to the likelihood that we may not generate sufficient taxable
income during the carry-forward period to utilize the net operating loss
carryforwards.
Segment Information
We currently operate in two principal business segments and have other
business lines which are aggregated as "other". This is consistent with the data
that is made available to our management to assess performance and make
decisions. The two business segments consist of professional subscriptions and
advertising. For further information regarding segments, refer to Note 12 of the
Notes to the Unaudited Condensed Consolidated Financial Statements included
elsewhere in this Form 10-Q/A.
Segment revenues. Subscription revenues, which represented approximately
67% of total revenues for the three months ended March 31, 2001, grew 88% from
the three months ended March 31, 2000. The growth in revenue from professional
subscriptions was due to increases in the number of professionals on the
Homestore.com family of web sites, including sales of subscription-based
products related to an independent trust. The number of professional
subscriptions increased by 237% to approximately 359,000 compared to totals at
three months ended March 31, 2000 and was driven, in part by the acquisitions of
the Move.com Group and iPIX.
Advertising revenues, which represented approximately 22% of total revenues
for the three months ended March 31, 2001, declined by 5% from the three months
ended March 31, 2000. The decrease was driven primarily by a softening in the
on-line advertising market in general.
Other revenues which represented approximately 11% of total revenues for the
three months ended March 31, 2001 were new revenues from companies acquired in
2001. These acquired companies operated primarily in the direct marketing
business.
Segment expenses. Subscription expenses increased to $25.4 million for the
three months ended March 31, 2001 from subscription expenses of $11.4 million
for the three months ended March 31, 2000. The increase was primarily due to an
overall increase in sales volume, increased marketing to our professional
customers such as REALTORS and an increase in staffing levels to support our
growth. In addition, our acquisitions of Top Producer Systems, Inc. and the
Move.com Group also contributed to the increase.
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Advertising expenses increased to $12.0 million for the three months ended
March 31, 2001 from advertising expenses of $1.3 million for the three months
ended March 31, 2000. The increase was due to an increase in salaries and
commissions relating to the increase in advertising sales.
Other expenses were $5.0 million for the three months ended March 31, 2001.
There were no corresponding expenses in 2000.
Unallocated expenses increased to $112.8 million for the three months ended
March 31, 2001 from unallocated expenses of $58.5 million for the three months
ended March 31, 2000. The increase was due to an increase in amortization of
intangible assets due to acquisitions, an increase in the stock-based charges
primarily relating to the Internet portal distribution agreements and a one-time
charge for acquisition and reorganization charges. Also contributing to the
increase in unallocated expenses were increases in costs associated with the
continuing expansion of our web sites, increases in legal and professional fees,
increases in costs relating to marketing and listing agreements, and increases
in salaries and staffing levels required to support our significant growth,
expanded operations and infrastructure.
Liquidity and Capital Resources
Cash provided by operating activities of $61.7 million for the quarter
ended March 31, 2001 was attributable to the net loss, offset by non-cash
expenses including depreciation, amortization of intangible assets, accretion of
distribution obligation, provision for doubtful accounts, stock-based charges,
non-cash items related to the acquisition and reorganization and the write-down
of investments, aggregating to $76.2 million. Also contributing to cash provided
by operations were the changes in balance sheet accounts, net of acquisitions,
of $85.3 million. Net cash used in operating activities was $30.2 million for
the quarter ended March 31, 2000. Net cash used in operating activities was the
result of the net operating loss, offset by non-cash expenses including
depreciation, amortization and stock-based charges, aggregating to $20.2
million. Adding to the cash used in operations were the changes in balance sheet
accounts, net of acquisitions, of $21.2 million.
Cash provided by investing activities of $13.9 million for the quarter
ended March 31, 2001 was attributable to maturities of short-term investments of
$75.5 million offset by purchases of short-term investments of $20.2 million,
capital expenditures of $10.8 million and cash paid for acquisitions of $30.7
million including acquisition-related costs. Net cash used in investing
activities was $24.8 million for the quarter ended March 31, 2000 was
attributable to the purchase of cost and equity investments of $11.7 million,
capital expenditures of $2.6 million and cash paid for acquisitions of $11.3
million including acquisition-related costs.
Cash provided by financing activities of $27.6 million for the quarter
ended March 31, 2001 was attributable to the proceeds from exercise of stock
options, warrants and share issuances under employee stock purchase plan of
$29.6 million offset by the issuance of notes receivable of $2.5 million. Cash
provided by financing activities of $395.4 million for the quarter ended March
31, 2000 was attributable to the our follow-on public offering of common stock
of $428.9 million, proceeds from exercise of stock options, warrants and share
issuances under employee stock purchase plan of $4.9 million offset by the
repayment of notes payable of $37.5 million and issuance of notes receivable of
$1.0 million. In January 2000, we completed our follow-on public offering to the
public in which we sold 4,073,139 shares of our common stock at a price of $110
per share, raising approximately $428.9 million, after deducting underwriting
discounts, commissions and offering expenses.
In March 2000, we issued 1,085,271 shares of our common stock with an
estimated fair value of approximately $70.0 million to Budget, Inc., or BGI, in
connection with entering into a ten-year strategic alliance agreement that
allows us to participate in online and offline BGI marketing activities. In this
agreement, we have guaranteed that the price of the shares issued to BGI will be
$64.50 per share on any trading day during the six month period after the second
anniversary of the agreement. BGI has the right, during this period, to require
us, with respect to each share as to which the right is exercised, in our
discretion, to i) pay to BGI an amount in cash equal to the excess of the
guaranteed price over the average price of the period ("the Put Amount"), ii)
issue and deliver to BGI the number of common stock with a value per share equal
to the Put Amount, or iii) repurchase all of the shares of the stock at the
guaranteed price.
In April 2000, we entered into a five-year marketing and distribution
agreement with America Online, Inc., or AOL. In exchange for entering into this
agreement, we paid AOL $20.0 million in cash and issued to AOL approximately 3.9
million shares of our common stock. In the agreement, we have guaranteed that
the 30-day average closing price, related to 60%, 20% and 20% of the shares we
issued, will be $68.50 per share on the third, fourth and fifth anniversaries of
the agreement, respectively. This guarantee only applies to shares that continue
to be held by AOL at the end of each respective year. At March 31, 2001, we
recorded $193.6 million in other non-current liabilities, which represents the
fair market value of the 3.9 million shares of our stock issued upon entering
the agreement and the guarantee of the stock. The difference between the total
guaranteed amount and the liability recorded is being recorded as other expense
over the term of the agreement. In connection
19
with the guarantee, we have established a $90.0 million letter of credit and are
required to pledge an amount equal to the unused portion of the letter of
credit. As of March 31, 2001, we have pledged $90.0 million in cash equivalents
towards this letter of credit which is classified as restricted cash on the
balance sheet. AOL can draw against this letter of credit in the event that our
30-day average closing price is less than $68.50 at the end of each respective
guarantee date. The letter of credit will be reduced to $50.0 million at the end
of the third anniversary of the agreement. The term of the agreement may be
reduced if AOL draws more than $40.0 million from the letter of credit at the
end of the third year anniversary of the agreement.
Since inception, we have included losses from operations. As of March 31,
2001, we had an accumulated deficit of $401.6 million, cash and cash equivalents
of $270.7 million and short-term investments of $19.1 million. We have no
material commitments other than those under operating lease agreements and
distribution and marketing agreements. We currently anticipate that our existing
cash and cash equivalents and any cash generated from operations will be
sufficient to fund our operating activities, capital expenditures and other
obligations through at least the next 12 months. However in the longer term, we
face significant risks associated with the successful execution of our business
strategy and may need to raise additional capital in order to fund more rapid
expansion, to expand our marketing activities, to develop new or enhance
existing services or products, to satisfy our obligations to AOL as described
above and to respond to competitive pressures or to acquire complementary
services, businesses or technologies. If we are not successful in generating
sufficient cash flow from operations, we may need to raise additional capital
through public or private financing, strategic relationships or other
arrangements. This additionalcapital, if needed, might not be available on terms
acceptable to us, or at all. Our failure to raise sufficient capital when needed
could have a material adverse effect on our business, results of operations and
financial condition. If additional capital were raised through the issuance of
equity securities, the percentage of our stock owned by our then-current
stockholders would be reduced. Furthermore, these equity securities might have
rights, preferences or privileges senior to those of our common and preferred
stock. In addition, our liquidity could be adversely impacted by the litigation
referred to in Note 14 to our consolidated financial statements included herein.
Risk Factors
In addition to the factors discussed in the "Liquidity and Capital
Resources" section above and in our Form 10-K/A for the year ended December 31,
2000 under the caption "Risk Factors" and elsewhere, the following additional
factors may affect our future results:
Risks Related to our Business:
. Our agreement with the National Association of REALTORS(R) could be
terminated by it.
. Our agreement with the NAR contains a number of provisions that could
restrict our operations.
. If our operating agreement for REALTOR.com(R) terminates, the NAR would
be able to operate the REALTOR.com(R) web site.
. We are subject to noncompetition provisions with the NAR which could
adversely affect our business.
. Our agreement with the National Association of Home Builders contains
provisions that could restrict our operations.
. Our SpringStreet.com web site is subject to a number of restrictions on
how it may be operated.
. The NAR could revoke its consent to our operating SpringStreet.com.
. The National Association of REALTORS(R) has significant influence over
aspects of our RealSelect subsidiary's corporate governance.
. The NAR can restrict a change of control of Homestore.com.
. We have a history of net losses and expect net losses for the
foreseeable future.
We have experienced operating losses in each quarterly and annual period
since 1993, and we incurred an operating losses of $91.5 million and $33.6
million for the three months ended March 31, 2001 and 2000, respectively. As of
March 31, 2001, we had an accumulated deficit of $401.6 million, and we may
continue to incur additional net losses. The size of these net losses will
depend, in part, on the rate of growth in our revenues from broker, agent, home
builder and rental property owner, web hosting fees, advertising sales and sales
of other products and services. The size of our future net losses will also be
impacted by non-cash stock-based charges relating to deferred compensation,
stock and warrant issuances, and amortization of intangible assets. As of March
31, 2001, we had approximately $1,097.1 million of deferred stock-based charges
and intangible assets to be amortized.
20
It is critical to our success that we continue to devote financial, sales
and management resources to developing brand awareness for our web sites as well
as for any other products and services we may add. To accomplish this, we will
continue to develop our content and expand our marketing and promotion
activities, direct sales force and other services. As a result, we expect that
our operating expenses will increase significantly during the next several
years, especially in sales and marketing. With increased expenses, we will need
to generate significant additional revenues to achieve profitability. As a
result, we may never achieve or sustain profitability, and, if we do achieve
profitability in any period, we may not be able to sustain or increase
profitability on a quarterly or annual basis. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
. We must continue to obtain listings from real estate agents, brokers,
homebuilders, Multiple Listing Services and property owners.
We believe that our success depends in large part on the number of real
estate listings received from agents, brokers, homebuilders, MLSs and
residential, rental and commercial property owners. Many of our agreements with
MLSs, brokers and agents to display property listings have fixed terms,
typically 12 to 30 months. At the end of the term of each agreement, the other
party may choose not to continue to provide listing information to us on an
exclusive basis or at all and may choose to provide this information to one or
more of our competitors instead. We have expended significant amounts to secure
both our exclusive and non-exclusive agreements for listings of real estate for
sale and may be required to spend additional large amounts or offer other
incentives in order to renew these agreements. If owners of large numbers of
property listings, such as large brokers, MLSs, or property owners in key real
estate markets choose not to renew their relationship with us, our family of web
sites could become less attractive to other real estate industry participants or
consumers.
. We must dedicate significant resources to market our advertising
products and services to real estate professionals.
. It is important to our success that we support our real estate
professional customers.
Since many real estate professionals are not sophisticated computer users
and often spend limited amounts of time in their offices, it is important that
these customers find that our products and services significantly enhance their
productivity and are easy to use. To meet these needs, we provide customer
training and have developed a customer support organization that seeks to
respond to customer inquiries as quickly as possible. If our real estate
professional customer base grows, we may need to expand our support organization
further to maintain satisfactory customer support levels. If we need to enlarge
our support organization, we would incur higher overhead costs. If we do not
maintain adequate support levels, these customers could choose to discontinue
using our service.
. Our quarterly financial results are subject to significant fluctuations.
Our results of operations could vary significantly from quarter to quarter.
In the near term, we expect to be substantially dependent on sales of our
subscription products and services. We also expect to incur significant sales
and marketing expenses to promote our brand and services. Therefore, our
quarterly revenues and operating results are likely to be particularly affected
by the number of persons purchasing advertising products and services as well as
sales and marketing expenses for a particular period. If revenues fall below our
expectations, we will not be able to reduce our spending rapidly in response to
the shortfall.
Other factors that could affect our quarterly operating results include
those described below and elsewhere in this Form 10-Q/A:
. The amount of advertising sold on our family of web sites and the timing
of payments for this advertising;
. The level of renewals for our subscription products and services by
real estate agents, brokers and rental property owners and managers;
. The amount and timing of our operating expenses and capital
expenditures;
. The amount and timing of non-cash stock-based charges, such as charges
related to deferred compensation or warrants issued to real estate
industry participants; and
. Costs related to acquisitions of businesses or technologies.
. Because we have expanded our operations, our success will depend on our
ability to manage our growth.
. We depend on distribution agreements with a number of Internet portals
to generate traffic on our family of web sites.
. Our family of web sites may not achieve the brand awareness necessary to
succeed.
21
In an effort to obtain additional consumer traffic, increase usage by the
real estate community and increase brand awareness, we intend to continue to
pursue an aggressive online and off-line brand enhancement strategy. These
efforts will involve significant expense. If our brand enhancement strategy is
unsuccessful, we may fail to attract new or retain existing consumers or real
estate professionals, which would have a material adverse impact on our
revenues.
. The market for web-based advertising products and services relating to
real estate is intensely competitive.
The barriers to entry for web-based services and businesses are low, making
it possible for new competitors to proliferate rapidly. In addition, parties
with whom we have listing and marketing agreements could choose to develop their
own Internet strategies or competing real estate sites upon the termination of
their agreements with us. Many of our existing and potential competitors have
longer operating histories in the Internet market, greater name recognition,
larger consumer bases and significantly greater financial, technical and
marketing resources than we do.
. We must attract and retain personnel while competition for personnel in
our industry is intense.
. We need to continue to develop our content and our product and service
offerings.
. We may experience difficulty in integrating our recent acquisitions.
. Our business is dependent on our key personnel.
. We rely on intellectual property and proprietary rights.
. We may not be able to protect the web site addresses that are important
to our business.
. We could be subject to litigation with respect to our intellectual
property rights.
. We may expand into international markets which may expose us to
relatively higher costs and greater risks.
Real Estate Industry Risks:
. Our business is dependent on the strength of the real estate industry,
which is both cyclical and seasonal.
. We may particularly be affected by general economic conditions.
. We have risks associated with changing legislation in the real estate
industry.
Internet Industry Risks:
. We depend on increased use of the Internet to expand our real estate
related advertising products and services.
. Government regulations and legal uncertainties could affect the growth
of the Internet.
. Taxation of Internet transactions could slow the use of the Internet.
. We depend on continued improvements to our computer network and the
infrastructure of the Internet.
. Our internal network infrastructure could be disrupted.
Our operations depend upon our ability to maintain and protect our computer
systems, located at our corporate headquarters in Westlake Village, California
and our other offices in Thousand Oaks, California; Milwaukee,
Wisconsin;Scottsdale, Arizona; and San Jose, California. Although we have not
experienced any material outages to date, we currently do not have a redundant
system for our family of web sites and other services at an alternate site.
Therefore, our systems are vulnerable to damage from break-ins, unauthorized
access, vandalism, fire, earthquakes, power loss, telecommunications failures
and similar events. Although we maintain insurance against fires, earthquakes
and general business interruptions, the amount of coverage may not be adequate
in any particular case.
Experienced computer programmers, or hackers, may attempt to penetrate our
network security from time to time. Although we have not experienced any
material security breaches to date, a hacker who penetrates our network security
could misappropriate proprietary information or cause interruptions in our
services. We might be required to expend significant capital and resources to
protect against, or to alleviate, problems caused by hackers. We do not
currently have a fully redundant system for our family of web sites. We also may
not have a timely remedy against a hacker who is able to penetrate our network
security. In addition to purposeful security breaches, the inadvertent
transmission of computer viruses could expose us to litigation or to a material
risk of loss.
22
. We could face liability for information on our web sites and for
products and services sold over the Internet.
. Our common stock price may be volatile, which could result in
substantial losses for individual stockholders.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Homestore.com, Inc. has duly caused this amendment to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: March 29, 2002
Homestore.com, Inc.
By: /s/ W. Michael Long
------------------------------
W. Michael Long
Chief Executive Officer
By: /s/ Lewis R. Belote, III
------------------------------
Lewis R. Belote, III
Chief Financial Officer
24