Move 10Q 2002 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended March 31, 2002

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended March 31, 2002

Commission File Number 000-26659

Homestore.com, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware		95-4438337
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer 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 May 1, 2002 the registrant had 117,800,344 shares of its common stock outstanding.

INDEX

		Page
PART I—FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements	1

	Homestore.com, Inc. Consolidated Financial Statements	1

	Consolidated Balance Sheets	1

	Unaudited Consolidated Statements of Operations	2

	Unaudited Consolidated Statements of Cash Flows	3

	Notes to Unaudited Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	45

Item 2.	Changes in Securities and Use of Proceeds	46

Item 3.	Defaults Upon Senior Securities	47

Item 4.	Submission of Matters to a Vote of Security Holders	47

Item 5.	Other Information	47

Item 6.	Exhibits and Reports on Form 8-K	47

SIGNATURES		49

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

HOMESTORE.COM, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

	March 31, 2002			December 31, 2001
	(Unaudited)
A S S E T S
Current assets:
Cash and cash equivalents	$	34,216		$	38,272
Short-term investments		—			14,190
Marketable equity securities		696			2,432
Accounts receivable, net		32,144			31,906
Current portion of prepaid distribution expense		39,207			48,793
Other current assets		31,287			43,743
Assets of discontinued operations		138,131			—

Total current assets		275,681			179,336
Prepaid distribution expense, net of current portion		32,123			35,007
Property and equipment, net		40,460			44,759
Goodwill, net		14,051			107,769
Intangible assets, net		104,411			143,002
Restricted cash		90,342			98,519
Other assets		12,692			6,645

Total assets	$	569,760		$	615,037

L I A B I L I T I E S A N D S T O C K H O L D E R S ’ E Q U I T Y
Current liabilities:
Accounts payable	$	5,972		$	14,667
Accrued liabilities		88,138			111,701
Deferred revenue		46,398			62,988
Deferred revenue from related parties		16,543			31,198
Liabilities of discontinued operations		32,743			—

Total current liabilities		189,794			220,554
Distribution obligation		208,364			204,660
Deferred revenue from related parties		7,940			5,772
Other non-current liabilities		237			795

Total liabilities		406,335			431,781

Commitments and contingencies (Note 13)
Stockholders’ equity:
Convertible preferred stock		—			—
Common stock		117			117
Additional paid-in capital		1,991,735			1,987,405
Treasury stock		(18,062	)		(18,062	)
Notes receivable from stockholders		(223	)		(3,569	)
Deferred stock-based charges		(6,992	)		(11,692	)
Accumulated other comprehensive loss		(966	)		(3,568	)
Accumulated deficit		(1,802,184	)		(1,767,375	)

Total stockholders’ equity		163,425			183,256

Total liabilities and stockholders’ equity	$	569,760		$	615,037

The accompanying notes are an integral part of these unaudited consolidated financial statements.

HOMESTORE.COM, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

	Three Months Ended March 31,
	2002			2001
Revenue (including non-cash equity charges, see Note 10)	$	63,167		$	61,341
Related party revenue		10,949			2,477

Total revenue		74,116			63,818
Cost of revenue (including non-cash equity charges, see note 10)		22,200			27,805

Gross profit		51,916			36,013

Operating expenses:
Sales and marketing (including non-cash equity charges, see note 10)		47,877			58,799
Product and website development (including non-cash equity charges, see note 10)		8,164			5,484
General and administrative (including non-cash equity charges, see note 10)		25,140			22,367
Amortization of goodwill and intangible assets		9,363			33,763
Acquisition and restructuring charges (see note 6)		1,801			7,065

Total operating expenses		92,345			127,478

Loss from operations		(40,429	)		(91,465	)
Interest income, net		539			4,451
Other income (expense), net		4,235			(12,796	)

Loss from continuing operations		(35,655	)		(99,810	)
Income from discontinued operations (see note 4)		846			—

Net loss	$	(34,809	)	$	(99,810	)

Basic and diluted earnings (loss) per share (see note 11):
Continuing operations	$	(.30	)	$	(1.05	)

Discontinued operations	$	.01		$	—

Net loss	$	(.29	)	$	(1.05	)

Shares used to calculate basic and diluted per share amounts:		117,565			94,925

The accompanying notes are an integral part of these unaudited consolidated financial statements.

HOMESTORE.COM, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Three Months Ended March 31,
	2002			2001
Cash flows from operating activities:
Loss from continuing operations	$	(35,655	)	$	(99,810	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		2,728			4,237
Amortization of intangible assets		9,363			33,762
Accretion of distribution obligation		3,704			3,703
Provision for doubtful accounts		3,210			1,526
Acquisition and restructuring charges		260
Stock-based charges		22,487			21,389
Write-down of investments		—			11,092
Other non-cash items		3,338			512
Changes in operating assets and liabilities, net of acquisitions and discontinued operations:
Accounts receivable		(4,940	)		2,723
Prepaid distribution expense		1,521			6,780
Other assets		2,009			7,735
Accounts payable and accrued liabilities		(28,519	)		26,559
Deferred revenue from related parties		12,487			29,027
Deferred revenue		(19,439	)		12,443

Net cash provided by (used in) continuing operating activities		(27,446	)		61,678

Cash flows from investing activities:
Purchases of property and equipment		(256	)		(10,757	)
Purchases of short-term investments		—			(20,229	)
Proceeds from sale of marketable equity securities		1,737			—
Maturities of short-term investments		14,394			75,492
Acquisitions, net of cash acquired		—			(30,652	)

Net cash provided by investing activities		15,875			13,854

Cash flows from financing activities:
Proceeds from payment of stockholders’ notes		3,346			956
Proceeds from exercise of stock options, warrants and share issuances under employee stock purchase plan		55			29,597
Repayment of notes payable		—			(468	)
Issuance of notes receivable		—			(2,450	)

Net cash provided by financing activities		3,401			27,635

Net cash provided by (used in) continuing operations		(8,170	)		103,167
Net cash provided by discontinued operations (net of cash to be disposed)		4,114			—

Change in cash and cash equivalents		(4,056	)		103,167
Cash and cash equivalents, beginning of period		38,272			167,576

Cash and cash equivalents, end of period		34,216			270,743

The accompanying notes are an integral part of these unaudited consolidated financial statements.

HOMESTORE.COM, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS:

Homestore.com, Inc., (“Homestore” or the “Company”) has created the leading online marketplace for home and real estate-related information and associated products and services, based on the number of visitors, time spent on the web sites and number of property listings. Through its network of websites, 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. Through its subsidiary, iPlace, Inc., (“iPlace”), the Company was the leading provider of online credit and neighborhood information to consumers and real estate professionals. 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^® (“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, apartment managers and agents. The Company also has distribution agreements with a number of leading Internet portal and search engine web sites, including America Online, Inc. (“AOL”).

2. BASIS OF PRESENTATION:

The Company’s interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) 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 GAAP 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 for the year ended December 31, 2001 filed with the Securities and Exchange Commission (“SEC”) on April 3, 2002. 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.

Since inception, the Company has incurred losses from operations and has reported negative operating cash flows. As of March 31, 2002, the Company had an accumulated deficit of $1.8 billion and cash equivalents of $34.2 million. The Company has no material financial commitments other than those under operating lease agreements and distribution and marketing agreements discussed further herein. The Company believes that its existing cash and cash equivalents, any cash generated from operations and the net unrestricted proceeds from the sale of ConsumerInfo.com, in April 2002 of approximately $57 million will be sufficient to fund its working capital requirements, capital expenditures and other obligations through at least the next 12 months. Long term, the Company may face 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 its obligations 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, it 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. If additional capital were raised through the issuance of equity securities, the percentage of the Company’s stock owned by its then-current stockholders would be reduced. Furthermore, these equity securities might have rights, preferences or privileges senior to

HOMESTORE.COM, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 13 to its Consolidated Financial Statements included herein.

3. RECENT ACCOUNTING DEVELOPMENTS:

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS Nos. 141 and 142, “Business Combinations” and “Goodwill and Other Intangible Assets,” respectively. SFAS No. 141 replaces Accounting Principles Board (“APB”) Opinion No. 16 “Business Combinations.” It also provides guidance on purchase accounting related to the recognition of intangible assets and accounting for negative goodwill. SFAS No. 142 changes the accounting for goodwill and other intangible assets with indefinite useful lives (“goodwill”) from an amortization method to an impairment-only approach. Under SFAS No. 142, goodwill will be tested upon implementation of the standard, annually and whenever events or circumstances occur indicating that goodwill might be impaired. SFAS No. 141 and SFAS No. 142 are effective for all business combinations completed after June 30, 2001.

The Company adopted SFAS No. 142 in January 2002, accordingly amortization of goodwill recorded for business combinations consummated prior to July 1, 2001 has ceased, and intangible assets acquired prior to July 1, 2001 that do not meet the criteria for recognition under SFAS No. 141 have been reclassified to goodwill. In connection with the adoption of SFAS No.142, the Company has performed a transitional goodwill impairment assessment and determined that there is no impairment as a result of the adoption of this standard.

In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” which requires entities to record the fair value of a liability for an asset retirement obligation in the period in which the obligation is incurred. When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. SFAS No. 143, is effective for fiscal years beginning after June 15, 2002. The Company does not have asset retirement obligations and therefore believes there will be no impact upon adoption of SFAS No. 143.

In January 2002, the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which was issued in October 2001. The FASB’s new rules on asset impairment supersede SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” and portions of APB Opinion No. 30, “Reporting the Results of Operations.” SFAS No. 144 provides a single accounting model for long-lived assets to be disposed of and significantly changes the criteria that would have to be met to classify an asset as held-for-sale. Classification as held-for-sale is an important distinction since such assets are not depreciated and are stated at the lower of fair value and carrying amount. SFAS No. 144 also requires expected future operating losses from discontinued operations to be displayed in the period(s) in which the losses are incurred, rather than as of the measurement date as presently required. Additionally, SFAS No. 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity, and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. The adoption of SFAS No. 144 in the first quarter of 2002 did not have an impact on the Company’s financial position, results of operations or cash flows, except for the classification of the planned disposition of the ConsumerInfo division as a discontinued operation (see Note 4).

The Company has early adopted 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.

HOMESTORE.COM, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

4. DISCONTINUED OPERATIONS:

On February 5, 2002, the Company announced that it would re-focus on its core business objective—making real estate professionals more productive and profitable. This focus includes the disposition of non-strategic businesses. On March 19, 2002, the Company entered into an agreement to sell its ConsumerInfo division for $130 million in cash to Experian Holdings, Inc. The transaction closed on April 2, 2002. The Company will use the net proceeds to continue to fund its operations. The Company received net proceeds of approximately $115 million after transaction fees and monies placed in escrow pursuant to the Stock Purchase Agreement dated as of March 16, 2002 by and between Experian Holdings, Inc. and Homestore.com, Inc. However, on March 26, 2002, MemberWorks Incorporated, one of the former owners of iPlace, Inc. (“iPlace”), parent company of ConsumerInfo, obtained a court order requiring the Company to set aside $58 million of the proceeds against a potential claim MemberWorks has against the Company. Approximately $57 million of the remaining proceeds will be available to the Company to fund its ongoing operations.

Pursuant to Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” the consolidated financial statements of Homestore reflect the disposition of its ConsumerInfo business, which was sold on April 2, 2002, as discontinued operations. Accordingly, the revenue, costs and expenses, and cash flows of the ConsumerInfo business through March 31, 2002, have been excluded from the respective captions in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows and have been reported as “Income from discontinued operations,” net of applicable income taxes of zero; and as “Net cash provided by discontinued operations.” The assets and liabilities of ConsumerInfo have been excluded from the respective captions in the March 31, 2002 Consolidated Balance Sheet, and are reported as “Assets of discontinued operations” and “Liabilities of discontinued operations,” respectively. The gain associated with the disposition of ConsumerInfo will be recorded as “Gain on disposition of discontinued operations,” in the Consolidated Statement of Operations in the second quarter of 2002 and is estimated to be approximately $10 million. Total revenue and income from discontinued operations was $19.5 million and $846,000, respectively, for the three months ended March 31, 2002. The disposition of the ConsumerInfo business has no effect on the operating results for the three months ended March 31, 2001 because it was acquired in August 2001.

The carrying amounts of the major classes of assets and liabilities of the discontinued operations at March 31, 2002 are as follows (in thousands):

	March 31, 2002
Cash and cash equivalents	$	2,000
Other current assets		13,086
Property and equipment, net		810
Goodwill, net		96,388
Intangibles, net		25,847

Total assets of discontinued operations	$	138,131

Accounts payable and accrued liabilities	$	8,439
Deferred revenue		24,304

Total liabilities of discontinued operations	$	32,743

HOMESTORE.COM, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5. STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS:

The decrease in stockholders’ equity for the three months ended March 31, 2002 is primarily the result of the Company’s net loss for the period: The primary change in the unrealized loss was due to the realization of a loss on the sale of a marketable security.

The components of comprehensive loss for each of the periods presented are as follows (in thousands):

	Three Months Ended March 31,
	2002			2001
Net loss	$	(34,809	)	$	(99,810	)
Unrealized gain (loss) on marketable securities		2,182			(1,902	)
Foreign currency translation		420			(317	)

Comprehensive loss	$	(32,207	)	$	(102,029	)

6. ACQUISITION AND RESTRUCTURING CHARGES:

In the fourth quarter of 2001, the Company’s Board of Directors approved a restructuring and integration plan, with the objective of eliminating duplicate resources and redundancies and to implement a new management structure to more efficiently serve its customers. The plan included the unwinding of the Company’s newly formed or recently acquired international operations and a broad restructuring of the Company’s core operations. The Company substantially completed implementation of the plan by March 31, 2002.

In connection with this restructuring and integration plan, the Company recorded a charge of $35.8 million in the fourth quarter of 2001, which is included in acquisition and restructuring charges on the statement of operations. This charge consists of the following: (i) employee termination benefits of $6.4 million; (ii) facility closure charges of $20.8 million, comprised of $12.8 million in future lease obligations, exit costs and cancellation penalties, net of estimated sublease income of $11.9 million, and $8.0 million of non-cash fixed asset disposals related to vacating duplicate facilities and decreased equipment requirements due to lower headcount; (iii) accrued future payments of $5.7 million for existing contractual obligations with no future benefits to the Company; and (iv) non-cash write-offs of $2.9 million in other assets related to exited activities. The Company’s estimate with respect to sublease income relates primarily to a lease commitment for office space in San Francisco that expires in November 2006. The Company estimates that it will sublease the facility by the second quarter of 2003 at a rate of approximately two-thirds of the existing commitment. However, due to recent declines in the demand for office space, there is no assurance that the Company will be able to sublease the office space at the estimated date or for the estimated rate. As of March 31, 2002, approximately 10 individuals have not been terminated and a total of 54 have not been paid severance.

HOMESTORE.COM, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A summary of activity related to the fourth quarter 2001 restructuring charge is as follows (in thousands):

	Employee Termination benefits			Lease Obligations and Related charges			Asset write-offs			Contractual obligations			Total
Initial restructuring charge	$	6,364		$	12,782		$	10,917		$	5,733		$	35,796
Cash paid		(3,511	)		(137	)		—			(141	)		(3,789	)
Non-cash charges		—			—			(10,917	)		—			(10,917	)

Restructuring accrual at December 31, 2001	$	2,853		$	12,645		$	—		$	5,592		$	21,090
Cash paid		(1,793	)		(1,222	)		—			(1,155	)		(4,170	)

Restructuring accrual at March 31, 2002	$	1,060		$	11,423		$	—		$	4,437		$	16,920

With the exception of payments associated with the San Francisco office lease commitment, substantially all of the remaining restructuring liabilities at March 31, 2002 will be paid during 2002. Any changes to the accruals based upon current estimates will be reflected through the acquisition and restructuring charges line in the Statement of Operations.

In the first quarter of 2002, the Company’s Board of Directors approved an additional restructuring and integration plan, with the objective of eliminating duplicate resources and redundancies. The Company anticipates substantially completing implementation of the plan by the end of the second quarter of 2002.

As part of this restructuring and integration plan, the Company undertook a review of its existing locations and elected to close an office and identified and notified approximately 270 employees whose positions with the Company were eliminated. The work force reductions affected approximately 30 members of management, 40 in research and development, 140 in sales and marketing and 60 in administrative functions, of which approximately 175 were terminated prior to March 31, 2002.

In connection with this restructuring and integration plan, the Company recorded a charge of $2.3 million in the first quarter of 2002, which is included in acquisition and restructuring charges on the statement of operations. This charge consists of the following: (i) employee termination benefits of $1.7 million and facility closure charges of approximately $600,000.

A summary of activity related to the first quarter restructuring charge is as follows (in thousands):

	Employee Termination benefits			Lease Obligations and Related charges		Asset write- offs		Total
Initial restructuring charge	$	1,720		$	309	$	260	$	2,289
Cash paid		(1,051	)		—		—		(1,051	)

Restructuring accrual at March 31, 2002	$	669		$	309	$	260	$	1,238

Substantially all of the remaining restructuring liabilities at March 31, 2002 will be paid in 2002. Any changes to the accruals based upon current estimates will be reflected in the acquisition and restructuring charges line in the Statement of Operations.

HOMESTORE.COM, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

7. ACQUISITIONS:

Move.com

In February 2001, the Company acquired all of the outstanding shares of Move.com, Inc. and Welcome Wagon International, Inc., or collectively referred to as the Move.com Group, from Cendant Corporation, or Cendant, valued at approximately $745.7 million. The Move.com Group offered online and offline marketing to consumers for the real estate industry. In connection with the acquisition, the Company issued an aggregate of 21.4 million shares of its 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 the Move.com Group. Cendant is restricted in its ability to sell the Homestore 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 shares (see Note 9).

iPlace

In August 2001, the Company acquired all the outstanding shares of iPlace in exchange for approximately 3.5 million shares of the Company’s common stock valued at $80.3 million, $73.0 million in cash and the assumption of 1.1 million outstanding stock options with an estimated incremental fair value of $16.3 million.

iPlace is a leading provider of online credit and neighborhood information to real estate professionals and consumers. The primary reasons for the acquisition was the expansion of our product offerings to our core real estate professionals and to market to consumers online credit information. Goodwill was generated in this purchase as a result of a growing, profitable business model with multiple bidders.

The acquisition has been accounted for using the purchase method and the results of operations have been included in the consolidated financial statements since the date of acquisition. In accordance with SFAS No. 141, the Company is not amortizing goodwill recognized in connection with this acquisition. The acquisition cost has been preliminarily allocated to assets acquired based on their respective fair values and resulted in excess purchase consideration over the net tangible assets acquired of approximately $191.7 million. With the assistance of outside valuation specialists, the Company has allocated the excess purchase price to goodwill and other intangible assets, resulting in $153.8 million in goodwill and $37.9 million in intangible assets subject to amortization. Other intangible assets are being amortized on a straight-line basis over their estimated useful lives ranging from three to seven years, with a weighted-average amortization period of 5.6 years, and include an allocation of $19 million to distribution network, $6 million to subscriber list, $4.7 million to existing technology, $3.2 million to customer contracts, $2.6 million to non-compete agreements and $2.4 million to trademark and trade names.

HOMESTORE.COM, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following balance sheet data represents the fair value assigned to each major asset and liability category upon acquisition:

Estimated fair values (in thousands):

Current assets	$	3,927
Property and equipment, net		1,641
Goodwill		153,750
Intangible assets		37,900
Other assets		515

Total assets	$	197,733

Current liabilities	$	8,395
Deferred revenue		19,784

Total liabilities	$	28,179

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 2001. This excludes the acquisitions of iPlace, because of its classification as a discontinued operation, and all other companies in 2001 since the pro forma effects of those transactions are immaterial for all periods presented and therefore, are not included in the pro forma information (in thousands, except per share amounts):

	Three Months Ended March 31, 2001
Revenue	$	76,765
Net loss		(127,259	)
Net loss per share:
Basic and diluted	$	(1.20	)
Weighted average shares		105,843

8. GOODWILL AND OTHER INTANGIBLE ASSETS

As described in Note 3, the Company adopted SFAS No. 142 in January 2002. The following table reconciles the reported net loss for the three months ended March 31, 2001 to its adjusted balance which excludes previously reported goodwill amortization expense, which is no longer recorded under the provisions of SFAS No. 142 (amounts in thousands).

	Three Months Ended March 31,
	2002			2001
Reported net loss	$	(34,809	)	$	(99,810	)
Add back: goodwill amortization (net of tax)		—			21,862

Adjusted net loss		(34,809	)		(77,948	)

Reported Net loss per share:
Basic and diluted	$	(.29	)	$	(1.05	)

Adjusted net loss per share
Basic and diluted	$	(.29	)	$	(.82	)

Weighted average shares		117,565			94,925

HOMESTORE.COM, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

There were no changes in the net carrying amount of goodwill for the three months ended March 31, 2002, except for reclassifications due to discontinued operations of $96,388 and reclassification of certain intangible assets to goodwill upon the adoption of SFAS No. 142 of $2,670. Goodwill by segment as of March 31, 2002 is as follows:

	March 31, 2002
Media services	$	1,307
Software and services		6,230
On-line advertising		—
Off-line advertising		6,514

Total	$	14,051

Intangible assets consist of purchased content, porting relationships, purchased technology, and other miscellaneous agreements entered into in connection with business combinations and are amortized over expected periods of benefits, principally five years. The weighted average amortization period is 5.9 years. There are no indefinite lived intangibles and no expected residual values related to these intangible assets (in thousands).

		March 31, 2002				December 31, 2001
	Weighted average amortization period	Gross amount		Accumulated amortization		Gross amount		Accumulated amortization
Purchased content	2.7	$	15,604	$	1,475	$	15,604	$	—
Porting relationships	2.8		1,728		153		1,728		—
Purchased technology	4.2		19,172		7,022		17,662		5,853
NAR operating agreement	10.5		1,578		38		1,578		—
Other	6.7		91,868		16,851		126,280		13,996

Total	5.9	$	129,950	$	25,539	$	162,852	$	19,849

Amortization expense for intangible assets for the quarter ended March 31, 2002 was $9.4 million. Amortization expense for the next five years is estimated to be as follows (in thousands):

Year Ended December 31,		Amount
2002		37,412
2003		28,544
2004		17,499
2005		8,943
2006		4,109

HOMESTORE.COM, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

9. RELATED PARTY TRANSACTIONS:

In February 2001, the Company acquired all of the outstanding shares of the Move.com Group from Cendant Corporation (“Cendant”) valued at $745.7 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 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 shares. The acquisition of the Move.com Group has been accounted for as a purchase. The acquisition cost has been 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 $770.4 million has been allocated to goodwill and other identifiable intangible assets and is being amortized on a straight-line basis over estimated lives of the assets ranging from two to 15 years. As a result of the Company’s impairment charge recorded during the year ended December 31, 2001, the remaining gross goodwill and intangibles are $88.5 million at December 31, 2001 and March 31, 2002.

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 products and services to be delivered to agents, brokers and other Cendant real estate franchisees over the next three years. Subsequent to the closing of the acquisition of the Move.com Group, the Company entered into additional commercial agreements with Cendant and RETT. Revenue of $11.0 million and $2.5 million related to these transactions was recognized during the three months ended March 31, 2002 and 2001, respectively. This revenue was reported separately as revenue from related parties in these financial statements. It is not practical to separately determine the costs of such revenue. As of March 31, 2002, the Company had recorded deferred revenue of approximately $24.5 million related to these agreements. This deferred revenue will be recognized over the next two to three years.

As a result of an amendment to some of these agreements, the Company recorded other income of approximately $10.8 million in the quarter ended March 31, 2002. This other income results from amendments which relieved the company of certain future delivery obligations under those agreements.

The business purpose of these commercial agreements was to extend the Company’s product and service offerings to a significant concentration of real estate professionals and to establish access to an effective and efficient distribution channel for current and future product and service offerings. The pricing under these commercial arrangements was negotiated at arm’s-length and on a discrete basis for each of the various products and services. Products and services to be provided under these arrangements include personalized multi-page websites for real estate agents, subscription-based products and services targeted at individual real estate brokerage offices, virtual tour technology software, customized real estate professional productivity software, as well as other products and services such as marketing and training. Sales of the subscription-based products are for specified periods of time ranging between one and two years. At the end of the contractual term for each of the subscription-based products, the Company may have to negotiate renewal terms with the individual real estate professionals.

HOMESTORE.COM, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

10. STOCK-BASED CHARGES:

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 deemed fair value for accounting purposes 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 EITF 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,
	2002		2001
Revenue	$	—	$	1,351
Cost of revenue		47		105
Sales and marketing		21,613		19,299
Product and website development		45		99
General and administrative		782		535

	$	22,487	$	21,389

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,
	2002			2001
Numerator:
Loss from continuing operations	$	(35,655	)	$	(99,810	)
Income from discontinued operations		846			—

Net loss	$	(34,809	)	$	(99,810	)

Denominator:
Weighted average shares outstanding		117,565			94,925

Basic and diluted earnings (loss) per share:
Continuing operations	$	(.30	)	$	(1.05	)

Discontinued operations	$	.01		$	—

Net loss	$	(.29	)	$	(1.05	)

The per share computations exclude preferred stock, options and warrants which are anti-dilutive. The number of such shares excluded from the basic and diluted loss from continuing operations per share computation was 32,864,626 and 22,279,466 at March 31, 2002 and 2001, respectively.

HOMESTORE.COM, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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. As of the beginning of fiscal year 2002, the Company changed the management team and changed the way that it manages and evaluates its businesses. As a result of this change, management now evaluates performance and allocates resources based on four segments consisting of media services, software and services, on-line advertising and off-line advertising and excludes discontinued operations. Due to this change the company has reclassified previously reported segment data to conform to the current period presentation. This is consistent with the data that is made available to the Company’s management to assess performance and make decisions.

The expenses presented below for the business segments exclude an allocation of certain significant operating expenses that are not allocated for internal management reporting purposes, which include: marketing expenses; corporate expenses, such as finance, legal, internal business systems, and human resources; amortization of intangible assets; stock-based charges; and acquisition and restructuring charges. There is no inter-segment revenue. Assets and liabilities are not allocated to segments for internal reporting purposes.

The current segments of media services and software and services are equivalent to the previously reported subscription segment. The on-line advertising segment is consistent with the previously reported advertising segment. The off-line advertising segment was included in the previously reported other segment, which also included ConsumerInfo which is now classified as a discontinued operation.

Summarized information by segment as excerpted from the internal management reports is as follows (in thousands):

	Three Months Ended March 31,
	2002			2001
Revenue:
Media services	$	39,948		$	31,754
Software and services		12,121			12,310
On-line advertising		7,037			12,952
Off-line advertising		15,010			6,802

Total revenue		74,116			63,818

Cost of Revenue and operating expenses:
Media services	$	39,061		$	37,316
Software and services		12,793			10,188
On-line advertising		7,182			3,731
Off-line advertising		14,911			5,523
Unallocated		40,598			98,525

Total Cost of Revenue and operating expenses		114,545			155,283

Loss from operations	$	(40,429	)	$	(91,465	)

HOMESTORE.COM, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

13. COMMITMENTS AND CONTINGENCIES:

Legal proceedings

In October 2001, the Company filed a demand for arbitration with AOL relating to a distribution agreement. The Company claims that AOL has breached the distribution agreement by failing to meet its contractual obligations to build 21 specific promotions for the Company and to deliver more than 600 million Homestore impressions to AOL users. The Company also claims that AOL breached the duty of good faith and fair dealing in the contract by disregarding its contractual commitments. The Company also claims that AOL’s conduct violated the contractual guarantees of exclusivity, premier partnership and prominent partnership for the Company. In the arbitration, the Company seeks a declaration that AOL breached the distribution agreement; that the Company may terminate or rescind the contract and receive damages and other appropriate relief; and that the Company may terminate the contract without AOL having any right to the $90 million letter of credit issued in favor of AOL in connection with the distribution agreement. The Company filed its First Pretrial Brief on March 22, 2002. AOL’s First Pretrial Brief was filed on May 8, 2002. A hearing is scheduled for early July 2002.

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. On March 27, 2002, the California State Teacher’s Retirement System was named lead plaintiff and the complaints have been consolidated in the United States District Court, Central District of California. 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, results of operations and cash flow. In addition, the costs of defending any litigation may 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.

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 a restatement, its financial statements had not been filed with the SEC on a timely basis. The Company requested a hearing on the matter and filed an amended Form 10-K/A for the year ended December 31, 2000 on March 12, 2002 and filed amended Form 10-Q/A’s for each of the first three quarters of 2001 on March 29, 2002. After a hearing, the Nasdaq Listing Qualifications Panel notified the Company on April 10, 2002, that it had determined it would continue the listing of Homestore’s common stock on The Nasdaq National Market.

HOMESTORE.COM, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 25, 2002, the Court granted the Company’s motion to transfer the action to the United States District Court, Central District of California, and denied MemberWorks’ request to enjoin the sale of ConsumerInfo.com, but imposed a constructive trust of $58 million of the sale’s proceeds. The $58 million constructive trust is subject to adjustment after further discovery. As the case is in a very early stage, the Company is unable to determine the expected outcome at this time or the merits of the case.

Contingencies

From time to time, the Company has been party to various other 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.

14. IMPAIRMENT OF INVESTMENTS:

During the three months ended March 31, 2001, the Company recorded a charge of approximately $11.1 million, based on the impairment of the Company’s portfolio of investments. The impairment of these investments to their net realizable values was based on a review of the Companies’ financial conditions, cash flow projections, operating performances and a sustained downturn in financial markets. These charges are included in other income (expense), net in the statement of operations.

15. OTHER INCOME (EXPENSE), NET

Other income, net consists of approximately $10.8 million of income from an amendment of an existing agreement. The amendment relieved the Company of certain future delivery obligations. This income is partially offset by a realized loss on the sale of a marketable security, and other assets of approximately $4.1 million and the recurring accretion of a distribution obligation of $3.7 million.

16. SUBSEQUENT EVENTS:

In April 2002, the Company closed the sale of its ConsumerInfo division for $130 million in cash to Experian Holdings, Inc. (see Note 4).

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Form 10-Q 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 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 and elsewhere in this Quarterly Report, as well as those discussed in our Annual Report on Form 10-K, for the year ended December 31, 2001, and in other documents we filed with the Securities and Exchange Commission, or SEC.

Overview

Homestore.com, Inc., or Homestore, has created an online marketplace that is the preeminent 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 web sites, we provide a wide variety of information and tools for consumers and are 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 timely and comprehensive 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 NAR, NAHB, hundreds of MLSs, the MHI, the AIA, and leading real estate franchisors, including the six largest franchises, brokers, builders and apartment owners. Under our agreement with NAR, we operate NAR’s official web site, REALTOR.com^®. Under our agreement with NAHB, we operate its new home listing web site, HomeBuilder.com^™. Under our agreements with NAR, NAHB, MHI and AIA, we receive preferential promotion in their marketing activities.

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 November 26, 1996, we entered into a series of agreements with 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 November 26, 1996, RealSelect entered into a number of formation agreements with and issued cash and common stock representing a 15% ownership interest in RealSelect to NAR in exchange for the rights to operate the REALTOR.com^® web site and pursue commercial opportunities relating to the listing of real estate on the Internet.

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^®, in cooperation with 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 and 3 of Homestore’s Notes to the Consolidated Financial Statements on Form 10-K filed with the SEC on April 3, 2002. We (InfoTouch) changed our corporate name to Homestore.com, Inc. in August 1999.

Our historical consolidated financial statements reflect the results of operations of Homestore.com, Inc., formerly InfoTouch. For the years ended December 31, 1997 and 1998, and through the Reorganization on February 4, 1999, Homestore was a holding company whose sole business was managing its investment in RealSelect through LLC. Prior to February 4, 1999, the results of operations of RealSelect were consolidated by NSI. Thus, all revenue through February 4, 1999, were recorded by NSI.

Acquisitions

In January 2001, we acquired certain assets and licenses and assumed certain liabilities from Internet Pictures Corporation, or iPIX, for $7.1 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., or CFT, 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., or HomeWrite, 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 outstanding 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 acquired all of the outstanding shares of Move.com, Inc. and Welcome Wagon International, Inc., or collectively referred to as the Move.com Group, from Cendant Corporation, or Cendant, valued at approximately $745.7 million. In connection with the acquisition, 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 the Move.com Group. Cendant is restricted in its ability to sell the Homestore 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.

In May 2001, we acquired certain assets and assumed certain liabilities from Homestyles Publishing and Marketing, Inc., or Homestyles, for $14.5 million in cash.

In August 2001, we acquired all the outstanding shares of iPlace for approximately $73.0 million in cash and 3.5 million shares of our common stock valued at $80.3 million. In connection with the transaction, we assumed the iPlace stock option plan consisting of approximately 1.1 million outstanding stock options with an estimated fair value of $16.3 million. The acquisitions described above have been accounted for under the purchase method in accordance with generally accepted accounting principles.

Transaction with Cendant and Real Estate Technology Trust. In connection with and contingent upon the closing 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 by us. Under the commercial agreements, RETT committed to purchase products and services to be delivered to agents, brokers and other Cendant real estate franchisees over the next three years. Subsequent to the closing of the acquisition of the Move.com Group, we entered into additional commercial agreements with Cendant and RETT. Revenue of $11.0 million and $2.5 million related to these transactions was recognized during the three months ended March 31, 2002 and 2001, respectively. This revenue was reported separately as revenue from related parties in these financial statements. It is not practical to separately determine the costs of such revenue. As of March 31, 2002, we had recorded deferred revenue of approximately $24.5 million related to these agreements. This deferred revenue will be recognized over the next two to three years.

As a result of an amendment to some of these agreements, we recorded other income of approximately $10.8 million in the quarter ended March 31, 2002. This other income results from amendments, which relieved the company of certain future delivery obligations under those agreements.

The business purpose of these commercial agreements was to extend our product and service offerings to a significant concentration of real estate professionals and to establish access to an effective and efficient distribution channel for current and future product and service offerings. The pricing under these commercial arrangements was negotiated at arm’s-length and on a discrete basis for each of the various products and services. Products and services to be provided under these arrangements include personalized multi-page websites for real estate agents, subscription-based products and services targeted at individual real estate brokerage offices, virtual tour technology software, customized real estate professional productivity software, as well as other products and services such as marketing and training. Sales of the subscription-based products are for specified periods of time ranging between one and two years. At the end of the contractual term for each of the subscription-based products, we may have to negotiate renewal terms with the individual real estate professionals.

Dispositions

In April 2002, the Company closed the sale of the ConsumerInfo division for $130 million in cash to Experian Holdings, Inc. The Company will use the net proceeds to continue to fund operations. The Company received net proceeds of approximately $115 million after transaction fees and monies placed in escrow pursuant to the Stock Purchase Agreement dated as of March 16, 2002 by and between Experian Holdings, Inc. and Homestore.com, Inc. However, on March 26, 2002, MemberWorks Incorporated, one of the former owners of iPlace, obtained a court order requiring the company to set aside $58 million of the proceeds against a potential claim MemberWorks has against the Company. Approximately $57 million of the remaining proceeds will be available to the Company to fund its ongoing operations. The disposition of the ConsumerInfo business has no effect on the operating results for the three months ended March 31, 2001 because it was acquired in August 2001.

ConsumerInfo will be recorded as “Gain on disposition of discontinued operations,” in the Consolidated Statement of Operations in the second quarter of 2002 and is estimated to be approximately $10 million. Total revenue and income from discontinued operations was $19.5 million and $846,000, respectively, for the three months ended March 31, 2002.

	March 31, 2002
Cash and cash equivalents	$	2,000
Other current assets		13,086
Property and equipment, net		810
Goodwill, net		96,388
Intangibles, net		25,847

Total assets of discontinued operations	$	138,131

Accounts payable and accrued liabilities	$	8,439
Deferred revenue		24,304

Total liabilities of discontinued operations	$	32,743

Critical accounting policies

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, uncollectible receivables, investment values, intangible and other long-lived assets and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements: revenue recognition; valuation allowances, specifically the allowance for doubtful accounts; accounting for investments in private and publicly-traded securities; impairment of long-lived assets; accounting for business combinations; and legal contingencies.

Revenue Recognition

We derive our revenue primarily from four sources: (i) subscription revenue, which includes monthly and annual fees to licensed real estate professionals to put their product offerings on our web sites; (ii) software revenue, which includes software licenses, software development, hardware services and support revenue which includes software maintenance, training, consulting and web site hosting revenue; (iii) advertising revenue for running on-line advertising and sponsorships on our web sites; and (iv) off-line advertising in propriety books or other direct marketing products. As described below, significant management judgments and estimates must be made and used in connection with the revenue recognized in any accounting period.

We generate recurring revenue from the sale of subscriptions to be included on our web sites. This revenue is typically based on one-year renewable contracts and is recognized ratably over the contract period. Cash received in advance is recorded as deferred revenue. Recurring revenue from hosted solutions is billed monthly over a contract term of typically one year.

We apply the provisions of Statement of Position 97-2, “Software Revenue Recognition,” as amended by Statement of Position 98-9 “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions” to all transactions involving the sale of software as well as the preliminary conclusions of EITF issue 00-21, “Multiple Element Arrangements.” We generally license our software products on a one-year term basis or on a perpetual basis. Our hosting arrangements require customers to pay a fixed fee and receive service over a period of time, generally one year. We recognize revenue from the sale of software licenses when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed or determinable and collection of the resulting receivable is reasonably assured. Delivery generally occurs when the product is delivered to a common carrier.

Software license revenue is recognized upon all of the following criteria being satisfied: the execution of a license agreement; product delivery; fees are fixed or determinable; collectibility is reasonably assured; and all other significant obligations have been fulfilled. For software license agreements in which customer acceptance is a condition of earning the license fees, revenue is not recognized until acceptance occurs. For arrangements containing multiple elements, such as software license fees, consulting services and maintenance, and where vendor-specific objective evidence (“VSOE”) of fair value exists for all undelivered elements, we account for the delivered elements in accordance with the “residual method” prescribed by SOP 98-9. For arrangements in which VSOE does not exist for each element, including specified upgrades, revenue is deferred and not recognized until delivery of the element without VSOE has occurred. We also generate revenue from consulting fees for implementation, installation, data conversion, and training related to the use of our proprietary and third-party licensed products. We recognize revenue for these services as they are performed, as they are principally contracted for on a time and material basis. Our arrangements do not generally include acceptance clauses. However, if an arrangement includes an acceptance provision, acceptance occurs upon the earlier of receipt of a written customer acceptance or expiration of the acceptance period.

We recognize revenue for maintenance services ratably over the contract term. Our training and consulting services are billed based on hourly rates and we generally recognize revenue as these services are performed. However, at the time of entering into a transaction, we assess whether or not any services included within the arrangement require us to perform significant work either to alter the underlying software or to build additional complex interfaces so that the software performs as the customer requests. If these services are included as part of an arrangement, we recognize the entire fee using the percentage of completion method. We estimate the percentage of completion based on the total costs incurred to date as a percentage of estimated total costs to complete and we monitor our progress against plan to insure our estimates are materially accurate. We recognize estimated losses in the periods in which such losses are reasonably expected.

We assess collection based on a number of factors, including past transaction history with the customer and the creditworthiness of the customer. We do not request collateral from our customers. If we determine that collection of a fee is not reasonably assured, we defer the fee and recognize revenue at the time collection becomes reasonably assured, which is generally upon receipt of cash.

We also sell online advertising and traditional Internet sponsorships. The terms of these arrangements are pursuant to contracts with terms varying from a few days to three years, which may include the guarantee of a minimum number of impressions or times that an advertisement appears in pages viewed by the users. This advertising revenue is recognized ratably based on the lesser of the impressions delivered over the total number of guaranteed impressions or ratably over the period in which the services are provided. We measure performance related to advertising obligations on a monthly basis prior to the recording of revenue. We record and measure the fair value of equity received in exchange for advertising services in accordance with the provisions of Emerging Issues Task Force (“EITF”) 00-8, “Accounting by a Grantee for an Equity Instrument to be Received in Conjunction with Providing Goods or Services.” We recognize revenue from advertising barter transactions in accordance with EITF 99-17, “Accounting for Advertising Barter Transactions.” Revenue from these transactions is recognized during the period in which the impressions are delivered. The services provided are valued based on similar cash transactions, which have occurred within six months prior to the date of the barter transactions.

Revenue associated with off-line advertising or other direct marketing services, such as customer coupons and other informational products, are recognized upon performance, assuming no additional obligations remain and collectibility of the related receivable is reasonably assured.

Allowance for Doubtful Accounts

Our estimate for the allowance for doubtful accounts related to trade receivables is based on two methods. The amounts calculated from each of these methods are combined to determine the total amount reserved. First, we evaluate specific accounts where we have information that the customer may have an inability to meet its financial obligations. In these cases, we use our judgment, based on the best available facts and circumstances, and record a specific reserve for that customer against amounts due to reduce the receivable to the amount that is expected to be collected. These specific reserves are reevaluated and adjusted as additional information is received that impacts the amount reserved. Second, a reserve is established for all customers based on a range of percentages applied to aging categories. These percentages are based on historical collection and write-off experience. If circumstances change (i.e. higher than expected defaults or an unexpected material adverse change in a major customer’s ability to meet its financial obligation to us), our estimates of the recoverability of amounts due to us could be reduced by a material amount.

Impairment of Investments

We have invested in equity instruments of privately held companies for business and strategic purposes. These investments were included in other long-term assets and were accounted for under the cost method when ownership was less than 20% and we did not have the ability to exercise significant influence over operations and the equity method when ownership was greater than 20% or we had the ability to exercise significant influence.

We periodically reviewed our investments for instances where fair value was less than cost and the decline in value was determined to be other than temporary. Such evaluation was dependent on the specific facts and circumstances. Factors that we considered in determining whether an other-than-temporary decline in value had occurred included: the market value of the security in relation to its cost basis; the financial condition of the investee; and the intent and ability to retain the investment for a sufficient period of time to allow for recovery in the market value of the investment.

If the decline in value was judged to be other than temporary, the basis of the security was written down to fair value and the resulting loss is charged to operations. In evaluating the fair value of our equity investments our policy included, but is not limited to, reviewing each of the entities cash positions, recent financing valuations, operational performance, revenue and earnings forecasts, liquidity forecasts and financing needs and general economic factors, as well as management and ownership trends. Our evaluation of the fair value of our investment in these entities was inherently subjective and may contribute to significant volatility in our reported results of operations based upon the timing and nature of write-downs recorded. In 2001, we wrote down all of our remaining cost method and equity method investments, which resulted in a charges for the three months ended March 31, 2001 and September 30, 2001 of $11.1 million and $19.2 million respectively.

Valuation of Goodwill, Identified Intangibles and Other Long-lived Assets

We assess the impairment of goodwill, identifiable intangible assets and other long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include the following:

•

A significant decline in actual and projected advertising and software license revenue;

•

A significant decline in the market value of our common stock;

•

A significant difference between our net book value and our market value;

•

A loss of key customer relationships coupled with the renegotiation of existing arrangements;

•

A significant change in the manner of our use of the acquired assets or the strategy for our overall business;

•

A significant decrease in the market value of an asset;

•

A shift in technology demands and development; and

•

A significant turnover in key management or other personnel.

When we determine that the carrying value of goodwill, other intangible assets and other long lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure any impairment based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model.

In January 2002, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” and as a result, have ceased to amortize goodwill. In lieu of amortization, we are required to perform an additional impairment review of our goodwill in 2002 and an annual impairment review thereafter. We have evaluated the impact of our adoption of SFAS No. 142 and determined that no impairment charge was required upon the adoption of the standard. Our impairment test compared the fair value of the reporting units with the carrying value of their assets. Fair value was determined in accordance with the provisions of SFAS No. 142 using present value techniques similar to those used internally by us for evaluating acquisitions and comparisons to market values. These valuation techniques, performed in consultation with third party valuation professionals, involved projections of cash flows which were discounted based on our weighted average cost of capital. Changes in assumptions could materially impact estimates of fair value.

Accounting for Business Combinations

We have acquired a number of companies over the past four years and all have been accounted for as purchase transactions. Under the purchase method of accounting, the cost, including transaction costs, are allocated to the underlying net assets, based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

The judgments made in determining the estimated fair value and expected useful lives assigned to each class of assets and liabilities acquired can significantly impact net income. For example, different classes of assets will have useful lives that differ (i.e., the useful life of acquired technologies may not be the same as the useful life of acquired content or customer lists). Consequently, to the extent a longer-lived asset is ascribed greater value under the purchase method than a shorter-lived asset, there may be less amortization recorded in a given period.

Determining the fair value of certain assets and liabilities acquired is judgmental in nature and often involves the use of significant estimates and assumptions. As provided by the accounting rules, we have used the one-year period following the consummation of acquisitions to finalize estimates of the fair value of assets and liabilities acquired. One of the areas that requires more judgment in determining fair values and useful lives is intangible assets. To assist in this process, we have obtained appraisals from independent valuation firms for certain intangible assets. While there were a number of different methods used in estimating the value of the intangibles acquired, there were two approaches primarily used: discounted cash flow and market multiple approaches. Some of the more significant estimates and assumptions inherent in the two approaches include: projected future cash flows (including timing); discount rate reflecting the risk inherent in the future cash flows; perpetual growth rate; determination of appropriate market comparables; and the determination of whether a premium or a discount should be applied to comparables. Most of the above assumptions were made based on available historical information.

The value of our intangible and other long-lived assets, including goodwill, is exposed to future adverse changes if we experience declines in operating results or experience significant negative industry or economic trends or if future performance is below historical trends. We periodically review intangible assets and goodwill

for impairment using the guidance of applicable accounting literature. We continually review the events and circumstances related to our financial performance and economic environment for factors that would provide evidence of the impairment of goodwill.

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. See“We may experience difficulty in integrating our acquisitions”in Risk Factors.

We may seek to dispose of our current offerings by disposing additional businesses, technologies, product lines or service offerings we currently own. Disposing of additional business may result in significant write-offs or one time non-recurring gains or losses or a reduction in the numbers of visitors to our websites. See“Focusing on our core business may require sales of assets and/or discontinuing certain operations, which could lead to write-offs or unusual/non-recurring items in our financial statements” in Risk Factors.

Results of Operations

Three Months Ended March 31, 2002 and 2001

Revenue and Related Party Revenue

Revenue increased approximately 16% to $74.1 million for the three months ended March 31, 2002 from revenue of $63.8 million for the three months ended March 31, 2001. Of this increase, related party revenues increased $8.5 million to $11.0 million for the three months ended March 31, 2002 of which $6.2 million relates to media services and $2.3 million relates to software and services.

Our Media Services segment is comprised of our REALTOR.com^®, Homebuilder.com^TM, Homestore^TM Apartments & Rentals, and other real estate businesses.

Media Services revenue increased approximately 26% to $39.9 million for the three months ended March 31, 2002, compared to $31.8 million for the three months ended March 31, 2001. Media Services revenue represented approximately 54% of total revenue for the three months ended March 31, 2002 compared to 50% of total revenue for the three months ended March 31, 2001. The increase in revenue from Media Services was primarily due to the impact of a full quarter of activity from sales of our virtual tours products.

Our Software and Services segment is comprised of our Top Producer^®, WyldFyre^™, Computers For Tracts, and Homestore Mobility Technologies businesses.

Software and Services revenue decreased approximately 2% to $12.1 million for the three months ended March 31, 2002, compared to $12.3 million for the three months ended March 31, 2001. Software and Services revenue represented approximately 16% of total revenue for the three months ended March 31, 2002 compared to 19% of total revenue for the three months ended March 31, 2001. The decrease was primarily due to a decrease in revenue in our Homestore Mobility Technologies business driven by a slow down in corporate relocation services partially offset by stronger revenue growth at Top Producer^®.

Our On-line Advertising segment is comprised of online advertisements on various content areas of our web sites to reach consumers interested in specific products or services relating to the home and real estate life cycle. Our advertising offerings include online ads, text based links and rich media.

On-line advertising revenue decreased approximately 46% to $7.0 million for the three months ended March 31, 2002, compared to $13.0 million for the three months ended March 31, 2001. On-line advertising revenue represented approximately 10% of total revenue for the three months ended March 31, 2002 compared to 20% of total revenue for the three months ended March 31, 2001. The decrease was primarily due to a softening in the on-line advertising market.

Our Off-line Advertising segment is comprised of our Welcome Wagon and Homestore Plans and Publications businesses.

Off-line advertising revenue increased approximately 121% to $15.0 million for the three months ended March 31, 2002, compared to $6.8 million for the three months ended March 31, 2001. Off-line advertising revenue represented approximately 20% of total revenue for the three months ended March 31, 2002 compared to 11% of total revenue for the three months ended March 31, 2001. The increase was primarily due to the impact of a full quarter of activity for Welcome Wagon for the three months ended March 31, 2002 and the acquisition of Homestore Plans and Publications in May 2001. Welcome Wagon was acquired in February 2001.

Cost of Revenue

Cost of revenue, including non-cash stock-based charges, decreased approximately 20% to $22.2 million for the three months ended March 31, 2002 from cost of revenue of $27.8 million for the three months ended March 31, 2001. The decrease was primarily due to decreases in personnel, royalties, hosting costs and depreciation during the three months ended March 31, 2002 as compared to the three months ended March 31, 2001.

Gross margin percentage for the three months ended March 31, 2002 was 70%, 14 percentage points higher than the gross margin percentage of 56% for the three months ended March 31, 2001. The increase in gross margin percentage was primarily due to decreased depreciation expense driven by the impairment charge on fixed assets taken in the fourth quarter of 2001.

Operating Expenses

Sales and marketing. Sales and marketing expenses, including non-cash stock-based charges, decreased approximately 19% to $47.9 million for the three months ended March 31, 2002 from sales and marketing of $58.8 million for the three months ended March 31, 2001. The decrease was due to a decrease in salaries and commissions, customer service related costs, amortization of new marketing deals, and depreciation related to fixed assets, partially offset by an increase in stock-based charges. Stock-based charges included in sales and marketing increased by $2.3 million to $21.6 million for the three months ended March 31, 2002 from $19.3 million for the three months ended March 31, 2001, primarily due to an increase in stock-based charges related to stock options.

Product and website development. Product and website development expenses, including non-cash stock-based charges, increased approximately 49% to $8.2 million for the three months ended March 31, 2002 from product and website development expenses of $5.5 million for the three months ended March 31, 2001. The increase in product and website development costs was due to increased costs associated with the full quarter impact of our acquisitions of our Move.com group, virtual tour products and our Plans and Publication product line.

General and administrative. General and administrative expenses, including non-cash stock-based charges, increased approximately 12% to $25.1 million for the three months ended March 31, 2002 from general and administrative expenses of $22.4 million for the three months ended March 31, 2001. The increase was primarily due to acquisitions completed in early 2001 being included for the full quarter in 2002 partially offset by cost reductions implemented in the fourth quarter of 2001 and the first quarter of 2002.

Amortization of intangible assets. Amortization of intangible assets was $9.4 million for the three months ended March 31, 2002 compared to amortization of $33.8 million for the three months ended March 31, 2001. The decrease in amortization was due to the adoption of SFAS No.142 which requires that we no longer amortize goodwill as well as a reduction in intangible assets from our impairment charge for the period ended December 31, 2001.

Acquisition and restructuring charges. In the first quarter of 2002, our Board of Directors approved an additional restructuring and integration plan, with the objective of eliminating duplicate resources and redundancies in conjunction with the recommendations of the new management team. We anticipate substantially completing implementation of the plan by the end of the second quarter of 2002.

As part of this restructuring and integration plan, we undertook a review of our existing locations and elected to close an office and identified and notified approximately 270 employees whose positions with us were eliminated. The work force reductions affected approximately 30 members of management, 40 in research and development, 140 in sales and marketing and 60 in administrative functions, of which approximately 220 were terminated prior to March 31, 2002.

In connection with this restructuring and integration plan, we recorded a charge of $2.3 million in the first quarter of 2002, which is included in acquisition and restructuring charges on the statement of operations. This charge consists of the following: (i) employee termination benefits of $1.7 million and facility closure charges of approximately $600,000.

A summary of activity related to the first quarter restructuring charge is as follows (in thousands):

	Employee Termination benefits			Lease Obligations and Related charges		Asset write-offs		Total
Initial restructuring charge	$	1,720		$	309	$	260	$	2,289
Cash paid		(1,051	)		—		—		(1,051	)
Non-cash charges		—			—		—		—

Restructuring accrual at December 31, 2001	$	669		$	309	$	260	$	1,238

Substantially all of the remaining restructuring liabilities at March 31, 2002 will be paid in 2002. Any changes to the accruals based upon current estimates will be reflected through the Acquisition and restructuring charges line in the Statement of Operations.

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):

	Three Months Ended March 31,
	2002		2001
Revenue	$	—	$	1,351
Cost of revenue		47		105
Sales and marketing		21,613		19,299
Product and website development		45		99
General and administrative		782		535

	$	22,487	$	21,389

Stock-based charges increased by $1.1 million to $22.5 million for the three months ended March 31, 2002 from $21.4 million for the three months ended March 31, 2001.

Other Income (Expense), Net

Other income, net, increased to $4.2 million for the three months ended March 31, 2002 from other expense, net, of $12.8 million for the three months ended March 31, 2001. The increase is primarily due to an amendment of an existing agreement for which we recorded other income of approximately $10.8 million. The amendment relieved us of certain future delivery obligations. This income is partially offset by a realized loss on the sale of a marketable security and other assets of approximately $4.1 million, and the recurring accretion of a distribution obligation of $3.7 million.

Discontinued Operations

In April 2002, the Company closed the sale of its Consumer Info division for $130 million in cash to Experian Holdings, Inc and in accordance with Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” the consolidated financial statements of Homestore reflect this disposition as discontinued operations. The results of operations of Consumer Info included revenue of $19.5 million and income of $846,000 for the quarter ended March 31, 2002.

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, 2002 and 2001. As of December 31, 2001, we had $438.2 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

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 our internal organization and disclosure of revenue and operating expenses based upon internal accounting methods. As of the beginning of fiscal year 2002, we changed our management team and changed the way that we manage and evaluate our business segments. As a result of this change, management now evaluates performance and allocates resources based on the four new segments consisting of media services, software and services, on-line advertising and off-line advertising and excludes discontinued operations. Due to this change we have reclassified prior period segment data to conform to the current years presentation. This is consistent with the data that is made available to us to assess performance and make decisions.

The expenses discussed below for the business segments exclude an allocation of certain significant operating expenses that are not allocated for internal management reporting purposes, which include marketing expenses; corporate expenses, such as finance, legal, internal business systems, and human resources; amortization of intangible assets; stock-based charges; and acquisition and restructuring charges. There is no inter-segment revenue. Assets and liabilities are not allocated to segments for internal reporting purposes.

The current segment of media services and software and services are equivalent to the prior period subscription segment. The on-line advertising segment was the prior period advertising segment. The off-line advertising segment was the prior period other segment.

Segment revenue. Our Media Services segment is comprised of our REALTOR.com^®, Homebuilder.com^TM, Homestore^TM Apartments & Rentals, and other real estate businesses.

represented approximately 54% of total revenue for the three months ended March 31, 2002 compared to 50% of total revenue for the three months ended March 31, 2001. The increase in revenue from Media Services was primarily due to the impact of a full quarter of activity from sales of our virtual tours products.

Our Software and Services segment is comprised of our Top Producer^®, WyldFyre^TM, Computers For Tracts and Homestore Mobility Technologies businesses.

Our Off-line Advertising segment is comprised of our Welcome Wagon and Homestore Plans and Publications businesses.

Segment expenses. Media Services expenses increased to $39.1 million for the three months ended March 31, 2002 from Media Services expenses of $37.3 million for the three months ended March 31, 2001. The increase was primarily due to an increase in royalty expense partially offset by lower marketing expense.

Software and Services expenses increased to $12.8 million for the three months ended March 31, 2002 from software and services expenses of $10.2 million for the three months ended March 31, 2001. The increase was primarily due to higher personnel consulting and depreciation expenses.

On-line advertising expenses increased to $7.2 million for the three months ended March 31, 2002 from on-line advertising expenses of $3.7 million for the three months ended March 31, 2001. The increase was primarily due to an increase in personnel and marketing expenses.

Off-line advertising expenses increased to $14.9 million for the three months ended March 31, 2002 from off-line advertising expenses of $5.5 million for the three months ended March 31, 2001. The increase was primarily due to the full quarter impact of Welcome Wagon and Homestore Plans and Publications business.

Unallocated expenses decreased to $40.6 million for the three months ended March 31, 2002 from unallocated expenses of $98.5 million for the three months ended March 31, 2001. The decrease was primarily

due to a decrease in amortization of intangibles, acquisitions and reorganization charges, depreciation and personnel expenses.

Liquidity and Capital Resources

Net cash used in continuing operating activities of $27.4 million for the three months ended March 31, 2002 was attributable to the net loss from continuing operations of $35.7 million, offset by non-cash expenses including depreciation, amortization of intangible assets, accretion of distribution obligation, provision for doubtful accounts, stock-based charges and other non-cash items, aggregating to $45.1 million. The impact of net cash used in continuing operating activities was further reduced by variances in operating assets and liabilities of approximately $36.9 million, principally relating to decreases in accounts payable balances and deferred revenue. Net cash provided by operating activities was $61.7 million for the three months ended March 31, 2001. Net cash used in operating activities was the result of the net operating loss totaling $99.8 million, offset by non-cash expenses including depreciation, amortization of intangible assets and stock-based charges, aggregating to $76.2 million. Adding to the cash used in operations were the changes in operating assets and liabilities, net of acquisitions, of $85.3 million.

Net cash provided by investing activities of $15.9 million for the three months ended March 31, 2002 was primarily attributable to maturities of short-term investments of $14.4 million and proceeds from the sale of a marketable equity securities of $1.7 million. Net cash provided by investing activities of $13.9 million for the three months ended March 31, 2001 was attributable to maturities of short-term investments of $75.5 million, partially offset by capital expenditures of $10.8 million, cash paid for acquisitions of $30.6 million including acquisition-related costs and purchases of short-term investments of $20.2 million.

Net cash provided by financing activities of $3.4 million for the three months ended March 31, 2002 was primarily attributable to the proceeds from the repayment of stockholders’ notes of $3.3 million. Net cash provided by financing activities of $27.6 million for the three months ended March 31, 2001 was attributable to proceeds from exercise of stock options, warrants and share issuances under our employee stock purchase plan of $29.6 million, offset by the repayment of notes payable of $468,000, and change in of notes receivable of $1.5 million.

In April 2002, the Company closed the sale of the ConsumerInfo division for $130 million in cash to Experian Holdings, Inc. The Company will use the net proceeds to continue to fund operations. The Company received net proceeds of approximately $115 million after transaction fees and monies placed in escrow pursuant to the Stock Purchase Agreement dated as of March 16, 2002 by and between Experian Holdings, Inc. and Homestore.com, Inc. However, on March 26, 2002, MemberWorks Incorporated, one of the former owners of iPlace, obtained a court order requiring the company to set aside $58 million of the purchase price against a potential claim MemberWorks has against the Company. Approximately $57 million of the remaining proceeds will be available to us to fund our on going operations.

Since inception, we have incurred losses from operations and have reported negative operating cash flows. As of March 31, 2002, we had an accumulated deficit of $1.8 billion and cash and cash equivalents of $34.2 million. We have no material financial commitments other than those under operating lease agreements and distribution and marketing agreements discussed further herein. We believe that our existing cash and cash equivalents, and any cash generated from operations will be sufficient to fund our working capital requirements, capital expenditures and other obligations through at least the next 12 months. Long term, we may 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 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 additional capital, if needed, might not be available on terms

acceptable to us, or at all. If adequate funds are not available or not available on acceptable terms, we may be unable to develop or enhance our products and services, take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements which may have a material adverse effect on our business, financial condition or operating results. 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 21 to our Consolidated Financial Statements on form 10-K as filed with the Securities and Exchange Commission on April 3, 2002.

In April 2000, we entered into a five-year distribution agreement with 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 $65.64 per share on the third anniversary and $68.50 per share on the 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. In 2001, we recorded $189.8 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 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, 2002, we have pledged $90.0 million in cash equivalents towards this letter of credit which is classified as restricted cash on the balance sheet. This letter of credit can be drawn against by AOL in the event that our 30-day average closing price is less than $65.64 on the third anniversary and $68.50 at the fourth and fifth anniversaries. 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. See “AOL Arbitration” in our Part II item I, “Legal Proceedings” regarding the arbitration of the alleged breach of the agreement.

RISK FACTORS

The following risk factors and other information included in this Form 10-Q should be considered carefully. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we deem to be currently immaterial also may impair our business operations. If any of the following risks actually occur, our business, financial condition and operating results could be materially adversely affected.

Risks Related to our Business

Litigation and an SEC investigation relating to accounting irregularities could have an adverse effect on our business.

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 our unaudited interim financial statements for 2001 would require restatement. On February 13, 2002, we announced that we would restate our financial results for the year ended December 31, 2000. In connection with the restatement, on March 12, 2002 we filed an amended Form 10-K/A for the year ended December 31, 2000 and on March 29, 2002 we filed amended Form 10-Q/A’s for each of the first three quarters of 2001. Following the December 21, 2001 announcement of the discovery of accounting irregularities, approximately 20 lawsuits claiming to be class actions and three lawsuits claiming to be brought derivatively on Homestore’s behalf were commenced in various courts against Homestore and certain directors and former officers of Homestore by or on behalf of persons claiming to be stockholders of Homestore and persons claiming to have purchased or otherwise acquired securities or options issued by Homestore between May 4, 2001 and December 21, 2001. The California State Teachers’ Retirement System has been named lead plaintiff in the consolidated shareholder lawsuits against Homestore.

It is possible that we may be required to pay substantial damages or settlement costs in connection with the litigations which could have a material adverse effect on our financial condition or results of operation. We are unable to estimate the possible range of damages that might be incurred as a result of the lawsuits. We have not set aside any financial reserves relating to any of these lawsuits. For a further description of the nature and status of the legal proceedings in which we are involved see “Item 3—Legal Proceedings.”

In January 2002, the SEC issued a formal order of investigation of us and certain former officers of Homestore. The investigation relates to the restatement of our financial results. The SEC has requested that we provide them with certain documents concerning the restatement of our financial results and financial reporting documents. We are cooperating with the SEC in connection with this investigation. Regardless of the outcome of any of these actions, it is likely that we will incur substantial defense costs and that such actions will cause a diversion of management time and attention. We could also be subject to substantial penalties, fines or regulatory sanctions which could adversely affect our business.

Our employees, investors, customers, business partners and vendors may react adversely to the restatement of our 2000 and 2001 financial statements and to the related litigation brought against us.

Our future success depends in large part on the continued support of our key employees, investors, customers, business partners and vendors who may react adversely to the restatement of our 2000 and interim 2001 financial statements. The restatement of our financial statements has resulted in substantial amounts of negative publicity about us. We may not be able to motivate or retain key employees, retain customers or key business partners if they lose confidence in us, and our vendors may re-examine their willingness to do business with us. In addition, investors may lose confidence in us, which may cause the trading price of our common stock to decrease. If we lose the services of our key employees or are unable to retain our existing customers and vendors or attract new customers, our business, operating results and financial condition could be materially and adversely affected.

The uncertainty associated with substantial unresolved lawsuits referred to above could materially adversely affect our business and financial condition. In particular, the lawsuits could harm our relationships with existing customers and our ability to obtain new customers.

Limitations of our Director and Officer Liability Insurance and potential indemnification obligations may adversely affect our business.

Our liability insurance for actions taken by officers and directors during the period from May 4, 2001 to December 21, 2001, the period during which events related to the securities litigation against us and certain of our directors and former executive officers occurred, provide only limited liability protection. If these policies do not adequately cover our potential exposure and expenses related to those class action lawsuits, it could materially adversely affect our business and financial condition.

Under Delaware law, our charter documents, and certain indemnification agreements we entered into with our executive officers and directors, we must indemnify our current and former officers and directors to the fullest extent permitted by law. The indemnification covers any expenses and/or liabilities reasonably incurred in connection with the investigation, defense, settlement or appeal of legal proceedings. The obligation to provide indemnification does not apply if the officer or director is found to be liable for fraudulent or criminal conduct. Our business and financial condition could be harmed if we have to make significant payments for indemnification.

For the period in which most of the claims were asserted, we had in place nine director’s and officer’s liability primary and excess insurance policies, with seven of which providing $10 million in coverage and two providing $5 million for a total of $80 million. However, our insurance carriers may assert that not all of the actions implicate coverage under our insurance policies. In addition, these policies may not provide any separate coverage for us as an entity as opposed to our officers and directors. If our insurance policies do not provide us with coverage for any liabilities that may result from this litigation, our business and financial condition could be adversely affected.

Failure to continue to strengthen our internal accounting controls could adversely affect our business.

Although we have made significant progress in our efforts to strengthen our accounting controls and processes, we may not be able to hire and/or retain enough qualified finance personnel to continue to do so. If we are unable to continue to strengthen our accounting controls and processes, that inability could adversely affect our ability to accurately forecast and report our financial results. In addition, any customer uncertainty about our internal accounting controls could have an adverse effect on our ability to sell our products.

Our common stock price may be volatile, which could result in substantial losses for individual stockholders.

The market price for our common stock has decreased substantially in recent periods. It is likely to continue to be highly volatile and subject to wide fluctuations in response to many factors, including the factors described herein and the following, some of which are beyond our control:

•

actual or anticipated variations in our quarterly operating results;

•

announcements of technological innovations or new products or services by us or our competitors;

•

changes in financial estimates by securities analysts;

•

conditions or trends in the Internet, technology and/or real estate and real estate-related industries;

•

market prices for stocks of Internet companies and other companies whose businesses are heavily dependent on the Internet have generally proven to be highly volatile, particularly in recent quarters; and

•

adverse publicity relating to litigation.

We have a new senior management team and our future success depends upon our new management’s ability to execute its business plan.

On January 7, 2002, we replaced much of our senior management team. Our new senior management team includes W. Michael Long, our Chief Executive Officer, Jack D. Dennison, our Chief Operating Officer, and Lewis R. Belote, III, our Chief Financial Officer. Our future success will depend on how well and quickly our new senior management integrates with the rest of our employees and business partners.

Risks related to the AOL Agreement.

In April 2000, we entered into a five-year distribution agreement with AOL. As part of 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 per share of our common stock will be:

•

$65.64 per share with respect to 60% of AOL’s shares on July 31, 2003;

•

$68.50 per share with respect to 20% of AOL’s shares on July 31, 2004; and

•

$68.50 per share with respect to the remaining 20% of AOL’s shares on July 31, 2005.

This guarantee only applies to shares that continue to be held by AOL at the applicable date.

In light of our current stock price, it is possible that our stock price may not achieve these levels at those dates.

If there is a shortfall between the guaranteed price and the 30-day average closing price per share on the applicable date, we would have to make cash payments to AOL. The aggregate amount of cash payments we would be required to make in performing under this agreement is limited to $90.0 million. To the extent that the aggregate shortfall exceeds $90.0 million over the course of the agreement, AOL can shorten the term of the agreement. We have placed $90.0 million in restricted cash on our balance sheet, which represents a letter of credit in favor of AOL for this obligation. If we are obligated to pay AOL less than $40.0 million at the first guarantee date of July 31, 2003, then we would have the right to reduce the restricted cash to $50.0 million, which would then represent our maximum aggregate cash payment we would make in performing under the agreement after July 31, 2003.

Our agreement with AOL requires us to make significant payments to secure distribution on AOL. These payments may not result in an increase in visitors to our websites. We are currently in arbitration with AOL relating to the alleged breach of this agreement. See “AOL Arbitration” under Item 3, “Legal Proceedings” in this Form 10-Q.

Focusing on our core business may require sales of assets and/or discontinuing certain operations, which could lead to write-offs or unusual/non-recurring items in our financial statements.

On February 5, 2002, we announced that we would re-focus on our core business objective—making real estate professionals more productive and profitable. This focus may involve the disposition of non-strategic business and corporate services. For example, on February 1, 2002, we sold eNeighborhoods and on March 16, 2002, we entered into an agreement to sell all of the capital stock of Homestore Consumer Information Corp., which includes ConsumerInfo.com, for $130 million in cash to Experian Holdings, Inc. As a result of this focus, we may incur significant write-offs or one-time, non-recurring gains or losses or a reduction in visitors to our website.

Our agreement with the National Association of REALTORS^® could be terminated.

The REALTOR.com^® trademark and web site address and the REALTOR^® trademark are owned by NAR. NAR licenses these trademarks to our subsidiary RealSelect under a license agreement, and RealSelect operates the REALTOR.com^® web site under an operating agreement with NAR.

Although the REALTOR.com^® operating agreement is a lifetime agreement, NAR may terminate it for a variety of reasons. These include:

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the acquisition of Homestore or RealSelect by another party;

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a substantial decrease in the number of property listings on our REALTOR.com^® site; and

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a breach of any of our other obligations under the agreement that we do not cure within 30 days of being notified by NAR of the breach.

Absent a breach by NAR, the agreement does not contain provisions that allow us to terminate.

Our agreement with NAR contains a number of provisions that could restrict our operations.

Our operating agreement with NAR contains a number of provisions that restrict how we operate our business. These restrictions include:

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we must make quarterly royalty payments of up to 15% of RealSelect’s operating revenue in the aggregate to NAR and the entities that provide us the information for our real property listings (“data content providers”). However, in 2002 we have amended the NAR operating agreement such that we now must make fixed payments to NAR as follows:

For 2002, we must pay $1,175,000 in two installments of $587,500 due on June 1, 2002 and December 15, 2002.

For 2003, we must pay $1,300,000 in four installments of $325,000 due on the last day of each calendar quarter of 2003.

For 2004, we must pay $1,400,000 in four installments of $350,000 due on the last day of each calendar quarter of 2004.

For 2005, we must pay $1,500,000 in four installments of $375,000 due on the last day of each calendar quarter of 2005.

For 2006, we must pay $1,500,000 plus or minus, as the case may be, the percentage change in the Consumer Price Index for 2005, in four equal installments due on the last day of each calendar quarter of 2006.

For 2007 and beyond, we must pay the amount due during the prior calendar year plus or minus, as the case may be, the percentage change in the Consumer Price Index for the prior calendar year, in four equal installments due on the last day of each calendar quarter for that calendar year;

•

we have also amended and are continuing to amend many of our agreements with the data content providers to change the method of payment to a fixed amount per listing rather than a percentage of our revenue and to reduce the amounts that we must pay to such entities. In exchange, in some cases, we are shortening the duration of these agreements, including those agreements under which we receive the real property listings on an exclusive basis;

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we are restricted in the type and subject matter of, and the manner in which we display, advertisements on the REALTOR.com^® web site;

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NAR has the right to approve how we use its trademarks, and we must comply with its quality standards for the use of these marks;

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we must meet performance standards relating to the availability time of the REALTOR.com^® web site;

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NAR has the right to review, approve and request changes to the content on certain pages of our REALTOR.com^® web site; and

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we are restricted in our ability to create additional web sites or pursue other lines of business that engage in displaying real property advertisements in electronic form.

In addition, our operating agreement with NAR contains restrictions on how we can operate the REALTOR.com^® web site. For instance, we can only enter into agreements with entities that provide us with real estate listings, such as MLSs, on terms approved by NAR. In addition, NAR can require us to include on REALTOR.com^® real estate related content it has developed.

If our operating agreement for REALTOR.com^® terminates, NAR would be able to operate the REALTOR.com^® web site.

If our operating agreement with NAR terminates, we must transfer a copy of the software that operates the REALTOR.com^® web site and assign our agreements with data content providers, such as real estate brokers or MLSs, to NAR. NAR would then be able to operate the REALTOR.com^® web site itself or with a third party. Many of these data content agreements are exclusive and we could be prevented from obtaining and using listing data from the providers covered by these transferred agreements until the exclusivity periods expire.

We are subject to non-competition provisions with NAR which could adversely affect our business.

We were required to obtain the consent of NAR prior to our acquisition of our SpringStreet.com, Move.com and HomeBuilder.com web sites. In the future, if we were to acquire or develop another service that provides real estate listings on an Internet site or through other electronic means, we will need to obtain the prior consent of NAR. Any future consents from NAR, if obtained, could be conditioned on our agreeing to operational conditions for the new web site or service. These conditions could include paying fees to NAR, limiting the types of content or listings on the web sites or service or other terms and conditions. Our business could be adversely affected if we do not obtain consents from NAR, or if a consent we obtain contains restrictive conditions. These non-competition provisions and any required consents, if accepted by us at our discretion, could have the effect of restricting the lines of business we may pursue.

Our agreement with the National Association of Home Builders contains provisions that could restrict our operations.

Our operating agreement with NAHB includes a number of restrictions on how we operate our HomeBuilder.com web site:

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if NAR terminates our REALTOR.com^® operating agreement, for the next six months NAHB can terminate its operating agreement with three months’ prior notice;

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we are restricted in the type and subject matter of advertisements on the pages of our HomeBuilder.com web site that contain new home listings; and

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NAHB has the right to approve how we use its trademarks and we must comply with its quality standards for the use of its marks.

Our Homestore Apartments and Rentals web site is subject to a number of restrictions on how it may be operated.

In agreeing to our acquisition of SpringStreet, Inc., NAR imposed a number of restrictions on how we can operate the Homestore Apartments and Rentals web site (formerly the SpringStreet.com web site). These include:

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if the consent terminates for any reason, we will have to transfer to NAR all data and content, such as listings, on the rental site that were provided by real estate professionals who are members of NAR, known as REALTORS^®;

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listings for rental units in smaller non-apartment properties generally must be received from a REALTOR^® or REALTOR^®-controlled MLSs in order to be listed on the web site;

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if the consent is terminated, we could be required to operate our rental properties web site at a different web address;

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if the consent terminates for any reason, other than as a result of a breach by NAR, NAR will be permitted to use the REALTOR^®-branded web address, resulting in increased competition;

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we cannot list properties for sale on the rental web site for the duration of our REALTOR.com^® operating agreement and for an additional two years;

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we are restricted in the type and subject matter of, and the manner in which we display, advertisements on the rental web site and;

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we must offer REALTORS^® preferred pricing for home pages or enhanced advertising on the rental web site.

NAR could revoke its consent to our operating Homestore Apartments and Rentals.

NAR can revoke its consent to our operating the Homestore Apartments and Rentals web site for reasons which include:

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the acquisition of Homestore or RealSelect by another party;

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a substantial decrease in property listings on our REALTOR.com^® web site; and

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a breach of any of our obligations under the consent or the REALTOR.com^® operating agreement that we do not cure within 30 days of being notified by NAR of the breach.

The National Association of REALTORS^® has significant influence over aspects of our RealSelect subsidiary’s corporate governance and has a representative on our Board.

NAR has significant influence over RealSelect’s corporate governance.

Board representatives.NAR is entitled to have one representative as a member of our Board of Directors and two representatives as members of RealSelect’s Board of Directors.

Approval rights. RealSelect’s certificate of incorporation contains a limited corporate purpose, which purpose is the operation of the REALTOR.com^® web site and real property advertising programming for electronic display and related businesses. Without the consent of six-sevenths of the members of the RealSelect Board of Directors, which would have to include at least one NAR appointed director, this limited purpose provision cannot be amended.

RealSelect’s bylaws also contain protective provisions which could restrict portions of its operations or require us to incur additional expenses. If the RealSelect Board of Directors cannot agree on an annual operating budget for RealSelect, it would use as its operating budget that from the prior year, adjusted for inflation. Any expenditures in excess of that budget would have to be funded by Homestore. In addition, if RealSelect desired to incur debt or invest in assets in excess of $2.5 million without the approval of a majority of its board, including a NAR representative, we would need to fund those expenditures.

RealSelect cannot take the following actions without the consent of at least one of NAR’s representatives on its Board of Directors:

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amend its certificate of incorporation or bylaws;

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pledge its assets;

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approve transactions with affiliates, stockholders or employees in excess of $100,000;

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change its executive officers;

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establish, or appoint any members to, a committee of its Board of Directors; or

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issue or redeem any of its equity securities.

We must continue to obtain listings from real estate agents, brokers, home builders, 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, home builders, MLSs and rental owners. Many of our agreements with MLSs, brokers and agents to display property listings have fixed terms, typically 12 to 36 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 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 web sites could become less attractive to other real estate industry participants or consumers.

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 not to renew their subscriptions.

We must dedicate significant resources to market our subscription products and services to real estate professionals.

Because the annual fee for services sold to real estate professionals is relatively low, we depend on obtaining sales from a large number of these customers. It is difficult to reach and enroll new subscribers cost effectively. A large portion of our sales force targets real estate professionals who are widely distributed across the United States. This results in relatively high fixed costs associated with our sales activities. In addition, our sales personnel generally cannot efficiently contact real estate professionals on an individual basis and instead must rely on sales presentations to groups of agents and/or brokers. Real estate agents are generally independent contractors rather than employees of brokers. Therefore, even if a broker uses our subscription products and services, its affiliated agents are not required to use them.

We have a history of net losses and expect net losses for the foreseeable future.

We have experienced net losses in each quarterly and annual period since 1993. We incurred net losses of $34.8 million and $99.8 million for the three months ended March 31, 2002 and 2001, respectively. As of March 31, 2002, we had an accumulated deficit of $1.8 billion, and we expect to incur net losses for the foreseeable future. The size of these net losses will depend, in part, on the rate of growth in our revenue 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 and stock and warrant issuances, and amortization of intangible assets. As of March 31, 2002, we had approximately $111.4 million of stock-based charges and intangible assets to be amortized.

Our quarterly financial results are subject to significant fluctuations.

Our results of operations may vary significantly from quarter to quarter. In the near term, we expect to be substantially dependent on sales of our subscription and advertising products and services. We also expect to incur significant sales and marketing expenses to promote our brand and services. Therefore, our quarterly revenue and operating results are likely to be particularly affected by the number of persons purchasing subscription and advertising products and services as well as sales and marketing expenses for a particular period. If revenue 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:

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the level of renewals for our subscription products and services by real estate agents, brokers and rental property owners and managers;

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the amount of advertising sold on our web sites and the timing of payments for this advertising;

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the amount and timing of our operating expenses;

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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;

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the sale or disposition of assets; and

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the impact of fees paid to professional advisors in connection with litigation and accounting matters.

The market for web-based subscription and advertising products and services relating to real estate is competitive.

Our main existing and potential competitors include web sites offering real estate related content and services as well as general purpose online services, and traditional media such as newspapers, magazines and television that may compete for advertising dollars.

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. 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. The rapid pace of technological change constantly creates new opportunities for existing and new competitors and it can quickly render our existing technologies less valuable.

Our future success depends largely on our ability to attract, retain and motivate personnel.

Our future success depends on our ability to attract, retain and motivate highly skilled technical, managerial and sales personnel. Volatility or lack of positive performance in our stock price may also adversely affect our ability to retain key employees, many of whom have been granted stock options. Due to the decline in the trading price of our common stock, a portion of the stock options held by our employees have an exercise price that is higher than the current trading price of our common stock, and therefore these stock options may not be effective in helping us to retain valuable employees.

Also, we have recently executed workforce reductions and have announced that we are restructuring our business operations. As a result, we will need to operate with fewer employees and existing employees may have to perform new tasks. These factors may create concern about job security among existing employees that could lead to increased turnover. We may have difficulties in retaining and attracting employees. Employee turnover

may result in a loss of knowledge about our customers, our operations and our internal systems, which could materially harm our business. If any of these employees leave, we may not be able to replace them with employees possessing comparable skills. Attracting and retaining qualified personnel with experience in the real estate industry, a complex industry that requires a unique knowledge base, is an additional challenge for us. The loss of services of any of our key personnel, excessive turnover of our work force, the inability to retain and attract qualified personnel in the future or delays in hiring required personnel may have a material adverse effect on our business, operating results or financial condition.

Our current organizational realignment and cost reduction plan may not meet its objectives and could adversely affect our results of operations and financial position.

On October 25, 2001, we announced an organizational realignment and cost reduction plan to focus us more tightly on our core customer segments and to allow for increased operational efficiencies. This restructuring plan included a reduction in workforce of up to 700 employees or about 20% of our workforce. In February 2002, we announced plans to reduce our staff by an additional 300 employees. If we do not meet our restructuring objectives, we may have to implement additional plans for restructuring in order to reduce our operating costs. Developing and implementing restructuring plans are time consuming and could divert management’s attention, which could have an adverse effect on our financial results.

We need to continue to develop our content and our product and service offerings.

To remain competitive, we must continue to enhance and improve the ease of use, responsiveness, functionality and features of our web sites and products. These efforts may require us to develop internally or to license increasingly complex technologies. In addition, many companies are continually introducing new Internet-related products, services and technologies, which will require us to update or modify our technology. Developing and integrating new products, services or technologies into our web sites could be expensive and time consuming. Any new features, functions or services may not achieve market acceptance or enhance our brand loyalty. If we fail to develop and introduce or acquire new features, functions or services effectively and on a timely basis, we may not continue to attract new users and may be unable to retain our existing users. Furthermore, we may not succeed in incorporating new Internet technologies, or in order to do so, we may incur substantial additional expenses.

We may experience difficulty in integrating our acquisitions.

Over the past two years, we have made several acquisitions. We may not receive the desired benefits from these acquisitions. Risks related to our acquisitions include:

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difficulties in assimilating the operations of the acquired businesses;

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potential disruption of our existing businesses;

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assumption of unknown liabilities and litigation;

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our inability to integrate, train, retain and motivate personnel of the acquired businesses;

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diversion of our management from our day-to-day operations;

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our inability to incorporate acquired products, services and technologies successfully into our web sites;

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potential impairment of relationships with our employees, customers and strategic partners; and

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inability to maintain uniform standards, controls procedures and policies.

Our inability to successfully address any of these risks could materially harm our business.

Our certificate of incorporation and bylaws, Delaware law and other agreements contain provisions that could discourage a takeover.

Delaware law, our certificate of incorporation and bylaws, our operating agreement with NAR, other agreements with business partners and a stockholders agreement could have the effect of delaying or preventing a third party from acquiring us, even if a change in control would be beneficial to our stockholders. For example, we have a classified Board of Directors. In addition, our stockholders are unable to act by written consent or to fill any vacancy on the Board of Directors. Our stockholders cannot call special meetings of stockholders for any purpose, including to remove any director or the entire Board of Directors without cause. In addition, NAR could terminate the REALTOR.com^® operating agreement if Homestore or RealSelect is acquired.

Our business is dependent on our key personnel.

Our future success depends to a significant extent on the continued services of our senior management and other key personnel. The loss of the services of key employees would likely have a significantly detrimental effect on our business. Several of our key senior management have employment agreements that we believe will assist in our ability to retain them, many other key employees do not have employment agreements that prohibit them from ending their employment at any time. Competition for qualified personnel in our industry and geographical locations is intense. We cannot assure you that we will be successful in attracting, integrating, retaining and motivating a sufficient number of qualified employees to conduct our business in the future.

We rely on intellectual property and proprietary rights.

We regard substantial elements of our web sites and underlying technology as proprietary. Despite our precautionary measures, third parties may copy or otherwise obtain and use our proprietary information without authorization or develop similar technology independently. Although we have one patent, we may not achieve the desired protection from, and third parties may design around, this patent or any other patent that we may obtain in the future. In addition, in any litigation or proceeding involving our patent, or any other patent that we may obtain in the future, the patent may be determined to be invalid or unenforceable. Any legal action that we may bring to protect our proprietary information could be expensive and distract management from day-to-day operations.

Other companies may own, obtain or claim trademarks that could prevent or limit or interfere with use of the trademarks we use. The REALTOR.com^® web site address and trademark and the REALTOR^® trademark are important to our business and are licensed to us by NAR. If we were to lose the REALTOR.com^® domain name or the use of these trademarks, our business would be harmed and we would need to devote substantial resources towards developing an independent brand identity.

Legal standards relating to the validity, enforceability and scope of protection of proprietary rights in Internet-related businesses are uncertain and evolving, and we can give no assurance regarding the future viability or value of any of our proprietary rights.

We may not be able to protect the web site addresses that are important to our business.

Our web site addresses, or domain names, are important to our business. The regulation of domain names is subject to change. Some proposed changes include the creation of additional top-level domains in addition to the current top-level domains, such as “.com,” “.net” “.org.” “.biz” “.info” “.tv” and “.us.” It is also possible that the requirements for holding domain names could change. Therefore, we may not be able to obtain or maintain relevant domain names for all of the areas of our business. It may also be difficult for us to prevent third parties from acquiring domain names that are similar to ours, that infringe our trademarks or that otherwise decrease the value of our intellectual property.

We could be subject to litigation with respect to our intellectual property rights.

Other companies may own or obtain patents or other intellectual property rights that could prevent, limit or interfere with our ability to provide our products and services. Companies in the Internet market are increasingly making claims alleging infringement of their intellectual property rights. We could incur substantial costs to defend against these or any other claims or litigation. If a claim were successful, we could be required to obtain a license from the holder of the intellectual property or redesign our advertising products and services.

Our agreement with the International Consortium of Real Estate Associations may expose us to higher costs and greater risks.

In October 2001, we entered into an agreement with the International Consortium of Real Estate Associations. This consortium, formed in May 2001, consists of approximately 24 real estate associations worldwide and was created to provide consumers with a single Internet based source for real property around the world. Pursuant to that agreement, we agreed to operate the consortium’s web site and have been endorsed as the exclusive provider of certain products and services to real estate agents in the countries in which members of the consortium have operations. As we expand our service and product offerings to the consortium’s member associations, and if we begin to receive revenue from them, our exposure to currency exchange rate fluctuations will increase. In addition, we may be subject to the following risks:

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increased financial accounting and reporting burdens and complexities;

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potentially adverse tax consequences;

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compliance with a wide variety of complex foreign laws and treaties;

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reduced protection for intellectual property rights in some countries;

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licenses, tariffs and other trade barriers; and

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disruption from political and economic instability in the countries in which the consortium member associations are located.

These factors may impose additional costs upon us.

Real Estate Industry Risks

Our business is dependent on the strength of the real estate industry, which is both cyclical and seasonal.

The real estate industry traditionally has been cyclical. Recently, sales of real estate in the United States have been at historically high levels. Economic swings in the real estate industry may be caused by various factors. When interest rates are high or general national and global economic conditions are or are perceived to be weak, there is typically less sales activity in real estate. A decrease in the current level of sales of real estate and products and services related to real estate could adversely affect demand for our family of web sites and our subscription and advertising products and services. In addition, reduced traffic on our family of web sites would likely cause our subscription and advertising revenue to decline, which would materially and adversely affect our business.

We may experience seasonality in our business. The real estate industry generally experiences a decrease in activity during the winter.

We may particularly be affected by general economic conditions.

Purchases of real property and related products and services are particularly affected by negative trends in the general economy. Substantially all of our revenue has been, and is expected to continue to be, derived from customers in the United States. Recent economic indicators, including growth in gross domestic product, reflect a

decline in economic activity in the United States from prior periods. The success of our operations depends to a significant extent upon a number of factors relating to discretionary consumer and business spending, and the overall economy, as well as regional and local economic conditions in markets where we operate, including:

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perceived and actual economic conditions;

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interest rates;

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taxation policies;

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availability of credit;

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employment levels; and

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wage and salary levels.

In addition, because a consumer’s purchase of real property and related products and services is a significant investment and is relatively discretionary, any reduction in disposable income in general may affect us more significantly than companies in other industries.

Recessionary pressures traditionally impact real estate markets.

During recessionary periods, there tends to be a corresponding decline in demand for real estate, generally and regionally, that could adversely affect certain segments of our business. Such adverse effects, typically, are a general decline in rents and sales prices, a decline in leasing activity, a decline in the level of investments in, and the value of real estate, and an increase in defaults by tenants under their respective leases. All of these, in turn, adversely affect revenue for fees and brokerage commissions, which are derived from property sales, and annual rental payments and property management fees.

We have risks associated with changing legislation in the real estate industry.

Real estate is a heavily regulated industry in the U.S., including regulation under the Fair Housing Act, the Real Estate Settlement Procedures Act and state advertising laws. In addition, states could enact legislation or regulatory policies in the future which could require us to expend significant resources to comply. These laws and related regulations may limit or restrict our activities. For instance, we are limited in the criteria upon which we may base searches of our real estate listings such as age or race. As the real estate industry evolves in the Internet environment, legislators, regulators and industry participants may advocate additional legislative or regulatory initiatives. Should existing laws or regulations be amended or new laws or regulations be adopted, we may need to comply with additional legal requirements and incur resulting costs, or we may be precluded from certain activities. For instance, Homestore Apartments and Rentals was required to qualify and register as a real estate agent/broker in the State of California. To date, we have not spent significant resources on lobbying or related government issues. Any need to significantly increase our lobbying or related activities could substantially increase our operating costs.

Internet Industry Risks

We depend on increased use of the Internet to expand our real estate related advertising products and services.

If the Internet does not continue to be a viable marketplace for real estate content and information or if the pace of adoption by consumers of the Internet slows, our business growth may suffer. Broad acceptance and adoption of the Internet by consumers and businesses when searching for real estate and related products and services will continue only if the Internet continues to provide them with greater efficiencies and improved access to information.

In addition to selling subscription products and services to real estate professionals, we have depended on selling other types of advertisements on our web sites.

We have been experiencing deterioration in the demand for our advertising services due to the slowdown in the U.S. economy, decreased corporate spending and concerns about the effectiveness of Internet advertising. Our ability to generate advertising revenue from selling banner advertising and sponsorships on our web sites will depend on, among other factors, the development of the Internet as an advertising medium, the amount of traffic on our family of web sites and our ability to achieve and demonstrate user demographic characteristics that are attractive to advertisers. Most potential advertisers and their advertising agencies have only limited experience with the Internet as an advertising medium and have not devoted a significant portion of their advertising expenditures to the Internet-based advertising. No standards have been widely accepted to measure the effectiveness of web advertising. If these standards do not develop, existing advertisers might reduce their current levels of Internet advertising or eliminate their spending entirely. The widespread adoption of technologies that permit Internet users to selectively block out unwanted graphics, including advertisements attached to the web pages, could also adversely affect the growth of the Internet as an advertising medium. In addition, advertisers in the real estate industry, including real estate professionals, have traditionally relied upon other advertising media, such as newsprint and magazines, and have invested substantial resources in other advertising methods. These persons may be reluctant to adopt a new strategy and advertise on the Internet. If the demand for the Internet advertising remains sluggish due to a weak U.S economy, our revenue and operating results could be materially harmed.

Government regulations and legal uncertainties could affect the growth of the Internet.

A number of legislative and regulatory proposals under consideration by federal, state, local and foreign governmental organizations may lead to laws or regulations concerning various aspects of the Internet, including online content, user privacy, access charges, liability for third-party activities and jurisdiction. Additionally, it is uncertain as to how existing laws will be applied to the Internet. The adoption of new laws or the application of existing laws may decrease the growth in the use of the Internet, which could in turn decrease the usage and demand for our services or increase our cost of doing business.

Taxation of Internet transactions could slow the use of the Internet.

In 1998, Congress passed the Internet Tax Freedom Act, which placed a three-year moratorium on state and local taxes on Internet based transactions. Congress extended this moratorium during 2001. If Congress chooses in the future, however not to renew this legislation, U.S., state and local governments would be free to impose new taxes on electronically purchased goods. The imposition of such taxes could impair the growth of electronic commerce and thereby adversely affect the growth of our business.

We depend on continued improvements to our computer network and the infrastructure of the Internet.

Any failure of our computer systems that causes interruption or slower response time of our web sites or services could result in a smaller number of users of our web sites or the web sites that we host for real estate professionals. If sustained or repeated, these performance issues could reduce the attractiveness of our web sites to consumers and our subscription products and services to real estate professionals, providers of real estate related products and services and other Internet advertisers. Increases in the volume of our web site traffic could also strain the capacity of our existing computer systems, which could lead to slower response times or system failures. This would cause the number of real property search inquiries, advertising impressions, other revenue producing offerings and our informational offerings to decline, any of which could hurt our revenue growth and our brand loyalty. We may need to incur additional costs to upgrade our computer systems in order to accommodate increased demand if our systems cannot handle current or higher volumes of traffic.

Our ability to increase the speed with which we provide services to consumers and to increase the scope of these services is limited by and dependent upon the speed and reliability of the Internet. Consequently, the emergence and growth of the market for our services is dependent on the performance of and future improvements to 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 and Thousand Oaks, California. Although we have not experienced any material outages to date, we currently do not have a redundant system for our 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 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.

We could face liability for information on our web sites and for products and services sold over the Internet.

We provide third-party content on our web sites, particularly real estate listings. We could be exposed to liability with respect to this third-party information. Persons might assert, among other things, that, by directly or indirectly providing links to web sites operated by third parties, we should be liable for copyright or trademark infringement or other wrongful actions by the third parties operating those web sites. They could also assert that our third party information contains errors or omissions, and consumers could seek damages for losses incurred if they rely upon incorrect information.

We enter into agreements with other companies under which we share with these other companies revenue resulting from advertising or the purchase of services through direct links to or from our family of web sites. These arrangements may expose us to additional legal risks and uncertainties, including local, state, federal and foreign government regulation and potential liabilities to consumers of these services, even if we do not provide the services ourselves. We cannot assure you that any indemnification provided to us in our agreements with these parties, if available, will be adequate.

Even if these claims do not result in liability to us, we could incur significant costs in investigating and defending against these claims. Our general liability insurance may not cover all potential claims to which we are exposed and may not be adequate to indemnify us for all liability that may be imposed.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. We have not used derivative financial instruments in our investment portfolio. We invest our excess cash in debt instruments of the U.S. Government and its agencies, and in high-quality corporate issuers and, by policy, this limits the amount of credit exposure to any one issuer.

Investments in both fixed rate and floating rate interest earning instruments carries a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are involved in legal proceedings and litigation arising in the ordinary course of business. As of the date of this Form 10-Q and except as set forth herein, we are not a party to any litigation or other legal proceeding that, in our opinion, could have a material adverse effect on our business, operating results or financial condition.

Shareholder Litigation

Beginning in December 2001 numerous separate complaints purporting to be class actions were filed in various jurisdictions alleging that we and certain of our officers and directors violated certain provisions of the Securities Exchange Act of 1934, as amended. The complaints contain varying allegations, including that we 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. On March 27, 2002, the California State Teacher’s Retirement System was named lead plaintiff and the complaints have been consolidated in the United States District Court, Central District of California. The case is still in the preliminary stages, and it is not possible for us to quantify the extent of its potential liability, if any. An unfavorable outcome in this case could have a material adverse effect on our business, financial condition 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 our business. This litigation may have an adverse effect on our financial condition, results of operations and cash flows.

SEC Investigation

In January 2002, we were notified that the SEC had issued a formal order of private investigation in connection with matters relating to the restatement of our financial results. The SEC has requested that we provide it with certain documents and other materials concerning the restatement of our financial results. We are cooperating with the SEC in connection with this investigation and its outcome cannot be determined.

AOL Arbitration

We are currently in arbitration with AOL relating to a distribution agreement dated April 25, 2000, under which AOL was to promote the content of Homestore and, among other things, Homestore was to become the sponsor of and content provider for new house and home-related channels on the AOL network. Pursuant to the distribution agreement, we made an up-front cash payment to AOL of $20,000,000 and delivered to AOL nearly 3.9 million shares of Homestore stock with a guaranteed value, supported by a $90 million letter of credit to AOL. Under the distribution agreement, AOL was entitled to draw down the letter of credit upon any event of termination, even if we terminate for breach of the agreement by AOL.

We filed a Demand for Arbitration with the Arbitration Association of America (AAA) in Atlanta on October 30, 2001, and a First Amended Demand for Arbitration on January 18, 2002. In the First Amended Demand, we claim that AOL has breached the distribution agreement by failing to meet its contractual obligations to build 21 specific promotions for Homestore and to deliver more than 600 million Homestore impressions to AOL users. We also claim that AOL breached the duty of good faith and fair dealing in the contract by disregarding its contractual commitments. On March 4, 2002, we moved to file a Second Amended Demand for Arbitration, adding the claim that AOL’s conduct violated the contractual guarantees of exclusivity,

premiere partnership and prominent partnership for Homestore. In the arbitration, we seek a declaration that AOL breached the distribution agreement; that we may terminate or rescind the contract and receive damages and other appropriate relief; and that Homestore may terminate the contract without AOL having any right to the $90 million letter of credit.

We filed our First Pretrial Brief on March 22, 2002. AOL’s First Pretrial Brief was filed on May 8, 2002. A hearing is scheduled for early July 2002.

Other Litigation

On January 4, 2002, Robert Sparaco filed a complaint in California Superior Court, Los Angeles County, derivatively on behalf of nominal defendant Homestore.com, Inc. against certain directors and former officers of Homestore. Two additional shareholder derivative actions were filed against substantially the same defendants on behalf of nominal defendant Homestore. The three derivative actions allege breaches of fiduciary duty, negligence, abuse of control, misconduct, waste of corporate assets and other violations of state law. On March 7, 2002, the court entered an order consolidating the three actions. On April 23, 2002, the parties lodged with the court a stipulation extending plaintiffs to file a consolidated complaint to June 25, 2002. Defendants have until August 9, 2002, to respond to the complaint. As these cases are in the very early stage, we are unable to express an opinion at this time as to the merits of the case.

On January 17, 2002, Jeff Joerg filed a complaint in Delaware Chancery Court, derivatively on behalf of nominal defendant Homestore against certain directors and former officers of Homestore. The complaint alleges that defendants breached their fiduciary duties by failing to maintain adequate accounting controls and by employing improper accounting practices and procedures. As the case is in a very early stage, we are unable to express an opinion at this time as to the merits of the case.

On March 1, 2002, MemberWorks Incorporated sued Homestore in United States District Court for the Central District of Connecticut, alleging securities fraud, common law fraud, negligent misrepresentation, unjust enrichment and imposition of a constructive trust, and violation of the Connecticut Unfair Trade Practices Act in connection with Homestore’s acquisition of iPlace in August 2001. MemberWorks sought a temporary restraining order and/or preliminary injunction in connection with the sale of a former iPlace subsidiary, ConsumerInfo.com. MemberWorks, one of the former owners of iPlace also sought an application for prejudgment attachment. On March 15, 2002, we moved to dismiss or transfer for improper venue. On March 25, 2002, the Court granted our motion to transfer the action to the United States District Court, Central District of California, and denied MemberWorks’ request to enjoin the sale of ConsumerInfo.com, but imposed a constructive trust of $58 million of the sale’s proceeds. The $58 million constructive trust is subject to adjustment after further discovery. As the case is in a very early stage, we are unable to determine the expected outcome at this time as to the merits of the case.

On or around June 21, 2000, Anil K. Agarwal filed a Petition for Declaratory Judgment against Homestore, in the District Court of Douglas County, Nebraska, The lawsuit arises from a transaction between Dr. Agarwal and Michael K. Luther, in relation to which Mr. Luther directed Infotouch Corporation, the predecessor of Homestore, to transfer certain shares of Infotouch Series B Preferred Stock to Dr. Agarwal. Dr. Agarwal seeks a declaratory judgment that he should have been issued shares of Series B Preferred stock of Infotouch Corporation sufficient to entitle him to receive 76,949 (on a pre-split basis) shares of common stock, and that there is a shortfall of 46,950 shares of common stock, pre-split (or 104,375 shares of common stock, post-split) due and owing to him. As the case is in the early stages of discovery, we are unable to express an opinion at this time as to the merits of this case.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

During March, 2002, 117,262 shares of Homestore common stock were granted to certain employees of Homestyles Publishing and Marketing, Inc., or Homestyles^®, a division that was acquired by Homestore in

May 2001. The shares were issued pursuant to performance stock bonus agreements with the Homestyle^® employees. The number of shares issued was based on share prices ranging from $1.54 to $7.87 a share. The stock grants were made pursuant to Section 4 (2) of the Securities and Exchange Act of 1933, as amended.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Number		Exhibit Title
6.01	(a)	Employment Agreement dated as of March 6, 2002, between W. Michael Long and Homestore.

6.02	(a)	Employment Agreement dated as of March 6, 2002, between Lewis R. Belote, III and Homestore.

6.03	(a)	Employment Agreement dated as of March 6, 2002, between Jack D. Dennison and Homestore.

6.04	(a)	Executive Retention and Severance Agreement dated as of March 8, 2002, between Walter Lowry and Homestore.

6.05	(a)	Memorandum dated as of March 5, 2002, between Walter Lowry and Homestore.

6.06	(a)	Executive Retention and Severance Agreement dated as of April 24, 2002, between Allan Merrill and Homestore.

6.07	(a)	Memorandum dated as of March 29, 2002, between Allan Merrill and Homestore.

6.08	(a)	Executive Retention and Severance Agreement dated as of April 24, 2002, between Steve Ozonian and Homestore.

6.09	(a)	Memorandum dated as of March 29, 2002, between Steve Ozonian and Homestore.

6.10	(a)	Executive Retention and Severance Agreement dated as of April 24, 2002, between Patrick R. Whelan and Homestore.

6.11	(a)	Memorandum dated as of March 29, 2002, between Patrick Whelan and Homestore.

(b) Reports on Form 8-K

Number		Exhibit Title

6.01	(b)	On January 3, 2001, we filed a report on Form 8-K with the Securities and Exchange Commission containing a press release dated January 2, 2002, announcing the release of additional information by the Audit Committee into certain of our accounting practices.

6.02	(b)	On January 14, 2002, we filed a report on Form 8-K with the Securities and Exchange Commission, announcing the addition of three new executive officers to our management team effective January 7, 2002.

6.03	(b)	On February 14, 2002, we filed a report on Form 8-K with the Securities and Exchange Commission, containing a press release dated February 13, 2002, announcing that we would restate our financial results for the year ended December 31, 2000 and that we expected to conclude our internal accounting inquiry and file restated financial statements by mid-March 2002.

Number		Exhibit Title

6.04	(b)	On February 25, 2002, we filed a report on Form 8-K with the Securities and Exchange Commission, containing a press release dated February 21, 2002, announcing that we were providing additional information on our pending financial restatements to Nasdaq.

6.05	(b)	On February 25, 2002, we filed a report on Form 8-K with the Securities and Exchange Commission, containing a press release dated February 22, 2002, announcing that we had been notified by Nasdaq that trading in our common stock would resume under the symbol HOMSE.

6.06	(b)	On March 5, 2002, we filed a report on Form 8-K with the Securities and Exchange Commission, containing a press release dated March 5, 2002, announcing that Richard Smith had resigned from the Homestore board.

6.07	(b)	On March 14, 2002, we filed a report on Form 8-K with the Securities and Exchange Commission, containing a press release dated March 12, 2002, announcing that we had completed the internal accounting inquiry initiated by the Audit Committee of our Board of Directors during the fourth quarter of 2001.

6.08	(b)	On March 19, 2002, we filed a report on Form 8-K with the Securities and Exchange Commission, containing a press release dated March 19, 2002, announcing that we had entered into a definitive agreement to sell our ConsumerInfo.com division. The report also included a copy of the Stock Purchase Agreement dated March 16, 2002 relating to the ConsumerInfo.com transaction.

6.09	(b)	On April 8, 2002, we filed a report on Form 8-K with the Securities and Exchange Commission, noting that we had posted on our website, questions and answers concerning our accounting inquiry.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, Homestore.com, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: May 14, 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

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