Homestore (Nasdaq: HOMSE - news) announced today that it has completed the internal accounting inquiry initiated by the Audit Committee of its Board of Directors during the fourth quarter of 2001. As a result, Homestore has filed its audited restated financial results for the year ended December 31, 2000 on Form 10-K/A with the Securities and Exchange Commission.

"These financial statements reflect months of effort to identify, assess and resolve the historical accounting issues discovered through the Audit Committee's internal inquiry," said Mike Long, Homestore's Chief Executive Officer. "While we still have our restated Quarterly Reports on Form 10-Q for 2001 to file later this month, I am pleased that the accounting inquiry is now closed."

The results of the inquiry determined that in the year 2000, certain transactions resulting in the recognition of $36.4 million in revenue, had been improperly recorded as independent cash transactions. The company determined these transactions were reciprocal exchanges that should have been evaluated as barter transactions. It was also determined that there was insufficient support to establish the fair value of these barter exchanges and the related revenue has been reversed. Although the ultimate impact of these adjustments will be to reduce both revenue and expenses, because some of the transactions took place over several accounting periods and because certain payments for goods and services by the company were capitalized when initially recorded, operating results for the year 2000 and future periods are impacted.

In addition, the shipment of certain software products, previously recorded as revenue in 2000, did not meet all revenue recognition requirements and, accordingly, $5.0 million of revenue should have been deferred at December 31, 2000. The total reduction in revenue for the year 2000 from the restatement was $41.4 million, which was within the company's originally announced range of approximately $39 million to $45 million.

In addition, the FASB's Emerging Issues Task Force issued in February 2002, EITF 01-9 "Accounting for Consideration Given by a Vendor to a Customer," which requires all companies to report certain consideration given by a vendor to a customer as a reduction in revenue. All companies are required to adopt this new pronouncement no later than the first quarter of 2002 and retroactive adoption is required. The company has elected early adoption, the effect of which, for the year 2000, was to reduce previously reported revenue and expenses by $7.3 million, with no effect on net loss or net loss per share.

As a result of the adjustments described above, reported revenue was reduced from $230.0 million to $181.3 million, the reported net loss increased from $115.2 million to $146.1 million and the reported net loss per share increased from $(1.44) to $(1.83).

Published: March 13, 2002

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