In the first three quarters of 2001, Homestore overstated its on-line advertising revenues by $54 million to $95 million, according to the Audit Committee of its Board of Directors. The Committee said investors should "not rely" on financial statements issued previously by the company for the first three quarters of 2001.

"Certain advertising transactions," said the Audit Committee, "should have been accounted for as barter transactions because they were related to purchases by the company of goods and services from third parties."

"When the company completes its analysis of the overstatements, the company intends to amend its previously filed reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 2001 to reflect these and any other required adjustments to its financial statements for those periods. Accordingly, investors should not rely upon the company's previously filed reports on Form 10-Q for those quarters or the financial statements contained therein."

Homestore, according to information filed November 19th with the Securities and Exchange Commission, has experienced net losses in each quarterly and annual period since 1993, including operating losses of $245.8 million for the nine months ended September 30, 2001. As of September 30, 2001, the firm told the SEC it had an accumulated deficit of $516.7 million.

In addition, changing accounting standards may produce further losses, according to the company.

"As of September 30, 2001," Homestore told the SEC in the November 19th statement, "we had approximately $1,177.2 million of deferred stock-based charges and intangible assets to be amortized. In July 2001, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 142. Upon adoption of SFAS No. 142, amortization of goodwill recorded for business combinations consummated prior to July 1, 2001 will cease. In connection with the adoption of SFAS No. 142, we will be required to perform a transitional goodwill impairment assessment, which could result in future charges relating to write-downs."

In addition to 2001, the Audit Committee says it is also looking into statements made earlier by the company.

"The transactions under review include transactions that occurred in the year 2001, as well as transactions that occurred in the year 2000. The company cannot at this time quantify the amounts of potential additional restatements. Any additional restatements, if required, could have a further material adverse impact on the company's reported financial results. Such restatements could also include a restatement of financial results for the year ended December 31, 2000."

The Audit Committee said a full accounting of the company's books should be completed by the end of the first quarter of 2002.

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