##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


|  |  |                                                                                             
|- |  | --------------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
| 
|  |  | For the fiscal year ended December 31, 2004                                                 
| 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
| 
|  |  | For the transition period
    from           to                                             

Commission file number: 000-26659





Homestore, 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 No.)
|                                                                                                 
|30700 Russell Ranch Road
    Westlake Village, California(Address of Principal Executive Offices) |  | 91362(Zip Code)                         

Registrants telephone number, including area code:


(805) 557-2300


Securities Registered Pursuant to Section 12(b) of the
Act:


None


Securities Registered Pursuant to Section 12(g) of the
Act:


Common Stock, par value $.001 per share


Warrants to purchase Common Stock, par value $.001 per
share





þ o


o


þ o


|                                                                                                                |  |             
|--------------------------------------------------------------------------------------------------------------- |  | ------------
|Aggregate market value of voting common stock held by
    non-affiliates of the registrant as of June 30, 2004* |  | $500,696,146
|Number of shares of common stock outstanding as of
    February 28, 2005.                                       |  | 147,097,528 









|  |                                                                                                                                                                                                                                                                                                                                                          
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Based on the closing price of the common stock of $3.99 per
    share on that date, as reported on The NASDAQ National Market
    and, for purposes of this computation only, the assumption that
    all of the registrants directors, executive officers and
    beneficial owners of 10% or more of the registrants common
    stock are affiliates.




DOCUMENTS INCORPORATED BY REFERENCE













---










HOMESTORE, INC.


FORM 10-K


For the Fiscal Year Ended December 31, 2004


INDEX


|              |  |                                                                                                                      |     |      |     | 
|------------- |  | -------------------------------------------------------------------------------------------------------------------- | --- | ---- | --- | 
|              |  |                                                                                                                      |     | Page |    
|              |  |                                                                                                                      |     |      |    
|PART I       
|Item 1.       |  | Business                                                                                                             |     |      | 3   | 
|Item 2.       |  | Properties                                                                                                           |     |      | 26  | 
|Item 3.       |  | Legal Proceedings                                                                                                    |     |      | 27  | 
|Item 4.       |  | Submission of Matters to a Vote of Security
    Holders                                                              |     |      | 27  | 
|             
|PART II      
|Item 5.       |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |     |      | 27  | 
|Item 6.       |  | Selected Financial Data                                                                                              |     |      | 29  | 
|Item 7.       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |     |      | 31  | 
|Item 7A.      |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |     |      | 55  | 
|Item 8.       |  | Financial Statements and Supplementary
    Data                                                                      |     |      | 56  | 
|Item 9.       |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |     |      | 103 | 
|Item 9A.      |  | Controls and Procedures                                                                                              |     |      | 103 | 
|Item 9B.      |  | Other Information                                                                                                    |     |      | 105 | 
|             
|PART III     
|Item 10.      |  | Directors and Executive Officers of the
    Registrant                                                               |     |      | 105 | 
|Item 11.      |  | Executive Compensation                                                                                               |     |      | 105 | 
|Item 12.      |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |     |      | 105 | 
|Item 13.      |  | Certain Relationships and Related
    Transactions                                                                   |     |      | 105 | 
|Item 14.      |  | Principal Accounting Fees and Services                                                                               |     |      | 105 | 
|             
|PART IV      
|Item 15.      |  | Exhibits, Financial Statement Schedules                                                                              |     |      | 105 | 
|SIGNATURES    |  |                                                                                                                      | 111 |     
|EXHIBIT 21.01 |  |                                                                                                                      |     |     
|EXHIBIT 23.01 |  |                                                                                                                      |     |     
|EXHIBIT 23.02 |  |                                                                                                                      |     |     
|EXHIBIT 23.03 |  |                                                                                                                      |     |     
|EXHIBIT 23.04 |  |                                                                                                                      |     |     
|EXHIBIT 31.01 |  |                                                                                                                      |     |     
|EXHIBIT 31.02 |  |                                                                                                                      |     |     
|EXHIBIT 32.01 |  |                                                                                                                      |     |     
|EXHIBIT 32.02 |  |                                                                                                                      |     |     
|EXHIBIT 99.01 |  |                                                                                                                      |     |     
|EX-10.55     
|EX-21.01     
|EX-23.01     
|EX-23.02     
|EX-23.03     
|EX-23.04     
|EX-31.01     
|EX-31.02     
|EX-32.01     
|EX-32.02     
|EX-99.01     



1



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##### Table of Contents



This Annual Report on Form 10-K and the documents
incorporated herein by reference contain forward-looking
statements based on our current expectations, estimates and
projections about our industry, beliefs, and certain assumptions
made by us. Words such as believes,
anticipates, estimates,
expects, projections, may,
potential, plan, continue
and words of similar import constitute forward-looking
statements. The forward-looking statements contained in
this report involve known and unknown risks, uncertainties and
other factors that may cause our actual results to be materially
different from those expressed or implied by these statements.
These factors include those listed under the Risk
Factors section contained in Item 1,
Business, and elsewhere in this Form 10-K, and
the other documents we file with the Securities and Exchange
Commission, or SEC, including our reports on Form 8-K and
Form 10-Q, and any amendments thereto. Other unknown or
unpredictable factors also could have material adverse effects
on our future results. The forward-looking statements included
in this Annual Report on Form 10-K are made only as of the
date of this Annual Report. We cannot guarantee future results,
levels of activity, performance or achievements. Accordingly,
you should not place undue reliance on these forward-looking
statements. Finally, we expressly disclaim any intent or
obligation to update any forward-looking statements to reflect
subsequent events or circumstances.


2



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##### Table of Contents






PART I







|        |         
|------- | --------
|Item 1. | Business



tm








| |           
| | ----------
| | Our Vision















| |                       
| | ----------------------
| | Our Operating Segments



Media Services. tm


3



---



##### Table of Contents





Software. tm


Print.


Key Characteristics






| |                       
| | ----------------------
| | Industry Relationships

tm


National Association of REALTORS


National Association of Home Builders.


Manufactured Housing Institute.


Multiple Listing Services.


4



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##### Table of Contents





| |                          
| | -------------------------
| | Leading Consumer Websites

tm


tm




REALTOR.com


HomeBuilder.com tm tm


RENTNET.com®


5



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##### Table of Contents





SeniorHousingNet®


Homestore.com®




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Homestore Home Finance. Our Home Finance channel contains
    information and decision support tools that help consumers
    understand and satisfy their home financing and mortgage needs.
    A variety of content, tools, and interactive guides are
    available to help consumers with mortgages, loans, credit,
    insurance, legal matters and taxes. Additionally, consumers have
    access to our Find a Lender directory, which
    provides access to a variety of lending professionals.                                                                                                                    
|
| |  | Homestore Moving. Our Moving channel contains content,
    tools and interactive guides for consumers moving to new homes
    or relocating to another community. We also offer a database of
    self-serve storage locations across the country. These resources
    provide movers with custom moving quotes and other resources
    necessary for making moving decisions, such as salary
    calculators, school reports and neighborhood information.                                                                                                                                                                   
|
| |  | Homestore Home & Garden. Our Home &
    Garden channel is an online resource for consumers seeking to
    make improvements to their existing home, including remodeling,
    home improvement, landscaping and home maintenance needs. It
    provides an online resource for consumers seeking decorating
    ideas and information. The channel includes information for
    planning, budgeting and visualizing options, as well as specific
    advice on a room-by-room basis. The channel is designed to help
    consumers locate qualified professionals as well as provide them
    with do-it-yourself information.



| |           
| | ----------
| | Technology





Products and Services




6



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| |                       
| | ----------------------
| | Media Services Segment











Classified Advertising. tm




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Enhanced Listings. A major service offering for real
    estate agents and brokers is the enhancement of property
    listings. As the official website of the NAR, we present basic
    MLS property listings on the REALTOR.com® website at no
    charge to NAR members. For a fee we offer our professional
    customers the ability to enhance their listings by adding their
    own personal promotion in the forms of custom copy, photographs,
    text effects, links to their homepage and more.                                  
|
| |  | Virtual Tours. As a separate listing enhancement product
    to the REALTOR.com® suite of services, Homestore offers two
    virtual tour solutions. Hometour360 allows customers to create,
    host and distribute media rich virtual tours powered by industry
    leading image technologies IPIX and iseemedia. The new
    PicturePath Link solution allows other virtual tour products,
    purchased by our customers, to be distributed to
    REALTOR.com® in their full featured format.                                           
|
| |  | Online Brochures. Our primary service for rental,
    corporate housing and senior housing property owners and
    managers is an online brochure displayed on our
    RENTNET.com® website. We also offer a similar service to
    our home builder customers for display on our
    HomeBuilder.comtm
    website. Our online brochures include property photos, floor
    plan images, virtual tours, unit descriptions, community
    descriptions, interactive mapping, driving directions and links
    to property owners or managers

7



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| |  |                                                                                                                                                     
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | websites. A variety of enhancements are also available to assist
    in increasing the visibility of specific properties to our
    online audience.

Display Advertising.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Featured
    Homestm.
    Featured
    Homestm
    allows our REALTOR® customers to more prominently display
    their property listings on the REALTOR.com® website during
    geographically targeted property searches by consumers.
    Properties featured through the Featured
    Homestm
    product are viewed first in any search of their respective zip
    codes.                                               
|
| |  | Featured
    Agenttm.
    Featured
    Agenttm
    allows agents to promote themselves and their services on
    REALTOR.com® to a geographically targeted real estate
    audience.                                                                                                                                                                                                                                         
|
| |  | Featured
    Companytm.
    Featured
    Companytm
    allows brokers to promote themselves and their services to a
    geographically targeted real estate audience on
    REALTOR.com®.                                                                                                                                                                                                                                    
|
| |  | Featured
    Buildertm.
    Featured
    Buildertm
    allows builders to promote themselves and their services to a
    geographically targeted real estate audience on
    HomeBuilder.comtm.                                                                                                                                                                                                                              
|
| |  | Sponsorships. Sponsorships allow advertisers to maximize
    their exposure on our websites by featuring fixed
    buttons or other prominent placements on certain
    pages on our websites. These advertisements present users with
    the opportunity to click-through directly to the
    advertisers site. Sponsorships may also include other
    advertising components such as content or online advertisements.

Directory Listings.


Websites.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | One
    Placetm.
    One
    Placetm
    is a suite of services, including a website, that integrates
    with an interactive voice response system that is linked to a
    pager network. One
    Placetm
    enables REALTORS® to be paged when a potential homebuyer or
    homeseller submits an inquiry about a specific property listing.
    Additionally, if a prospective buyer contacts the REALTOR®
    after viewing a for sale sign, the interactive voice
    response system will provide the consumer with details about the
    property and then page the REALTOR® with a notification of
    the callers telephone number and the property listing for
    which the consumer has inquired.



| |                 
| | ----------------
| | Software Segment



8



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| |              
| | -------------
| | Print Segment

Welcome Wagon®




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | New Mover Program. The New Mover Program integrates local
    merchant advertiser information into a welcome gift delivered
    through the mail to new homeowners shortly after their move. The
    welcome gift contains a customized neighborhood address book
    with exclusive merchant advertiser listings as well as coupons
    and special offers from local advertisers. Additionally, local
    advertisers receive the names and contact information of the new
    homeowners in their selected area that have received the welcome
    gift. This allows local merchants the opportunity to continue to
    build their relationship with these new homeowners through their
    own direct marketing initiatives. This service is sold to
    merchants on an annual subscription basis. Additionally, Welcome
    Wagon® offers local merchants solo marketing opportunities
    through its Pinpoint Mail product, which is sold on a per
    mailing basis.
|
| |  | Early Advantage. Launched in the fourth quarter of 2004,
    Early Advantage is a shared direct mail product for advertisers
    to reach new movers at their existing addresses prior to their
    actual move.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

Homestore Plans and Publications.


Competition






| |                       
| | ----------------------
| | Media Services Segment





9



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tm






| |                 
| | ----------------
| | Software Segment





| |              
| | -------------
| | Print Segment

Welcome Wagon®


Homestore Plans and Publications.


Infrastructure and Technology




tm


10



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Intellectual Property








| |   |                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | it may be possible for a third party to copy or otherwise obtain
    and use our proprietary information without authorization or to
    develop similar technology independently;                                                                                                                                                                              
|
| |  | NAR could lose the use of the trademark REALTOR® or we
    could lose the use of such trademark or the REALTOR.com®
    domain name, or be unable to protect the other trademarks or
    website addresses that are important to our business, and
    therefore would need to devote substantial resources toward
    developing an independent brand identity;
|
| |  | we could be subject to litigation with respect to our
    intellectual property rights;                                                                                                                                                                                                                                                                         
|
| |  | we may be required to license additional technology and
    information from others, which could require substantial
    expenditures by us; and                                                                                                                                                                                                                
|
| |  | legal standards relating to the validity, enforceability and
    scope of protection of proprietary rights in Internet-related
    businesses are uncertain and continue to evolve, and we can give
    no assurance regarding our ability to protect our intellectual
    property and other proprietary rights.                                               



Seasonality




Employees




Available Information


http://ir.homestore.com


11



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12



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RISK FACTORS


The following risk factors and other information included or
incorporated by reference in this Form 10-K 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




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





| |                                                                             
| | ----------------------------------------------------------------------------
| | Our quarterly financial results are subject to significant
    fluctuations.







| |   |                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the level of renewals for our services and the purchase of media
    services by real estate agents, brokers and rental property
    owners and managers;                   
|
| |  | the amount of advertising sold on our websites and the timing of
    payments for this advertising;                                                                         
|
| |  | the amount and timing of our operating expenses;                                                                                                                            
|
| |  | the amount and timing of non-cash stock-based charges, such as
    charges related to deferred compensation or warrants issued to
    real estate industry participants; and
|
| |  | the impact of fees paid to professional advisors in connection
    with litigation and accounting matters.                                                                  



| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | Litigation relating to accounting irregularities could
    have an adverse effect on our financial condition.



13



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| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Limitations of our Director and Officer Liability
    Insurance and potential indemnification obligations may
    adversely affect our financial condition.





14



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| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | We continue to incur costs related to the SEC
    investigation of prior accounting irregularities.









| |                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------
| | Contingent obligations to Cendant related to our
    Securities Class Action Lawsuit could have an adverse
    effect on our financial condition.





15



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| |                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We could be required to expend substantial amounts in
    connection with continuing indemnification obligations to a
    purchaser of one of our businesses.





| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | Our employees, investors, customers, business partners and
    vendors may react adversely to the continuing litigation brought
    against us.





| |                                 
| | --------------------------------
| | We may be subject to litigation.



16



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





| |   |                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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, which have generally proven to be highly volatile,
    particularly in recent quarters; and
|
| |  | adverse publicity relating to litigation.                                                                                                                                                                                     



| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | The emergence of competitors and referral fee
    business models may adversely impact our business.





| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Our future success depends upon our managements
    ability to execute its business plan.

tm




| |                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



17



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







| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | the acquisition of us or RealSelect by another party;                                                                                          
|
| |  | if traffic on the REALTOR.com® site falls below 500,000
    unique users per month;                                                            
|
| |  | a substantial decrease in the number of property listings on our
    REALTOR.com® site; and                                                    
|
| |  | 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.





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





| |   |                                                         
| | - | --------------------------------------------------------
| |  | we must make quarterly fixed payments to NAR as follows:



| |   |                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | For 2005, we must pay $1.5 million in four installments of
    $375,000 due on the last day of each calendar quarter of 2005.                                                                                                                                                                                   
|
| |  | For 2006, we must pay $1.5 million 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 amended, and continue to amend, many of our agreements with
    the entities that provide us the information for our real
    property listings (data content providers) to reduce
    or eliminate the amounts that we must pay to data content
    providers. In exchange, in some cases, we shortened or are
    shortening the duration of these agreements, including those
    agreements under which we receive the real property listings on
    an exclusive basis;
|
| |  | we are restricted in the type and subject matter of, and the
    manner in which we display, advertisements on the
    REALTOR.com® website;                                                                                                                                                                                                                                                                                                                                     
|
| |  | 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;                                                                                                                                                                                                                                                                                                                                        
|
| |  | we must meet performance standards relating to the availability
    time of the REALTOR.com® website;                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | NAR has the right to review, approve and request changes to the
    content on certain pages of our REALTOR.com®
    website; and                                                                                                                                                                                                                                                                                                                                                
|
| |  | we are restricted in our ability to create additional websites
    or pursue other lines of business that engage in displaying real
    property advertisements in electronic form.                                                                                                                                                                                                                                                                                              



18



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| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | If our operating agreement for REALTOR.com®
    were terminated, NAR would be able to operate the
    REALTOR.com® website.





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

tm




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

tm




| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | if NAR terminates our REALTOR.com® operating agreement, for
    six months thereafter NAHB can terminate its operating agreement
    with us on three months prior notice;
|
| |  | we are restricted in the type and subject matter of
    advertisements on the pages of our
    HomeBuilder.comtm
    website that contain new home listings; and           
|
| |  | 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 RENTNET.com® website is subject to
    a number of restrictions on how it may be operated.





| |   |                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | if NAR terminates its consent 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 REALTORS®;                     
|
| |  | listings for rental units in smaller non-apartment properties
    generally must be received from a REALTOR® or a
    REALTOR®-controlled MLS in order to be listed on the
    website;               
|
| |  | if the consent is terminated, we could be required to operate
    our rental properties website at a different web address;                                                                           
|
| |  | if the consent is terminated 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;
|
| |  | we cannot list properties for sale on the rental website for the
    duration of our REALTOR.com® operating agreement and for an
    additional two years;                                            
|
| |  | we are restricted in the type and subject matter of, and the
    manner in which we display, advertisements on the rental
    website; and                                                            
|
| |  | we must offer REALTORS® preferred pricing for home pages or
    enhanced advertising on the rental website.                                                                                           

19



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| |                                                                            
| | ---------------------------------------------------------------------------
| | NAR could revoke its consent to our operating our
    RENTNET.com® website.





| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the acquisition of us or RealSelect by another party;                                                                                                                          
|
| |  | a substantial decrease in property listings on our
    REALTOR.com® website; and                                                                                               
|
| |  | 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.



Board Representatives.


Approval Rights.








| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | amend its certificate of incorporation or bylaws;                                         
|
| |  | pledge its assets;                                                                        
|
| |  | approve transactions with affiliates, stockholders or employees
    in excess of $100,000;
|
| |  | change its executive officers;                                                            
|
| |  | establish, or appoint any members to, a committee of its Board
    of Directors; or       
|
| |  | issue or redeem any of its equity securities.                                             



| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | We must continue to obtain listings from Multiple Listing
    Services, real estate brokers and home builders.



20



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| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | It is important to our success that we support our real
    estate professional customers.





| |                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------
| | Failure of real estate professionals to accept online
    media-based pricing may adversely affect our financial
    results.





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





| |                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A failure to establish and maintain strategic online
    relationships that generate a significant amount of traffic
    could limit the growth of our business.





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





21



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







| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | Our investment strategy may not meet its objectives and
    could adversely affect our results of operations and financial
    position.





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





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



22



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| |                                                             
| | ------------------------------------------------------------
| | We rely on intellectual property and proprietary
    rights.









| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | We may not be able to protect the website addresses that
    are important to our business.





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



Real Estate Industry Risks




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





| |                                                                    
| | -------------------------------------------------------------------
| | We may particularly be affected by general economic
    conditions.



23



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##### Table of Contents







| |   |                                                 
| | - | ------------------------------------------------
| |  | perceived and actual economic conditions;       
|
| |  | interest rates;                                 
|
| |  | taxation policies;                              
|
| |  | availability of credit;                         
|
| |  | employment levels;                              
|
| |  | wage and salary levels; and                     
|
| |  | fears of terrorist attacks or the threat of war.





| |                                                                     
| | --------------------------------------------------------------------
| | Recessionary pressures traditionally impact real estate
    markets.





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



Internet Industry Risks




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







24



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##### Table of Contents







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





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





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





25



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##### Table of Contents





| |                                                            
| | -----------------------------------------------------------
| | Our internal network infrastructure could be
    disrupted.







| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | We could face liability for information on our websites
    and for products and services sold over the Internet.












|        |            
|------- | -----------
|Item 2. | Properties:



|                                                |  |          |                      |        |      |  |         |            |  |  |      | 
|----------------------------------------------- |  | -------- | -------------------- | ------ | ---- |  | ------- | ---------- |  |  | ---- | 
|                                                |  |          |                      | Square |      |  | Lease   |           
|                                                |  | Location |                      |        | Feet |  |         | Expiration | 
|                                                |  |          |                      |        |      |  |         |            | 
|Principal executive and corporate office(C)(MS) |  |          | Westlake Village, CA |        |      |  | 137,762 |            |  |  | 2008 | 
|Technology facility(MS)                         |  |          | Thousand Oaks, CA    |        |      |  | 13,717  |            |  |  | 2006 | 
|Operations and customer service center(MS)      |  |          | Scottsdale, AZ       |        |      |  | 36,175  |            |  |  | 2007 | 
|Welcome Wagon®(P)                               |  |          | Plainview, NY        |        |      |  | 48,148  |            |  |  | 2015 | 
|Top Producer®(SW)                               |  |          | Richmond, BC         |        |      |  | 33,702  |            |  |  | 2008 | 
|Homestore Plans and Publications(P)             |  |          | St. Paul, MN         |        |      |  | 24,645  |            |  |  | 2006 | 
|Enterprise(MS)                                  |  |          | Milwaukee, WI        |        |      |  | 13,016  |            |  |  | 2007 | 








26



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|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings








|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders






PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities

Market Information




|     |                                           |      |   |      |     |  |   |      | 
|---- | ----------------------------------------- | ---- | - | ---- | --- |  | - | ---- | 
|     |                                           | High |   |      | Low | 
|     |                                           |      |   |      |     | 
|2003 |                                           |      |   |      |     |  |   |     
|     | First Quarter                             |      | $ | 1.51 |     |  | $ | 0.51 | 
|     | Second Quarter                            |      |   | 2.03 |     |  |   | 0.48 | 
|     | Third Quarter                             |      |   | 3.95 |     |  |   | 1.62 | 
|     | Fourth Quarter                            |      |   | 4.93 |     |  |   | 2.51 | 
|2004 |                                           |      |   |      |     |  |   |     
|     | First Quarter                             |      |   | 5.58 |     |  |   | 3.49 | 
|     | Second Quarter                            |      |   | 5.95 |     |  |   | 3.70 | 
|     | Third Quarter                             |      |   | 4.29 |     |  |   | 1.81 | 
|     | Fourth Quarter                            |      |   | 3.31 |     |  |   | 2.25 | 
|2005 |                                           |      |   |      |     |  |   |     
|     | First Quarter (through February 28, 2004) |      |   | 3.24 |     |  |   | 2.10 | 



Dividends




27



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Recent Sales of Unregistered Securities




Securities Authorized for Issuance Under Equity Compensation
Plans




Equity Compensation Plan Information


|                                                           |  |                   |        |  |                  |           |                |                      |  |  |        | 
|---------------------------------------------------------- |  | ----------------- | ------ |  | ---------------- | --------- | -------------- | -------------------- |  |  | ------ | 
|                                                           |  |                   |        |  |                  | Number of |               
|                                                           |  | Number of         |        |  | Weighted         |           |                | Securities           | 
|                                                           |  | Securities to be  |        |  | Average Exercise |           |                | Remaining            | 
|                                                           |  | Issued Upon       |        |  | Price of         |           |                | Available for        | 
|                                                           |  | Exercise of       |        |  | Outstanding      |           |                | Future Issuance      | 
|                                                           |  | Outstanding       |        |  | Options,         |           |                | (Excluding           | 
|                                                           |  | Options, Warrants |        |  | Warrants and     |           |                | Securities Reflected | 
|Plan Category                                              |  | and Rights        |        |  | Rights           |           |                | in Column (a))       | 
|                                                           |  |                   |        |  |                  |           |                |                      | 
|                                                           |  | (a)               |        |  | (b)              |           |                | (c)                  | 
|                                                           |  |                   |        |  |                  |           |                |                      | 
|                                                           |  | (In thousands)    |        |  |                  |           | (In thousands) |                     
|Equity compensation plans approved by security holders     |  |                   | 19,748 |  |                  | $         | 3.29           |                      |  |  | 3,391  | 
|Equity compensation plans not approved by security holders |  |                   | 8,165  |  |                  | $         | 2.29           |                      |  |  | 10,450 | 
|                                                           |  |                   |        |  |                  |           |                |                      | 
|Total                                                      |  |                   | 27,913 |  |                  | $         | 2.99           |                      |  |  | 13,841 | 
|                                                           |  |                   |        |  |                  |           |                |                      | 







Non-Shareholder Approved Plans






28



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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data





|                                           |                                                   |                                          |         |         |         |   |         |         |         |   |         |         |         |         |         |           |         |   |         |         |         | 
|------------------------------------------ | ------------------------------------------------- | ---------------------------------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | ------- | ------- | --------- | ------- | - | ------- | ------- | ------- | 
|                                           |                                                   | Year Ended December 31,                  |        
|                                           |                                                   |                                          |        
|                                           |                                                   | 2004                                     |         |         | 2003    |   |         | 2002    |         |   | 2001(3) |         |         | 2000(3) |        
|                                           |                                                   |                                          |         |         |         |   |         |         |         |   |         |         |         |         |        
|                                           |                                                   | (In thousands, except per share amounts) |        
|Consolidated Statement of Operations Data: |                                                   |                                          |         |         |         |   |         |         |         |   |         |         |         |         |         |           |         |   |         |        
|Revenue(2)                                 |                                                   | $                                        | 216,860 |         |         | $ | 198,227 |         |         | $ | 219,867 |         |         | $       | 254,103 |           |         | $ | 174,706 |        
|Related party revenue                      |                                                   |                                          |        |         |         |   | 7,695   |         |         |   | 31,158  |         |         |         | 38,346  |           |         |   |        |        
|                                           |                                                   |                                          |         |         |         |   |         |         |         |   |         |         |         |         |        
|                                           |                                                   | Total revenue                            |         |         | 216,860 |   |         |         | 205,922 |   |         |         | 251,025 |         |         |           | 292,449 |   |         |         | 174,706 | 
|Cost of revenue(2)                         |                                                   |                                          | 50,829  |         |         |   | 56,569  |         |         |   | 73,622  |         |         |         | 110,377 |           |         |   | 59,912  |        
|                                           |                                                   |                                          |         |         |         |   |         |         |         |   |         |         |         |         |        
|                                           |                                                   | Gross profit                             |         |         | 166,031 |   |         |         | 149,353 |   |         |         | 177,403 |         |         |           | 182,072 |   |         |         | 114,794 | 
|Operating expenses:                        |                                                   |                                          |         |         |         |   |         |         |         |   |         |         |         |         |         |           |         |   |         |        
|                                           | Sales and marketing(2)                            |                                          |         | 88,388  |         |   |         | 101,122 |         |   |         | 161,554 |         |         |         | 239,790   |         |   |         | 158,993 |        
|                                           | Product and website development(2)                |                                          |         | 15,362  |         |   |         | 17,065  |         |   |         | 25,497  |         |         |         | 32,397    |         |   |         | 14,259  |        
|                                           | General and administrative(2)                     |                                          |         | 68,442  |         |   |         | 65,333  |         |   |         | 83,042  |         |         |         | 168,695   |         |   |         | 58,278  |        
|                                           | Amortization of goodwill and intangible assets(1) |                                          |         | 7,894   |         |   |         | 21,863  |         |   |         | 34,699  |         |         |         | 199,291   |         |   |         | 42,868  |        
|                                           | In-process research and development               |                                          |         |        |         |   |         |        |         |   |         |        |         |         |         |          |         |   |         | 4,048   |        
|                                           | Restructuring charges(2)                          |                                          |         | 1,316   |         |   |         | 4,100   |         |   |         | 12,057  |         |         |         | 50,234    |         |   |         |        |        
|                                           | Impairment of long-lived assets                   |                                          |         |        |         |   |         | 26,999  |         |   |         | 3,482   |         |         |         | 925,094   |         |   |         |        |        
|                                           | Litigation settlement                             |                                          |         | 2,168   |         |   |         | 63,600  |         |   |         | 23,000  |         |         |         |          |         |   |         |        |        
|                                           |                                                   |                                          |         |         |         |   |         |         |         |   |         |         |         |         |        
|                                           | Total operating expenses                          |                                          |         | 183,570 |         |   |         | 300,082 |         |   |         | 343,331 |         |         |         | 1,615,501 |         |   |         | 278,446 |        
|                                           |                                                   |                                          |         |         |         |   |         |         |         |   |         |         |         |         |        

29



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|                                                                                     |  |                                          |         |   |      |   |          |      |  |   |          |   |  |         |            |   |  |   |          |  
|------------------------------------------------------------------------------------ |  | ---------------------------------------- | ------- | - | ---- | - | -------- | ---- |  | - | -------- | - |  | ------- | ---------- | - |  | - | -------- | -
|                                                                                     |  | Year Ended December 31,                  |        
|                                                                                     |  |                                          |        
|                                                                                     |  | 2004                                     |         |   | 2003 |   |          | 2002 |  |   | 2001(3)  |   |  | 2000(3) |           
|                                                                                     |  |                                          |         |   |      |   |          |      |  |   |          |   |  |         |           
|                                                                                     |  | (In thousands, except per share amounts) |        
|Loss from operations                                                                 |  |                                          | (17,539 | ) |      |   | (150,729 | )    |  |   | (165,928 | ) |  |         | (1,433,429 | ) |  |   | (163,652 | )
|Interest income (expense), net                                                       |  |                                          | 672     |   |      |   | (406     | )    |  |   | 2,673    |   |  |         | 10,490     |   |  |   | 23,032   |  
|Gain on settlement of distribution agreement                                         |  |                                          |        |   |      |   | 104,071  |      |  |   |         |   |  |         |           |   |  |   |         |  
|Other income (expense), net                                                          |  |                                          | 2,366   |   |      |   | 691      |      |  |   | (5,694   | ) |  |         | (44,393    | ) |  |   | (7,045   | )
|                                                                                     |  |                                          |         |   |      |   |          |      |  |   |          |   |  |         |           
|Loss from continuing operations                                                      |  |                                          | (14,501 | ) |      |   | (46,373  | )    |  |   | (168,949 | ) |  |         | (1,467,332 | ) |  |   | (147,665 | )
|Gain on disposition of discontinued operations                                       |  |                                          | 7,294   |   |      |   | 2,530    |      |  |   | 11,790   |   |  |         |           |   |  |   |         |  
|Income (loss) from discontinued operations                                           |  |                                          | (679    | ) |      |   | (3,281   | )    |  |   | (6,266   | ) |  |         | 1,743      |   |  |   | 1,612    |  
|                                                                                     |  |                                          |         |   |      |   |          |      |  |   |          |   |  |         |           
|Net loss                                                                             |  | $                                        | (7,886  | ) |      | $ | (47,124  | )    |  | $ | (163,425 | ) |  | $       | (1,465,589 | ) |  | $ | (146,053 | )
|                                                                                     |  |                                          |         |   |      |   |          |      |  |   |          |   |  |         |           
|Basic and diluted net income (loss) per share applicable to
    common shareholders. |  |                                          |         |   |      |   |          |      |  |   |          |   |  |         |            |   |  |   |          |  
|Continuing operations                                                                |  | $                                        | (0.11   | ) |      | $ | (0.39    | )    |  | $ | (1.43    | ) |  | $       | (13.66     | ) |  | $ | (1.85    | )
|Discontinued operations                                                              |  | $                                        | 0.05    |   |      | $ | (0.01    | )    |  | $ | 0.05     |   |  | $       | 0.02       |   |  | $ | 0.02     |  
|                                                                                     |  |                                          |         |   |      |   |          |      |  |   |          |   |  |         |           
|Net loss                                                                             |  | $                                        | (0.06   | ) |      | $ | (0.40    | )    |  | $ | (1.39    | ) |  | $       | (13.64     | ) |  | $ | (1.83    | )
|                                                                                     |  |                                          |         |   |      |   |          |      |  |   |          |   |  |         |           
|Shares used to calculate basic and diluted per share amounts                         |  |                                          | 136,518 |   |      |   | 118,996  |      |  |   | 117,900  |   |  |         | 107,433    |   |  |   | 79,758   |  
|                                                                                     |  |                                          |         |   |      |   |          |      |  |   |          |   |  |         |           






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We adopted SFAS No. 142 in 2002 and ceased amortizing
    goodwill as required by that standard.                                                                                                                                                                                                                                                                                                                                                             
|   
|(2) | The following chart summarizes the stock-based charges that have
    been included in the following captions for the periods
    presented:                                                                                                                                                                                                                                                                                                                  
|   
|(3) | Acquisitions during the year ended December 31, 2001
    include Internet Pictures Corporation (iPIX),
    Computer for Tracts (CFT), Homewrite, Inc.,
    Homebid.com, Inc., and Move.com Group which includes Welcome
    Wagon International, Inc., and RENTNET. Acquisitions during the
    year ended December 31, 2000 include Wyldfyre Technologies,
    Inc. (Wyldfyre), Top Producer Systems, Inc.
    (Top Producer), and The Hessel Group.

|                                |  |                         |     |  |      |   |       |      |  |   |        |  |  |      |        |  |  |   |        | 
|------------------------------- |  | ----------------------- | --- |  | ---- | - | ----- | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------ | 
|                                |  | Year Ended December 31, |    
|                                |  |                         |    
|                                |  | 2004                    |     |  | 2003 |   |       | 2002 |  |   | 2001   |  |  | 2000 |       
|                                |  |                         |     |  |      |   |       |      |  |   |        |  |  |      |       
|                                |  | (In thousands)          |    
|Stock-based Charges:            |  |                         |     |  |      |   |       |      |  |   |        |  |  |      |        |  |  |   |        | 
|Revenue                         |  | $                       |    |  |      | $ | 1,119 |      |  | $ | 1,501  |  |  | $    | 2,456  |  |  | $ | 6,233  | 
|Cost of revenue                 |  |                         |    |  |      |   | 16    |      |  |   | 134    |  |  |      | 383    |  |  |   | 607    | 
|Sales and marketing             |  |                         | 301 |  |      |   | 3,795 |      |  |   | 63,848 |  |  |      | 71,188 |  |  |   | 45,148 | 
|Product and website development |  |                         |    |  |      |   | 15    |      |  |   | 127    |  |  |      | 361    |  |  |   | 572    | 
|General and administrative      |  |                         | 518 |  |      |   | 164   |      |  |   | 1,297  |  |  |      | 6,237  |  |  |   | 3,095  | 
|Restructuring charges           |  |                         |    |  |      |   | 2,140 |      |  |   |       |  |  |      |       |  |  |   |       | 
|                                |  |                         |     |  |      |   |       |      |  |   |        |  |  |      |       
|                                |  | $                       | 819 |  |      | $ | 7,249 |      |  | $ | 66,907 |  |  | $    | 80,625 |  |  | $ | 55,655 | 
|                                |  |                         |     |  |      |   |       |      |  |   |        |  |  |      |       

30



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|                                 |  |                |         |  |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         | 
|-------------------------------- |  | -------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | 
|                                 |  | December 31,   |        
|                                 |  |                |        
|                                 |  | 2004           |         |  | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|                                 |  |                |         |  |      |   |         |      |  |   |         |   |  |      |        
|                                 |  | (In thousands) |        
|Consolidated Balance Sheet Data: |  |                |         |  |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         | 
|Cash and short-term investments  |  | $              | 59,859  |  |      | $ | 35,517  |      |  | $ | 80,463  |   |  | $    | 38,272  |   |  | $ | 167,576 | 
|Working capital (deficiency)     |  |                | 1,059   |  |      |   | (70,729 | )    |  |   | (80,763 | ) |  |      | (31,888 | ) |  |   | 253,638 | 
|Total assets                     |  |                | 150,504 |  |      |   | 153,548 |      |  |   | 379,208 |   |  |      | 615,037 |   |  |   | 893,350 | 
|Obligation under capital lease   |  |                | 2,765   |  |      |   | 1,904   |      |  |   |        |   |  |      |        |   |  |   |        | 
|Total stockholders equity       |  |                | 57,393  |  |      |   | 328     |      |  |   | 38,730  |   |  |      | 183,256 |   |  |   | 603,479 | 






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations



Overview


Our History








| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | numerous lawsuits, including a consolidated securities class
    action and derivative litigation;         
|
| |  | an SEC investigation of the company and our accounting practices;                                          
|
| |  | contractual disputes with our customers and partners;                                                      
|
| |  | limited financial resources and the need for cost reduction
    measures;                                  
|
| |  | listing maintenance issues with The NASDAQ National
    Market; and                                        
|
| |  | replacement of the former executive management team, some of
    whom have pled guilty to criminal charges.





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| |             
| | ------------
| | Our Business



tm


Business Trends and Conditions






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Market and economic conditions. In recent years, the
    U.S. economy has experienced low interest rates, and
    volatility in the equities markets. Against this backdrop,
    housing starts have remained strong, while the supply of
    apartment housing has generally exceeded demand. At the same
    time, our business model has shifted from a technology offering
    to a media model. The foregoing conditions have meant that
    homebuilders spent less on advertising, given the strong demand
    for new houses. Conversely, apartment owners have not spent as
    much money on advertising, as they have sought to achieve cost
    savings during the difficult market for apartment owners. Both
    of these trends have impacted our ability to grow our business.
    The impact of the recent rise in interest rates on job creation
    and other economic factors is difficult to gauge and creates
    uncertainty as to whether these trends will continue.
|
| |  | Evolution of Our Product and Service Offerings and Pricing
    Structures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

Media Service segment:




Software segment:


32



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##### Table of Contents





Print segment:




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Investment Strategy: Because of the limited resources we
    have available, we have instituted a staged investment strategy.
    Starting in Mid-2002, we began conceiving and executing the
    repositioning of REALTOR.com®, Top Producer®, and our
    retail advertising activities. Our improved performance is
    entirely related to the improvement in those three businesses,
    which, in turn, gives us increasing confidence in the longer
    term results that we should be able to generate from our current
    and planned investments in other areas of our business. We are
    now focusing on investing in and improving our
    RENTNET.com®,
    HomeBuilder.comtm,
    and Welcome Wagon® businesses and expect to continue to do
    so through much of 2005 and possibly into 2006. We believe that
    HomeBuilder.comtm
    and RENTNET.com® will begin contributing to our overall
    growth in the second half of 2005. The process of integrating
    Welcome Wagon® into our Media Services businesses will
    require patience, but could represent a very large market
    opportunity for us.

Dispositions










33



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|                                  |  |                         |       |   |      |   |        |      |  |   |        |  
|--------------------------------- |  | ----------------------- | ----- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                  |  | Year Ended December 31, |      
|                                  |  |                         |      
|                                  |  | 2004                    |       |   | 2003 |   |        | 2002 | 
|                                  |  |                         |       |   |      |   |        |      | 
|Revenue                           |  | $                       | 9,137 |   |      | $ | 12,788 |      |  | $ | 33,107 |  
|Total expenses                    |  |                         | 9,816 |   |      |   | 16,069 |      |  |   | 39,373 |  
|                                  |  |                         |       |   |      |   |        |      | 
|Loss from discontinued operations |  | $                       | (679  | ) |      | $ | (3,281 | )    |  | $ | (6,266 | )
|                                  |  |                         |       |   |      |   |        |      | 



|                         |                                                           |                         |        |       |      |   |       |       |   |   |         |         |  
|------------------------ | --------------------------------------------------------- | ----------------------- | ------ | ----- | ---- | - | ----- | ----- | - | - | ------- | ------- | -
|                         |                                                           | Year Ended December 31, |       
|                         |                                                           |                         |       
|                         |                                                           | 2004                    |        |       | 2003 |   |       | 2002  |  
|                         |                                                           |                         |        |       |      |   |       |       |  
|Gross proceeds from sale |                                                           | $                       | 10,981 |       |      | $ | 2,300 |       |   | $ | 130,000 |        
|Less:                    |                                                           |                         |        |       |      |   |       |       |   |   |         |        
|                         | Cash subject to escrow                                    |                         |        | 850   |      |   |       |      |   |   |         | 10,000  |  
|                         | Net assets sold                                           |                         |        | 2,210 |      |   |       |      |   |   |         | 106,321 |  
|                         | Transaction costs                                         |                         |        | 627   |      |   |       |      |   |   |         | 2,918   |  
|                         | Cash and Homestore stock received from purchase of iPlace |                         |        |      |      |   |       | (230  | ) |   |         | (1,029  | )
|                         |                                                           |                         |        |       |      |   |       |       |  
|                         | Gain on disposition of discontinued operations            |                         | $      | 7,294 |      |   | $     | 2,530 |   |   | $       | 11,790  |  
|                         |                                                           |                         |        |       |      |   |       |       |  



Critical Accounting Policies, Estimates and Assumptions






34



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Revenue Recognition




| |   |                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | software revenue, which includes software licenses, software
    development, hardware services and support revenue which
    includes software maintenance, training, consulting and website
    hosting revenue; and
|
| |  | advertising revenue for running online advertising on our
    websites or offline advertising placed in our publications.                                                                                             







Software revenue




| |   |                                 
| | - | --------------------------------
| |  | on a one-year term basis;       
|
| |  | on a perpetual basis; and       
|
| |  | on a monthly subscription basis.







| |   |                                                       
| | - | ------------------------------------------------------
| |  | 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.



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Advertising Revenue




| |   |                                        
| | - | ---------------------------------------
| |  | impression based,                      
|
| |  | fixed fee subscriptions; and           
|
| |  | variable, performance based agreements.







| |                                
| | -------------------------------
| | Allowance for Doubtful Accounts



36



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





| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | a significant decline in actual and projected revenue;                                                            
|
| |  | a significant decline in the market value of our common stock;                                                    
|
| |  | a significant decline in performance of certain acquired
    companies relative to their original projection;     
|
| |  | a significant difference between our net book value and our
    market value;                                     
|
| |  | a significant decline in our operating results relative to our
    operating forecasts;                           
|
| |  | 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.                                                      



Goodwill and Other
Intangible Assets,




37



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| |                    
| | -------------------
| | Legal Contingencies



Results of Operations






| |   |                                                        
| | - | -------------------------------------------------------
| |  | respond to highly competitive developments;            
|
| |  | attract, retain and motivate qualified personnel;      
|
| |  | implement and successfully execute our marketing plans;
|
| |  | continue to upgrade our technologies;                  
|
| |  | develop new distribution channels; and                 
|
| |  | improve our operational and financial systems.         



|                                           |               |                         |         |         |      |   |         |         |  |   |         |         | 
|------------------------------------------ | ------------- | ----------------------- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                           |               | Year Ended December 31, |        
|                                           |               |                         |        
|                                           |               | 2004                    |         |         | 2003 |   |         | 2002    | 
|                                           |               |                         |         |         |      |   |         |         | 
|                                           |               | (In thousands)          |        
|Consolidated Statement of Operations Data: |               |                         |         |         |      |   |         |         |  |   |         |        
|Revenue(1)                                 |               | $                       | 216,860 |         |      | $ | 198,227 |         |  | $ | 219,867 |        
|Related party revenue                      |               |                         |        |         |      |   | 7,695   |         |  |   | 31,158  |        
|                                           |               |                         |         |         |      |   |         |         | 
|                                           | Total revenue |                         |         | 216,860 |      |   |         | 205,922 |  |   |         | 251,025 | 
|Cost of revenue(1)                         |               |                         | 50,829  |         |      |   | 56,569  |         |  |   | 73,622  |        
|                                           |               |                         |         |         |      |   |         |         | 
|                                           | Gross profit  |                         |         | 166,031 |      |   |         | 149,353 |  |   |         | 177,403 | 

38



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|                                               |                                      |                          |         |        |         |   |          |         |         |   |          |         |         | 
|---------------------------------------------- | ------------------------------------ | ------------------------ | ------- | ------ | ------- | - | -------- | ------- | ------- | - | -------- | ------- | ------- | 
|                                               |                                      | Year Ended December 31,  |        
|                                               |                                      |                          |        
|                                               |                                      | 2004                     |         |        | 2003    |   |          | 2002    |        
|                                               |                                      |                          |         |        |         |   |          |         |        
|                                               |                                      | (In thousands)           |        
|Operating expenses:                            |                                      |                          |         |        |         |   |          |         |         |   |          |        
|                                               | Sales and marketing(1)               |                          |         | 88,388 |         |   |          | 101,122 |         |   |          | 161,554 |        
|                                               | Product and website development(1)   |                          |         | 15,362 |         |   |          | 17,065  |         |   |          | 25,497  |        
|                                               | General and administrative(1)        |                          |         | 68,442 |         |   |          | 65,333  |         |   |          | 83,042  |        
|                                               | Amortization of intangible assets(1) |                          |         | 7,894  |         |   |          | 21,863  |         |   |          | 34,699  |        
|                                               | Restructuring charges(1)             |                          |         | 1,316  |         |   |          | 4,100   |         |   |          | 12,057  |        
|                                               | Impairment of long-lived assets      |                          |         |       |         |   |          | 26,999  |         |   |          | 3,482   |        
|                                               | Litigation settlement                |                          |         | 2,168  |         |   |          | 63,600  |         |   |          | 23,000  |        
|                                               |                                      |                          |         |        |         |   |          |         |        
|                                               |                                      | Total operating expenses |         |        | 183,570 |   |          |         | 300,082 |   |          |         | 343,331 | 
|                                               |                                      |                          |         |        |         |   |          |         |        
|Loss from operations                           |                                      |                          | (17,539 | )      |         |   | (150,729 | )       |         |   | (165,928 | )      
|Interest income (expense), net                 |                                      |                          | 672     |        |         |   | (406     | )       |         |   | 2,673    |        
|Gain on settlement of distribution agreement   |                                      |                          |        |        |         |   | 104,071  |         |         |   |         |        
|Other income (expense), net                    |                                      |                          | 2,366   |        |         |   | 691      |         |         |   | (5,694   | )      
|                                               |                                      |                          |         |        |         |   |          |         |        
|Loss from continuing operations                |                                      |                          | (14,501 | )      |         |   | (46,373  | )       |         |   | (168,949 | )      
|Gain on disposition of discontinued operations |                                      |                          | 7,294   |        |         |   | 2,530    |         |         |   | 11,790   |        
|Income from discontinued operations            |                                      |                          | (679    | )      |         |   | (3,281   | )       |         |   | (6,266   | )      
|                                               |                                      |                          |         |        |         |   |          |         |        
|Net loss                                       |                                      | $                        | (7,886  | )      |         | $ | (47,124  | )       |         | $ | (163,425 | )      
|                                               |                                      |                          |         |        |         |   |          |         |        






|    |                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The following chart summarizes the stock-based charges that have
    been included in the following captions for the periods
    presented:

|                                |  |                         |     |  |      |   |       |      |  |   |        | 
|------------------------------- |  | ----------------------- | --- |  | ---- | - | ----- | ---- |  | - | ------ | 
|                                |  | Year Ended December 31, |    
|                                |  |                         |    
|                                |  | 2004                    |     |  | 2003 |   |       | 2002 | 
|                                |  |                         |     |  |      |   |       |      | 
|                                |  | (In thousands)          |    
|Revenue                         |  | $                       |    |  |      | $ | 1,119 |      |  | $ | 1,501  | 
|Cost of revenue                 |  |                         |    |  |      |   | 16    |      |  |   | 134    | 
|Sales and marketing             |  |                         | 301 |  |      |   | 3,795 |      |  |   | 63,848 | 
|Product and website development |  |                         |    |  |      |   | 15    |      |  |   | 127    | 
|General and administrative      |  |                         | 518 |  |      |   | 164   |      |  |   | 1,297  | 
|Restructuring charges           |  |                         |    |  |      |   | 2,140 |      |  |   |       | 
|                                |  |                         |     |  |      |   |       |      | 
|                                |  | $                       | 819 |  |      | $ | 7,249 |      |  | $ | 66,907 | 
|                                |  |                         |     |  |      |   |       |      | 

39



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|                                               |                                   |                          |     |     |      |  |     |      |     |  |     |     |     | 
|---------------------------------------------- | --------------------------------- | ------------------------ | --- | --- | ---- |  | --- | ---- | --- |  | --- | --- | --- | 
|                                               |                                   | Year Ended December 31,  |    
|                                               |                                   |                          |    
|                                               |                                   | 2004                     |     |     | 2003 |  |     | 2002 |    
|                                               |                                   |                          |     |     |      |  |     |      |    
|                                               |                                   | (In thousands)           |    
|As a Percentage of Revenue:                    |                                   |                          |     |     |      |  |     |      |     |  |     |    
|Revenue                                        |                                   |                          | 100 | %   |      |  | 96  | %    |     |  | 88  | %  
|Related party revenue                          |                                   |                          |    |     |      |  | 4   |      |     |  | 12  |    
|                                               |                                   |                          |     |     |      |  |     |      |    
|                                               | Total revenue                     |                          |     | 100 |      |  |     | 100  |     |  |     | 100 |    
|Cost of revenue                                |                                   |                          | 23  |     |      |  | 27  |      |     |  | 29  |    
|                                               |                                   |                          |     |     |      |  |     |      |    
|                                               | Gross profit                      |                          |     | 77  |      |  |     | 73   |     |  |     | 71  |    
|Operating expenses:                            |                                   |                          |     |     |      |  |     |      |     |  |     |    
|                                               | Sales and marketing               |                          |     | 41  |      |  |     | 49   |     |  |     | 65  |    
|                                               | Product and website development   |                          |     | 7   |      |  |     | 8    |     |  |     | 10  |    
|                                               | General and administrative        |                          |     | 32  |      |  |     | 32   |     |  |     | 33  |    
|                                               | Amortization of intangible assets |                          |     | 4   |      |  |     | 11   |     |  |     | 14  |    
|                                               | Restructuring charges             |                          |     |    |      |  |     | 2    |     |  |     | 5   |    
|                                               | Impairment of long-lived assets   |                          |     |    |      |  |     | 13   |     |  |     | 1   |    
|                                               | Litigation settlement             |                          |     | 1   |      |  |     | 31   |     |  |     | 9   |    
|                                               |                                   |                          |     |     |      |  |     |      |    
|                                               |                                   | Total operating expenses |     |     | 85   |  |     |      | 146 |  |     |     | 137 | 
|                                               |                                   |                          |     |     |      |  |     |      |    
|Loss from operations                           |                                   |                          | (8  | )   |      |  | (73 | )    |     |  | (66 | )  
|Interest income (expense), net                 |                                   |                          |    |     |      |  |    |      |     |  | 1   |    
|Gain on settlement of distribution agreement   |                                   |                          |    |     |      |  | 50  |      |     |  |    |    
|Other income (expense), net                    |                                   |                          | 1   |     |      |  |    |      |     |  | (2  | )  
|                                               |                                   |                          |     |     |      |  |     |      |    
|Loss from continuing operations                |                                   |                          | (7  | )   |      |  | (23 | )    |     |  | (67 | )  
|Gain on disposition of discontinued operations |                                   |                          | 3   |     |      |  | 1   |      |     |  | 5   |    
|Income from discontinued operations            |                                   |                          |    |     |      |  | (1  | )    |     |  | (3  | )  
|                                               |                                   |                          |     |     |      |  |     |      |    
|Net Loss                                       |                                   |                          | (4  | )%  |      |  | (23 | ) %  |     |  | (65 | )% 
|                                               |                                   |                          |     |     |      |  |     |      |    

For the Years Ended December 31, 2004 and 2003


Revenue and Related Party
Revenue




Cost of Revenue




40



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Operating Expenses




Sales and Marketing.


Product and Website Development.


General and Administrative.


Amortization of Intangible Assets.


Restructuring Charges.






41



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42



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|                                           |  |             |        |             |             |       |             |         |  |   |            |   |  |             |         |   |       |   |        |   |  |   |         |  
|------------------------------------------ |  | ----------- | ------ | ----------- | ----------- | ----- | ----------- | ------- |  | - | ---------- | - |  | ----------- | ------- | - | ----- | - | ------ | - |  | - | ------- | -
|                                           |  |             |        |             |             | Lease |             |         |  |   |            |   | 
|                                           |  |             |        | Stock-based |             |       | Obligations |         |  |   |            |   |  |            
|                                           |  | Employee    |        |             | Charges for |       |             | and     |  |   |            |   |  |             |        
|                                           |  | Termination |        |             | Accelerated |       |             | Related |  |   | Asset      |   |  | Contractual |         |   |      
|                                           |  | Benefits    |        |             | Vesting     |       |             | Charges |  |   | Write-offs |   |  | Obligations |         |   | Total |  
|                                           |  |             |        |             |             |       |             |         |  |   |            |   |  |             |         |   |       |  
|December 2001 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  |  
|March 2002 restructuring charge            |  |             | 1,720  |             |             |       |            |         |  |   | 309        |   |  |             | 260     |   |       |   |       |   |  |   | 2,289   |  
|September 2002 restructuring charge        |  |             | 1,590  |             |             |       |            |         |  |   | 2,033      |   |  |             |        |   |       |   |       |   |  |   | 3,623   |  
|Cash paid                                  |  |             | (4,916 | )           |             |       |            |         |  |   | (5,920     | ) |  |             |        |   |       |   | (3,631 | ) |  |   | (14,467 | )
|Sale of a subsidiary                       |  |             | (156   | )           |             |       |            |         |  |   |           |   |  |             |        |   |       |   |       |   |  |   | (156    | )
|Change in estimates                        |  |             | (638   | )           |             |       |            |         |  |   | 7,611      |   |  |             |        |   |       |   | (798   | ) |  |   | 6,175   |  
|Non-cash charges                           |  |             |       |             |             |       |            |         |  |   | 488        |   |  |             | (260    | ) |       |   |       |   |  |   | 228     |  
|                                           |  |             |        |             |             |       |             |         |  |   |            |   |  |             |         |   |       |  
|Restructuring accrual at December 31, 2002 |  |             | 453    |             |             |       |            |         |  |   | 17,166     |   |  |             |        |   |       |   | 1,163  |   |  |   | 18,782  |  
|December 2003 restructuring charge         |  |             | 1,401  |             |             |       | 2,140       |         |  |   |           |   |  |             |        |   |       |   |       |   |  |   | 3,541   |  
|Cash paid                                  |  |             | (797   | )           |             |       |            |         |  |   | (6,476     | ) |  |             |        |   |       |   | (576   | ) |  |   | (7,849  | )
|Changes in estimates                       |  |             | (156   | )           |             |       |            |         |  |   | 919        |   |  |             |        |   |       |   | (203   | ) |  |   | 560     |  
|Non-cash charges                           |  |             |       |             |             |       | (2,140      | )       |  |   |           |   |  |             |        |   |       |   |       |   |  |   | (2,140  | )
|                                           |  |             |        |             |             |       |             |         |  |   |            |   |  |             |         |   |       |  
|Restructuring accrual at December 31, 2003 |  | $           | 901    |             |             | $     |            |         |  | $ | 11,609     |   |  | $           |        |   |       | $ | 384    |   |  | $ | 12,894  |  
|Cash paid                                  |  |             | (809   | )           |             |       |            |         |  |   | (4,564     | ) |  |             |        |   |       |   | (11    | ) |  |   | (5,384  | )
|Changes in estimates                       |  |             | (71    | )           |             |       |            |         |  |   | 1,359      |   |  |             |        |   |       |   | 28     |   |  |   | 1,316   |  
|                                           |  |             |        |             |             |       |             |         |  |   |            |   |  |             |         |   |       |  
|Restructuring accrual at December 31, 2004 |  | $           | 21     |             |             | $     |            |         |  | $ | 8,404      |   |  | $           |        |   |       | $ | 401    |   |  | $ | 8,826   |  
|                                           |  |             |        |             |             |       |             |         |  |   |            |   |  |             |         |   |       |  



Impairment of Long-lived Asset.


43



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Litigation Settlement.


Stock-based Charges.


|                                |  |              |     |  |      |   |       | 
|------------------------------- |  | ------------ | --- |  | ---- | - | ----- | 
|                                |  | Year Ended   |    
|                                |  | December 31, |    
|                                |  |              |    
|                                |  | 2004         |     |  | 2003 |  
|                                |  |              |     |  |      |  
|Revenue                         |  | $            |    |  |      | $ | 1,119 | 
|Cost of revenue                 |  |              |    |  |      |   | 16    | 
|Sales and marketing             |  |              | 301 |  |      |   | 3,795 | 
|Product and website development |  |              |    |  |      |   | 15    | 
|General and administrative      |  |              | 518 |  |      |   | 164   | 
|Restructuring charges           |  |              |    |  |      |   | 2,140 | 
|                                |  |              |     |  |      |  
|                                |  | $            | 819 |  |      | $ | 7,249 | 
|                                |  |              |     |  |      |  





| |                               
| | ------------------------------
| | Interest Income (Expense), Net





| |                                             
| | --------------------------------------------
| | Gain on Settlement of Distribution Agreement





| |                            
| | ---------------------------
| | Other Income (Expense), Net





| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Gain on Disposition of Discontinued Operations and Income
    from Discontinued Operations



44



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| |             
| | ------------
| | Income Taxes





| |                    
| | -------------------
| | Segment Information







|                                  |  |                   |         |  |                   |   |        |       |  |   |             |   |  |       |         |   |       |   |         |          |  |   |         |  |  |             |        |   |       |   |        |   |  |   |          |   |  |   |          |  
|--------------------------------- |  | ----------------- | ------- |  | ----------------- | - | ------ | ----- |  | - | ----------- | - |  | ----- | ------- | - | ----- | - | ------- | -------- |  | - | ------- |  |  | ----------- | ------ | - | ----- | - | ------ | - |  | - | -------- | - |  | - | -------- | -
|                                  |  | Year Ended        |        
|                                  |  |                   |        
|                                  |  | December 31, 2004 |         |  | December 31, 2003 |  
|                                  |  |                   |         |  |                   |  
|                                  |  | Media             |         |  | Software          |   |        | Print |  |   | Unallocated |   |  | Total |         |   | Media |   |         | Software |  |   | Print   |  |  | Unallocated |        |   | Total |  
|                                  |  |                   |         |  |                   |   |        |       |  |   |             |   |  |       |         |   |       |   |         |          |  |   |         |  |  |             |        |   |       |  
|Revenue                           |  | $                 | 150,053 |  |                   | $ | 18,210 |       |  | $ | 48,597      |   |  | $     |        |   |       | $ | 216,860 |          |  | $ | 143,510 |  |  | $           | 15,018 |   |       | $ | 47,394 |   |  | $ |         |   |  | $ | 205,922  |  
|Cost of revenue                   |  |                   | 24,905  |  |                   |   | 5,473  |       |  |   | 19,619      |   |  |       | 832     |   |       |   | 50,829  |          |  |   | 29,796  |  |  |             | 6,001  |   |       |   | 19,363 |   |  |   | 1,409    |   |  |   | 56,569   |  
|                                  |  |                   |         |  |                   |   |        |       |  |   |             |   |  |       |         |   |       |   |         |          |  |   |         |  |  |             |        |   |       |  
|Gross profit (loss)               |  |                   | 125,148 |  |                   |   | 12,737 |       |  |   | 28,978      |   |  |       | (832    | ) |       |   | 166,031 |          |  |   | 113,714 |  |  |             | 9,017  |   |       |   | 28,031 |   |  |   | (1,409   | ) |  |   | 149,353  |  
|Sales and marketing               |  |                   | 63,358  |  |                   |   | 4,771  |       |  |   | 19,547      |   |  |       | 712     |   |       |   | 88,388  |          |  |   | 69,485  |  |  |             | 6,234  |   |       |   | 19,434 |   |  |   | 5,969    |   |  |   | 101,122  |  
|Product and website development   |  |                   | 10,405  |  |                   |   | 4,705  |       |  |   | 251         |   |  |       | 1       |   |       |   | 15,362  |          |  |   | 11,261  |  |  |             | 5,341  |   |       |   | 442    |   |  |   | 21       |   |  |   | 17,065   |  
|General and administrative        |  |                   | 20,236  |  |                   |   | 2,799  |       |  |   | 10,371      |   |  |       | 35,036  |   |       |   | 68,442  |          |  |   | 22,420  |  |  |             | 2,438  |   |       |   | 9,763  |   |  |   | 30,712   |   |  |   | 65,333   |  
|Amortization of intangible assets |  |                   |        |  |                   |   |       |       |  |   |            |   |  |       | 7,894   |   |       |   | 7,894   |          |  |   |        |  |  |             |       |   |       |   |       |   |  |   | 21,863   |   |  |   | 21,863   |  
|Litigation settlement             |  |                   |        |  |                   |   |       |       |  |   |            |   |  |       | 2,168   |   |       |   | 2,168   |          |  |   |        |  |  |             |       |   |       |   |       |   |  |   | 63,600   |   |  |   | 63,600   |  
|Restructuring charges             |  |                   |        |  |                   |   |       |       |  |   |            |   |  |       | 1,316   |   |       |   | 1,316   |          |  |   |        |  |  |             |       |   |       |   |       |   |  |   | 4,100    |   |  |   | 4,100    |  
|Impairment of long-lived assets   |  |                   |        |  |                   |   |       |       |  |   |            |   |  |       |        |   |       |   |        |          |  |   |        |  |  |             |       |   |       |   |       |   |  |   | 26,999   |   |  |   | 26,999   |  
|                                  |  |                   |         |  |                   |   |        |       |  |   |             |   |  |       |         |   |       |   |         |          |  |   |         |  |  |             |        |   |       |  
|Total operating expenses          |  |                   | 93,999  |  |                   |   | 12,275 |       |  |   | 30,169      |   |  |       | 47,127  |   |       |   | 183,570 |          |  |   | 103,166 |  |  |             | 14,013 |   |       |   | 29,639 |   |  |   | 153,264  |   |  |   | 300,082  |  
|                                  |  |                   |         |  |                   |   |        |       |  |   |             |   |  |       |         |   |       |   |         |          |  |   |         |  |  |             |        |   |       |  
|Income (loss) from operations     |  | $                 | 31,149  |  |                   |   | 462    |       |  | $ | (1,191      | ) |  | $     | (47,959 | ) |       | $ | (17,539 | )        |  | $ | 10,548  |  |  | $           | (4,996 | ) |       | $ | (1,608 | ) |  | $ | (154,673 | ) |  | $ | (150,729 | )
|                                  |  |                   |         |  |                   |   |        |       |  |   |             |   |  |       |         |   |       |   |         |          |  |   |         |  |  |             |        |   |       |  

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| |               
| | --------------
| | Media Services

tm








Software










Print




46



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Unallocated




For the Years Ended December 31, 2003 and 2002




| |                                  
| | ---------------------------------
| | Revenue and Related Party Revenue





| |                
| | ---------------
| | Cost of Revenue



47



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Operating Expenses


Sales and Marketing.


Product and Website Development.


General and Administrative.


Amortization of Intangible Assets.


Restructuring Charges.




48



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Impairment of Long-lived Assets.




Litigation Settlement.


Stock-based Charges.


|                                |  |              |       |  |      |   |        | 
|------------------------------- |  | ------------ | ----- |  | ---- | - | ------ | 
|                                |  | Year Ended   |      
|                                |  | December 31, |      
|                                |  |              |      
|                                |  | 2003         |       |  | 2002 |  
|                                |  |              |       |  |      |  
|Revenue                         |  | $            | 1,119 |  |      | $ | 1,501  | 
|Cost of revenue                 |  |              | 16    |  |      |   | 134    | 
|Sales and marketing             |  |              | 3,795 |  |      |   | 63,848 | 
|Product and website development |  |              | 15    |  |      |   | 127    | 
|General and administrative      |  |              | 164   |  |      |   | 1,297  | 
|Restructuring charges           |  |              | 2,140 |  |      |   |       | 
|                                |  |              |       |  |      |  
|                                |  | $            | 7,249 |  |      | $ | 66,907 | 
|                                |  |              |       |  |      |  





| |                               
| | ------------------------------
| | Interest Income (Expense), Net



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| |                                             
| | --------------------------------------------
| | Gain on Settlement of Distribution Agreement





| |                            
| | ---------------------------
| | Other Income (Expense), Net





| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Gain on Disposition of Discontinued Operations and Income
    from Discontinued Operations







| |             
| | ------------
| | Income Taxes





| |                    
| | -------------------
| | Segment Information



50



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|                                  |  |                   |         |  |                   |   |        |       |  |   |             |   |  |       |          |   |       |   |          |          |  |   |         |  |  |             |        |   |       |   |        |  |  |   |          |   |  |   |          |  
|--------------------------------- |  | ----------------- | ------- |  | ----------------- | - | ------ | ----- |  | - | ----------- | - |  | ----- | -------- | - | ----- | - | -------- | -------- |  | - | ------- |  |  | ----------- | ------ | - | ----- | - | ------ |  |  | - | -------- | - |  | - | -------- | -
|                                  |  | Year Ended        |        
|                                  |  |                   |        
|                                  |  | December 31, 2003 |         |  | December 31, 2002 |  
|                                  |  |                   |         |  |                   |  
|                                  |  | Media             |         |  | Software          |   |        | Print |  |   | Unallocated |   |  | Total |          |   | Media |   |          | Software |  |   | Print   |  |  | Unallocated |        |   | Total |  
|                                  |  |                   |         |  |                   |   |        |       |  |   |             |   |  |       |          |   |       |   |          |          |  |   |         |  |  |             |        |   |       |  
|Revenue                           |  | $                 | 143,510 |  |                   | $ | 15,018 |       |  | $ | 47,394      |   |  | $     |         |   |       | $ | 205,922  |          |  | $ | 160,506 |  |  | $           | 33,216 |   |       | $ | 57,303 |  |  | $ |         |   |  | $ | 251,025  |  
|Cost of revenue                   |  |                   | 29,796  |  |                   |   | 6,001  |       |  |   | 19,363      |   |  |       | 1,409    |   |       |   | 56,569   |          |  |   | 38,581  |  |  |             | 12,078 |   |       |   | 20,983 |  |  |   | 1,980    |   |  |   | 73,622   |  
|                                  |  |                   |         |  |                   |   |        |       |  |   |             |   |  |       |          |   |       |   |          |          |  |   |         |  |  |             |        |   |       |  
|Gross profit (loss)               |  |                   | 113,714 |  |                   |   | 9,017  |       |  |   | 28,031      |   |  |       | (1,409   | ) |       |   | 149,353  |          |  |   | 121,925 |  |  |             | 21,138 |   |       |   | 36,320 |  |  |   | (1,980   | ) |  |   | 177,403  |  
|Sales and marketing               |  |                   | 69,485  |  |                   |   | 6,234  |       |  |   | 19,434      |   |  |       | 5,969    |   |       |   | 101,122  |          |  |   | 65,715  |  |  |             | 9,435  |   |       |   | 21,814 |  |  |   | 64,590   |   |  |   | 161,554  |  
|Product and website development   |  |                   | 11,261  |  |                   |   | 5,341  |       |  |   | 442         |   |  |       | 21       |   |       |   | 17,065   |          |  |   | 14,007  |  |  |             | 11,266 |   |       |   | 237    |  |  |   | (13      | ) |  |   | 25,497   |  
|General and administrative        |  |                   | 22,420  |  |                   |   | 2,438  |       |  |   | 9,763       |   |  |       | 30,712   |   |       |   | 65,333   |          |  |   | 19,339  |  |  |             | 6,417  |   |       |   | 14,077 |  |  |   | 43,209   |   |  |   | 83,042   |  
|Amortization of intangible assets |  |                   |        |  |                   |   |       |       |  |   |            |   |  |       | 21,863   |   |       |   | 21,863   |          |  |   |        |  |  |             |       |   |       |   |       |  |  |   | 34,699   |   |  |   | 34,699   |  
|Litigation settlement             |  |                   |        |  |                   |   |       |       |  |   |            |   |  |       | 63,600   |   |       |   | 63,600   |          |  |   |        |  |  |             |       |   |       |   |       |  |  |   | 23,000   |   |  |   | 23,000   |  
|Restructuring charges             |  |                   |        |  |                   |   |       |       |  |   |            |   |  |       | 4,100    |   |       |   | 4,100    |          |  |   |        |  |  |             |       |   |       |   |       |  |  |   | 12,057   |   |  |   | 12,057   |  
|Impairment of long-lived assets   |  |                   |        |  |                   |   |       |       |  |   |            |   |  |       | 26,999   |   |       |   | 26,999   |          |  |   |        |  |  |             |       |   |       |   |       |  |  |   | 3,482    |   |  |   | 3,482    |  
|                                  |  |                   |         |  |                   |   |        |       |  |   |             |   |  |       |          |   |       |   |          |          |  |   |         |  |  |             |        |   |       |  
|Total operating expenses          |  |                   | 103,166 |  |                   |   | 14,013 |       |  |   | 29,639      |   |  |       | 153,264  |   |       |   | 300,082  |          |  |   | 99,061  |  |  |             | 27,118 |   |       |   | 36,128 |  |  |   | 181,024  |   |  |   | 343,331  |  
|                                  |  |                   |         |  |                   |   |        |       |  |   |             |   |  |       |          |   |       |   |          |          |  |   |         |  |  |             |        |   |       |  
|Income (loss) from operations     |  | $                 | 10,548  |  |                   | $ | (4,996 | )     |  | $ | (1,608      | ) |  | $     | (154,673 | ) |       | $ | (150,729 | )        |  | $ | 22,864  |  |  | $           | (5,980 | ) |       | $ | 192    |  |  | $ | (183,004 | ) |  | $ | (165,928 | )
|                                  |  |                   |         |  |                   |   |        |       |  |   |             |   |  |       |          |   |       |   |          |          |  |   |         |  |  |             |        |   |       |  



| |               
| | --------------
| | Media Services

tm




51



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| |         
| | --------
| | Software











| |      
| | -----
| | Print





52



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| |            
| | -----------
| | Unallocated



Liquidity and Capital Resources










53



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|                                        |       |                        |        |        |              |   |        |                |  |   |               |        |  |           |       |       |  |   |       |       | 
|--------------------------------------- | ----- | ---------------------- | ------ | ------ | ------------ | - | ------ | -------------- |  | - | ------------- | ------ |  | --------- | ----- | ----- |  | - | ----- | ----- | 
|                                        |       | Payments Due by Period |       
|                                        |       |                        |       
|                                        |       | Total                  |        |        | Due in One   |   |        | Due in One     |  |   | Due in Three  |        |  | Over Five |      
|                                        |       | Payments Due           |        |        | Year or Less |   |        | to Three Years |  |   | to Five Years |        |  | Years     |      
|                                        |       |                        |        |        |              |   |        |                |  |   |               |        |  |           |      
|Capital lease obligations               |       | $                      | 2,851  |        |              | $ | 1,834  |                |  | $ | 1,017         |        |  | $         |      |       |  | $ |      |      
|Operating lease obligations             |       |                        | 24,736 |        |              |   | 6,726  |                |  |   | 12,017        |        |  |           | 2,045 |       |  |   | 3,948 |      
|Obligations under restructuring charges |       |                        | 8,564  |        |              |   | 4,420  |                |  |   | 4,065         |        |  |           | 79    |       |  |   |      |      
|Distribution agreements                 |       |                        | 19,750 |        |              |   | 14,900 |                |  |   | 4,850         |        |  |           |      |       |  |   |      |      
|Other purchase obligations              |       |                        | 7,942  |        |              |   | 1,942  |                |  |   | 3,000         |        |  |           | 3,000 |       |  |   |      |      
|                                        |       |                        |        |        |              |   |        |                |  |   |               |        |  |           |      
|                                        | Total |                        | $      | 63,843 |              |   | $      | 29,822         |  |   | $             | 24,949 |  |           | $     | 5,124 |  |   | $     | 3,948 | 
|                                        |       |                        |        |        |              |   |        |                |  |   |               |        |  |           |      



Off-Balance Sheet Arrangements




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Recent Accounting Developments











|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk

Interest Rate Risk.




55



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|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                  |                                                                                     |      |  |    | 
|------------------------------------------------- | ----------------------------------------------------------------------------------- | ---- |  | -- | 
|                                                  |                                                                                     | Page | 
|                                                  |                                                                                     |      | 
|Homestore, Inc. Consolidated Financial Statements |                                                                                     |      |  |   
|                                                  | Report of Ernst & Young LLP,
    Independent Registered Public Accounting Firm      |      |  | 57 | 
|                                                  | Report of Independent Registered Public
    Accounting Firm                         |      |  | 58 | 
|                                                  | Consolidated Balance Sheets                                                         |      |  | 59 | 
|                                                  | Consolidated Statements of Operations                                               |      |  | 60 | 
|                                                  | Consolidated Statements of
    Stockholders Equity and Comprehensive Income (Loss) |      |  | 61 | 
|                                                  | Consolidated Statements of Cash Flows                                               |      |  | 62 | 
|                                                  | Notes to Consolidated Financial
    Statements                                      |      |  | 63 | 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














| |                      
| | ---------------------
| | /s/ Ernst & Young LLP





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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




















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HOMESTORE, INC.





CONSOLIDATED BALANCE SHEETS


|                                        |                                                                                                                                                                                                                                                                           |                                            |        |            |         |  |         |            |         | 
|--------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ---------- | ------- |  | ------- | ---------- | ------- | 
|                                        |                                                                                                                                                                                                                                                                           | December 31,                               |       
|                                        |                                                                                                                                                                                                                                                                           |                                            |       
|                                        |                                                                                                                                                                                                                                                                           | 2004                                       |        |            | 2003    | 
|                                        |                                                                                                                                                                                                                                                                           |                                            |        |            |         | 
|                                        |                                                                                                                                                                                                                                                                           | (In thousands)                             |       
|ASSETS                                 
|Current assets:                         |                                                                                                                                                                                                                                                                           |                                            |        |            |         |  |         |           
|                                        | Cash and cash equivalents                                                                                                                                                                                                                                                 |                                            | $      | 14,819     |         |  | $       | 13,942     |        
|                                        | Short-term investments                                                                                                                                                                                                                                                    |                                            |        | 45,040     |         |  |         | 21,575     |        
|                                        | Accounts receivable, net of allowance for doubtful accounts of
    $1,399 and $5,377 at December 31, 2004 and 2003,
    respectively                                                                                                                                      |                                            |        | 12,532     |         |  |         | 14,576     |        
|                                        | Prepaid distribution expense                                                                                                                                                                                                                                              |                                            |        |           |         |  |         | 10,509     |        
|                                        | Other current assets                                                                                                                                                                                                                                                      |                                            |        | 12,498     |         |  |         | 10,585     |        
|                                        |                                                                                                                                                                                                                                                                           |                                            |        |            |         | 
|                                        |                                                                                                                                                                                                                                                                           | Total current assets                       |        |            | 84,889  |  |         |            | 71,187  | 
|Property and equipment, net             |                                                                                                                                                                                                                                                                           |                                            | 15,242 |            |         |  | 21,454  |           
|Goodwill, net                           |                                                                                                                                                                                                                                                                           |                                            | 19,502 |            |         |  | 20,477  |           
|Intangible assets, net                  |                                                                                                                                                                                                                                                                           |                                            | 17,864 |            |         |  | 25,758  |           
|Restricted cash                         |                                                                                                                                                                                                                                                                           |                                            | 5,840  |            |         |  |        |           
|Other assets                            |                                                                                                                                                                                                                                                                           |                                            | 7,167  |            |         |  | 14,672  |           
|                                        |                                                                                                                                                                                                                                                                           |                                            |        |            |         | 
|                                        |                                                                                                                                                                                                                                                                           | Total assets                               |        | $          | 150,504 |  |         | $          | 153,548 | 
|                                        |                                                                                                                                                                                                                                                                           |                                            |        |            |         | 
|                                       
|LIABILITIES AND STOCKHOLDERS EQUITY   
|Current Liabilities:                    |                                                                                                                                                                                                                                                                           |                                            |        |            |         |  |         |           
|                                        | Accounts payable                                                                                                                                                                                                                                                          |                                            | $      | 2,675      |         |  | $       | 1,409      |        
|                                        | Accrued expenses                                                                                                                                                                                                                                                          |                                            |        | 39,894     |         |  |         | 42,576     |        
|                                        | Accrued litigation settlement                                                                                                                                                                                                                                             |                                            |        |           |         |  |         | 53,600     |        
|                                        | Accrued distribution obligation                                                                                                                                                                                                                                           |                                            |        |           |         |  |         | 7,406      |        
|                                        | Obligation under capital leases                                                                                                                                                                                                                                           |                                            |        | 1,774      |         |  |         | 1,535      |        
|                                        | Deferred revenue                                                                                                                                                                                                                                                          |                                            |        | 39,487     |         |  |         | 31,348     |        
|                                        | Deferred revenue from related parties                                                                                                                                                                                                                                     |                                            |        |           |         |  |         | 4,042      |        
|                                        |                                                                                                                                                                                                                                                                           |                                            |        |            |         | 
|                                        |                                                                                                                                                                                                                                                                           | Total current liabilities                  |        |            | 83,830  |  |         |            | 141,916 | 
|Obligation under capital leases         |                                                                                                                                                                                                                                                                           |                                            | 991    |            |         |  | 369     |           
|Deferred revenue                        |                                                                                                                                                                                                                                                                           |                                            | 4,100  |            |         |  |        |           
|Deferred revenue from related parties   |                                                                                                                                                                                                                                                                           |                                            |       |            |         |  | 2,869   |           
|Other non-current liabilities           |                                                                                                                                                                                                                                                                           |                                            | 4,190  |            |         |  | 8,066   |           
|                                        |                                                                                                                                                                                                                                                                           |                                            |        |            |         | 
|                                        |                                                                                                                                                                                                                                                                           |                                            | 93,111 |            |         |  | 153,220 |           
|                                        |                                                                                                                                                                                                                                                                           |                                            |        |            |         | 
|Commitments and contingencies (Note 22) |                                                                                                                                                                                                                                                                           |                                            |        |            |         |  |         |           
|                                        | Convertible preferred stock                                                                                                                                                                                                                                               |                                            |        |           |         |  |         |           |        
|                                        | Common stock, $.001 par value; 500,000 shares
    authorized, 146,868 and 126,905 shares issued at
    December 31, 2004 and December 31, 2003, respectively,
    and 146,868 and 120,871 shares outstanding at
    December 31, 2004 and December 31, 2003, respectively |                                            |        | 147        |         |  |         | 122        |        
|                                        | Additional paid-in capital                                                                                                                                                                                                                                                |                                            |        | 2,043,053  |         |  |         | 1,992,591  |        
|                                        | Treasury stock, at cost; -0- and 6,034 shares at
    December 31, 2004 and December 31, 2003, respectively                                                                                                                                                                |                                            |        |           |         |  |         | (14,470    | )      
|                                        | Deferred stock-based charges                                                                                                                                                                                                                                              |                                            |        | (406       | )       |  |         | (258       | )      
|                                        | Accumulated other comprehensive income                                                                                                                                                                                                                                    |                                            |        | 409        |         |  |         | 267        |        
|                                        | Accumulated deficit                                                                                                                                                                                                                                                       |                                            |        | (1,985,810 | )       |  |         | (1,977,924 | )      
|                                        |                                                                                                                                                                                                                                                                           |                                            |        |            |         | 
|                                        |                                                                                                                                                                                                                                                                           | Total stockholders equity                 |        |            | 57,393  |  |         |            | 328     | 
|                                        |                                                                                                                                                                                                                                                                           |                                            |        |            |         | 
|                                        |                                                                                                                                                                                                                                                                           | Total liabilities and stockholders equity |        | $          | 150,504 |  |         | $          | 153,548 | 
|                                        |                                                                                                                                                                                                                                                                           |                                            |        |            |         | 



59



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HOMESTORE, INC.





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                                                    |                                                                                     |                                          |         |         |         |   |          |         |         |   |          |         |         | 
|--------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ---------------------------------------- | ------- | ------- | ------- | - | -------- | ------- | ------- | - | -------- | ------- | ------- | 
|                                                                                                    |                                                                                     | Year Ended December 31,                  |        
|                                                                                                    |                                                                                     |                                          |        
|                                                                                                    |                                                                                     | 2004                                     |         |         | 2003    |   |          | 2002    |        
|                                                                                                    |                                                                                     |                                          |         |         |         |   |          |         |        
|                                                                                                    |                                                                                     | (In thousands, except per share amounts) |        
|Revenue (including non-cash equity charges, see note 2)                                             |                                                                                     | $                                        | 216,860 |         |         | $ | 198,227  |         |         | $ | 219,867  |        
|Related party revenue                                                                               |                                                                                     |                                          |        |         |         |   | 7,695    |         |         |   | 31,158   |        
|                                                                                                    |                                                                                     |                                          |         |         |         |   |          |         |        
|                                                                                                    | Total revenue                                                                       |                                          |         | 216,860 |         |   |          | 205,922 |         |   |          | 251,025 |        
|Cost of revenue (including non-cash equity charges, see
    note 2)                                 |                                                                                     |                                          | 50,829  |         |         |   | 56,569   |         |         |   | 73,622   |        
|                                                                                                    |                                                                                     |                                          |         |         |         |   |          |         |        
|                                                                                                    | Gross profit                                                                        |                                          |         | 166,031 |         |   |          | 149,353 |         |   |          | 177,403 |        
|Operating expenses:                                                                                 |                                                                                     |                                          |         |         |         |   |          |         |         |   |          |        
|                                                                                                    | Sales and marketing (including non-cash equity charges, see
    note 2)             |                                          |         | 88,388  |         |   |          | 101,122 |         |   |          | 161,554 |        
|                                                                                                    | Product and website development (including non-cash equity
    charges, see note 2) |                                          |         | 15,362  |         |   |          | 17,065  |         |   |          | 25,497  |        
|                                                                                                    | General and administrative (including non-cash equity charges,
    see note 2)      |                                          |         | 68,442  |         |   |          | 65,333  |         |   |          | 83,042  |        
|                                                                                                    | Amortization of intangible assets                                                   |                                          |         | 7,894   |         |   |          | 21,863  |         |   |          | 34,699  |        
|                                                                                                    | Restructuring charges (including non-cash equity charges, see
    note 2)           |                                          |         | 1,316   |         |   |          | 4,100   |         |   |          | 12,057  |        
|                                                                                                    | Impairment of long-lived assets                                                     |                                          |         |        |         |   |          | 26,999  |         |   |          | 3,482   |        
|                                                                                                    | Litigation settlement                                                               |                                          |         | 2,168   |         |   |          | 63,600  |         |   |          | 23,000  |        
|                                                                                                    |                                                                                     |                                          |         |         |         |   |          |         |        
|                                                                                                    |                                                                                     | Total operating expenses                 |         |         | 183,570 |   |          |         | 300,082 |   |          |         | 343,331 | 
|                                                                                                    |                                                                                     |                                          |         |         |         |   |          |         |        
|Loss from operations                                                                                |                                                                                     |                                          | (17,539 | )       |         |   | (150,729 | )       |         |   | (165,928 | )      
|                                                                                                    | Interest income (expense), net                                                      |                                          |         | 672     |         |   |          | (406    | )       |   |          | 2,673   |        
|                                                                                                    | Gain on settlement of distribution agreement                                        |                                          |         |        |         |   |          | 104,071 |         |   |          |        |        
|                                                                                                    | Other income (expense), net                                                         |                                          |         | 2,366   |         |   |          | 691     |         |   |          | (5,694  | )      
|                                                                                                    |                                                                                     |                                          |         |         |         |   |          |         |        
|Loss from continuing operations                                                                     |                                                                                     |                                          | (14,501 | )       |         |   | (46,373  | )       |         |   | (168,949 | )      
|                                                                                                    | Gain on disposition of discontinued operations                                      |                                          |         | 7,294   |         |   |          | 2,530   |         |   |          | 11,790  |        
|                                                                                                    | Loss from discontinued operations                                                   |                                          |         | (679    | )       |   |          | (3,281  | )       |   |          | (6,266  | )      
|                                                                                                    |                                                                                     |                                          |         |         |         |   |          |         |        
|Net loss                                                                                            |                                                                                     | $                                        | (7,886  | )       |         | $ | (47,124  | )       |         | $ | (163,425 | )      
|                                                                                                    |                                                                                     |                                          |         |         |         |   |          |         |        
|Basic and diluted net income (loss) per share applicable to
    Common Stockholders:                |                                                                                     |                                          |         |         |         |   |          |         |         |   |          |        
|                                                                                                    | Continuing operations                                                               |                                          | $       | (0.11   | )       |   | $        | (0.39   | )       |   | $        | (1.43   | )      
|                                                                                                    | Discontinued operations                                                             |                                          | $       | 0.05    |         |   | $        | (0.01   | )       |   | $        | 0.05    |        
|                                                                                                    |                                                                                     |                                          |         |         |         |   |          |         |        
|Net loss                                                                                            |                                                                                     | $                                        | (0.06   | )       |         | $ | (0.40    | )       |         | $ | (1.39    | )      
|                                                                                                    |                                                                                     |                                          |         |         |         |   |          |         |        
|Shares used to calculate basic and diluted net loss per share
    applicable to common stockholders |                                                                                     |                                          | 136,518 |         |         |   | 118,996  |         |         |   | 117,900  |        
|                                                                                                    |                                                                                     |                                          |         |         |         |   |          |         |        



60



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##### Table of Contents



HOMESTORE, INC.





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE INCOME (LOSS)


|                                                                                              |                                        |                 |   |              |        |   |            |   |  |          |         |            |         |   |             |             |  |       |               |   |  |             |         |   |               |   |        |         |  |   |         |   |  |   |        |       |   |   |            |          |   |   |         |          |  
|--------------------------------------------------------------------------------------------- | -------------------------------------- | --------------- | - | ------------ | ------ | - | ---------- | - |  | -------- | ------- | ---------- | ------- | - | ----------- | ----------- |  | ----- | ------------- | - |  | ----------- | ------- | - | ------------- | - | ------ | ------- |  | - | ------- | - |  | - | ------ | ----- | - | - | ---------- | -------- | - | - | ------- | -------- | -
|                                                                                              |                                        | Convertible     |   |              |        |   |            |   |  | Notes    |         |            |         |   | Accumulated |             |  |       |               |  
|                                                                                              |                                        | Preferred Stock |   | Common Stock |        |   | Additional |   |  |          |         | Receivable |         |   | Deferred    |             |  | Other |               |   |  |             | Total   |  
|                                                                                              |                                        |                 |   |              |        |   | Paid-in    |   |  | Treasury |         |            | from    |   |             | Stock-based |  |       | Comprehensive |   |  | Accumulated |         |   | Stockholders |  
|                                                                                              |                                        | Shares          |   |              | Amount |   | Shares     |   |  | Amount   |         |            | Capital |   |             | Stock       |  |       | Stockholders  |   |  | Charges     |         |   | Income (loss) |   |        | Deficit |  |   | Equity  |  
|                                                                                              |                                        |                 |   |              |        |   |            |   |  |          |         |            |         |   |             |             |  |       |               |   |  |             |         |   |               |   |        |         |  |   |         |  
|                                                                                              |                                        | (In thousands)  |  
|Balance at December 31, 2001                                                                  |                                        |                 |  |              |        | $ |           |   |  |          | 117,509 |            |         | $ | 117         |             |  | $     | 1,987,405     |   |  | $           | (18,062 | ) |               | $ | (3,569 | )       |  | $ | (11,692 | ) |  | $ | (3,568 | )     |   | $ | (1,767,375 | )        |   | $ | 183,256 |         
|                                                                                              |                                        |                 |   |              |        |   |            |   |  |          |         |            |         |   |             |             |  |       |               |   |  |             |         |   |               |   |        |         |  |   |         |   | 
|Comprehensive income (loss):                                                                  |                                        |                 |   |              |        |   |            |   |  |          |         |            |         |   |             |             |  |       |               |   |  |             |         |   |               |   |        |         |  |   |         |   |  |   |        |       |   |   |            |          |   |   |         |         
|                                                                                              | Net loss                               |                 |   |             |        |   |            |  |  |          |         |           |         |   |             |            |  |       |               |  |  |             |         |  |               |   |        |        |  |   |         |  |  |   |        |      |   |   |            | (163,425 | ) |   |         | (163,425 | )
|                                                                                              | Realized loss on marketable securities |                 |   |             |        |   |            |  |  |          |         |           |         |   |             |            |  |       |               |  |  |             |         |  |               |   |        |        |  |   |         |  |  |   |        | 3,292 |   |   |            |         |   |   |         | 3,292    |  
|                                                                                              | Foreign currency translation           |                 |   |             |        |   |            |  |  |          |         |           |         |   |             |            |  |       |               |  |  |             |         |  |               |   |        |        |  |   |         |  |  |   |        | (148  | ) |   |            |         |   |   |         | (148     | )
|                                                                                              |                                        |                 |   |              |        |   |            |   |  |          |         |            |         |   |             |             |  |       |               |   |  |             |         |   |               |   |        |         |  |   |         |   | 
|                                                                                              | Comprehensive loss                     |                 |   |             |        |   |            |  |  |          |         |           |         |   |             |            |  |       |               |  |  |             |         |  |               |   |        |        |  |   |         |  |  |   |        | 3,144 |   |   |            |         |   |   |         | (160,281 | )
|                                                                                              |                                        |                 |   |              |        |   |            |   |  |          |         |            |         |   |             |             |  |       |               |   |  |             |         |   |               |   |        |         |  |   |         |   | 
|Issuance of common stock under employee stock purchase plan and
    exercise of stock options |                                        |                 |  |              |        |   |           |   |  |          | 707     |            |         |   | 1           |             |  |       | 895           |   |  |             |        |   |               |   |       |         |  |   | (90     | ) |  |   |       |       |   |   |           |          |   |   | 806     |         
|Settlement of stock issuance obligation                                                       |                                        |                 |  |              |        |   |           |   |  |          |        |            |         |   |            |             |  |       | (521          | ) |  |             |        |   |               |   |       |         |  |   |        |   |  |   |       |       |   |   |           |          |   |   | (521    | )       
|Issuance of common stock                                                                      |                                        |                 |  |              |        |   |           |   |  |          | 117     |            |         |   |            |             |  |       | 141           |   |  |             | (57     | ) |               |   |       |         |  |   |        |   |  |   |       |       |   |   |           |          |   |   | 84      |         
|Repayment from stockholders                                                                   |                                        |                 |  |              |        |   |           |   |  |          |        |            |         |   |            |             |  |       |              |   |  |             |        |   |               |   | 3,463  |         |  |   |        |   |  |   |       |       |   |   |           |          |   |   | 3,463   |         
|Repurchase of common stock                                                                    |                                        |                 |  |              |        |   |           |   |  |          | (127    | )          |         |   |            |             |  |       |              |   |  |             | (169    | ) |               |   |       |         |  |   |        |   |  |   |       |       |   |   |           |          |   |   | (169    | )       
|Reversal of stock- based charges related to dispositions                                      |                                        |                 |  |              |        |   |           |   |  |          |        |            |         |   |            |             |  |       | (2,124        | ) |  |             |        |   |               |   |       |         |  |   | 1,502   |   |  |   |       |       |   |   |           |          |   |   | (622    | )       
|Stock-based charges                                                                           |                                        |                 |  |              |        |   |           |   |  |          |        |            |         |   |            |             |  |       | 4,959         |   |  |             |        |   |               |   |       |         |  |   | 8,034   |   |  |   |       |       |   |   |           |          |   |   | 12,993  |         
|Shares returned from escrow relating to discontinued operations                               |                                        |                 |  |              |        |   |           |   |  |          | (367    | )          |         |   |            |             |  |       |              |   |  |             | (279    | ) |               |   |       |         |  |   |        |   |  |   |       |       |   |   |           |          |   |   | (279    | )       
|                                                                                              |                                        |                 |   |              |        |   |            |   |  |          |         |            |         |   |             |             |  |       |               |   |  |             |         |   |               |   |        |         |  |   |         |   | 
|Balance at December 31, 2002                                                                  |                                        |                 |  |              |        | $ |           |   |  |          | 117,839 |            |         | $ | 118         |             |  | $     | 1,990,755     |   |  | $           | (18,567 | ) |               | $ | (106   | )       |  | $ | (2,246  | ) |  | $ | (424   | )     |   | $ | (1,930,800 | )        |   | $ | 38,730  |         
|Comprehensive income (loss):                                                                  |                                        |                 |   |              |        |   |            |   |  |          |         |            |         |   |             |             |  |       |               |   |  |             |         |   |               |   |        |         |  |   |         |   |  |   |        |       |   |   |            |          |   |   |         |         
|                                                                                              | Net loss                               |                 |   |             |        |   |            |  |  |          |         |           |         |   |             |            |  |       |               |  |  |             |         |  |               |   |        |        |  |   |         |  |  |   |        |      |   |   |            | (47,124  | ) |   |         | (47,124  | )
|                                                                                              | Realized loss on marketable securities |                 |   |             |        |   |            |  |  |          |         |           |         |   |             |            |  |       |               |  |  |             |         |  |               |   |        |        |  |   |         |  |  |   |        | 180   |   |   |            |         |   |   |         | 180      |  
|                                                                                              | Foreign currency translation           |                 |   |             |        |   |            |  |  |          |         |           |         |   |             |            |  |       |               |  |  |             |         |  |               |   |        |        |  |   |         |  |  |   |        | 511   |   |   |            |         |   |   |         | 511      |  
|                                                                                              |                                        |                 |   |              |        |   |            |   |  |          |         |            |         |   |             |             |  |       |               |   |  |             |         |   |               |   |        |         |  |   |         |   | 
|                                                                                              | Comprehensive loss                     |                 |   |             |        |   |            |  |  |          |         |           |         |   |             |            |  |       |               |  |  |             |         |  |               |   |        |        |  |   |         |  |  |   |        | 691   |   |   |            | (47,124  | ) |   |         | (46,433  | )
|                                                                                              |                                        |                 |   |              |        |   |            |   |  |          |         |            |         |   |             |             |  |       |               |   |  |             |         |   |               |   |        |         |  |   |         |   | 
|Issuance of common stock under employee stock purchase plan and
    exercise of stock options |                                        |                 |  |              |        |   |           |   |  |          | 2,838   |            |         |   | 3           |             |  |       | 3,299         |   |  |             |        |   |               |   |       |         |  |   |        |   |  |   |       |       |   |   |           |          |   |   | 3,302   |         
|Settlement of stock issuance obligation                                                       |                                        |                 |  |              |        |   |           |   |  |          | 168     |            |         |   |            |             |  |       |              |   |  |             |        |   |               |   |       |         |  |   |        |   |  |   |       |       |   |   |           |          |   |   |        |         
|Issuance of restricted stock                                                                  |                                        |                 |  |              |        |   |           |   |  |          | 436     |            |         |   | 1           |             |  |       | 343           |   |  |             |        |   |               |   |       |         |  |   | (344    | ) |  |   |       |       |   |   |           |          |   |   |        |         
|Repayment from stockholders                                                                   |                                        |                 |  |              |        |   |           |   |  |          |        |            |         |   |            |             |  |       |              |   |  |             |        |   |               |   | 68     |         |  |   |        |   |  |   |       |       |   |   |           |          |   |   | 68      |         
|Repurchase and retirement of treasury stock                                                   |                                        |                 |  |              |        |   |           |   |  |          | (12     | )          |         |   |            |             |  |       | (4,416        | ) |  |             | 4,386   |   |               |   |       |         |  |   | 30      |   |  |   |       |       |   |   |           |          |   |   |        |         
|Repurchase of common stock                                                                    |                                        |                 |  |              |        |   |           |   |  |          | (31     | )          |         |   |            |             |  |       |              |   |  |             | (38     | ) |               |   | 38     |         |  |   |        |   |  |   |       |       |   |   |           |          |   |   |        |         
|Stock-based charges                                                                           |                                        |                 |  |              |        |   |           |   |  |          |        |            |         |   |            |             |  |       | 2,610         |   |  |             |        |   |               |   |       |         |  |   | 2,302   |   |  |   |       |       |   |   |           |          |   |   | 4,912   |         
|Shares returned from escrow relating to discontinued operations                               |                                        |                 |  |              |        |   |           |   |  |          | (367    | )          |         |   |            |             |  |       |              |   |  |             | (251    | ) |               |   |       |         |  |   |        |   |  |   |       |       |   |   |           |          |   |   | (251    | )       
|                                                                                              |                                        |                 |   |              |        |   |            |   |  |          |         |            |         |   |             |             |  |       |               |   |  |             |         |   |               |   |        |         |  |   |         |   | 
|Balance at December 31, 2003                                                                  |                                        |                 |  |              |        | $ |           |   |  |          | 120,871 |            |         | $ | 122         |             |  | $     | 1,992,591     |   |  | $           | (14,470 | ) |               | $ |       |         |  | $ | (258    | ) |  | $ | 267    |       |   | $ | (1,977,924 | )        |   | $ | 328     |         
|Comprehensive income (loss):                                                                  |                                        |                 |   |              |        |   |            |   |  |          |         |            |         |   |             |             |  |       |               |   |  |             |         |   |               |   |        |         |  |   |         |   |  |   |        |       |   |   |            |          |   |   |         |         
|                                                                                              | Net loss                               |                 |   |             |        |   |            |  |  |          |         |           |         |   |             |            |  |       |               |  |  |             |         |  |               |   |        |        |  |   |         |  |  |   |        |      |   |   |            | (7,886   | ) |   |         | (7,886   | )
|                                                                                              | Realized loss on marketable securities |                 |   |             |        |   |            |  |  |          |         |           |         |   |             |            |  |       |               |  |  |             |         |  |               |   |        |        |  |   |         |  |  |   |        | 2     |   |   |            |         |   |   |         | 2        |  
|                                                                                              | Foreign currency translation           |                 |   |             |        |   |            |  |  |          |         |           |         |   |             |            |  |       |               |  |  |             |         |  |               |   |        |        |  |   |         |  |  |   |        | 140   |   |   |            |         |   |   |         | 140      |  
|                                                                                              |                                        |                 |   |              |        |   |            |   |  |          |         |            |         |   |             |             |  |       |               |   |  |             |         |   |               |   |        |         |  |   |         |   | 
|                                                                                              | Comprehensive loss                     |                 |   |             |        |   |            |  |  |          |         |           |         |   |             |            |  |       |               |  |  |             |         |  |               |   |        |        |  |   |         |  |  |   |        | 142   |   |   |            | (7,886   | ) |   |         | (7,744   | )
|                                                                                              |                                        |                 |   |              |        |   |            |   |  |          |         |            |         |   |             |             |  |       |               |   |  |             |         |   |               |   |        |         |  |   |         |   | 
|Issuance of common stock under employee stock purchase plan and
    exercise of stock options |                                        |                 |  |              |        |   |           |   |  |          | 3,146   |            |         |   | 4           |             |  |       | 3,862         |   |  |             |        |   |               |   |       |         |  |   |        |   |  |   |       |       |   |   |           |          |   |   | 3,866   |         
|Issuance of restricted stock                                                                  |                                        |                 |  |              |        |   |           |   |  |          | 148     |            |         |   |            |             |  |       | 667           |   |  |             |        |   |               |   |       |         |  |   | (367    | ) |  |   |       |       |   |   |           |          |   |   | 300     |         
|Retirement of treasury stock                                                                  |                                        |                 |  |              |        |   |           |   |  |          |        |            |         |   | (1          | )           |  |       | (14,469       | ) |  |             | 14,470  |   |               |   |       |         |  |   |        |   |  |   |       |       |   |   |           |          |   |   |        |         
|Stock-based charges                                                                           |                                        |                 |  |              |        |   |           |   |  |          |        |            |         |   |            |             |  |       |              |   |  |             |        |   |               |   |       |         |  |   | 219     |   |  |   |       |       |   |   |           |          |   |   | 219     |         
|Shares issued in settlement of litigation                                                     |                                        |                 |  |              |        |   |           |   |  |          | 22,703  |            |         |   | 22          |             |  |       | 60,402        |   |  |             |        |   |               |   |       |         |  |   |        |   |  |   |       |       |   |   |           |          |   |   | 60,424  |         
|                                                                                              |                                        |                 |   |              |        |   |            |   |  |          |         |            |         |   |             |             |  |       |               |   |  |             |         |   |               |   |        |         |  |   |         |   | 
|Balance at December 31, 2004                                                                  |                                        |                 |  |              |        | $ |           |   |  |          | 146,868 |            |         | $ | 147         |             |  | $     | 2,043,053     |   |  | $           |        |   |               | $ |       |         |  | $ | (406    | ) |  | $ | 409    |       |   | $ | (1,985,810 | )        |   | $ | 57,393  |         
|                                                                                              |                                        |                 |   |              |        |   |            |   |  |          |         |            |         |   |             |             |  |       |               |   |  |             |         |   |               |   |        |         |  |   |         |   | 

61



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##### Table of Contents



HOMESTORE, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                                             |                                                                                                   |                                       |                                                                |        |        |         |         |          |         |         |          |        |         |         |  
|------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------- | ------------------------------------- | -------------------------------------------------------------- | ------ | ------ | ------- | ------- | -------- | ------- | ------- | -------- | ------ | ------- | ------- | -
|                                                                                                             |                                                                                                   | Year Ended December 31,               |                                                               
|                                                                                                             |                                                                                                   |                                       |                                                               
|                                                                                                             |                                                                                                   | 2004                                  |                                                                |        | 2003   |         |         | 2002     |        
|                                                                                                             |                                                                                                   |                                       |                                                                |        |        |         |         |          |        
|                                                                                                             |                                                                                                   | (In thousands)                        |                                                               
|Cash flows from continuing operating activities:                                                             |                                                                                                   |                                       |                                                                |        |        |         |         |          |         |         |          |       
|Loss from continuing operations                                                                              |                                                                                                   | $                                     | (14,501                                                        | )      |        | $       | (46,373 | )        |         | $       | (168,949 | )     
|Adjustments to reconcile net loss to net cash provided by (used
    in) continuing operating activities:     |                                                                                                   |                                       |                                                                |        |        |         |         |          |         |         |          |       
|                                                                                                             | Depreciation                                                                                      |                                       |                                                                | 7,901  |        |         |         | 11,267   |         |         |          | 13,705 |        
|                                                                                                             | Amortization of intangible assets                                                                 |                                       |                                                                | 7,894  |        |         |         | 21,863   |         |         |          | 34,699 |        
|                                                                                                             | Accretion of distribution obligation                                                              |                                       |                                                                |       |        |         |         |         |         |         |          | 14,812 |        
|                                                                                                             | Impairment of long-lived assets                                                                   |                                       |                                                                |       |        |         |         | 26,999   |         |         |          | 3,482  |        
|                                                                                                             | Provision for doubtful accounts                                                                   |                                       |                                                                | 340    |        |         |         | 2,266    |         |         |          | 5,434  |        
|                                                                                                             | Stock-based charges                                                                               |                                       |                                                                | 819    |        |         |         | 7,249    |         |         |          | 66,907 |        
|                                                                                                             | Gain on settlement of distribution agreement                                                      |                                       |                                                                |       |        |         |         | (104,071 | )       |         |          |       |        
|                                                                                                             | Gain on sales of property and equipment                                                           |                                       |                                                                | (2,226 | )      |         |         |         |         |         |          |       |        
|                                                                                                             | Realized loss on sale of marketable securities                                                    |                                       |                                                                |       |        |         |         | 180      |         |         |          | 3,168  |        
|                                                                                                             | Write-off of capitalized software                                                                 |                                       |                                                                |       |        |         |         |         |         |         |          | 2,849  |        
|                                                                                                             | Other non-cash items                                                                              |                                       |                                                                | (40    | )      |         |         | 588      |         |         |          | 2,137  |        
|                                                                                                             | Changes in operating assets and liabilities, net of acquisitions
    and discontinued operations: |                                       |                                                                |        |        |         |         |          |         |         |          |        |        
|                                                                                                             |                                                                                                   | Accounts receivable                   |                                                                |        | (430   | )       |         |          | 3,716   |         |          |        | (1,138  | )      
|                                                                                                             |                                                                                                   | Prepaid distribution expense          |                                                                |        | 10,509 |         |         |          | 22,812  |         |          |        | 10,869  |        
|                                                                                                             |                                                                                                   | Restricted Cash                       |                                                                |        | (5,840 | )       |         |          |        |         |          |        |        |        
|                                                                                                             |                                                                                                   | Other assets                          |                                                                |        | 5,710  |         |         |          | 1,108   |         |          |        | 4,756   |        
|                                                                                                             |                                                                                                   | Accounts payable and accrued expenses |                                                                |        | 1,414  |         |         |          | 37,971  |         |          |        | (51,621 | )      
|                                                                                                             |                                                                                                   | Accrued distribution agreement        |                                                                |        | (7,406 | )       |         |          | (22,162 | )       |          |        |        |        
|                                                                                                             |                                                                                                   | Deferred revenue                      |                                                                |        | 5,475  |         |         |          | 2,131   |         |          |        | (22,054 | )      
|                                                                                                             |                                                                                                   | Deferred revenue from related parties |                                                                |        |       |         |         |          | (6,657  | )       |          |        | (10,679 | )      
|                                                                                                             |                                                                                                   |                                       |                                                                |        |        |         |         |          |        
|                                                                                                             |                                                                                                   |                                       | Net cash provided by (used) in continuing operating activities |        |        | 9,619   |         |          |         | (41,113 | )        |        |         | (91,623 | )
|                                                                                                             |                                                                                                   |                                       |                                                                |        |        |         |         |          |        
|                                                                                                             |                                                                                                   |                                       | Net cash provided by discontinued operations                   |        |        | 9,915   |         |          |         | 421     |          |        |         | 116,265 |  
|                                                                                                             |                                                                                                   |                                       |                                                                |        |        |         |         |          |        
|                                                                                                             |                                                                                                   |                                       | Net cash provided by (used in) operating activities            |        |        | 19,534  |         |          |         | (40,692 | )        |        |         | 24,642  |  
|                                                                                                             |                                                                                                   |                                       |                                                                |        |        |         |         |          |        
|Cash flows from investing activities:                                                                        |                                                                                                   |                                       |                                                                |        |        |         |         |          |         |         |          |       
|Purchases of property and equipment                                                                          |                                                                                                   |                                       | (3,716                                                         | )      |        |         | (8,937  | )        |         |         | (2,911   | )     
|Purchases of short-term investments                                                                          |                                                                                                   |                                       | (24,465                                                        | )      |        |         | (21,575 | )        |         |         |         |       
|Maturities of short-term investments                                                                         |                                                                                                   |                                       | 1,000                                                          |        |        |         |        |          |         |         | 14,394   |       
|Proceeds from sales of marketable securities                                                                 |                                                                                                   |                                       |                                                               |        |        |         | 1,320   |          |         |         | 2,250    |       
|Proceeds from sales of property and equipment                                                                |                                                                                                   |                                       | 6,737                                                          |        |        |         |        |          |         |         |         |       
|                                                                                                             |                                                                                                   |                                       |                                                                |        |        |         |         |          |        
|                                                                                                             |                                                                                                   |                                       | Net cash provided by (used in) investing activities            |        |        | (20,444 | )       |          |         | (29,192 | )        |        |         | 13,733  |  
|                                                                                                             |                                                                                                   |                                       |                                                                |        |        |         |         |          |        
|Cash flows from financing activities:                                                                        |                                                                                                   |                                       |                                                                |        |        |         |         |          |         |         |          |       
|Proceeds from payment of stockholders notes                                                                 |                                                                                                   |                                       |                                                               |        |        |         | 61      |          |         |         | 3,463    |       
|Proceeds from exercise of stock options, warrants and share
    issuances under employee stock purchase plan |                                                                                                   |                                       | 3,866                                                          |        |        |         | 3,302   |          |         |         | 800      |       
|Payments on capital lease obligations                                                                        |                                                                                                   |                                       | (2,079                                                         | )      |        |         |        |          |         |         |         |       
|Repurchases of common stock                                                                                  |                                                                                                   |                                       |                                                               |        |        |         |        |          |         |         | (169     | )     
|Transfer from restricted cash                                                                                |                                                                                                   |                                       |                                                               |        |        |         |        |          |         |         | 243      |       
|Settlement of stock issuance obligation                                                                      |                                                                                                   |                                       |                                                               |        |        |         |        |          |         |         | (521     | )     
|                                                                                                             |                                                                                                   |                                       |                                                                |        |        |         |         |          |        
|Net cash provided by financing activities                                                                    |                                                                                                   |                                       | 1,787                                                          |        |        |         | 3,363   |          |         |         | 3,816    |       
|                                                                                                             |                                                                                                   |                                       |                                                                |        |        |         |         |          |        
|Change in cash and cash equivalents                                                                          |                                                                                                   |                                       | 877                                                            |        |        |         | (66,521 | )        |         |         | 42,191   |       
|Cash and cash equivalents, beginning of period                                                               |                                                                                                   |                                       | 13,942                                                         |        |        |         | 80,463  |          |         |         | 38,272   |       
|                                                                                                             |                                                                                                   |                                       |                                                                |        |        |         |         |          |        
|Cash and cash equivalents, end of period                                                                     |                                                                                                   | $                                     | 14,819                                                         |        |        | $       | 13,942  |          |         | $       | 80,463   |       
|                                                                                                             |                                                                                                   |                                       |                                                                |        |        |         |         |          |        



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HOMESTORE, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |         
|-- | --------
|1. | Business



tm






|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies

Principles of Consolidation and Basis of
Presentation


Use of Estimates


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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Cash and Cash Equivalents, Short-Term
Investments




Concentration of Credit Risk




Fair Value of Financial Instruments


Prepaid Distribution


Prepaid Commissions


Property and Equipment


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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Product and Website Development Costs


Identifiable Intangibles, Goodwill and other Long-Lived
Assets








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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                  |  |          |      | 
|------------------------------------------------- |  | -------- | ---- | 
|                                                  |  | Range of |     
|Type                                              |  | Lives    |     
|                                                  |  |          |     
|Customer, merchant lists and relationships        |  |          | 2-5  | 
|Exclusive electronic listing and rights agreement |  |          | 9    | 
|NAR operating agreement                           |  |          | 15   | 
|Online traffic                                    |  |          | 3    | 
|Porting relationships                             |  |          | 5    | 
|Purchased content                                 |  |          | 5    | 
|Purchased technology                              |  |          | 3-5  | 
|Tradename, trademarks, brand name                 |  |          | 5-15 | 
|Other                                             |  |          | 2-15 | 

Revenue Recognition






Software revenue




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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Advertising Revenue




Shipping and Handling Income and Costs


Advertising Expense


Stock-Based Charges


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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                            |                                                                                                        |      |   |         |      |  |   |         |   |  |   |          |  
|------------------------------------------- | ------------------------------------------------------------------------------------------------------ | ---- | - | ------- | ---- |  | - | ------- | - |  | - | -------- | -
|                                            |                                                                                                        | 2004 |   |         | 2003 |  |   | 2002    |  
|                                            |                                                                                                        |      |   |         |      |  |   |         |  
|Net loss applicable to common stockholders: |                                                                                                        |      |   |         |      |  |   |         |   |  |   |         
|                                            | As reported                                                                                            |      | $ | (7,886  | )    |  | $ | (47,124 | ) |  | $ | (163,425 | )
|                                            | Add: Stock-based employee compensation charges included in
    reported net loss                       |      |   | 300     |      |  |   | 3,069   |   |  |   | 7,021    |  
|                                            | Deduct: Total stock-based compensation determined under the fair
    value-based method for all awards |      |   | (15,747 | )    |  |   | (20,067 | ) |  |   | (29,798  | )
|                                            |                                                                                                        |      |   |         |      |  |   |         |  
|                                            | Pro forma net loss                                                                                     |      | $ | (23,333 | )    |  | $ | (64,122 | ) |  | $ | (186,202 | )
|                                            |                                                                                                        |      |   |         |      |  |   |         |  
|Net loss per share  basic and diluted:     |                                                                                                        |      |   |         |      |  |   |         |   |  |   |         
|                                            | As reported                                                                                            |      | $ | (0.06   | )    |  | $ | (0.40   | ) |  | $ | (1.39    | )
|                                            |                                                                                                        |      |   |         |      |  |   |         |  
|                                            | Pro forma                                                                                              |      | $ | (0.17   | )    |  | $ | (0.54   | ) |  | $ | (1.58    | )
|                                            |                                                                                                        |      |   |         |      |  |   |         |  



|                          |  |              |     |   |      |  |     |      |  |  |     |  
|------------------------- |  | ------------ | --- | - | ---- |  | --- | ---- |  |  | --- | -
|                          |  | Year Ended   |    
|                          |  | December 31, |    
|                          |  |              |    
|                          |  | 2004         |     |   | 2003 |  |     | 2002 | 
|                          |  |              |     |   |      |  |     |      | 
|Risk-free interest rates  |  |              | 3   | % |      |  | 3   | %    |  |  | 4   | %
|Expected lives (in years) |  |              | 4   |   |      |  | 4   |      |  |  | 4   |  
|Dividend yield            |  |              | 0   | % |      |  | 0   | %    |  |  | 0   | %
|Expected volatility       |  |              | 130 | % |      |  | 144 | %    |  |  | 147 | %





|                                |  |                         |     |  |      |   |       |      |  |   |        | 
|------------------------------- |  | ----------------------- | --- |  | ---- | - | ----- | ---- |  | - | ------ | 
|                                |  | Year Ended December 31, |    
|                                |  |                         |    
|                                |  | 2004                    |     |  | 2003 |   |       | 2002 | 
|                                |  |                         |     |  |      |   |       |      | 
|Revenue                         |  | $                       |    |  |      | $ | 1,119 |      |  | $ | 1,501  | 
|Cost of revenue                 |  |                         |    |  |      |   | 16    |      |  |   | 134    | 
|Sales and marketing             |  |                         | 301 |  |      |   | 3,795 |      |  |   | 63,848 | 
|Product and website development |  |                         |    |  |      |   | 15    |      |  |   | 127    | 
|General and administrative      |  |                         | 518 |  |      |   | 164   |      |  |   | 1,297  | 
|Restructuring charges           |  |                         |    |  |      |   | 2,140 |      |  |   |       | 
|                                |  |                         |     |  |      |   |       |      | 
|                                |  | $                       | 819 |  |      | $ | 7,249 |      |  | $ | 66,907 | 
|                                |  |                         |     |  |      |   |       |      | 

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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Income Taxes


Net Loss Per Share


Foreign Currency Translation


Comprehensive Income


Segments


Recent Accounting Developments




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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Reclassifications




|   |                        
|-- | -----------------------
|3. | Discontinued Operations













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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                  |  |                         |       |   |      |   |        |      |  |   |        |  
|--------------------------------- |  | ----------------------- | ----- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                  |  | Year Ended December 31, |      
|                                  |  |                         |      
|                                  |  | 2004                    |       |   | 2003 |   |        | 2002 | 
|                                  |  |                         |       |   |      |   |        |      | 
|Revenue                           |  | $                       | 9,137 |   |      | $ | 12,788 |      |  | $ | 33,107 |  
|Total expenses                    |  |                         | 9,816 |   |      |   | 16,069 |      |  |   | 39,373 |  
|                                  |  |                         |       |   |      |   |        |      | 
|Loss from discontinued operations |  | $                       | (679  | ) |      | $ | (3,281 | )    |  | $ | (6,266 | )
|                                  |  |                         |       |   |      |   |        |      | 



|                         |                                                           |                         |        |       |      |   |       |       |   |   |         |         |  
|------------------------ | --------------------------------------------------------- | ----------------------- | ------ | ----- | ---- | - | ----- | ----- | - | - | ------- | ------- | -
|                         |                                                           | Year Ended December 31, |       
|                         |                                                           |                         |       
|                         |                                                           | 2004                    |        |       | 2003 |   |       | 2002  |  
|                         |                                                           |                         |        |       |      |   |       |       |  
|Gross proceeds from sale |                                                           | $                       | 10,981 |       |      | $ | 2,300 |       |   | $ | 130,000 |        
|Less:                    |                                                           |                         |        |       |      |   |       |       |   |   |         |        
|                         | Cash subject to escrow                                    |                         |        | 850   |      |   |       |      |   |   |         | 10,000  |  
|                         | Net assets sold                                           |                         |        | 2,210 |      |   |       |      |   |   |         | 106,321 |  
|                         | Transaction costs                                         |                         |        | 627   |      |   |       |      |   |   |         | 2,918   |  
|                         | Cash and Homestore stock received from purchase of iPlace |                         |        |      |      |   |       | (230  | ) |   |         | (1,029  | )
|                         |                                                           |                         |        |       |      |   |       |       |  
|                         | Gain on disposition of discontinued operations            |                         | $      | 7,294 |      |   | $     | 2,530 |   |   | $       | 11,790  |  
|                         |                                                           |                         |        |       |      |   |       |       |  



|                          |                   |              |       |       | 
|------------------------- | ----------------- | ------------ | ----- | ----- | 
|                          |                   | December 31, |      
|                          |                   | 2003         |      
|                          |                   |              |      
|Total current assets      |                   | $            | 2,267 |      
|Property & equipment, net |                   |              | 484   |      
|Other long term assets    |                   |              | 36    |      
|Goodwill, net             |                   |              | 975   |      
|                          |                   |              |      
|                          | Total assets      |              | $     | 3,762 | 
|                          |                   |              |      
|Total current liabilities |                   |              | 590   |      
|                          |                   |              |      
|                          | Total liabilities |              | $     | 590   | 
|                          |                   |              |      





|   |                      
|-- | ---------------------
|4. | Restructuring Charges





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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                           |  |             |        |             |         |   |        |            |  |   |             |   |  |       |        |   |  |   |         |  
|------------------------------------------ |  | ----------- | ------ | ----------- | ------- | - | ------ | ---------- |  | - | ----------- | - |  | ----- | ------ | - |  | - | ------- | -
|                                           |  |             |        | Lease       |         |   |        |            |  |   |            
|                                           |  |             |        | Obligations |         |   |        |            |  |   |            
|                                           |  | Employee    |        |             | and     |   |        |            |  |   |             |  
|                                           |  | Termination |        |             | Related |   |        | Asset      |  |   | Contractual |   |  |      
|                                           |  | Benefits    |        |             | Charges |   |        | Write-offs |  |   | 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                                  |  |             | (2,274 | )           |         |   | (5,480 | )          |  |   |            |   |  |       | (3,631 | ) |  |   | (11,385 | )
|Change in estimates                        |  |             | (396   | )           |         |   | 6,027  |            |  |   |            |   |  |       | (798   | ) |  |   | 4,833   |  
|Non-cash charges                           |  |             |       |             |         |   | 488    |            |  |   |            |   |  |       |       |   |  |   | 488     |  
|Sale of a subsidiary                       |  |             | (156   | )           |         |   |       |            |  |   |            |   |  |       |       |   |  |   | (156    | )
|                                           |  |             |        |             |         |   |        |            |  |   |             |   |  |       |       
|Restructuring accrual at December 31, 2002 |  |             | 27     |             |         |   | 13,680 |            |  |   |            |   |  |       | 1,163  |   |  |   | 14,870  |  
|Cash paid                                  |  |             | (6     | )           |         |   | (4,970 | )          |  |   |            |   |  |       | (576   | ) |  |   | (5,552  | )
|Change in estimates                        |  |             | (10    | )           |         |   | 1,290  |            |  |   |            |   |  |       | (203   | ) |  |   | 1,077   |  
|Non-cash charges                           |  |             |       |             |         |   |       |            |  |   |            |   |  |       |       |   |  |   |        |  
|Sale of a subsidiary                       |  |             |       |             |         |   |       |            |  |   |            |   |  |       |       |   |  |   |        |  
|                                           |  |             |        |             |         |   |        |            |  |   |             |   |  |       |       
|Restructuring accrual at December 31, 2003 |  | $           | 11     |             |         | $ | 10,000 |            |  | $ |            |   |  | $     | 384    |   |  | $ | 10,395  |  
|Cash paid                                  |  |             | (5     | )           |         |   | (3,966 | )          |  |   |            |   |  |       | (11    | ) |  |   | (3,982  | )
|Change in estimates                        |  |             |       |             |         |   | 987    |            |  |   |            |   |  |       | 28     |   |  |   | 1,015   |  
|                                           |  |             |        |             |         |   |        |            |  |   |             |   |  |       |       
|Restructuring accrual at December 31, 2004 |  | $           | 6      |             |         | $ | 7,021  |            |  | $ |            |   |  | $     | 401    |   |  | $ | 7,428   |  
|                                           |  |             |        |             |         |   |        |            |  |   |             |   |  |       |       









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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                           |  |             |        |             |         |   |       |            |  |   |       |   |  |   |        |  
|------------------------------------------ |  | ----------- | ------ | ----------- | ------- | - | ----- | ---------- |  | - | ----- | - |  | - | ------ | -
|                                           |  |             |        | Lease       |         |   |       |            | 
|                                           |  |             |        | Obligations |         |   |       |            | 
|                                           |  | Employee    |        |             | and     |   |       |            |  |  
|                                           |  | Termination |        |             | Related |   |       | Asset      |  |   |      
|                                           |  | Benefits    |        |             | Charges |   |       | Write-offs |  |   | Total |  
|                                           |  |             |        |             |         |   |       |            |  |   |       |  
|Initial restructuring charge               |  | $           | 1,720  |             |         | $ | 309   |            |  | $ | 260   |   |  | $ | 2,289  |  
|Non-cash charges                           |  |             |       |             |         |   |      |            |  |   | (260  | ) |  |   | (260   | )
|Cash paid                                  |  |             | (1,452 | )           |         |   | (187  | )          |  |   |      |   |  |   | (1,639 | )
|Change in estimates                        |  |             | (242   | )           |         |   | 1,584 |            |  |   |      |   |  |   | 1,342  |  
|                                           |  |             |        |             |         |   |       |            |  |   |       |  
|Restructuring accrual at December 31, 2002 |  |             | 26     |             |         |   | 1,706 |            |  |   |      |   |  |   | 1,732  |  
|Cash paid                                  |  |             | (12    | )           |         |   | (387  | )          |  |   |      |   |  |   | (399   | )
|Change in estimates                        |  |             | (14    | )           |         |   | 46    |            |  |   |      |   |  |   | 32     |  
|                                           |  |             |        |             |         |   |       |            |  |   |       |  
|Restructuring accrual at December 31, 2003 |  | $           |       |             |         | $ | 1,365 |            |  | $ |      |   |  | $ | 1,365  |  
|Cash paid                                  |  |             |       |             |         |   | (386  | )          |  |   |      |   |  |   | (386   | )
|Change in estimates                        |  |             |       |             |         |   | 372   |            |  |   |      |   |  |   | 372    |  
|                                           |  |             |        |             |         |   |       |            |  |   |       |  
|Restructuring accrual at December 31, 2004 |  | $           |       |             |         | $ | 1,351 |            |  | $ |      |   |  | $ | 1,351  |  
|                                           |  |             |        |             |         |   |       |            |  |   |       |  







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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                           |  |             |        |             |         |   |        |       |  |   |        |  
|------------------------------------------ |  | ----------- | ------ | ----------- | ------- | - | ------ | ----- |  | - | ------ | -
|                                           |  |             |        | Lease       |         |   |       
|                                           |  |             |        | Obligations |         |   |       
|                                           |  | Employee    |        |             | and     |   |        |      
|                                           |  | Termination |        |             | Related |   |        |      
|                                           |  | Benefits    |        |             | Charges |   |        | Total | 
|                                           |  |             |        |             |         |   |        |       | 
|Initial restructuring charge               |  | $           | 1,590  |             |         | $ | 2,033  |       |  | $ | 3,623  |  
|Cash paid                                  |  |             | (1,190 | )           |         |   | (253   | )     |  |   | (1,443 | )
|                                           |  |             |        |             |         |   |        |       | 
|Restructuring accrual at December 31, 2002 |  |             | 400    |             |         |   | 1,780  |       |  |   | 2,180  |  
|Cash paid                                  |  |             | (268   | )           |         |   | (1,119 | )     |  |   | (1,387 | )
|Change in estimates                        |  |             | (132   | )           |         |   | (417   | )     |  |   | (549   | )
|                                           |  |             |        |             |         |   |        |       | 
|Restructuring accrual at December 31, 2003 |  | $           |       |             |         | $ | 244    |       |  | $ | 244    |  
|Cash paid                                  |  |             |       |             |         |   | (212   | )     |  |   | (212   | )
|Change in estimates                        |  |             |       |             |         |   |       |       |  |   |       |  
|                                           |  |             |        |             |         |   |        |       | 
|                                           |  |             |       |             |         |   |       |       |  |   |       |  
|Restructuring accrual at December 31, 2004 |  | $           |       |             |         | $ | 32     |       |  | $ | 32     |  
|                                           |  |             |        |             |         |   |        |       | 









|                                           |  |             |       |             |             |   |        |       |  |   |        |  
|------------------------------------------ |  | ----------- | ----- | ----------- | ----------- | - | ------ | ----- |  | - | ------ | -
|                                           |  |             |       | Stock-based |             |   |       
|                                           |  | Employee    |       |             | Charges for |   |        |      
|                                           |  | Termination |       |             | Accelerated |   |        |      
|                                           |  | Benefits    |       |             | Vesting     |   |        | Total | 
|                                           |  |             |       |             |             |   |        |       | 
|Initial restructuring charge               |  | $           | 1,401 |             |             | $ | 2,140  |       |  | $ | 3,541  |  
|Cash paid                                  |  |             | (511  | )           |             |   |       |       |  |   | (511   | )
|Non-cash charges                           |  |             |      |             |             |   | (2,140 | )     |  |   | (2,140 | )
|                                           |  |             |       |             |             |   |        |       | 
|Restructuring accrual at December 31, 2003 |  | $           | 890   |             |             | $ |       |       |  | $ | 890    |  
|Cash paid                                  |  |             | (804  | )           |             |   |       |       |  |   | (804   | )
|Change in estimates                        |  |             | (71   | )           |             |   |       |       |  |   | (71    | )
|                                           |  |             |       |             |             |   |        |       | 
|Restructuring accrual at December 31, 2004 |  | $           | 15    |             |             | $ |       |       |  | $ | 15     |  
|                                           |  |             |       |             |             |   |        |       | 

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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                                
|-- | -------------------------------
|5. | Impairment of Long-Lived Assets















|   |                         
|-- | ------------------------
|6. | Top Producer Acquisition



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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                       
|-- | ----------------------
|7. | Short-term Investments



|                                                         |  |            |        |            |       |            |        |           |            |   |   |  |  |   |        | 
|-------------------------------------------------------- |  | ---------- | ------ | ---------- | ----- | ---------- | ------ | --------- | ---------- | - | - |  |  | - | ------ | 
|                                                         |  |            |        | Unrealized |       | Unrealized |        | Estimated |           
|                                                         |  | Book Value |        |            | Gains |            | Losses |           | Fair Value |  
|                                                         |  |            |        |            |       |            |        |           |            |  
|December 31, 2004
    Auction rate preferred instruments |  | $          | 45,040 |            |       | $          |       |           |            | $ |  |  |  | $ | 45,040 | 
|December 31, 2003
    Auction rate preferred instruments |  | $          | 21,575 |            |       | $          |       |           |            | $ |  |  |  | $ | 21,575 | 



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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                       
|-- | ----------------------
|8. | Property and Equipment



|                                         |  |              |         |   |      |   |         |  
|---------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                         |  | December 31, |        
|                                         |  |              |        
|                                         |  | 2004         |         |   | 2003 |  
|                                         |  |              |         |   |      |  
|Computer software and equipment          |  | $            | 37,415  |   |      | $ | 32,275  |  
|Furniture, fixtures and office equipment |  |              | 4,007   |   |      |   | 4,232   |  
|Leasehold improvements                   |  |              | 6,352   |   |      |   | 5,829   |  
|Machinery and equipment                  |  |              | 670     |   |      |   | 638     |  
|Land and building                        |  |              |        |   |      |   | 5,060   |  
|                                         |  |              |         |   |      |  
|                                         |  |              | 48,444  |   |      |   | 48,034  |  
|Less: accumulated depreciation           |  |              | (33,202 | ) |      |   | (26,580 | )
|                                         |  |              |         |   |      |  
|                                         |  | $            | 15,242  |   |      | $ | 21,454  |  
|                                         |  |              |         |   |      |  





|   |                                     
|-- | ------------------------------------
|9. | Goodwill and Other Intangible Assets



|               |       |                    |        |        |      |   |        |        | 
|-------------- | ----- | ------------------ | ------ | ------ | ---- | - | ------ | ------ | 
|               |       | As of December 31, |       
|               |       |                    |       
|               |       | 2004               |        |        | 2003 |  
|               |       |                    |        |        |      |  
|Media services |       | $                  | 1,307  |        |      | $ | 1,307  |       
|Software       |       |                    | 11,681 |        |      |   | 12,656 |       
|Print          |       |                    | 6,514  |        |      |   | 6,514  |       
|               |       |                    |        |        |      |  
|               | Total |                    | $      | 19,502 |      |   | $      | 20,477 | 
|               |       |                    |        |        |      |  



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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                 |       |                    |        |        |              |   |        |        |  |   |              |        |  |   |        |        | 
|------------------------------------------------ | ----- | ------------------ | ------ | ------ | ------------ | - | ------ | ------ |  | - | ------------ | ------ |  | - | ------ | ------ | 
|                                                 |       | As of December 31, |       
|                                                 |       |                    |       
|                                                 |       | 2004               |        |        | 2003         |  
|                                                 |       |                    |        |        |              |  
|                                                 |       | Gross              |        |        | Accumulated  |   |        | Gross  |  |   | Accumulated  |       
|                                                 |       | Amount             |        |        | Amortization |   |        | Amount |  |   | Amortization |       
|                                                 |       |                    |        |        |              |   |        |        |  |   |              |       
|Customer lists and relationships                 |       | $                  | 18,786 |        |              | $ | 18,407 |        |  | $ | 18,786       |        |  | $ | 18,081 |       
|Trade name, trademarks, websites and brand names |       |                    | 19,746 |        |              |   | 5,499  |        |  |   | 19,746       |        |  |   | 4,032  |       
|Online traffic                                   |       |                    | 533    |        |              |   | 533    |        |  |   | 533          |        |  |   | 320    |       
|Purchased technology                             |       |                    | 9,325  |        |              |   | 8,642  |        |  |   | 9,325        |        |  |   | 6,822  |       
|Purchased content                                |       |                    | 7,631  |        |              |   | 7,631  |        |  |   | 7,631        |        |  |   | 5,248  |       
|Porting relationships                            |       |                    | 1,728  |        |              |   | 1,728  |        |  |   | 1,728        |        |  |   | 1,220  |       
|NAR® operating agreement                         |       |                    | 1,578  |        |              |   | 451    |        |  |   | 1,578        |        |  |   | 301    |       
|Other                                            |       |                    | 5,844  |        |              |   | 4,416  |        |  |   | 5,844        |        |  |   | 3,389  |       
|                                                 |       |                    |        |        |              |   |        |        |  |   |              |       
|                                                 | Total |                    | $      | 65,171 |              |   | $      | 47,307 |  |   | $            | 65,171 |  |   | $      | 39,413 | 
|                                                 |       |                    |        |        |              |   |        |        |  |   |              |       



|                        |  |        |       | 
|----------------------- |  | ------ | ----- | 
|Year Ended December 31, |  | Amount |      
|                        |  |        |      
|2005                    |  |        | 3,587 | 
|2006                    |  |        | 1,834 | 
|2007                    |  |        | 1,423 | 
|2008                    |  |        | 1,423 | 
|2009                    |  |        | 1,423 | 



|    |                     
|--- | --------------------
|10. | Other Current Assets



|                    |  |              |        |  |      |   |        | 
|------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                    |  | December 31, |       
|                    |  |              |       
|                    |  | 2004         |        |  | 2003 |  
|                    |  |              |        |  |      |  
|Prepaid commissions |  | $            | 6,226  |  |      | $ | 4,804  | 
|Other               |  |              | 6,272  |  |      |   | 5,781  | 
|                    |  |              |        |  |      |  
|                    |  | $            | 12,498 |  |      | $ | 10,585 | 
|                    |  |              |        |  |      |  

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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                 
|--- | ----------------
|11. | Accrued Expenses



|                                     |  |              |        |  |      |   |        | 
|------------------------------------ |  | ------------ | ------ |  | ---- | - | ------ | 
|                                     |  | December 31, |       
|                                     |  |              |       
|                                     |  | 2004         |        |  | 2003 |  
|                                     |  |              |        |  |      |  
|Accrued payroll and related benefits |  | $            | 14,109 |  |      | $ | 14,184 | 
|Accrued royalties                    |  |              | 295    |  |      |   | 1,914  | 
|Accrued restructuring charges        |  |              | 4,656  |  |      |   | 6,000  | 
|Accrued professional fees            |  |              | 9,588  |  |      |   | 3,451  | 
|Other                                |  |              | 11,246 |  |      |   | 17,027 | 
|                                     |  |              |        |  |      |  
|                                     |  | $            | 39,894 |  |      | $ | 42,576 | 
|                                     |  |              |        |  |      |  



|    |                           
|--- | --------------------------
|12. | Related-party Transactions









80



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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                    
|--- | -------------------
|13. | Segment Information







|                                  |  |                   |         |  |          |   |        |       |  |   |             |   |  |       |         |   |  |   |         |  
|--------------------------------- |  | ----------------- | ------- |  | -------- | - | ------ | ----- |  | - | ----------- | - |  | ----- | ------- | - |  | - | ------- | -
|                                  |  | December 31, 2004 |        
|                                  |  |                   |        
|                                  |  | Media             |         |  | Software |   |        | Print |  |   | Unallocated |   |  | Total |        
|                                  |  |                   |         |  |          |   |        |       |  |   |             |   |  |       |        
|Revenue                           |  | $                 | 150,053 |  |          | $ | 18,210 |       |  | $ | 48,597      |   |  | $     |        |   |  | $ | 216,860 |  
|Cost of revenue                   |  |                   | 24,905  |  |          |   | 5,473  |       |  |   | 19,619      |   |  |       | 832     |   |  |   | 50,829  |  
|                                  |  |                   |         |  |          |   |        |       |  |   |             |   |  |       |        
|Gross profit (loss)               |  |                   | 125,148 |  |          |   | 12,737 |       |  |   | 28,978      |   |  |       | (832    | ) |  |   | 166,031 |  
|                                  |  |                   |         |  |          |   |        |       |  |   |             |   |  |       |        
|Sales and marketing               |  |                   | 63,358  |  |          |   | 4,771  |       |  |   | 19,547      |   |  |       | 712     |   |  |   | 88,388  |  
|Product and website development   |  |                   | 10,405  |  |          |   | 4,705  |       |  |   | 251         |   |  |       | 1       |   |  |   | 15,362  |  
|General and administrative        |  |                   | 20,236  |  |          |   | 2,799  |       |  |   | 10,371      |   |  |       | 35,036  |   |  |   | 68,442  |  
|Amortization of intangible assets |  |                   |        |  |          |   |       |       |  |   |            |   |  |       | 7,894   |   |  |   | 7,894   |  
|Litigation settlement             |  |                   |        |  |          |   |       |       |  |   |            |   |  |       | 2,168   |   |  |   | 2,168   |  
|Restructuring charges             |  |                   |        |  |          |   |       |       |  |   |            |   |  |       | 1,316   |   |  |   | 1,316   |  
|                                  |  |                   |         |  |          |   |        |       |  |   |             |   |  |       |        
|Total operating expenses          |  |                   | 93,999  |  |          |   | 12,275 |       |  |   | 30,169      |   |  |       | 47,127  |   |  |   | 183,570 |  
|                                  |  |                   |         |  |          |   |        |       |  |   |             |   |  |       |        
|Income (loss) from operations     |  | $                 | 31,149  |  |          | $ | 462    |       |  | $ | (1,191      | ) |  | $     | (47,959 | ) |  | $ | (17,539 | )
|                                  |  |                   |         |  |          |   |        |       |  |   |             |   |  |       |        

81



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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                  |  |                   |         |  |          |   |        |       |  |   |             |   |  |       |          |   |  |   |          |  
|--------------------------------- |  | ----------------- | ------- |  | -------- | - | ------ | ----- |  | - | ----------- | - |  | ----- | -------- | - |  | - | -------- | -
|                                  |  | December 31, 2003 |        
|                                  |  |                   |        
|                                  |  | Media             |         |  | Software |   |        | Print |  |   | Unallocated |   |  | Total |         
|                                  |  |                   |         |  |          |   |        |       |  |   |             |   |  |       |         
|Revenue                           |  | $                 | 143,510 |  |          | $ | 15,018 |       |  | $ | 47,394      |   |  | $     |         |   |  | $ | 205,922  |  
|Cost of revenue                   |  |                   | 29,796  |  |          |   | 6,001  |       |  |   | 19,363      |   |  |       | 1,409    |   |  |   | 56,569   |  
|                                  |  |                   |         |  |          |   |        |       |  |   |             |   |  |       |         
|Gross profit (loss)               |  |                   | 113,714 |  |          |   | 9,017  |       |  |   | 28,031      |   |  |       | (1,409   | ) |  |   | 149,353  |  
|                                  |  |                   |         |  |          |   |        |       |  |   |             |   |  |       |         
|Sales and marketing               |  |                   | 69,485  |  |          |   | 6,234  |       |  |   | 19,434      |   |  |       | 5,969    |   |  |   | 101,122  |  
|Product and website development   |  |                   | 11,261  |  |          |   | 5,341  |       |  |   | 442         |   |  |       | 21       |   |  |   | 17,065   |  
|General and administrative        |  |                   | 22,420  |  |          |   | 2,438  |       |  |   | 9,763       |   |  |       | 30,712   |   |  |   | 65,333   |  
|Amortization of intangible assets |  |                   |        |  |          |   |       |       |  |   |            |   |  |       | 21,863   |   |  |   | 21,863   |  
|Litigation settlement             |  |                   |        |  |          |   |       |       |  |   |            |   |  |       | 63,600   |   |  |   | 63,600   |  
|Restructuring charges             |  |                   |        |  |          |   |       |       |  |   |            |   |  |       | 4,100    |   |  |   | 4,100    |  
|Impairment of long-lived assets   |  |                   |        |  |          |   |       |       |  |   |            |   |  |       | 26,999   |   |  |   | 26,999   |  
|                                  |  |                   |         |  |          |   |        |       |  |   |             |   |  |       |         
|Total operating expenses          |  |                   | 103,166 |  |          |   | 14,013 |       |  |   | 29,639      |   |  |       | 153,264  |   |  |   | 300,082  |  
|                                  |  |                   |         |  |          |   |        |       |  |   |             |   |  |       |         
|Income (loss) from operations     |  | $                 | 10,548  |  |          | $ | (4,996 | )     |  | $ | (1,608      | ) |  | $     | (154,673 | ) |  | $ | (150,729 | )
|                                  |  |                   |         |  |          |   |        |       |  |   |             |   |  |       |         

|                                  |  |                   |         |  |          |   |        |       |  |   |             |  |  |       |          |   |  |   |          |  
|--------------------------------- |  | ----------------- | ------- |  | -------- | - | ------ | ----- |  | - | ----------- |  |  | ----- | -------- | - |  | - | -------- | -
|                                  |  | December 31, 2002 |        
|                                  |  |                   |        
|                                  |  | Media             |         |  | Software |   |        | Print |  |   | Unallocated |  |  | Total |         
|                                  |  |                   |         |  |          |   |        |       |  |   |             |  |  |       |         
|Revenue                           |  | $                 | 160,506 |  |          | $ | 33,216 |       |  | $ | 57,303      |  |  | $     |         |   |  | $ | 251,025  |  
|Cost of revenue                   |  |                   | 38,581  |  |          |   | 12,078 |       |  |   | 20,983      |  |  |       | 1,980    |   |  |   | 73,622   |  
|                                  |  |                   |         |  |          |   |        |       |  |   |             |  |  |       |         
|Gross profit (loss)               |  |                   | 121,925 |  |          |   | 21,138 |       |  |   | 36,320      |  |  |       | (1,980   | ) |  |   | 177,403  |  
|                                  |  |                   |         |  |          |   |        |       |  |   |             |  |  |       |         
|Sales and marketing               |  |                   | 65,715  |  |          |   | 9,435  |       |  |   | 21,814      |  |  |       | 64,590   |   |  |   | 161,554  |  
|Product and website development   |  |                   | 14,007  |  |          |   | 11,266 |       |  |   | 237         |  |  |       | (13      | ) |  |   | 25,497   |  
|General and administrative        |  |                   | 19,339  |  |          |   | 6,417  |       |  |   | 14,077      |  |  |       | 43,209   |   |  |   | 83,042   |  
|Amortization of intangible assets |  |                   |        |  |          |   |       |       |  |   |            |  |  |       | 34,699   |   |  |   | 34,699   |  
|Litigation settlement             |  |                   |        |  |          |   |       |       |  |   |            |  |  |       | 23,000   |   |  |   | 23,000   |  
|Restructuring charges             |  |                   |        |  |          |   |       |       |  |   |            |  |  |       | 12,057   |   |  |   | 12,057   |  
|Impairment of long-lived assets   |  |                   |        |  |          |   |       |       |  |   |            |  |  |       | 3,482    |   |  |   | 3,482    |  
|                                  |  |                   |         |  |          |   |        |       |  |   |             |  |  |       |         
|Total operating expenses          |  |                   | 99,061  |  |          |   | 27,118 |       |  |   | 36,128      |  |  |       | 181,024  |   |  |   | 343,331  |  
|                                  |  |                   |         |  |          |   |        |       |  |   |             |  |  |       |         
|Income (loss) from operations     |  | $                 | 22,864  |  |          | $ | (5,980 | )     |  | $ | 192         |  |  | $     | (183,004 | ) |  | $ | (165,928 | )
|                                  |  |                   |         |  |          |   |        |       |  |   |             |  |  |       |         





|    |            
|--- | -----------
|14. | Stock Plans



| |             
| | ------------
| | Option Plans



82



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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|                                 |           |           |        |         |                 |          |               |                |  |   |       |       | 
|-------------------------------- | --------- | --------- | ------ | ------- | --------------- | -------- | ------------- | -------------- |  | - | ----- | ----- | 
|                                 |           |           |        |         |                 | Weighted |              
|                                 |           | Number    |        |         |                 |          | Average       |               
|                                 |           | of Shares |        |         | Price per Share |          |               | Exercise Price | 
|                                 |           |           |        |         |                 |          |               |                | 
|Outstanding at December 31, 2001 |           |           | 14,658 |         |                 | $        | 0.02 to 89.25 |                |  |   | 24.16 |      
|                                 | Granted   |           |        | 29,558  |                 |          |               | 0.00 to 2.70   |  |   |       | 1.72  | 
|                                 | Exercised |           |        | (406    | )               |          |               | 0.00 to 2.00   |  |   |       | 0.48  | 
|                                 | Cancelled |           |        | (19,495 | )               |          |               | 0.06 to 89.25  |  |   |       | 16.42 | 
|                                 |           |           |        |         |                 |          |               |                | 
|Outstanding at December 31, 2002 |           |           | 24,315 |         |                 |          | 0.03 to 89.25 |                |  |   | 3.32  |      
|                                 | Granted   |           |        | 2,564   |                 |          |               | 0.56 to 3.68   |  |   |       | 1.84  | 
|                                 | Exercised |           |        | (1,595  | )               |          |               | 0.30 to 3.57   |  |   |       | 1.59  | 
|                                 | Cancelled |           |        | (2,735  | )               |          |               | 0.30 to 89.25  |  |   |       | 6.25  | 
|                                 |           |           |        |         |                 |          |               |                | 
|Outstanding at December 31, 2003 |           |           | 22,549 |         |                 |          | 0.30 to 89.25 |                |  |   | 2.87  |      
|                                 | Granted   |           |        | 8,459   |                 |          |               | 2.18 to 4.88   |  |   |       | 3.37  | 
|                                 | Exercised |           |        | (1,739  | )               |          |               | 0.30 to 3.00   |  |   |       | 1.39  | 
|                                 | Cancelled |           |        | (1,356  | )               |          |               | 0.30 to 89.25  |  |   |       | 5.40  | 
|                                 |           |           |        |         |                 |          |               |                | 
|Outstanding at December 31, 2004 |           |           | 27,913 |         |                 | $        | 0.30 to 89.25 |                |  | $ | 2.99  |      
|                                 |           |           |        |         |                 |          |               |                | 

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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                |  |           |        |                  |                  |  |      |                |                     |   |           |  |  |                |        |  |  |   |       | 
|--------------- |  | --------- | ------ | ---------------- | ---------------- |  | ---- | -------------- | ------------------- | - | --------- |  |  | -------------- | ------ |  |  | - | ----- | 
|                |  |           |        | Options          |                  |  |      |                |                    
|                |  |           |        | Outstanding      |                  |  |      |                | Options Exercisable |  
|                |  |           |        | Weighted Average |                  |  |      |                |                     |  
|                |  | Number    |        |                  | Remaining        |  |      | Average        |                     |   | Number    |  |  | Average        |       
|Prices          |  | of Shares |        |                  | Contractual Life |  |      | Exercise Price |                     |   | of Shares |  |  | Exercise Price |       
|                |  |           |        |                  |                  |  |      |                |                     |   |           |  |  |                |       
|$0.30 to 0.84   |  |           | 3,024  |                  |                  |  | 7.85 |                |                     |   | 0.45      |  |  |                | 1,640  |  |  |   | 0.43  | 
|0.85 to 1.44    |  |           | 985    |                  |                  |  | 7.65 |                |                     |   | 1.28      |  |  |                | 566    |  |  |   | 1.31  | 
|1.72 to 1.76    |  |           | 11,676 |                  |                  |  | 7.07 |                |                     |   | 1.76      |  |  |                | 8,704  |  |  |   | 1.76  | 
|2.07 to 2.25    |  |           | 4,094  |                  |                  |  | 8.47 |                |                     |   | 2.25      |  |  |                | 1,315  |  |  |   | 2.25  | 
|2.31 to 3.57    |  |           | 2,915  |                  |                  |  | 9.54 |                |                     |   | 2.96      |  |  |                | 609    |  |  |   | 3.03  | 
|2.58 to 3.99    |  |           | 32     |                  |                  |  | 8.55 |                |                     |   | 3.75      |  |  |                | 12     |  |  |   | 3.71  | 
|4.09 to 4.09    |  |           | 2,900  |                  |                  |  | 9.36 |                |                     |   | 4.09      |  |  |                | 272    |  |  |   | 4.09  | 
|4.17 to 69.63   |  |           | 2,261  |                  |                  |  | 7.52 |                |                     |   | 12.63     |  |  |                | 1,120  |  |  |   | 19.31 | 
|72.13           |  |           | 21     |                  |                  |  | 5.16 |                |                     |   | 72.13     |  |  |                | 20     |  |  |   | 72.13 | 
|89.25           |  |           | 5      |                  |                  |  | 5.09 |                |                     |   | 89.25     |  |  |                | 5      |  |  |   | 89.25 | 
|                |  |           |        |                  |                  |  |      |                |                     |   |           |  |  |                |       
|$0.30 to $89.25 |  |           | 27,913 |                  |                  |  | 7.91 |                |                     | $ | 2.99      |  |  |                | 14,263 |  |  | $ | 3.25  | 
|                |  |           |        |                  |                  |  |      |                |                     |   |           |  |  |                |       







| |                             
| | ----------------------------
| | Employee Stock Purchase Plan



84



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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |         
|--- | --------
|15. | Warrants













|    |               
|--- | --------------
|16. | Capitalization



Voting


85



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##### Table of Contents



HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Dividends


Liquidation


Redemption


Conversion




| |                           
| | --------------------------
| | Repurchase of Common Stock





86



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##### Table of Contents



HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                         
| | ------------------------
| | Issuance of Common Stock











87



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##### Table of Contents



HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














88



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##### Table of Contents



HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                   
|--- | ------------------
|17. | Net Loss per Share



|             |                                            |                                                |   |         |         |   |   |         |         |   |   |          |          |  
|------------ | ------------------------------------------ | ---------------------------------------------- | - | ------- | ------- | - | - | ------- | ------- | - | - | -------- | -------- | -
|             |                                            | Year Ended December 31,                        |  
|             |                                            |                                                |  
|             |                                            | 2004                                           |   |         | 2003    |   |   | 2002    |        
|             |                                            |                                                |   |         |         |   |   |         |        
|Numerator:   |                                            |                                                |   |         |         |   |   |         |         |   |   |         
|             |                                            | Loss from continuing operations                |   | $       | (14,501 | ) |   | $       | (46,373 | ) |   | $        | (168,949 | )
|             |                                            | Gain on disposition of discontinued operations |   |         | 7,294   |   |   |         | 2,530   |   |   |          | 11,790   |  
|             |                                            | Loss from discontinued operations              |   |         | (679    | ) |   |         | (3,281  | ) |   |          | (6,266   | )
|             |                                            |                                                |   |         |         |   |   |         |        
|             | Net loss                                   |                                                | $ | (7,886  | )       |   | $ | (47,124 | )       |   | $ | (163,425 | )       
|             |                                            |                                                |   |         |         |   |   |         |        
|Denominator: |                                            |                                                |   |         |         |   |   |         |         |   |   |         
|             | Weighted average shares outstanding        |                                                |   | 136,518 |         |   |   | 118,996 |         |   |   | 117,900  |         
|             |                                            |                                                |   |         |         |   |   |         |        
|             | Basic and diluted income (loss) per share: |                                                |   |         |         |   |   |         |         |   |   |          |         
|             | Loss from continuing operations            |                                                | $ | (0.11   | )       |   | $ | (0.39   | )       |   | $ | (1.43    | )       
|             | Income (loss) from discontinued operations |                                                | $ | 0.05    |         |   | $ | (0.01   | )       |   | $ | 0.05     |         
|             |                                            |                                                |   |         |         |   |   |         |        
|             | Net loss                                   |                                                | $ | (0.06   | )       |   | $ | (0.40   | )       |   | $ | (1.39    | )       
|             |                                            |                                                |   |         |         |   |   |         |        





|    |                                   
|--- | ----------------------------------
|18. | Supplemental Cash Flow Information





| |   |                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company paid $62,000 in interest.                                                                                                                                                                                         
|
| |  | The Company sold two of its business units generating net
    proceeds of $9.5 million and a gain on sale of
    $7.3 million.                                                                                                
|
| |  | The Company sold its Welcome Wagon® facility generating net
    proceeds of $6.3 million and a gain on sale of
    $1.4 million.                                                                                              
|
| |  | The Company issued 20 million shares of stock and paid
    $3.0 million in settlement of the Securities
    Class Action lawsuit that had previously been accrued at
    $53.6 million.                                       
|
| |  | The Company issued 200,000 shares of stock and paid
    $150,000 in settlement of the derivative litigation suit which
    had previously been accrued at $710,000.                                                           
|
| |  | The Company issued 2.3 million shares of stock in
    settlement of the Top Producer® litigation resulting in an
    additional charge of $793,000 against an existing accrual of
    $7.9 million.                           
|
| |  | The Company granted 70,922 shares of restricted common
    stock to its Chief Executive Officer. These shares vest over
    three years. The expense associated with these shares was
    $300,000 and was recognized in 2004.

89



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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |   |                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company issued 77,250 shares of restricted common stock
    to certain members of its Board of Directors. These shares vest
    over three years. The charge associated with these shares was
    $367,000 and is being recognized over the three-year vesting
    period.
|
| |  | The Company funded $3.2 million of capital expenditure
    through an equipment lease financing arrangement.                                                                                                                                                                  





| |   |                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company paid $103,000 in interest.                                                                                                                                                                                                                                                            
|
| |  | The Company was required to accelerate 1,162,945 options for
    terminated former executives and incurred a $2,609,000 expense
    in 2003.                                                                                                                                                      
|
| |  | The Company issued 436,000 shares of restricted stock to
    certain members of the Companys Board of Directors. These
    shares vest over three years. The charge associated with the
    issuance of these shares was $344,000 and is being recognized
    over the three-year vesting period.
|
| |  | The Company funded $2.1 million of capital expenditures
    through an equipment lease financing arrangement.                                                                                                                                                                                     





| |   |                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company paid $372,000 in interest.                                                                                                                                                                                                                                                                                                                                        
|
| |  | The Company also amended an agreement relating to earn-out
    payments of $14.8 million that were part of the original
    Top Producer® purchase agreement. The amendment revised the
    contingent obligation of $14.8 million and fixed it at
    $10.2 million. In connection with the amendment, the
    Company recorded additional goodwill of $9.3 million.         
|
| |  | The Company was required to accelerate 467,187 options for
    terminated former executives and incurred a $4.9 million
    expense in 2002.                                                                                                                                                                                                                                  
|
| |  | The Company issued 36,000 shares of restricted stock to
    certain members of the Companys Board of Directors. These
    shares vest over one year. The charge associated with the
    issuance of these shares was $90,000 and is being recognized
    over the one-year vesting period. 12,000 of these shares were
    returned to the Company in 2003, prior to vesting.
|
| |  | The Company issued a warrant to
    purchase 240,000 shares at $2.07 as part of a
    consulting agreement. The warrant was immediately vested and the
    charge associated with this warrant was not material to the
    Companys operations.                                                                                                                              



|    |                          
|--- | -------------------------
|19. | Defined Contribution Plan



90



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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |             
|--- | ------------
|20. | Income Taxes



|                                     |                                            |              |         |          |              |   |         |          |  
|------------------------------------ | ------------------------------------------ | ------------ | ------- | -------- | ------------ | - | ------- | -------- | -
|                                     |                                            | December 31, |         |          | December 31, |  
|                                     |                                            | 2004         |         |          | 2003         |  
|                                     |                                            |              |         |          |              |  
|Deferred tax assets:                 |                                            |              |         |          |              |   |         |         
|                                     | Net operating loss carryforwards           |              | $       | 357,067  |              |   | $       | 325,470  |  
|                                     | Deferred expenses                          |              |         | 14,889   |              |   |         | 47,531   |  
|                                     | Impairment charges                         |              |         | 2,863    |              |   |         | 18,012   |  
|                                     | Amortization of acquired intangible assets |              |         | 3,748    |              |   |         |         |  
|                                     | Other                                      |              |         | 624      |              |   |         | 31,187   |  
|                                     |                                            |              |         |          |              |  
|                                     |                                            |              | 379,191 |          |              |   | 422,200 |         
|                                     | Less: valuation allowance                  |              |         | (379,191 | )            |   |         | (409,283 | )
|                                     |                                            |              |         |          |              |  
|Net deferred tax assets              |                                            | $            |        |          |              | $ | 12,917  |         
|                                     |                                            |              |         |          |              |  
|Deferred tax liabilities:            |                                            |              |         |          |              |   |         |         
|                                     | Amortization of acquired intangible assets |              | $       |         |              |   | $       | (12,917  | )
|                                     |                                            |              |         |          |              |  
|Total gross deferred tax liabilities |                                            |              |        |          |              |   | (12,917 | )       
|                                     |                                            |              |         |          |              |  
|Net deferred tax asset (liability)   |                                            | $            |        |          |              | $ |        |         
|                                     |                                            |              |         |          |              |  









91



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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                       
|--- | --------------------------------------
|21. | Settlements of Disputes and Litigation



| |                          
| | -------------------------
| | Settlement of AOL Dispute







| |                                              
| | ---------------------------------------------
| | Settlement of Securities Class Action Lawsuit





92



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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












| |                              
| | -----------------------------
| | Settlement of Cendant Dispute





93



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##### Table of Contents



HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














| |                                    
| | -----------------------------------
| | Settlement of Derivative Litigation



94



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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                                          
| | -----------------------------------------
| | Settlement of Other Securities Litigation







|    |                              
|--- | -----------------------------
|22. | Commitments and Contingencies



| |                             
| | ----------------------------
| | Operating and Capital Leases



95



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##### Table of Contents



HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                   |                          |                    |        |     |           |   |        |   |        | 
|---------------------------------- | ------------------------ | ------------------ | ------ | --- | --------- | - | ------ | - | ------ | 
|                                   |                          | Capital            |        |     | Operating |  
|Year Ended December 31,            |                          | Leases             |        |     | Leases    |  
|                                   |                          |                    |        |     |           |  
|2005                               |                          | $                  | 1,834  |     |           | $ | 10,724 |  
|2006                               |                          |                    | 1,017  |     |           |   | 10,138 |  
|2007                               |                          |                    |       |     |           |   | 5,943  |  
|2008                               |                          |                    |       |     |           |   | 1,413  |  
|2009 and thereafter                |                          |                    |       |     |           |   | 4,659  |  
|                                   |                          |                    |        |     |           |  
|                                   |                          | Total              |        | $   | 2,851     |   |        | $ | 32,877 | 
|                                   |                          |                    |        |     |           |  
|Less: Amount representing interest |                          |                    | (86    | )   |           |   |        |  
|                                   |                          |                    |        |     |           |  
|                                   |                          | Net capital leases |        |     | 2,765     |   |        |   |        | 
|Less: Current portion              |                          |                    | (1,774 | )   |           |   |        |  
|                                   |                          |                    |        |     |           |  
|                                   | Long-term capital leases |                    | $      | 991 |           |   |        |   |       
|                                   |                          |                    |        |     |           |  









| |                        
| | -----------------------
| | Distribution Agreements



|                         |       |   |        |        | 
|------------------------ | ----- | - | ------ | ------ | 
|Year Ending December 31, |       |  
|                         |       |  
|2005                     |       | $ | 14,900 |       
|2006                     |       |   | 4,850  |       
|2007-2009                |       |   |       |       
|                         |       |   |       
|                         | Total |   | $      | 19,750 | 
|                         |       |   |       



| |                  
| | -----------------
| | Other Commitments



96



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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                         |       |   |       |       | 
|------------------------ | ----- | - | ----- | ----- | 
|Year Ending December 31, |       |  
|                         |       |  
|2005                     |       | $ | 1,942 |      
|2006                     |       |   | 1,500 |      
|2007                     |       |   | 1,500 |      
|2008                     |       |   | 1,500 |      
|2009                     |       |   | 1,500 |      
|                         |       |   |      
|                         | Total |   | $     | 7,942 | 
|                         |       |   |      



| |                  
| | -----------------
| | Legal Proceedings



| |                                            
| | -------------------------------------------
| | Contingencies Related to Pending Litigation



| |                  
| | -----------------
| | SEC Investigation







| |                              
| | -----------------------------
| | Insurance Coverage Litigation







97



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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














| |                 
| | ----------------
| | Other Litigation







98



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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












99



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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












100



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##### Table of Contents



HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




(Stichting Pensioenfonds ABP v. AOL Time
Warner. et.al.)








| |              
| | -------------
| | Contingencies



101



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HOMESTORE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                  
|--- | -----------------
|23. | Subsequent Events



| |            
| | -----------
| | Stock Plans





|    |                                     
|--- | ------------------------------------
|24. | Quarterly Financial Data (unaudited)



|                                           |                         |                                          |        |       |          |   |        |           |   |   |          |       |   |          |        |       |          |   |        |           |  |   |          |       |   |   |         |       |   |   |         |       |  
|------------------------------------------ | ----------------------- | ---------------------------------------- | ------ | ----- | -------- | - | ------ | --------- | - | - | -------- | ----- | - | -------- | ------ | ----- | -------- | - | ------ | --------- |  | - | -------- | ----- | - | - | ------- | ----- | - | - | ------- | ----- | -
|                                           |                         | Three Months Ended                       |       
|                                           |                         |                                          |       
|                                           |                         | Mar. 31,                                 |        |       | June 30, |   |        | Sept. 30, |   |   | Dec. 31, |       |   | Mar. 31, |        |       | June 30, |   |        | Sept. 30, |  |   | Dec. 31, |      
|                                           |                         | 2004                                     |        |       | 2004     |   |        | 2004      |   |   | 2004     |       |   | 2003(1)  |        |       | 2003(2)  |   |        | 2003      |  |   | 2003     |      
|                                           |                         |                                          |        |       |          |   |        |           |   |   |          |       |   |          |        |       |          |   |        |           |  |   |          |      
|                                           |                         | (In thousands, except per share amounts) |       
|Revenue                                    |                         | $                                        | 53,424 |       |          | $ | 54,320 |           |   | $ | 54,782   |       |   | $        | 54,334 |       |          | $ | 51,946 |           |  | $ | 50,480   |       |   | $ | 51,636  |       |   | $ | 51,860  |      
|Gross profit                               |                         |                                          | 40,174 |       |          |   | 41,853 |           |   |   | 42,127   |       |   |          | 41,877 |       |          |   | 37,564 |           |  |   | 36,132   |       |   |   | 37,156  |       |   |   | 38,501  |      
|Income from continuing operations          |                         |                                          | (4,777 | )     |          |   | (3,960 | )         |   |   | (4,753   | )     |   |          | (1,011 | )     |          |   | 87,469 |           |  |   | (93,600  | )     |   |   | (28,162 | )     |   |   | (12,080 | )    
|Income (loss) from discontinued operations |                         |                                          | (306   | )     |          |   | (302   | )         |   |   | 180      |       |   |          | 7,043  |       |          |   | (265   | )         |  |   | 1,911    |       |   |   | (2,420  | )     |   |   | 23      |      
|                                           |                         |                                          |        |       |          |   |        |           |   |   |          |       |   |          |        |       |          |   |        |           |  |   |          |      
|Net Income/(loss)                          |                         | $                                        | (5,083 | )     |          | $ | (4,262 | )         |   | $ | (4,573   | )     |   | $        | 6,032  |       |          | $ | 87,204 |           |  | $ | (91,689  | )     |   | $ | (30,582 | )     |   | $ | (12,057 | )    
|                                           |                         |                                          |        |       |          |   |        |           |   |   |          |       |   |          |        |       |          |   |        |           |  |   |          |      
|Basic net income (loss) per share:         |                         |                                          |        |       |          |   |        |           |   |   |          |       |   |          |        |       |          |   |        |           |  |   |          |       |   |   |         |       |   |   |         |      
|                                           | Continuing operations   |                                          | $      | (0.04 | )        |   | $      | (0.03     | ) |   | $        | (0.03 | ) |          | $      | (0.01 | )        |   | $      | 0.74      |  |   | $        | (0.79 | ) |   | $       | (0.24 | ) |   | $       | (0.10 | )
|                                           | Discontinued operations |                                          | $      |      |          |   | $      |          |   |   | $        |      |   |          | $      | 0.05  |          |   | $      |          |  |   | $        | 0.01  |   |   | $       | (0.02 | ) |   | $       |      |  
|                                           |                         |                                          |        |       |          |   |        |           |   |   |          |       |   |          |        |       |          |   |        |           |  |   |          |      
|                                           | Net income (loss)       |                                          | $      | (0.04 | )        |   | $      | (0.03     | ) |   | $        | (0.03 | ) |          | $      | 0.04  |          |   | $      | 0.74      |  |   | $        | (0.78 | ) |   | $       | (0.26 | ) |   | $       | (0.10 | )
|                                           |                         |                                          |        |       |          |   |        |           |   |   |          |       |   |          |        |       |          |   |        |           |  |   |          |      
|Diluted net income (loss) per share:       |                         |                                          |        |       |          |   |        |           |   |   |          |       |   |          |        |       |          |   |        |           |  |   |          |       |   |   |         |       |   |   |         |      
|                                           | Continuing operations   |                                          | $      | (0.04 | )        |   | $      | (0.03     | ) |   | $        | (0.03 | ) |          | $      | (0.01 | )        |   | $      | 0.72      |  |   | $        | (0.79 | ) |   | $       | (0.24 | ) |   | $       | (0.10 | )
|                                           | Discontinued operations |                                          | $      |      |          |   | $      |          |   |   | $        |      |   |          | $      | 0.05  |          |   | $      |          |  |   | $        | 0.01  |   |   | $       | (0.02 | ) |   | $       |      |  
|                                           |                         |                                          |        |       |          |   |        |           |   |   |          |       |   |          |        |       |          |   |        |           |  |   |          |      
|                                           | Net income (loss)       |                                          | $      | (0.04 | )        |   | $      | (0.03     | ) |   | $        | (0.03 | ) |          | $      | 0.04  |          |   | $      | 0.72      |  |   | $        | (0.78 | ) |   | $       | (0.26 | ) |   | $       | (0.10 | )
|                                           |                         |                                          |        |       |          |   |        |           |   |   |          |       |   |          |        |       |          |   |        |           |  |   |          |      






|    |                                                                                                   
|--- | --------------------------------------------------------------------------------------------------
|(1) | Includes a one-time non-cash gain of $104,071 from the
    settlement of a distribution agreement.
|   
|(2) | Includes a litigation settlement charge of $63,600.                                               

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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes In and Disagreements With Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures





Managements Annual Report on Internal Control over
Financial Reporting












| |                        
| | -----------------------
| | /s/ W. MICHAEL LONG    
| |                        
| | W. Michael Long        
| | Chief Executive Officer





| |                             
| | ----------------------------
| | /s/ LEWIS R.
    BELOTE, III



| |                        
| | -----------------------
| |                        
| | Lewis R. Belote, III   
| | Chief Financial Officer



103



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


ON INTERNAL CONTROL OVER FINANCIAL REPORTING


















| |                          
| | -------------------------
| | /s/ Ernst & Young
    LLP





104



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|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III









|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accounting Fees and Services






PART IV







|         |                                        
|-------- | ---------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules

The following documents are filed as part of this
report:






105



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##### Table of Contents



Exhibits


|       |        |  |               |                                                                                                                                                                                                                                                                                                                                                                                        
|------ | ------ |  | ------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |        |  | Exhibit Title
|       |        |  |              
|       | 2.01   |  |               | Agreement and Plan of Merger dated December 31, 1998
    between NetSelect, Inc. and InfoTouch Corporation. (Incorporated
    by reference to Exhibit 2.01 to our registration statement
    on Form S-1 (File No. 333-79689) filed May 28,
    1999.)                                                                                                                                 
|       | 2.02   |  |               | Agreement and Plan of Reorganization dated June 20, 1998
    among NetSelect, Inc., National New Homes Co., Inc., MultiSearch
    Solutions, Inc., Fred White, and R. Fred White III.
    (Incorporated by reference to Exhibit 2.02 to our
    registration statement on Form S-1 (File
    No. 333-79689) filed May 28, 1999.)                                                       
|       | 2.03   |  |               | Exchange Agreement dated March 31, 1998 among NetSelect,
    Inc., The Enterprise of America, Ltd., and Roger Scommegna.
    (Incorporated by reference to Exhibit 2.03 to our
    registration statement on Form S-1 (File
    No. 333-79689) filed May 28, 1999.)                                                                                                                    
|       | 2.04   |  |               | Agreement and Plan of Reorganization dated May 19, 1999
    between NetSelect, Inc., Avenue Acquisition Corporation and
    SpringStreet, Inc. (Incorporated by reference to
    Exhibit 2.04 to our registration statement on
    Form S-1/ A (File No. 333-79689) filed June 17,
    1999.)                                                                                          
|       | 2.05   |  |               | Stock Purchase Agreement dated October 12, 1999 among
    Homestore.com®, Inc., The Homebuyers Fair, Inc.,
    certain shareholders of The Homebuyers Fair, Inc., and
    Central Newspapers, Inc., as Shareholder Agent. (Incorporated by
    reference to Exhibit 2.01 to our current report on Form 8-K
    filed November 15, 1999.)                                             
|       | 2.06   |  |               | Stock Purchase Agreement dated October 12, 1999 among
    Homestore.com®, Inc., FAS-Hotline, Inc., the shareholders
    of FAS-Hotline, Inc., and Central Newspapers, Inc., as
    Shareholder Agent. (Incorporated by reference to
    Exhibit 2.02 to our current report on Form 8-K filed
    November 15, 1999.)                                                                   
|       | 2.07   |  |               | Agreement and Plan of Reorganization dated October 26, 2000
    among Homestore.com®, Inc., Metal Acquisition Corp., WW
    Acquisition Corp., Move.com, Inc., Welcome
    Wagon®International, Inc., Cendant Membership Services
    Holdings, Inc. and Cendant Corporation. (Incorporated by
    reference to Annex A to the definitive proxy statement
    filed November 29, 2000.)
|       | 3.01.1 |  |               | Amended and Restated Certificate of Incorporation dated
    August 10, 1999. (Incorporated by reference to
    Exhibit 3.01.1 to our quarterly report on Form 10-Q for the
    quarter ended March 31, 2003 filed May 14, 2003.)                                                                                                                                                       
|       | 3.01.2 |  |               | Certificate of Amendment of Certificate of Incorporation dated
    May 22, 2002. (Incorporated by reference to
    Exhibit 3.01.2 to our quarterly report on Form 10-Q for the
    quarter ended March 31, 2003 filed May 14, 2003.)                                                                                                                                                   
|       | 3.02   |  |               | Bylaws dated August 10, 1999. (Incorporated by reference to
    Exhibit 3.1 to our quarterly report on Form 10-Q for the
    quarter ended June 30, 2003 filed August 14, 2003.)                                                                                                                                                                                                       
|       | 3.03.1 |  |               | RealSelect, Inc.s Certificate of Incorporation dated
    October 25, 1996. (Incorporated by reference to
    Exhibit 3.05.1 to our registration statement on
    Form S-1 (File No. 333-79689) filed May 28, 1999.)                                                                                                                                                                   
|       | 3.03.2 |  |               | RealSelect, Inc.s Certificate of Amendment to Certificate
    of Incorporation dated November 25, 1996. (Incorporated by
    reference to Exhibit 3.05.2 to our registration statement
    on Form S-1/ A (File No. 333-79689) filed June 17,
    1999.)                                                                                                                              
|       | 3.04   |  |               | RealSelect, Inc.s Amended By-laws dated December 1999.
    (Incorporated by reference to Exhibit 3.07 of our Form 10-K
    for the year ended December 31, 1999 filed March 10,
    2000.)                                                                                                                                                                                            
|       | 4.01   |  |               | Form of Specimen Certificate for common stock. (Incorporated by
    reference to Exhibit 4.01 to our registration statement on
    Form S-1/ A (File No. 333-79689) filed July 8,
    1999.)                                                                                                                                                                                           
|       | 4.02.1 |  |               | NetSelect, Inc. Second Amended and Restated Stockholders
    Agreement dated January 28, 1999. (Incorporated by
    reference to Exhibit 4.02.1 to our registration statement
    on Form S-1 (File No. 333-79689) filed May 28,
    1999.)                                                                                                                                            
|       | 4.02.2 |  |               | Amendment No. 1 to NetSelect, Inc. Second Amended and
    Restated Stockholders Agreement dated April 9, 1999.
    (Incorporated by reference to Exhibit 4.02.2 to our
    registration statement on Form S-1 (File
    No. 333-79689) filed May 28, 1999.)                                                                                                                            

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|       |         |  |               |                                                                                                                                                                                                                                                                                                                                                                                                  
|------ | ------- |  | ------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |         |  | Exhibit Title
|       |         |  |              
|       | 10.01.1 |  |               | Operating Agreement dated November 26, 1996, between
    REALTORS® Information Network, Inc. and RealSelect, Inc.
    (Incorporated by reference to Exhibit 10.02 to our
    registration statement on Form S-1 (File
    No. 333-79689) filed May 28, 1999.)                                                                                                                                    
|       | 10.01.2 |  |               | First Amendment to Operating Agreement dated December 27,
    1996 between REALTORS® Information Network, Inc. and
    RealSelect, Inc. (Incorporated by reference to
    Exhibit 10.02.2 to our registration statement on
    Form S-1/ A (File No. 333-79689) filed June 17,
    1999.)                                                                                                        
|       | 10.01.3 |  |               | Amendment No. 2 to Operating Agreement dated May 28,
    1999 between REALTORS® Information Network, Inc. and
    RealSelect, Inc. (Incorporated by reference to
    Exhibit 10.02.3 to our registration statement on
    Form S-1/A (File No. 333-79689) filed June 17,
    1999.)                                                                                                              
|       | 10.02   |  |               | Master Agreement dated November 26, 1996, among NetSelect,
    Inc., NetSelect, L.L.C., RealSelect, Inc., CDW Internet, L.L.C.,
    Whitney Equity Partners, L.P., Allen & Co., InfoTouch
    Corporation, and REALTORS® Information Network, Inc.
    (Incorporated by reference to Exhibit 10.03 to our
    registration statement on Form S-1/A (File
    No. 333-79689) filed June 17, 1999.)
|       | 10.03   |  |               | Joint Ownership Agreement dated November 26, 1996, among
    National Association of REALTORS®, NetSelect, L.L.C., and
    NetSelect, Inc. (Incorporated by reference to Exhibit 10.04
    to our registration statement on Form S-1 (File
    No. 333-79689) filed May 28, 1999.)                                                                                                               
|       | 10.04   |  |               | Trademark License dated November 26, 1996, between National
    Association of REALTORS® and RealSelect, Inc. (Incorporated
    by reference to Exhibit 10.05 to our registration statement
    on Form S-1 (File No. 333-79689) filed May 28,
    1999.)                                                                                                                                        
|       | 10.05   |  |               | Agreement dated August 21, 1998 among RealSelect, Inc.,
    REALTORS® Information Network, Inc., National Association
    of REALTORS®, NetSelect, Inc., and NetSelect L.L.C.
    (Incorporated by reference to Exhibit 10.29 to our
    registration statement on Form S-1 (File
    No. 333-79689) filed May 28, 1999.)                                                                        
|       | 10.06   |  |               | Agreement dated May 28, 1999 among NetSelect, Inc.,
    RealSelect, Inc., REALTORS® Information Network, Inc. and
    National Association of REALTORS®. (Incorporated by
    reference to Exhibit 10.30 to our registration statement on
    Form S-1/A (File No. 333-79689) filed June 17,
    1999.)                                                                                          
|       | 10.07   |  |               | Letter Agreement Regarding Rental Site Acquisition dated
    May 17, 1999 among National Association of REALTORS®,
    REALTORS® Information Network, Inc. and RealSelect, Inc.
    (Incorporated by reference to Exhibit 10.32 to our
    registration statement on Form S-1/A (File
    No. 333-79689) filed June 17, 1999.)(1)                                                                
|       | 10.08   |  |               | Stock and Interest Purchase Agreement (NetSelect Series A
    and B Preferred) dated November 26, 1996, among NetSelect,
    Inc., NetSelect L.L.C., and InfoTouch Corporation. (Incorporated
    by reference to Exhibit 10.06 to our registration statement
    on Form S-1 (File No. 333-79689) filed May 28,
    1999.)                                                                      
|       | 10.09   |  |               | Stock Purchase Agreement dated March 16, 2002 between
    Experian Holdings, Inc. and Homestore.com®, Inc.
    (Incorporated by reference to Exhibit 2.1 to our Form 8-K
    filed March 19, 2002.)                                                                                                                                                                                              
|       | 10.10   |  |               | Distribution Agreement dated January 9, 2003 between
    America Online, Inc. and Homestore, Inc. (Incorporated by
    reference to Exhibit 10.10 to our annual report on Form
    10-K filed March 26, 2003.)(1)                                                                                                                                                                                
|       | 10.11.1 |  |               | Office Lease dated September 18, 1998 between RealSelect,
    Inc. and WHLNF Real Estate Limited Partnership for 225 West
    Hillcrest, Suite 100, Thousand Oaks, California.
    (Incorporated by reference to Exhibit 10.24.1 to our
    registration statement on Form S-1 (File
    No. 333-79689) filed May 28, 1999.)                                                                     
|       | 10.11.2 |  |               | First Amendment to Office Lease dated March 31, 1999
    between RealSelect, Inc. and WHLNF Real Estate Limited
    Partnership for 225 West Hillcrest, Suite 100, Thousand
    Oaks, California. (Incorporated by reference to
    Exhibit 10.24.2 to our registration statement on
    Form S-1 (File No. 333-79689) filed May 28, 1999.)                                                      
|       | 10.12   |  |               | Standard Office Lease Form, Westlake North Business Park dated
    March 7, 2000 between Westlake North Associates, LLC, and
    Homestore, Inc. for 30700 Russell Ranch Road, Westlake Village,
    California. (Incorporated by reference to Exhibit 10.33 to
    our Form 10-K for the year ended December 31, 2000 filed
    April 2, 2001.)                                                 

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|       |       |  |               |                                                                                                                                                                                                                                                                                                                                    
|------ | ----- |  | ------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |       |  | Exhibit Title
|       |       |  |              
|       | 10.13 |  |               | NetSelect, Inc. 1996 Stock Incentive Plan. (Incorporated by
    reference to Exhibit 10.16 to our registration statement on
    Form S-1 (File No. 333-79689) filed May 28,
    1999.)(3)                                                                                                                                          
|       | 10.14 |  |               | NetSelect, Inc. 1999 Equity Incentive Plan. (Incorporated by
    reference to Exhibit 10.17 to our registration statement on
    Form S-1 (File No. 333-79689) filed May 28,
    1999.)(3)                                                                                                                                         
|       | 10.15 |  |               | Homestore.com®, Inc. 1999 Stock Incentive Plan.
    (Incorporated by reference to Exhibit 10.18 to our
    registration statement on Form S-1/A (File
    No. 333-79689) filed July 27, 1999.)(3)                                                                                                                                  
|       | 10.16 |  |               | Homestore.com®, Inc. 1999 Employee Stock Purchase Plan.
    (Incorporated by reference to Exhibit 10.19 to our
    registration statement on Form S-1/A (File
    No. 333-79689) filed July 27, 1999.)(3)                                                                                                                          
|       | 10.17 |  |               | Homestore.com®, Inc. 2002 Stock Incentive Plan.
    (Incorporated by reference to Exhibit 4.04 to our
    registration statement on Form S-8 (File
    No. 333-89172) filed May 24, 2002.)(3)                                                                                                                                      
|       | 10.18 |  |               | InfoTouch Corporation 1994 Stock Incentive Plan. (Incorporated
    by reference to Exhibit 10.20 to our registration statement
    on Form S-1/A (File No. 333-79689) filed June 17,
    1999.)(3)                                                                                                                                 
|       | 10.19 |  |               | Move.com, Inc. 2000 Stock Incentive Plan. (Incorporated by
    reference to Exhibit 4.04 to our registration statement on
    Form S-8 (File No. 333-55828) filed February 16,
    2001.)(3)                                                                                                                                       
|       | 10.20 |  |               | Cendant Corporation Move.com Group 1999 Stock Option Plan as
    assumed by Cendant Corporation from Move.com, Inc. and amended
    and restated effective as of March 21, 2000. (Incorporated
    by reference to Exhibit 4.05 to our registration statement
    on Form S-8 (File No. 333-55828) filed
    February 16, 2001.)(3)
|       | 10.21 |  |               | 1997 Stock Initiative Plan of Cendant Corporation as amended and
    restated through October 14, 1998. (Incorporated by
    reference to Exhibit 4.06 to our registration statement on
    Form S-8 (File No. 333-55828) filed February 16,
    2001.)(3)                                                                         
|       | 10.22 |  |               | Amendment to Amended and Restated 1997 Stock Incentive Plan of
    Cendant Corporation dated March 27, 2000. (Incorporated by
    reference to Exhibit 4.07 to our registration statement on
    Form S-8 (File No. 333-55828) filed February 16,
    2001.)(3)                                                                    
|       | 10.23 |  |               | Amendment to Amended and Restated 1997 Stock Incentive Plan of
    Cendant Corporation dated March 28, 2000. (Incorporated by
    reference to Exhibit 4.08 to our registration statement on
    Form S-8 (File No. 333-55828) filed February 16,
    2001.)(3)                                                                    
|       | 10.24 |  |               | Homestore 401(k) Plan. (Incorporated by reference to
    Exhibit 10.25 to our registration statement on
    Form S-1/ A (File No. 333-79689) filed June 17,
    1999.)(3)                                                                                                                                                          
|       | 10.25 |  |               | Form of Indemnity Agreement between Homestore. Inc. and each of
    its directors and executive officers (Incorporated by reference
    to Exhibit 10.25 to our annual report on Form 10-K for the
    year ended December 31, 2003 filed March 15, 2004.)(3)                                                                      
|       | 10.26 |  |               | Employment Agreement dated March 6, 2002 between
    Homestore.com®, Inc. and W. Michael Long. (Incorporated by
    reference to Exhibit 6.01(A) to our quarterly report on
    Form 10-Q for the quarter ended March 31, 2002 filed
    May 14, 2002.)(3)                                                                         
|       | 10.27 |  |               | 2003 Executive Bonus Plan of W. Michael Long. (Incorporated by
    reference to Exhibit 10.1 to our quarterly report on Form
    10-Q for the quarter ended September 30, 2003 filed
    November 13, 2003.)(3)                                                                                                                    
|       | 10.28 |  |               | Employment Agreement dated March 6, 2002 between
    Homestore.com®, Inc. and Jack D. Dennison. (Incorporated by
    reference to Exhibit 6.03(A) to our quarterly report on
    Form 10-Q for the quarter ended March 31, 2002 filed
    May 14, 2002.)(3)                                                                        
|       | 10.29 |  |               | 2003 Executive Bonus Plan of Jack D. Dennison. (Incorporated by
    reference to Exhibit 10.2 to our quarterly report on Form
    10-Q for the quarter ended September 30, 2003 filed
    November 13, 2003.)(3)                                                                                                                   
|       | 10.30 |  |               | Employment Agreement dated March 6, 2002 between
    Homestore.com®, Inc. and Lewis R. Belote III.
    (Incorporated by reference to Exhibit 6.02(A) to our
    quarterly report on Form 10-Q for the quarter ended
    March 31, 2002 filed May 14, 2002.)(3)                                                                     
|       | 10.31 |  |               | 2003 Executive Bonus Plan of Lewis R. Belote III.
    (Incorporated by reference to Exhibit 10.3 to our quarterly
    report on Form 10-Q for the quarter ended September 30,
    2003 filed November 13, 2003.)(3)                                                                                                                

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|       |       |  |               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------ | ----- |  | ------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |       |  | Exhibit Title
|       |       |  |              
|       | 10.32 |  |               | Executive Retention and Severance Agreement dated April 24,
    2002 between Homestore.com®, Inc. and Allan P. Merrill.
    (Incorporated by reference to Exhibit 6.06(A) to our Form
    10-Q for the quarter ended March 31, 2002 filed
    May 14, 2002.)(3)                                                                                                                                                                                                                                                       
|       | 10.33 |  |               | Memorandum dated March 29, 2002 to Allan P. Merrill.
    (Incorporated by reference to Exhibit 6.07(A) to our Form
    10-Q for the quarter ended March 31, 2002 filed
    May 14, 2002.)(3)                                                                                                                                                                                                                                                                                                                          
|       | 10.34 |  |               | 2003 Executive Bonus Plan of Allan P. Merrill. (Incorporated by
    reference to Exhibit 10.5 to our quarterly report on Form
    10-Q for the quarter ended September 30, 2003 filed
    November 13, 2003.)(3)                                                                                                                                                                                                                                                                                                      
|       | 10.35 |  |               | Executive Retention and Severance Agreement dated April 24,
    2002 between Homestore.com®, Inc. and Patrick R. Whelan.
    (Incorporated by reference to Exhibit 6.10(A) to our Form
    10-Q for the quarter ended March 31, 2002 filed
    May 14, 2002.)(3)                                                                                                                                                                                                                                                      
|       | 10.36 |  |               | Memorandum dated March 29, 2002 to Patrick R. Whelan.
    (Incorporated by reference to Exhibit 6.11(A) to our Form
    10-Q for the quarter ended March 31, 2002 filed
    May 14, 2002.)(3)                                                                                                                                                                                                                                                                                                                         
|       | 10.37 |  |               | Separation Agreement dated August 1, 2003 between
    Homestore, Inc. and Patrick R. Whelan. (Incorporated by
    reference to Exhibit 10.37 to our annual report on Form
    10-K for the year ended December 31, 2003 filed
    March 15, 2004.)(3)                                                                                                                                                                                                                                                                 
|       | 10.38 |  |               | Executive Retention and Severance Agreement dated
    September 30, 2002 between Homestore.com®, Inc. and
    Allan D. Dalton. (Incorporated by reference to Exhibit 10.1
    to our quarterly report on Form 10-Q for the quarter ended
    September 30, 2002 filed November 14, 2002.)(3)                                                                                                                                                                                                                          
|       | 10.39 |  |               | Offer Letter dated October 7, 2002 between
    Homestore.com®, Inc. and Allan D. Dalton. (Incorporated by
    reference to Exhibit 10.2 to our quarterly report on Form
    10-Q for the quarter ended September 30, 2002 filed
    November 14, 2002.)(3)                                                                                                                                                                                                                                                            
|       | 10.40 |  |               | Annual Bonus Plan, 2002 of Allan Dalton. (Incorporated by
    reference to Exhibit 10.3 to our quarterly report on Form
    10-Q for the quarter ended September 30, 2002 filed
    November 14, 2002.)(3)                                                                                                                                                                                                                                                                                                            
|       | 10.41 |  |               | 2003 Executive Bonus Plan of Allan D. Dalton. (Incorporated by
    reference to Exhibit 10.4 to our quarterly report on Form
    10-Q for the quarter ended September 30, 2003 filed
    November 13, 2003.)(3)                                                                                                                                                                                                                                                                                                       
|       | 10.42 |  |               | Executive Retention and Severance Agreement dated
    September 30, 2002 between Homestore.com®, Inc. and
    Michael Douglas. (Incorporated by reference to Exhibit 10.4
    to our quarterly report on Form 10-Q for the quarter ended
    September 30, 2002 filed November 14, 2002.)(3)                                                                                                                                                                                                                          
|       | 10.43 |  |               | Offer Letter dated September 30, 2002 between
    Homestore.com®, Inc. and Michael R. Douglas. (Incorporated
    by reference to Exhibit 10.5 to our quarterly report on
    Form 10-Q for the quarter ended September 30, 2002 filed
    November 14, 2002.)(3)                                                                                                                                                                                                                                                      
|       | 10.44 |  |               | Annual Bonus Plan, 2002 of Michael R. Douglas. (Incorporated by
    reference to Exhibit 10.6 to our quarterly report on Form
    10-Q for the quarter ended September 30, 2002 filed
    November 14, 2002.)(3)                                                                                                                                                                                                                                                                                                      
|       | 10.45 |  |               | 2003 Executive Bonus Plan of Michael R. Douglas. (Incorporated
    by reference to Exhibit 10.6 to our quarterly report on
    Form 10-Q for the quarter ended September 30, 2003 filed
    November 13, 2003.)(3)                                                                                                                                                                                                                                                                                                    
|       | 10.46 |  |               | Stipulation and Agreement of Settlement between California State
    Teachers Retirement System and Homestore, Inc. dated as of
    August 12, 2003. (Incorporated by reference to
    Exhibit 10.7 to our quarterly report on Form 10-Q for the
    quarter ended September 30, 2003 filed November 13,
    2003.)                                                                                                                                                                                                  
|       | 10.47 |  |               | Settlement Agreement and Release dated August 5, 2003 among
    Homestore, Inc., Welcome Wagon® International, Inc.,
    Cendant Corporation, Cendant Membership Services Holdings, Inc,
    Century 21 Real Estate Corporation, Coldwell Banker Real Estate
    Corporation, ERA Franchise Systems, Inc., NRT Incorporated, and
    Cendant Mortgage Corporation. (Incorporated by reference to
    Exhibit 10.1 to our quarterly report on Form 10-Q for the
    quarter ended June 30, 2003 filed August 14, 2003.)
|       | 10.48 |  |               | Registration Rights Agreement dated August 5, 2003 among
    Homestore, Inc., Cendant Corporation and Cendant Membership
    Services Holdings, Inc. (Incorporated by reference to
    Exhibit 10.2 to our quarterly report on Form 10-Q for the
    quarter ended June 30, 2003 filed August 14, 2003.)                                                                                                                                                                                                              

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|       |       |  |               |                                                                                                                                                                                                                                                                                         
|------ | ----- |  | ------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |       |  | Exhibit Title
|       |       |  |              
|       | 10.49 |  |               | Listings License Agreement dated August 5, 2003 between
    Cendant Corporation and Homestore, Inc. (Incorporated by
    reference to Exhibit 10.3 to our quarterly report on Form
    10-Q for the quarter ended June 30, 2003 filed
    August 14, 2003.)                             
|       | 10.50 |  |               | Source Code License and Maintenance Services Agreement dated
    August 5, 2003 between Homestore, Inc. and Cendant
    Corporation. (Incorporated by reference to Exhibit 10.4 to
    our quarterly report on Form 10-Q for the quarter ended
    June 30, 2003 filed August 14, 2003.)
|       | 10.51 |  |               | Option Agreement dated August 5, 2003 between Cendant
    Membership Services Holdings, Inc. and Homestore, Inc.
    (Incorporated by reference to Exhibit 10.5 to our quarterly
    report on Form 10-Q for the quarter ended June 30, 2003
    filed August 14, 2003.)                
|       | 10.52 |  |               | Distribution Agreement dated June 30, 2004 between America
    Online, Inc. and Homestore, Inc. (Incorporated by reference to
    Exhibit 10.1 to our quarterly report on Form 10-Q for the
    quarter ended June 30, 2004 filed August 4, 2004.)                                      
|       | 10.53 |  |               | Contract of Sale dated as of April 2004 between 115 south
    Service Road, LLC and Welcome Wagon® International, Inc.
    (Incorporated by reference to Exhibit 10.2 to our quarterly
    report on Form 10-Q for the quarter ended June 30, 2004
    filed August 4, 2004.)           
|       | 10.54 |  |               | Asset Purchase Agreement dated October 6, 2004 between
    Homestore, Inc. and Wyld Acquisition Corp. (Incorporated by
    reference to Exhibit 10.1 to our quarterly report on Form
    10-Q for the quarter ended September 30, 2004 filed
    November 5, 2004.)                     
|       | 10.55 |  |               | Master Distribution Agreement dated February 2, 2005 among
    Homestore, Inc., Homestore Sales Company, Inc. and NRT
    Incorporated.(2)(4)                                                                                                                                           
|       | 14.01 |  |               | Homestore, Inc. Code of Conduct and Business Ethics.
    (Incorporated by reference to Exhibit 14.1 to our current
    report on Form 8-K filed April 7, 2004.)                                                                                                                         
|       | 21.01 |  |               | Subsidiaries of Homestore, Inc.(2)                                                                                                                                                                                                                                                      
|       | 23.01 |  |               | Consent of PricewaterhouseCoopers LLP, Independent Registered
    Public Accounting Firm.(2)                                                                                                                                                                                            
|       | 23.02 |  |               | Report of PricewaterhouseCoopers LLP on Financial Statement
    Schedule.(2)                                                                                                                                                                                                            
|       | 23.03 |  |               | Consent of Ernst & Young LLP, Independent Registered
    Public Accounting Firm.(2)                                                                                                                                                                                                     
|       | 23.04 |  |               | Report of Ernst & Young LLP on Financial Statement
    Schedule.(2)                                                                                                                                                                                                                     
|       | 24.01 |  |               | Power of Attorney (included on signature pages to this
    report).(2)                                                                                                                                                                                                                  
|       | 31.01 |  |               | Certification of Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.(2)                                                                                                                                                                              
|       | 31.02 |  |               | Certification of Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.(2)                                                                                                                                                                              
|       | 32.01 |  |               | Certification of Chief Executive Officer pursuant to
    18 U.S.C. Section 1350 as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.(2)                                                                                                                            
|       | 32.02 |  |               | Certification of Chief Financial Officer pursuant to
    18 U.S.C. Section 1350 as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.(2)                                                                                                                            
|       | 99.01 |  |               | Schedule II  Valuation and Qualifying
    Accounts.(2)                                                                                                                                                                                                                                 






|    |                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Confidential treatment has been granted with respect to certain
    information in these exhibits pursuant to a confidential
    treatment request.  
|   
|(2) | Filed herewith.                                                                                                                                      
|   
|(3) | Denotes management contracts and compensatory plans and
    arrangements.                                                                            
|   
|(4) | Confidential treatment has been requested with respect to
    certain information in these exhibits pursuant to a confidential
    treatment request.

Exhibits




110



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##### Table of Contents






SIGNATURES






| |                
| | ---------------
| | HOMESTORE, 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



POWER OF ATTORNEY






|                                                                  |  |                                      |  |                |  | 
|----------------------------------------------------------------- |  | ------------------------------------ |  | -------------- |  | 
|Signature                                                         |  | Title                                |  | Date          
|                                                                  |  |                                      |  |               
|                                                                 
|Principal Executive Officer:                                      |  |                                      |  |               
|                                                                 
|/s/ W. MICHAEL LONGW.
    Michael Long                            |  | Chief Executive Officer and Director |  | March 11, 2005
|                                                                 
|Principal Financial Officer and Principal Accounting
    Officer: |  |                                      |  |               
|                                                                 
|/s/ LEWIS R. BELOTE, IIILewis
    R. Belote, III                  |  | Chief Financial Officer              |  | March 11, 2005
|                                                                 
|Additional Directors:                                             |  |                                      |  |               
|                                                                 
|/s/ JOE F. HANAUERJoe
    F. Hanauer                              |  | Chairman of the Board and Director   |  | March 11, 2005

111



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##### Table of Contents



|                                                   |  |          |  |                |  | 
|-------------------------------------------------- |  | -------- |  | -------------- |  | 
|Signature                                          |  | Title    |  | Date          
|                                                   |  |          |  |               
|                                                  
|/s/ TERRENCE M. MCDERMOTTTerrence
    M. McDermott |  | Director |  | March 11, 2005
|                                                  
|/s/ L. JOHN DOERRL.
    John Doerr                 |  | Director |  | March 11, 2005
|                                                  
|/s/ WILLIAM E. KELVIEWilliam
    E. Kelvie         |  | Director |  | March 11, 2005
|                                                  
|/s/ KENNETH K. KLEINKenneth
    K. Klein           |  | Director |  | March 11, 2005
|                                                  
|/s/ V. PAUL UNRUHV.
    Paul Unruh                 |  | Director |  | March 11, 2005
|                                                  
|/s/ BRUCE G. WILLISONBruce
    G. Willison         |  | Director |  | March 11, 2005

112