<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------
FORM 8-K/A
AMENDMENT NO. 1
[X] CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Date of Report (Date of earliest event reported)
October 31, 1999
Commission File Number 000-26659
----------------
Homestore.com, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 95-4438337
(State of Other Jurisdiction (I.R.S. Employer
Incorporation or of Organization) Identification Number)
225 West Hillcrest Drive, Suite 100
Thousand Oaks, California 91360
(Address of Principal Executive Office) (Zip Code)
(805) 557-2300
(Registrant's Telephone Number, Including Area Code)
------------------------------------------
===============================================================================
<PAGE>
Item 7. Financial Statements and Exhibits.
On November 15, 1999, Homestore.com, Inc. ("Homestore" or "Company")
filed a Form 8-K to report the completion of its acquisition of Homebuyer's
Fair, Inc. and FAS-Hotline, Inc. (together referred to as "Homefair" or
"Homefair Group") on October 31, 1999. Homestore indicated that it would file
the financial information required by Item 7 of Form 8-K no later than the date
required by this item. Homestore is filing this Amendment No. 1 to provide this
financial information.
(a) Financial Statements.
The following documents appear as Exhibits to this current report on Form
8-K/A:
(i) Consolidated Financial Statements for Homebuyer's Fair, Inc. as
of December 31, 1997, 1998 and September 30, 1999 and for the
years ended December 31, 1997 and 1998 and the nine months ended
September 30, 1999.
(ii) Combined Financial Statements for FAS-Hotline, Inc. and The
Center for Mobility Resources, Inc. as of December 31, 1997,
1998 and March 31, 1999 and for the years ended December 31,
1997 and 1998 and for the three months ended March 31, 1999.
(iii) Financial Statements for National School Reporting Services,
Inc. as of December 31, 1997 and for the year ended December 31,
1997 and for the period from January 1, 1998 to September 9,
1998.
(b) Pro Forma Financial Information.
The following documents appear as Exhibits to this current report on
Form 8-K/A:
(i) Homestore.com, Inc. unaudited pro forma condensed combined
consolidated balance sheet as of September 30, 1999.
(ii) Homestore.com, Inc. unaudited pro forma condensed combined
consolidated statement of operations for the nine months ended
September 30, 1999.
(iii) Homestore.com, Inc. unaudited pro forma condensed combined
consolidated statement of operations for the year ended December
31, 1998.
(iv) Homestore.com, Inc. unaudited pro forma condensed consolidated
statement of operations for the nine months ended September 30,
1999 (excluding the acquisition of Homefair).
(v) Homestore.com, Inc. unaudited pro forma condensed consolidated
statement of operations for the year ended December 31, 1998
(excluding the acquisition of Homefair).
(vi) Homefair Group unaudited pro forma condensed combined
consolidated statement of operations for the nine months ended
September 30, 1999.
(vii) Homefair Group unaudited pro forma condensed combined
consolidated statement of operations for the year ended December
31, 1998.
-2-
<PAGE>
(c) Exhibits.
2.01 Stock Purchase Agreement dated as of October 12, 1999 by and
among Homestore.com, Inc., a Delaware corporation, The
Homebuyer's Fair, Inc., an Arizona corporation ("HBF"), the
current shareholders of HBF as of the date thereof and certain
persons who will become shareholders of HBF prior to the
Closing, and Central Newspapers, Inc., an Indiana corporation
("CNI"), as Shareholder Agent. (Previously filed)
2.02 Stock Purchase Agreement dated as of October 12, 1999 by and
among Homestore.com, Inc., FAS-Hotline, Inc., an Arizona
corporation ("FAS"), the shareholders of FAS, and CNI, as
Shareholder Agent. (Previously filed)
99.01 Consolidated Financial Statements for Homebuyer's Fair, Inc. as
of December 31, 1997, 1998 and September 30, 1999 and for the
years ended December 31, 1997 and 1998 and the nine months ended
September 30, 1999.
99.02 Combined Financial Statements for FAS-Hotline, Inc. and The
Center for Mobility Resources Inc. as of December 31, 1997,
1998 and March 31, 1999 and for the years ended December 31,
1997 and 1998 and for the three months ended March 31, 1999.
99.03 Financial Statements for National School Reporting Services,
Inc. as of December 31, 1997 and for the year ended December 31,
1997 and for the period from January 1, 1998 to September 9,
1998.
99.04 Unaudited Pro Forma Financial Information.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HOMESTORE.COM, INC.
Date: December 7, 1999 By: /s/ JOHN M. GIESECKE
--------------------------
John M. Giesecke, Jr.
Chief Financial Officer,
Vice President and Secretary
-4-
<PAGE>
EXHIBIT 99.01
The Homebuyer's Fair, Inc.
Report on Consolidated Financial Statements
For the years ended December 31, 1997 and 1998
and for the nine months ended September 30, 1999
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
The Homebuyer's Fair, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of The
Homebuyer's Fair, Inc. and its subsidiaries (the "Company") at December 31,
1997 and 1998 and the results of its operations and its cash flows for the
years ended December 31, 1997 and 1998, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Century City, California
November 22, 1999
1
<PAGE>
THE HOMEBUYER'S FAIR, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------- September 30,
1997 1998 1999
-------- ---------- -------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................. $ 96,185 $ 469,486 $ 1,198,888
Accounts receivable, net of allowance for
doubtful accounts of $4,300 at December
31, 1997, $99,901 at December 31, 1998,
and $226,647 at September 30, 1999....... 43,004 235,287 1,208,021
Deferred tax asset........................ 59,296 11,366 88,957
Due from related party.................... -- -- 125,250
Prepaids and other current assets......... -- 31,088 58,001
-------- ---------- -----------
Total current assets........................ 198,485 747,227 2,679,117
Property and equipment, net................. 24,761 183,026 543,486
Goodwill, net............................... -- 6,717,571 10,026,020
-------- ---------- -----------
Total assets............................ $223,246 $7,647,824 $13,248,623
======== ========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.......................... $ 7,250 $ 132,834 $ 259,122
Accrued liabilities....................... -- 81,718 142,075
Income taxes payable...................... 37,289 151,916 803,230
Deferred rent............................. -- 13,591 --
Due to related party...................... 5,284 21,466 144,454
Deferred revenue.......................... 143,203 380,183 450,049
Current portion of capital lease
obligation............................... -- 10,649 11,909
-------- ---------- -----------
Total current liabilities................... 193,026 792,357 1,810,839
Notes payable............................... -- 25,000 25,000
Capital lease obligation.................... -- 31,009 21,920
-------- ---------- -----------
193,026 848,366 1,857,759
-------- ---------- -----------
Commitments and contingencies (Note 9)......
Stockholders' equity:
Common stock, no par value; 2,000 shares
authorized, issued and outstanding at
December 31, 1997 and 1998 and September
30, 1999................................. -- -- --
Additional paid-in capital................ -- 7,000,000 12,300,000
Accumulated earnings (deficit)............ 30,220 (200,542) (909,136)
-------- ---------- -----------
Total stockholders' equity.............. 30,220 6,799,458 11,390,864
-------- ---------- -----------
Total liabilities and stockholders'
equity................................. $223,246 $7,647,824 $13,248,623
======== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
THE HOMEBUYER'S FAIR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended
------------------- September 30,
1997 1998 1999
-------- ---------- -------------
(unaudited)
<S> <C> <C> <C>
Revenues..................................... $635,669 $2,072,165 $5,087,297
Cost of revenues............................. 44,739 261,217 716,193
-------- ---------- ----------
Gross profit................................. 590,930 1,810,948 4,371,104
-------- ---------- ----------
Operating expenses:
Sales and marketing........................ 90,946 528,019 1,599,815
Product development........................ 1,000 132,542 291,350
General and administrative................. 137,713 736,518 1,015,690
Amortization of intangible assets.......... -- 479,826 1,567,173
-------- ---------- ----------
Total operating expenses..................... 229,659 1,876,905 4,474,028
-------- ---------- ----------
Income (loss) from operations................ 361,271 (65,957) (102,924)
Other income (expense)....................... 3,917 (2,248) (28,498)
-------- ---------- ----------
Income (loss) before income tax.............. 365,188 (68,205) (131,422)
Income tax benefit (expense)................. 22,007 (162,557) (577,172)
-------- ---------- ----------
Net income (loss)............................ $387,195 $ (230,762) $ (708,594)
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THE HOMEBUYER'S FAIR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Total
Common Stock Additional Stockholders'
------------- Paid-In Accumulated Equity
Shares Amount Capital Deficit (Deficit)
------ ------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at
January 1, 1997........... -- $ -- $ -- $ (67,194) $ (67,194)
Reorganization............. 2,000
Distributions.............. (289,781) (289,781)
Net income................. 387,195 387,195
----- ---- ----------- --------- -----------
Balance at December 31,
1997....................... 2,000 -- -- 30,220 30,220
Capital contributions made
in connection with
acquisition............... 7,000,000 7,000,000
Net loss................... (230,762) (230,762)
----- ---- ----------- --------- -----------
Balance at December 31,
1998...................... 2,000 -- 7,000,000 (200,542) 6,799,458
Capital contributions made
in connection with
acquisitions (unaudited).. 5,300,000 5,300,000
Net loss (unaudited)....... (708,594) (708,594)
----- ---- ----------- --------- -----------
Balance at September 30,
1999 (unaudited).......... 2,000 $ -- $12,300,000 $(909,136) $11,390,864
===== ==== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THE HOMEBUYER'S FAIR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended
---------------------- September 30,
1997 1998 1999
--------- ----------- -------------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................... $ 387,195 $ (230,762) $ (708,594)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization........... 4,222 27,750 94,106
Provision for doubtful accounts......... 4,300 95,601 126,746
Deferred rent........................... -- (2,360) (13,591)
Amortization of intangible assets....... -- 479,826 1,567,173
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable................... (11,695) (277,905) (928,039)
Other assets.......................... (23,843) (20,445)
Deferred income taxes................. (59,296) 47,930 (77,591)
Accounts payable and accrued
liabilities.......................... 49,823 (266,954) 816,470
Deferred revenues..................... (43,870) (214,830) 69,866
--------- ----------- -----------
Net cash provided by (used in) operating
activities............................. 330,679 (365,547) 926,101
--------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment..... (20,595) (26,994) (241,486)
Acquisition of NSRS, net of cash
acquired............................... -- (5,845,400) --
Acquisition of FAS & CMR, net of cash
acquired............................... -- -- (3,940,269)
--------- ----------- -----------
Net cash used in investing activities... (20,595) (5,872,394) (4,181,755)
--------- ----------- -----------
Cash flows from financing activities:
Capital contributions from Central
Newspaper, Inc. ....................... -- 7,000,000 4,000,000
Capital distributions................... (289,781) -- --
Repayment of note payable............... -- (405,000) --
Net proceeds from (payments to) related
parties................................ -- 16,242 (7,115)
Repayment of capital lease obligation... -- -- (7,829)
--------- ----------- -----------
Net cash provided by (used in) financing
activities............................. (289,781) 6,611,242 3,985,056
--------- ----------- -----------
Change in cash and cash equivalents..... 20,303 373,301 729,402
Cash and cash equivalents, beginning of
period................................. 75,882 96,185 469,486
--------- ----------- -----------
Cash and cash equivalents, end of
period................................. $ 96,185 $ 469,486 $ 1,198,888
========= =========== ===========
Supplemental disclosure of non-cash
investing activities:
Net assets acquired (liabilities
assumed) in connection with
acquisitions........................... $ -- $(1,197,397) $ 424,379
========= =========== ===========
Issuance of equity in connection with
the acquisition of CMR, Inc. .......... $ -- $ -- $ 1,300,000
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THE HOMEBUYER'S FAIR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business:
The Company--The Homebuyer's Fair, Inc. (the "Company") is an Arizona
corporation and subsidiary of Central Newspapers, Inc. ("CNI"), a media and
information company. The Company provides internet-based relocation-related
services and information to individuals who are relocating and to corporations
who are relocating employees.
In September 1998, the Company acquired 100% of National School Reporting
Services, Inc.'s ("NSRS") issued and outstanding common stock at which time
NSRS became a wholly-owned subsidiary of the Company. NSRS provides internet-
based information related to schools across the nation.
In April 1999, the Company acquired 80% of FAS Hotline, Inc.'s ("FAS") and
100% of The Center for Mobility Resources, Inc.'s ("CMR") issued and
outstanding common stock through its parent company, CNI. FAS provides a full
range of both domestic and international relocation services and information
to both individuals and corporations. The information is compiled and
presented in an automated fashion through CMR's web sites.
Effective October 31, 1999, Homestore.com, Inc. acquired from CNI and
minority shareholders all of the Company and its subsidiaries' outstanding
shares of common stock, at which time the Company became a wholly-owned
subsidiary of Homestore.com, Inc.
2. Summary of Significant Accounting Policies:
Basis of Presentation--The consolidated financial statements of the Company
reflect the financial position, results of operations and cash flows of NSRS
from September 10, 1998, and FAS and CMR from April 1, 1999. All intercompany
transactions and balances have been eliminated in consolidation.
Unaudited Interim Financial Information--The interim consolidated financial
information of the Company for the nine months ended September 30, 1999 is
unaudited. The unaudited interim financial information has been prepared on
the same basis as the annual consolidated financial statements and, in the
opinion of management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position,
results of operations and cash flows as of and for the nine months ended
September 30, 1999.
Use of Estimates--The preparation of financial statements in accordance
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent liabilities and the
reported amounts of revenues and expenses. Actual results may differ from
those estimates.
Cash Equivalents--The Company considers all highly liquid investments with
an original maturity of three months or less to be cash equivalents. Cash
equivalents consist primarily of deposits in money market funds.
Concentration of Credit Risk--Financial instruments that potentially
subject the Company to a concentration of credit risk consist of cash and
accounts receivable. Cash and cash equivalents are deposited with high credit
quality financial institutions. The Company's accounts receivable are derived
from revenue earned from customers located in the United States. The Company
maintains an allowance for doubtful accounts based upon the expected
collectibility of accounts receivable.
6
<PAGE>
THE HOMEBUYER'S FAIR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenues generated from one of the Company's customers accounted for 27% of
net revenues for the year ended December 31, 1997 and revenues generated from
another customer accounted for 12% of net revenues for the year ended December
31, 1998. No customers accounted for more than 10% of net revenues for the
nine months ended September 30, 1999 (unaudited). At September 30, 1999
(unaudited), one customer accounted for 13% of net accounts receivable.
Fair Value of Financial Instruments--The Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable,
and notes payable are carried at cost, which approximates their fair values
because of the short-term maturity of these instruments and the relatively
stable interest rate environment.
Property and Equipment--Property and equipment are stated at historical
cost. Depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the assets, generally five years or less,
or the shorter of the lease term or the estimated useful lives of the assets,
if applicable.
Goodwill--Goodwill resulted from the acquisitions of NSRS, FAS and CMR.
This goodwill is being amortized on a straight-line basis over the estimated
period of benefit of five years (Note 5).
The Company reviews its long-lived and intangible assets for impairment
whenever events or changes in circumstances indicate the carrying amount of
such assets may not be recoverable. Recoverability of these assets is
determined by comparing the forecasted undiscounted cash flows attributable to
such assets to their carrying value. If the carrying value of the assets
exceeds the forecasted undiscounted cash flows, then the assets are written
down to their fair value. Fair value is determined based on discounted cash
flows or appraised values, depending upon the nature of the assets.
Revenue Recognition--The Company sells leads and referrals to companies in
the relocation industry services pursuant to short-term contracts. Revenue
from leads and referrals is recognized as leads and referrals are delivered.
The Company also sells banner advertising pursuant to short-term contracts.
Advertising revenue is recognized based upon the lesser of impressions
delivered over the total number of guaranteed impressions or ratably in the
period in which the advertisement is displayed, provided that no significant
company obligations remain and collection of the resulting receivable is
probable. Company obligations typically include the guarantee of a minimum
number of impressions or times that an advertisement appears in pages viewed
by the users of the Company's online properties. Revenues are also derived
from the sale of marketing and advertising products and services to real
estate agents and brokers. Substantially all of the agent marketing products
and services are sold on a monthly, quarterly or annual subscription basis.
Accordingly, such revenues are deferred and recognized ratably over the period
services are provided.
Product Development Costs--Product development costs incurred by the
Company to develop, enhance, manage, monitor and operate the Company's web
sites are expensed as incurred. Costs related to the research and compiling of
information for the Company's web sites are expensed as incurred.
Advertising Expense--Advertising costs are expensed as incurred and totaled
$52,823, $88,591 and $481,227 (unaudited) for the years ended December 31,
1997 and 1998 and for the nine months ended September 30, 1999, respectively.
Income Taxes--Income taxes are accounted for under Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under
SFAS No. 109, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax basis of assets and
liabilities, and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse.
7
<PAGE>
THE HOMEBUYER'S FAIR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fiscal Year End--The Company operates under thirteen-week calendar
quarters. For financial statement presentation purposes, however, the
reporting periods are referred to as ended on the last calendar day of the
period. The accompanying consolidated financial statements for the years ended
December 31, 1997 and 1998 are for the fifty-two weeks ended December 28, 1997
and December 27, 1998, respectively. The accompanying unaudited consolidated
financial statements for the nine-months ended September 30, 1999 are for the
thirty-nine weeks ended September 26, 1999.
Comprehensive Income--Effective January 1, 1998, the Company adopted the
provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting comprehensive income and its components in
financial statements. Comprehensive income, as defined, includes all changes
in equity (net assets) during a period from non-owner sources. To date, the
Company has not had any transactions that are required to be reported in
comprehensive income.
Recent Accounting Pronouncements--In March 1998, the American Institute of
Certified Public Accountants ("AICPA") issued Statement of Position ("SOP")
No. 98-1, "Software for Internal Use," which provides guidance on accounting
for the cost of computer software developed or obtained for internal use. The
adoption of SOP 98-1 in the first quarter of 1999 did not have a significant
impact on the Company's financial position, results of operations or cash
flows.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, start-up costs that
were capitalized in the past must be written off when SOP No. 98-5 is adopted.
The adoption of SOP No. 98-5 during the first quarter of 1999 did not have a
significant impact on the Company's financial position, results of operations
or cash flows.
3. Acquisitions:
Effective September 9, 1998, the Company acquired all the outstanding
shares of NSRS, a Delaware corporation, in exchange for $6,000,000 in cash.
This acquisition was funded through the Company's parent, CNI. The transaction
has been accounted for as a purchase. The excess of purchase consideration
over the net tangible assets acquired of $7,197,397 has been allocated to
goodwill and is being amortized on a straight-line basis over five years. The
purchase agreement also provides for certain contingent earn-out payments in
the event that a predetermined level of earnings is achieved. For the year
ended December 31, 1998 and for the nine months ended September 30, 1999 no
earn-out payments were earned under the terms of this agreement.
Effective April 1, 1999, the Company acquired 80% of the outstanding shares
of FAS, an Arizona corporation, in exchange for $4,000,000 in cash. This
acquisition was funded through the Company's parent, CNI. The transaction has
been accounted for as a purchase. The excess of purchase consideration over
the net tangible assets acquired of $3,659,792 has been allocated to goodwill
and is being amortized on a straight-line basis over five years. The purchase
agreement also provides for certain contingent earn-out payments in the event
that a predetermined level of earnings is achieved. For the nine months ended
September 30, 1999, no earn-out payments were earned under the terms of this
agreement.
Effective April 1, 1999, the Company acquired 100% of the outstanding
shares of CMR through the Company's parent, CNI. Prior to this acquisition,
CNI had owned 89% of the Company. In exchange for 9% of the Company's equity
held by CNI valued at $1,300,000, the Company acquired 100% of CMR. The
transaction has been accounted for as a purchase. The excess of purchase
consideration over the net tangible assets acquired of $1,215,830 has been
allocated to goodwill and is being amortized on a straight-line basis over
five years. The
8
<PAGE>
THE HOMEBUYER'S FAIR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
purchase agreement also provides for certain contingent earn-out payments in
the event that a predetermined level of earnings is achieved. For the nine
months ended September 30, 1999, no earn-out payments were earned under the
terms of this agreement.
The following summarized unaudited pro forma financial information assumes
the acquisitions of NSRS, FAS and CMR occurred at the beginning of each
period:
<TABLE>
<CAPTION>
Year Ended
December 31, Nine Months Ended
---------------------- September 30,
1997 1998 1999
---------- ---------- -----------------
<S> <C> <C> <C>
Revenues.............................. 2,127,000 3,998,000 5,467,000
Net loss.............................. (4,850,000) (3,908,000) (1,083,000)
</TABLE>
4. Property and Equipment:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------- September 30,
1997 1998 1999
------- -------- -------------
(unaudited)
<S> <C> <C> <C>
Computer equipment........................... $29,915 $125,326 $ 569,781
Furniture and fixtures....................... -- 13,062 19,954
Leasehold improvements....................... -- 36,142 39,361
Equipment under capital lease................ -- 41,400 41,400
------- -------- ---------
29,915 215,930 670,496
Less: Accumulated depreciation including
capital lease amortization of $0, $3,577,
and $8,406 at December 31, 1997 and 1998,
and September 30, 1999 (unaudited),
respectively................................ (5,154) (32,904) (127,010)
------- -------- ---------
$24,761 $183,026 $ 543,486
======= ======== =========
</TABLE>
5. Goodwill:
Goodwill consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
Goodwill--NSRS....................................... $7,197,397 $ 7,197,397
Goodwill--FAS & CMR.................................. -- 4,875,622
---------- -----------
7,197,397 12,073,019
Less: Accumulated amortization....................... (479,826) (2,046,999)
---------- -----------
$6,717,571 $10,026,020
========== ===========
</TABLE>
9
<PAGE>
THE HOMEBUYER'S FAIR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Related-Party Transactions:
At December 31, 1997 and 1998, the Company owed $5,284 and $21,466,
respectively to a company owned by certain stockholders of the Company. This
liability resulted from the payment of certain operating expenses on behalf of
the Company.
At September 30, 1999, the Company owed $144,454 (unaudited) to its parent
company, CNI. This liability resulted from CNI paying certain database
consulting fees on behalf of the Company.
At September 30, 1999, the Company was owed $125,250 (unaudited) by its
parent company, CNI. This receivable resulted from the Company paying for
certain expenses on behalf of CNI.
7. Note Payable:
In connection with the acquisition of NSRS, the Company assumed a $25,000
note payable, which is due and payable on June 30, 2002.
8. Income Taxes:
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Current Federal.................................... $(29,868) $ (91,816)
Current State...................................... (7,421) (22,811)
Deferred Federal................................... 47,496 (38,392)
Deferred State..................................... 11,800 (9,538)
-------- ---------
$ 22,007 $(162,557)
======== =========
</TABLE>
The following is a summary of deferred tax assets as of December 31, 1997 and
1998:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating losses.............................. $ -- $ 2,286,061
Depreciation and amortization..................... -- 413,349
Accruals and reserves............................. 59,296 158,173
------- -----------
Total deferred tax assets......................... 59,296 2,857,583
Less: valuation allowance......................... -- (2,846,217)
------- -----------
$59,526 $ 11,366
======= ===========
</TABLE>
As a result of the acquisition of NSRS by the Company, the deferred tax
assets and related valuation allowance of NSRS are included in the Company's
deferred tax asset balance at December 31, 1998. NSRS has net operating loss
("NOL") carryforwards for federal and state income tax purposes of
approximately $5,686,718 which expire beginning in the tax year 2011.
Realization of these NOLs and other deferred tax assets is dependent on future
earnings of NSRS, if any, the timing and the amount of which are uncertain.
Accordingly, based on management's assessment, a valuation allowance, related
solely to the NSRS NOLs and deferred tax assets, has been established to
reflect these uncertainties. The valuation allowance increased by $0 and
$2,846,217 during the years ended December 31, 1997 and 1998, respectively.
10
<PAGE>
THE HOMEBUYER'S FAIR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company was acquired by CNI in October 1997 thereby terminating the
Company's Limited Liability Company ("LLC") status. LLCs generally are treated
as partnerships for tax purposes and thus income and losses of LLCs flow
through to the partners and are taxed on the partners' income tax returns.
Following the acquisition, the Company's income and losses were included in
CNI's consolidated income tax return.
The provision for income taxes results in an effective tax rate that
differs from the federal statutory rate as a result of the acquisition of the
Company by CNI and nondeductible goodwill.
<TABLE>
<CAPTION>
For the years
ended December 31,
-------------------
1997 1998
--------- --------
<S> <C> <C>
Federal statutory provision (benefit).................. $ 130,354 $(26,409)
State taxes, net of federal benefit.................... (2,847) 21,027
Permanent differences.................................. (149,514) 167,939
--------- --------
$ (22,007) $162,557
========= ========
</TABLE>
9. Commitments and Contingencies:
Operating Leases
The Company leases certain facilities and equipment under noncancellable
operating leases with various expiration dates through 2001. The leases
generally contain renewal options and payments that may be adjusted for
increases in operating expenses and increases in the Consumer Price Index.
Future minimum lease payments under these operating leases as of December
31, 1998 are as follows:
<TABLE>
<S> <C>
1999............................................................. $ 47,154
2000............................................................. 97,426
2001............................................................. 12,520
--------
Total.......................................................... $157,100
========
</TABLE>
Rental expense for operating leases was $19,327, $29,400 and $63,506 for
the years ended December 31, 1997 and 1998 and for the nine months ended
September 30, 1999 (unaudited), respectively.
11
<PAGE>
THE HOMEBUYER'S FAIR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In connection with the acquisition of NSRS, the Company assumed capital
leases for certain computer, telephone and copier equipment. The future
minimum lease payments under capital leases, (including present value of net
minimum lease payments) as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 16,162
2000.............................................................. 16,162
2001.............................................................. 16,162
2002.............................................................. 3,570
2003.............................................................. 964
--------
Total minimum obligations......................................... 53,020
Less amounts representing interest................................ (11,362)
--------
Present value of minimum obligations.............................. 41,658
Less current portion.............................................. 10,649
--------
Long-term obligations............................................. $ 31,009
========
</TABLE>
Contingencies
From time to time, the Company has been party to various litigation and
administrative proceedings relating to claims arising from its operations in
the normal course of business. Based on the advice of counsel, management
believes that the resolution of these matters will not have a material adverse
effect on the Company's business, results of operations, financial condition
or cash flows.
12
<PAGE>
EXHIBIT 99.02
FAS-Hotline, Inc. & The Center
For Mobility Resources, Inc.
Combined Financial Statements
For the Years Ended December 31, 1997 and 1998
and for the three months ended March 31, 1999
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
FAS-Hotline, Inc. and The Center For Mobility Resources, Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of FAS-
Hotline, Inc. and The Center For Mobility Resources, Inc. (collectively
referred to as the "Company") at December 31, 1997 and 1998, and the results
of their operations and their cash flows for the years ended December 31, 1997
and 1998, in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Century City, California
November 22, 1999
1
<PAGE>
FAS-HOTLINE, INC. AND CMR, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------- March 31,
1997 1998 1999
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash........................................... $ 66,171 $105,421 $ 59,731
Accounts receivable, net of allowance for
doubtful accounts of $10,000 at December 31,
1997 and 1998, and March 31, 1999............. 108,767 85,046 161,441
Due from related parties....................... -- 11,430 5,744
Other current assets........................... -- -- 6,468
-------- -------- ---------
Total current assets............................. 174,938 201,897 233,384
Property and equipment, net...................... 194,712 186,332 213,081
-------- -------- ---------
Total assets................................. $369,650 $388,229 $ 446,465
======== ======== =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable............................... $ 20,914 $ 37,758 $ 22,467
Accrued liabilities............................ 9,424 19,988 6,486
Due to related parties......................... 2,041 5,343 10,607
-------- -------- ---------
Total current liabilities........................ 32,379 63,089 39,560
-------- -------- ---------
Commitments (Note 4).............................
Stockholders' equity:
Common stock, no par value; 100,000 shares
authorized, 2,300 shares issued and
outstanding at December 31, 1997, 1998 and
March 31, 1999................................ -- -- --
Additional paid-in capital..................... 122,891 257,891 515,495
Accumulated earnings (deficit)................. 214,380 67,249 (108,590)
-------- -------- ---------
Total stockholders' equity................... 337,271 325,140 406,905
-------- -------- ---------
Total liabilities and stockholders' equity... $369,650 $388,229 $ 446,465
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
2
<PAGE>
FAS-HOTLINE, INC. AND CMR, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended
--------------------- March 31,
1997 1998 1999
--------- ---------- ------------
(unaudited)
<S> <C> <C> <C>
Net revenues................................ $ 681,321 $1,310,842 $ 380,003
Cost of revenues............................ 30,880 188,839 19,509
--------- ---------- ---------
Gross profit................................ 650,441 1,122,003 360,494
--------- ---------- ---------
Operating expenses:
Sales and marketing....................... 278,323 610,191 188,094
Product development....................... 36,219 26,780 103,500
General and administrative................ 377,447 598,801 139,602
--------- ---------- ---------
Total operating expenses.................... 691,989 1,235,772 431,196
--------- ---------- ---------
Net loss.................................... $ (41,548) $ (113,769) $ (70,702)
========= ========== =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
3
<PAGE>
FAS-HOTLINE, INC. AND CMR, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
------------- Paid-In Accumulated
Shares Amount Capital (Deficit) Total
------ ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996.. 2,300 $ -- $ 2,300 $ 275,928 $ 278,228
Distributions................. (20,000) (20,000)
Capital contributions......... 120,591 120,591
Net loss...................... (41,548) (41,548)
----- ----- -------- --------- ---------
Balance at December 31, 1997.. 2,300 -- 122,891 214,380 337,271
Distributions................. (33,362) (33,362)
Capital contributions......... 135,000 135,000
Net loss...................... (113,769) (113,769)
----- ----- -------- --------- ---------
Balance at December 31, 1998.. 2,300 -- 257,891 67,249 325,140
Distributions (unaudited)..... (105,137) (105,137)
Capital contributions
(unaudited).................. 257,604 257,604
Net loss (unaudited).......... (70,702) (70,702)
----- ----- -------- --------- ---------
Balance at March 31, 1999
(unaudited).................. 2,300 $ -- $515,495 $(108,590) $ 406,905
===== ===== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
4
<PAGE>
FAS-HOTLINE, INC. AND CMR, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended
-------------------- March 31,
1997 1998 1999
--------- --------- ------------
(unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................... $ (41,584) $(113,769) $ (70,702)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Provision for doubtful accounts............ 10,000 -- --
Depreciation and amortization.............. 56,472 100,610 40,875
Changes in operating assets and
liabilities:
Accounts receivable and related party
receivables............................. 104,092 12,292 (70,709)
Other current assets..................... -- -- (6,468)
Accounts payable and other current
liabilities............................. (8,609) 30,710 (23,529)
--------- --------- ---------
Net cash provided by (used in) operating
activities................................ 120,371 29,843 (130,533)
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment........ (164,293) (92,231) (67,624)
--------- --------- ---------
Net cash used in investing activities...... (164,293) (92,231) (67,624)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from capital contributions........ 120,591 135,000 257,604
Capital distributions...................... (20,000) (33,362) (105,137)
--------- --------- ---------
Net cash provided by financing activities.. 100,591 101,638 152,467
--------- --------- ---------
Change in cash............................. 56,669 39,250 (45,690)
Cash, beginning of period.................. 9,502 66,171 105,421
--------- --------- ---------
Cash, end of period........................ $ 66,171 $ 105,421 $ 59,731
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
5
<PAGE>
FAS-HOTLINE, INC. AND CMR, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Business:
FAS-Hotline, Inc. ("FAS") and The Center for Mobility Resources, Inc.
("CMR") (the "Companies" or "Company") are Arizona corporations that were
formed on July 7, 1994 and March 9, 1995, respectively. The Company is a
provider of a full range of both domestic and international relocation
services, which include cost of living comparisons, homemarketing and selling,
homebuying, mortgage information and van line services, and rental property
support.
Effective April 1, 1999, The Homebuyer's Fair, Inc. ("HBF") acquired 100%
of CMR's outstanding shares of Common Stock, and Central Newspapers, Inc.
("CNI") (CNI, parent company of HBF) acquired 80% of FAS's outstanding shares
of Common Stock, at which time the Companies effectively became wholly owned
subsidiaries of HBF and its parent, CNI.
On October 31, 1999, Homestore.com acquired all of HBF and its
subsidiaries' outstanding shares of common stock, at which time the Company
became a wholly-owned subsidiary of Homestore.com, Inc.
2. Summary of Significant Accounting Policies:
Basis of Presentation--The combined financial statements include the
accounts of the Companies. All intercompany transactions and balances have
been eliminated in combination.
Unaudited Interim Financial Information--The interim consolidated financial
information of the Company for the three months ended March 31, 1999 is
unaudited. The unaudited interim financial information has been prepared on
the same basis as the annual consolidated financial statements and, in the
opinion of management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position,
results of operations and cash flows as of and for the three months ended
March 31, 1999.
Use of Estimates--The preparation of financial statements in accordance
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those estimates.
Concentration of Credit Risk--Financial instruments that potentially
subject the Company to a concentration of risk consist of cash and accounts
receivable. Cash is deposited with high credit quality financial institutions.
The Company's accounts receivable are derived from revenue earned from
customers located in the United States. The Company maintains an allowance for
doubtful accounts based upon the expected collectibility of its accounts
receivable.
During the years ended December 31, 1997 and 1998 and for the three months
ended March 31, 1999 (unaudited) no customers accounted for more than 10% of
net revenues or net accounts receivable.
Property and Equipment--Property and equipment are stated at historical
cost. Depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the assets, generally five years or less,
or the shorter of the lease term or the estimated useful lives of the assets,
if applicable.
Long-Lived Assets--The Company continually reviews the recoverability of
the carrying value of long-lived assets. The Company also reviews long-lived
assets for impairment whenever events or changes in circumstances indicate the
carrying amount of such assets may not be recoverable. Recoverability of these
assets is determined by comparing the forecasted undiscounted cash flows
attributable to such assets to their carrying value. If the
6
<PAGE>
FAS-HOTLINE, INC. AND CMR, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
carrying value of the assets exceeds the forecasted undiscounted cash flows,
then the assets are written down to their fair value, Fair value is determined
based on discounted cash flows or appraised values, depending upon the nature
of the assets.
Revenue Recognition--The primary source of the Company's revenue is derived
from the sale of referrals to van lines, mortgage providers and other
companies in the real estate and relocation industry. Revenue is recognized as
such referrals are made.
Product Development Costs--Costs related to the research and compiling of
cost of living information is expensed as incurred.
Advertising Expenses--Advertising costs are expensed as incurred and
totalled $32,928, $42,168 and $27,009 (unaudited) for the years ended December
31, 1997 and 1998 and for the three months ended March 31, 1999, respectively.
Income Taxes--Income taxes are accounted for under Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under
SFAS No. 109, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Comprehensive Income--Effective January 1, 1998, the Company adopted the
provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting comprehensive income and its components in
financial statements. Comprehensive income, as defined, includes all changes
in equity (net assets) during a period from non-owner sources. To date, the
Company has not had any transactions that are required to be reported in
comprehensive income.
Recent Accounting Pronouncements--In March 1998, the American Institute of
Certified Public Accountants ("AICPA") issued Statement of Position ("SOP")
No. 98-1, "Software for Internal Use," which provides guidance on accounting
for the cost of computer software developed or obtained for internal use. The
adoption of SOP 98-1 in the first quarter of 1999 did not have a significant
impact on the Company's financial position, results of operations or cash
flows.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, start-up costs that
were capitalized in the past must be written off when SOP No. 98-5 is adopted.
The adoption of SOP No. 98-5 during the first quarter of 1999 did not have a
significant impact on the Company's financial position, results of operations
or cash flows.
3. Property and Equipment:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------- March 31,
1997 1998 1999
-------- --------- -----------
(Unaudited)
<S> <C> <C> <C>
Computer equipment.......................... $235,430 $ 312,866 $ 380,490
Office furniture and fixtures............... 27,794 42,588 42,588
-------- --------- ---------
263,224 355,454 423,078
Less: Accumulated depreciation.............. (68,512) (169,122) (209,997)
-------- --------- ---------
$194,712 $ 186,332 $ 213,081
======== ========= =========
</TABLE>
7
<PAGE>
FAS-HOTLINE, INC. AND CMR, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
4. Commitments:
The Company leases its office facility under a three year noncancellable
operating lease. The lease contains renewal options and payments that may be
adjusted for increases in operating expenses and increases in the Consumer
Price Index. Future minimum lease payments under this noncancellable operating
lease as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 50,190
2000.............................................................. 52,426
2001.............................................................. 8,770
--------
Total......................................................... $111,386
========
</TABLE>
Rent expense was $17,506, $31,856 and $8,355 (unaudited) for the years
ended December 31, 1997 and 1998, and for the three months ended March 31,
1999, respectively.
5. Related Party Transactions:
At December 31, 1997 and 1998 and as of March 31, 1999, the Company had an
outstanding receivable due from HBF in the amount of $0, 11,430, and $5,744
(unaudited), respectively. This receivable resulted from FAS paying certain
operating expenses on behalf of HBF.
At December 31, 1997 and 1998, and as of March 31, 1999, the Company owed
$2,041, $5,343, and $10,607 (unaudited), respectively to HBF. This liability
resulted from HBF paying certain operating expenses on behalf of the Company.
During the year ended December 31, 1998, the Company paid sales commissions
to two of the Company's stockholders amounting to $199,907.
During 1997 and 1998, the Company entered into a consulting agreement with
a shareholder of the Company. The agreement provided for an annual fee of
$80,000 for management services. Included in general and administrative
expenses for 1997 and 1998 are management fees of $80,000, respectively. The
contract was cancelled on January 1, 1999.
6. Income Taxes:
The Companies are Subchapter S corporations for federal and state income
tax purposes. In accordance with federal and state provisions, corporate
earnings flow through to the stockholders and are taxed at the stockholder
level. Deferred income tax assets and liabilities are not considered material
to the financial position of the Companies at December 31, 1997 and 1998, and
March 31, 1999. The provision for income taxes is comprised of the minimum
Arizona franchise tax and is not material for the years ended December 31,
1997 and 1998 and for the three months ended March 31, 1999. Due to the
acquisition of the Companies by HBF on April 1, 1999, the Company's Subchapter
S status terminated (Note 1).
8
<PAGE>
EXHIBIT 99.03
National School Reporting
Services, Inc.
Report on Financial Statements
For the Year Ended December 31, 1997
and for the Period from January 1, 1998 through
September 9, 1998
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
National School Reporting Services, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of National School Reporting
Services, Inc. (the "Company") at December 31, 1997 and the results of its
operations and its cash flows for the year ended December 31, 1997 and the
period from January 1, 1998 to September 9, 1998, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Century City, California
November 22, 1999
1
<PAGE>
NATIONAL SCHOOL REPORTING SERVICES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Assets
Current assets:
Cash........................................................... $ 1,797
Accounts receivable, net of allowance for doubtful accounts of
$1,978........................................................ 3,069
Prepaid expenses and other current assets...................... 4,294
-----------
Total current assets............................................. 9,160
-----------
Property and equipment, net...................................... 230,682
Other assets..................................................... 7,004
-----------
Total assets................................................. $ 246,846
===========
Liabilities, Redeemable Convertible Preferred Stock and
Stockholders' Equity Deficit
Current liabilities:
Accounts payable............................................... $ 108,722
Accrued liabilities............................................ 75,541
Accrued professional fees...................................... 124,215
Due to related party........................................... 67,500
Deferred revenue............................................... 204,116
Deferred rent.................................................. 20,671
Current portion of capital lease obligation.................... 7,775
-----------
Total current liabilities........................................ 608,540
Capital lease obligation......................................... 34,690
Note payable..................................................... 25,000
-----------
668,230
-----------
Commitments (Note 9).............................................
Redeemable convertible preferred stock, $0.01 par value; 7,077
shares authorized,
5,002 issued and outstanding; redemption value of $5,862,024.... 5,862,024
-----------
Stockholders' deficit:
Common stock, $0.01 par value, 11,123,934 shares authorized,
4,166,675 shares issued and outstanding....................... 41,667
Additional paid-in capital..................................... 190,000
Note receivable from stockholder............................... (33,224)
Accumulated deficit............................................ (6,481,851)
-----------
Total stockholders' deficit.................................. (6,283,408)
-----------
Total liabilities and stockholders' equity................... $ 246,846
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
NATIONAL SCHOOL REPORTING SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
January 1,
1998
Year Ended through
December September
31, 1997 9, 1998
----------- -----------
<S> <C> <C>
Net revenues........................................ $ 810,083 $ 615,058
Cost of revenues.................................... 312,001 153,326
----------- -----------
Gross profit........................................ 498,082 461,732
----------- -----------
Operating expenses:
Sales and marketing............................... 1,032,627 634,811
Product development............................... 584,788 173,298
General and administrative........................ 1,393,822 1,566,993
----------- -----------
Total operating expenses............................ 3,011,237 2,375,102
----------- -----------
Loss from operations................................ (2,513,155) (1,913,370)
Interest expense, net............................... 11,398 6,206
Other expense....................................... 16,840 3,214
----------- -----------
Net loss............................................ (2,541,393) (1,922,790)
Accrued dividends on redeemable convertible
preferred stock.................................... (502,904) (126,944)
----------- -----------
Net loss applicable to common stockholders.......... $(3,044,297) $(2,049,734)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
NATIONAL SCHOOL REPORTING SERVICES, INC
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Note
Common Stock Additional Receivable Total
----------------- Paid-in From Accumulated Stockholders'
Shares Amount Capital Stockholder Deficit Deficit
--------- ------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1996................... 4,166,675 $41,667 $ -- $(33,224) $(3,437,554) $(3,429,111)
Accrued stock
compensation for
services............... 190,000 190,000
Accrued dividends on
redeemable convertible
preferred stock........ (502,904) (502,904)
Net loss................ (2,541,393) (2,541,393)
--------- ------- ---------- -------- ----------- -----------
Balances at December 31,
1997................... 4,166,675 41,667 190,000 (33,224) (6,481,851) (6,283,408)
Forgiveness of note
receivable............. 33,224 33,224
Issuance of common stock
for services........... 1,225,383 12,254 480,173 492,427
Stock-based compensation
for options granted.... 535,445 535,445
Conversion of note
payable to common
stock.................. 133,334 1,333 48,667 50,000
Repurchase of preferred
stock.................. 4,418,778 4,418,778
Accrued dividends on
redeemable convertible
preferred stock........ (126,944) (126,944)
Net loss................ (1,922,790) (1,922,790)
--------- ------- ---------- -------- ----------- -----------
Balance at September 9,
1998................... 5,525,392 $55,254 $5,673,063 $ -- $(8,531,585) $(2,803,268)
========= ======= ========== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
NATIONAL SCHOOL REPORTING SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
January 1,
1998
Year Ended Through
December September
31, 1997 9, 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................ $(2,541,393) $(1,922,790)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization....................... 437,165 80,949
Deferred rent....................................... (7,080) (4,720)
Forgiveness of note receivable from stockholder..... -- 33,224
Stock-based compensation............................ 190,000 1,027,871
Other non-cash items................................ 11,451 37,500
Changes in operating assets and liabilities:
Accounts receivable............................... 16,668 (6,910)
Prepaid expenses and other current assets......... 5,826 4,053
Accounts payable and accrued liabilities.......... 106,836 280,405
Deferred revenues................................. (104,193) 247,694
----------- -----------
Net cash used in operating activities............... (1,884,720) (222,724)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment................. (33,028) (2,825)
Proceeds from sale of assets........................ 7,703 --
----------- -----------
Net cash used in investing activities............... (25,325) (2,825)
----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of redeemable preferred
stock.............................................. 1,850,000 350,000
Repayment of capital lease obligations.............. (4,025) (7,260)
Proceeds from notes payable......................... 30,000 --
Repayment of related party notes payable............ (25,000) (30,000)
----------- -----------
Net cash provided by financing activities........... 1,850,975 312,740
----------- -----------
Change in cash...................................... (59,070) 87,191
Cash, beginning of period........................... 60,867 1,797
----------- -----------
Cash, end of period................................. $ 1,797 $ 88,988
=========== ===========
Supplemental disclosure of cash flows activities:
Cash paid during the year for interest.............. $ 11,398 $ 6,206
=========== ===========
Supplemental schedule of non-cash investing and
financing activities:
Issuance of note payable in exchange for repurchase
of redeemable convertible preferred stock.......... $ -- $ 405,000
=========== ===========
Conversion of related party payables into common
stock.............................................. $ -- $ 50,000
=========== ===========
Conversion of related party payables into redeemable
convertible preferred stock........................ $ -- $ 25,000
=========== ===========
Equipment obtained under capital lease obligation... $ 46,490 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
NATIONAL SCHOOL REPORTING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. The Company And Summary Of Significant Accounting Policies:
The Company--National School Reporting Services, Inc. (the "Company"), a
Delaware corporation, is a leading provider of school information to the
relocation market. Prior to moving, families can obtain school information
free on the Company's network of Internet sites or through our network of real
estate agents and brokers, who subscribe to the Company's service. Service
programs offer selected products and services to enhance the existing
relationships between the relocation industry and its customers.
Effective September 9, 1998, The Homebuyer's Fair, Inc. ("HBF"), an Arizona
corporation and a subsidiary of Central Newspapers, Inc. ("CNI"), acquired all
of the Company's issued and outstanding shares of common stock, at which time
the Company became a wholly-owned subsidiary of HBF.
Effective October 31, 1999, Homestore.com, Inc. acquired all of HBF and its
subsidiaries' outstanding common stock from CNI, at which time HBF became a
wholly-owned subsidiary of Homestore.com, Inc.
2. Summary of Significant Accounting Policies:
Use of Estimates--The preparation of financial statements in accordance
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results may differ from those estimates.
Concentration of Credit Risk--Financial instruments that potentially
subject the Company to a concentration risk consist of cash and accounts
receivable. Cash is deposited with high credit quality financial institutions.
The Company's accounts receivable are derived from revenue earned from
customers located in the United States. The Company maintains an allowance for
doubtful accounts based upon the expected collectibility of accounts
receivable.
During the year ended December 31, 1997 and for the period from January 1,
1998 through September 9, 1998, no customers accounted for more than 10% of
net revenues or net accounts receivable.
Property and Equipment--Property and equipment are stated at historical
cost. Depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the assets, generally three to five years,
or the shorter of the lease term or the estimated useful lives of the assets,
if applicable.
Long-Lived Assets--The Company continually reviews the recoverability of
the carrying value of long-lived assets. The Company also reviews long-lived
assets for impairment whenever events or changes in circumstances indicate the
carrying amount of such assets may not be recoverable. Recoverability of these
assets is determined by comparing the forecasted undiscounted cash flows
attributable to such assets to their carrying value. If the carrying value of
the assets exceeds the forecasted undiscounted cash flows, then the assets are
written down to their fair value. Fair value is determined based on discounted
cash flows or appraised values, depending upon the nature of the assets.
Revenue Recognition--Revenues are derived from the sale of advertising and
marketing products and services to real estate agents and brokers.
Substantially all of the agent advertising products and services are sold on a
monthly, quarterly or annual subscription basis. Accordingly, revenues are
deferred and recognized ratably over the service period, as such services are
rendered.
Product Development Costs--Product development costs incurred by the
Company to develop, enhance, manage, monitor and operate the company's
websites are expensed as incurred. Costs related to the research, compiling
and updating of school information are expensed as incurred.
6
<PAGE>
NATIONAL SCHOOL REPORTING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Advertising Expense--Advertising costs are expensed as incurred and
totalled $58,083 during the year ended December 31, 1997 and $20,128 for the
period from January 1, 1998 through September 9, 1998.
Income Taxes--The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes", which requires the use of the liability method in accounting
for income taxes. Under SFAS No. 109, deferred tax assets and liabilities are
measured based on differences between the financial reporting and tax basis of
assets and liabilities using enacted tax rate and laws that are expected to be
in effect when the differences are expected to reverse.
Stock-Based Compensation--The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Under APB 25, compensation expense
is recognized over the vesting period based on the difference, if any, on the
date of grant between the deemed fair value for accounting purposes
of the Company's stock and the exercise price on the date of grant. The
Company accounts for stock issued to non-employees in accordance with the
provisions of SFAS No. 123 and Emerging Issues Task Force ("EITF") 96-18.
Comprehensive Income--Effective January 1, 1998, the Company adopted the
provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting comprehensive income and its components in
financial statements. Comprehensive income, as defined, includes all changes
in equity (net assets) during a period from non-owner sources. To date, the
Company has not had any transactions that are required to be reported in
comprehensive income.
Recent Accounting Pronouncements--In March 1998, the American Institute of
Certified Public Accountants ("AICPA") issued Statement of Position ("SOP")
No. 98-1, "Software for Internal Use," which provides guidance on accounting
for the cost of computer software developed or obtained for internal use. The
adoption of SOP 98-1 in the first quarter of 1999 did not have a significant
impact on the Company's financial position, results of operations or cash
flows.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, start-up costs that
were capitalized in the past must be written off when SOP No. 98-5 is adopted.
The adoption of SOP No. 98-5 during the first quarter of 1999 did not have a
significant impact on the Company's financial position, results of operations
or cash flows.
3. Related Party Transactions:
At December 31, 1997 the Company had a note receivable from stockholder in
the amount of $33,224. At September 9, 1998, the note was forgiven and
recorded as compensation expense.
On July 1, 1992, the Company obtained a $12,500 note payable from a
stockholder which is due and payable on July 31, 2002. This note was issued in
connection with a Participation Agreement (see Note 8). During 1998, the note
was converted into 25 shares of the Company's redeemable preferred stock (see
note 10).
On November 15, 1992, the Company obtained a $25,000 note payable from a
stockholder which is due and payable on November 15, 2002. The note bears
interest at a rate of 7.02% per annum. During 1998, the note plus accrued
interest was converted into 133,334 shares of the Company's Common Stock (see
Note 10).
On December 10, 1997, the Company obtained a $30,000 note payable from a
stockholder. The note bears interest at a rate of 8% per annum. The principle
and interest on this note was paid on February 12, 1998.
7
<PAGE>
NATIONAL SCHOOL REPORTING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Income Taxes:
The provision for income taxes results in an effective tax rate that
differs from the federal statutory rate primarily due to the establishment of
a valuation allowance against the Company's net operating losses and other
deferred tax assets.
The following is a summary of deferred tax assets as of December 31, 1997:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.............................. $ 1,657,544
Accruals and reserves......................................... 158,556
Other......................................................... 257,156
-----------
Total deferred tax assets................................... 2,073,256
Less: valuation allowance....................................... (2,073,256)
-----------
Net deferred tax assets....................................... $ --
===========
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $4,123,245 which begin
to expire in the tax year 2011.
Realization of net operating losses and deferred tax assets is dependent on
future earnings, if any, the timing and the amount of which are uncertain.
Accordingly, based on management's assessment, a valuation allowance in an
amount equal to the deferred tax assets as of December 31, 1997 has been
established to reflect these uncertainties.
5. Property and Equipment:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Equipment under capital lease................................. $ 46,490
Computer equipment and software............................... 1,128,056
Office furniture and fixtures................................. 37,307
Leasehold improvements........................................ 78,501
-----------
1,290,354
Less: accumulated depreciation including capital lease
amortization of $7,660....................................... (1,059,672)
-----------
$ 230,682
===========
</TABLE>
6. Accrued Liabilities:
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Accrued payroll and employee benefits........................... $ 40,144
Other accrued liabilities....................................... 35,397
--------
$ 75,541
========
</TABLE>
7. Note Payable:
On July 1, 1992, the Company obtained a $25,000 note payable, which is due
and payable on June 30, 2002. This note was issued in connection with a
Participation Agreement (see Note 8).
8
<PAGE>
NATIONAL SCHOOL REPORTING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Participation Agreement:
On July 1, 1992 the Company entered into Participation Agreements with two
individuals ("Participants"). The Participants invested funds to further
finance the Company's operations and marketing efforts in exchange for a
participation interest in the annual fees paid by real estate agencies in
territories as stipulated in the Agreements and a Promissory Note for the
investment amount (see Notes 3 and 7).
Participation interest is calculated based on the number of real estate
agencies (new and renewal) at varying rates. Expense related to the
participation agreements was $8,586 and $3,672 for the year ended December 31,
1997 and for the period from January 1, 1998 through September 9, 1998,
respectively.
The Agreements are for a period of ten years ending June 30, 2002. In
addition, the Agreements include a call provision granting the Company the
option of purchasing all of the Participant's participation interest and other
rights and terminate all of the Company's obligations at amounts stipulated in
the Agreement. During 1998, the Company called the Participation Agreement
with a related party (see Note 3). As part of this call, the principal and
related participation interest was converted into 25 shares of the Company's
Series D Preferred Stock (see Note 10).
9. Commitments:
On December 1, 1995 the Company entered into a noncancellable five year
operating lease. The lease provides free rent for the first six months. In
accordance with SFAS No. 13, "Accounting for Leases" the free rent is deferred
and recognized over the term of the related lease. The effect of such
accounting results in additional cash payments over rent expense of $7,080 and
$4,720 for the year ended December 31, 1997 and for the period from January 1,
1998 through September 9, 1998, respectively. Future minimum lease payments
under this noncancellable operating lease are $70,850 per year for 1998
through 2000.
Rent expense was $63,770 for the year ended December 31, 1997 and $48,417
for the period from January 1, 1998 through September 9, 1998.
During 1997, the Company entered into capital leases for certain computer
and telephone equipment totaling $46,490 of capitalized costs.
The future minimum lease payments under capital leases, (including the
present value of net minimum lease payments) as of December 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998............................................................. $ 13,270
1999............................................................. 13,270
2000............................................................. 13,270
2001............................................................. 13,270
2002............................................................. 678
--------
Total minimum obligations........................................ 53,758
Less amounts representing interest............................... (11,293)
--------
Present value of minimum obligations............................. 42,465
Less current portion............................................. 7,775
--------
Long-term obligations............................................ $ 34,690
========
</TABLE>
9
<PAGE>
NATIONAL SCHOOL REPORTING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. Stockholders' Deficit
The Company has one class of authorized common stock and four series of
authorized redeemable convertible preferred stock ("preferred stock").
Common Stock
The Company is required to reserve and keep available out of its authorized
but unissued shares of common stock such number of shares sufficient to effect
the conversion of all outstanding shares of preferred stock and all
outstanding common stock warrants, plus shares granted and available for grant
under the Company's stock option plan. The amount of such shares of common
stock reserved for these purposes is as follows:
<TABLE>
<CAPTION>
December 31, September 9,
1997 1998
------------ ------------
<S> <C> <C>
Conversion of preferred stock.................... 9,038,211 3,110,808
Outstanding warrants............................. -- 1,077,360
Outstanding stock options........................ 75,758 1,180,796
Additional shares available for grant under the
Company's stock option plan..................... 1,496,573 391,535
---------- ---------
10,610,542 5,760,499
========== =========
</TABLE>
Preferred Stock
As of December 31, 1997 and September 9, 1998, the Company had the
following preferred stock outstanding:
<TABLE>
<CAPTION>
December 31, September 9,
1997 1998
------------ ------------
<S> <C> <C>
Series A, $0.01 par value, 2,152 shares
authorized, 2,152 and 238 shares issued and
outstanding at December 31, 1997 and September
9, 1998, respectively........................... $2,735,333 $ 324,983
Series B, $0.01 par value, 1,000 shares
authorized, 1,000 and 0 shares issued and
outstanding at December 31, 1997 and September
9, 1998, respectively........................... 1,151,967 --
Series C, $0.01 par value, 3,250 and 2,575 shares
authorized, 1,550 and 425 shares issued and
outstanding at December 31, 1997 and
September 9, 1998, respectively................. 1,674,724 494,269
Series D, $0.01 par value, 675 authorized, 300
and 675 shares issued and outstanding at
December 31, 1997 and September 9, 1998,
respectively.................................... 300,000 720,937
---------- ----------
$5,862,024 $1,540,189
========== ==========
</TABLE>
Each share of Series A, B, C and D preferred stock is entitled to vote on
all matters. Each holder of preferred stock is entitled to the number of votes
equal to the number of shares of common stock into which such shares of
preferred stock shares could then be converted. The holders of preferred
stock, voting as a separate class, elect four members of the Board of
Directors.
10
<PAGE>
NATIONAL SCHOOL REPORTING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Each share of preferred stock earns cumulative dividends at a rate of $120
per share per year. These dividends accrue whether or not earned or declared.
Additionally, the preferred stock is convertible at the option of the holder
into shares of common stock equal to the initial purchase value of preferred
shares of $1,000 per share divided by the applicable conversion rate. The
conversion rates for the preferred stock at December 31, 1997 and September 9,
1998 were $0.7709 for Series A, $0.3855 for series B, $0.42405 for Series C
and $0.375 for Series D.
In addition, each share of preferred stock shall automatically be converted
into shares of common stock at the then effective Conversion Rate for such
share immediately prior to the consummation of a firmly underwritten public
offering of common stock. The Preferred Stock is converted provided that the
price per share is not less than $2.313 (subject to appropriate adjustment for
stock splits, stock dividends, reclassifications, recapitalizations and the
like) and the aggregate gross proceeds to the Company are not less than $20
million.
Under the terms of the preferred stock agreements, 33% of each series of
preferred stock is redeemable on June 30, 2000, 67% is redeemable on June 30,
2001 and 100% is redeemable on June 30, 2002. The redemption price shall be an
amount equal to $1,000 per share, plus any unpaid cumulative dividends.
In February 1998 the Company entered into a Stock Redemption Agreement with
certain holders of Preferred Stock. Under this agreement the Company redeemed
1,912 shares of Series A Preferred Stock, 1,000 shares of Series B Preferred
Stock and 1,125 shares of Series C Preferred Stock with a redemption value of
$4,823,778 in exchange for a note payable of $405,000 and warrants to purchase
1,077,360 shares of Common Stock. The difference between the redemption value
of the Series C Preferred Stock and the note payable was recorded as
additional paid-in capital. The warrants were issued at an exercise price of
$0.01 per share and expire on January 20, 2008.
Stock Option Plan
Under the 1996 Incentive Stock Plan (the "Plan"), the Company offers
options to purchase shares of common stock to employees and consultants. At
December 31, 1997, the Company had reserved 1,572,331 shares of common stock
for issuance through the Plan.
The following table summarizes stock option activity and related
information:
<TABLE>
<CAPTION>
Weighted-Average
Exercise Price
Shares per Share
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1996................. 75,758 $1.00
Granted........................................ -- --
Exercised...................................... -- --
Canceled....................................... -- --
--------- -----
Outstanding at December 31, 1997................. 75,758 $1.00
--------- -----
Granted--exercise price less than fair value... 1,105,038 $0.05
Exercised...................................... -- --
Canceled....................................... -- --
--------- -----
Outstanding at September 9, 1998................. 1,180,796 $0.11
========= =====
Options exercisable at December 31, 1997....... 75,758 $1.00
========= =====
Options exercisable at September 9, 1998....... 689,023 $0.16
========= =====
</TABLE>
11
<PAGE>
NATIONAL SCHOOL REPORTING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Additional information with respect to the outstanding options as of
September 9, 1998 is as follows:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
----------------------------------- ------------------
Weighted Average
Remaining Average Average
Number of Contractural Exercise Number of Exercise
Prices Shares Life Price Shares Price
------ --------- ---------------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$1.00................ 75,758 8.0 $1.00 75,758 $1.00
$0.05................ 1,105,796 10.0 $0.05 1,105,796 $0.05
</TABLE>
Compensation expense of $535,445 was recorded for the period ended
September 9, 1998 in connection with the grant of stock options, based on the
sale price per share of the Company to HBF on that date. No compensation
expense was recognized for its stock-based compensation plans for the year
ended December 31, 1997.
If compensation expenses had been recognized based on the fair value of the
options at their grant date, in accordance with SFAS 123, the results of
operations would have been as follows:
<TABLE>
<CAPTION>
January 1,
1998
Year ended Through
December September
31, 1997 9, 1998
----------- -----------
<S> <C> <C>
Loss applicable to common stock:
As reported..................................... $(3,044,297) $(2,049,734)
Pro forma under FAS 123......................... (3,044,297) (2,049,734)
</TABLE>
The Company calculated the minimum fair value of each option grant on the
date of the grant using the Black-Scholes option pricing model as prescribed
by SFAS No. 123 using the following weighted average assumptions:
<TABLE>
<S> <C>
Risk-free interest rates............................................. 4.68%
Expected lives (in years)............................................ 0
Dividend yield....................................................... 0
Expected volatility.................................................. 0%
</TABLE>
As additional options are expected to be granted in future years and the
options vest over several years, the above pro forma results are not
necessarily indicative of future pro forma results.
12
<PAGE>
EXHIBIT 99.04
HOMESTORE.COM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL INFORMATION
Overview
On February 4, 1999, NetSelect, Inc. ("NSI") was merged with and into
Homestore.com, Inc. ("Company" or "Homestore") in a non-substantive share
exchange, which was provided for in the agreements governing the formation and
operation of RealSelect, Inc. ("RealSelect"), the operating company. The share
exchange lacked substance since both the Company and NSI were shell companies
for their respective investments in RealSelect, and because the respective
underlying ownership interests of the individual investors were unaffected.
Accordingly, the non-substantive share exchange was accounted for at
historical cost. The share exchange between the Company and NSI is referred to
herein as the "Reorganization". This Reorganization was completed solely to
simplify the Company's legal structure prior to its initial public offering.
In March 1998, NSI acquired The Enterprise of America, Ltd. (the
"Enterprise") for 525,000 shares of common stock with an estimated fair value
of $525,000, a $2.2 million note payable, and $705,000 in cash and other
acquisition related expenses. The acquisition has been accounted for as a
purchase. The acquisition cost has been allocated to the assets acquired and
liabilities assumed based on estimates of their respective fair values. The
excess of purchase consideration over net tangible assets acquired of $3.9
million has been allocated to goodwill and is being amortized on a straight-
line basis over five years.
In July 1998, NSI acquired MultiSearch Solutions, Inc. ("MultiSearch") for
convertible preferred stock equivalent to 1,625,000 shares of common stock
with an estimated fair value of approximately $4.8 million, a $3.6 million
note payable, and $875,000 in cash and other acquisition related expenses. The
acquisition has been accounted for as a purchase. The acquisition cost has
been allocated to the assets acquired and liabilities assumed based on
estimates of their respective fair values. The excess of purchase
consideration over net tangible assets acquired of $9.4 million has been
allocated to goodwill and is being amortized on a straight-line basis over
five years.
In June 1999, the Company acquired SpringStreet, Inc. ("SpringStreet") for
common stock and convertible preferred stock equivalent to an aggregate of
5,309,058 shares of common stock. The aggregate acquisition cost of $51.7
million was based on terms and preferences of the shares issued in the
transaction relative to the value received by the Company in the April 1999
Series G preferred stock financing. The acquisition has been accounted for as
a purchase. The acquisition cost has been allocated to the assets acquired and
liabilities assumed based on estimates of their respective fair values. The
excess of purchase consideration over net tangible assets acquired of $42.2
million has been allocated to goodwill and is being amortized on a straight-
line basis over five years.
In October 1999, the Company acquired Homebuyer's Fair, Inc. and FAS-
Hotline, Inc. (collectively referred to as "Homefair" or "Homefair Group") for
$35.0 million in cash, a $37.5 million note payable and 250,000 shares of
common stock for a total aggregate purchase price of $83.7 million. The
acquisition has been accounted for as a purchase. The acquisition cost has
been allocated to the assets acquired and liabilities assumed based on
estimates of their respective fair values. The excess of purchase
consideration over net tangible assets acquired of $83.3 million has been
allocated to goodwill and is being amortized on a straight-line basis over
five years.
Homestore's unaudited pro forma condensed combined consolidated balance
sheet as of September 30, 1999 gives effect to the acquisition of the Homefair
Group as if it had occurred on September 30, 1999, by combining the balance
sheet of Homefair as of September 30, 1999 with the Company's balance sheet as
of the same date.
1
<PAGE>
Homestore's unaudited pro forma condensed combined consolidated statements
of operations for the nine months ended September 30, 1999 and for the year
ended December 31, 1998 give effect to the acquisition of the Homefair Group
as if it had occurred on January 1, 1998.
Homestore's unaudited pro forma condensed consolidated statements of
operations for the nine months ended September 30, 1999 and for the year ended
December 31, 1998 give effect to the Reorganization and the acquisitions of
The Enterprise, MultiSearch, and SpringStreet as if they had occurred on
January 1, 1998.
Homefair Group's unaudited pro forma condensed combined consolidated
statements of operations for the nine months ended September 30, 1999 and for
the year ended December 31, 1998 give effect to the acquisitions of National
School Reporting Services, Inc., FAS-Hotline, Inc. and The Center For Mobility
Resources, Inc. as if they had occurred on January 1, 1998. See page 10 for a
further description of Homefair Group's pro forma presentation.
The unaudited pro forma statements of operations are not necessarily
indicative of the operating results that would have been achieved had the
transactions been in effect as of January 1, 1998 and should not be construed
as being representative of future operating results.
The audited historical financial statements of the Company, NSI, The
Enterprise, MultiSearch and SpringStreet are included in the Company's
prospectus dated August 4, 1999, relating to the Company's initial public
offering ("IPO"). The audited historical financial statements of The
Homebuyer's Fair, Inc., FAS-Hotline, Inc. and The Center For Mobility
Resources, Inc. and National School Services, Inc. are included in this
Form 8-K/A. The unaudited pro forma condensed consolidated financial
information presented herein should be read in conjunction with those
financial statements and related notes.
2
<PAGE>
HOMESTORE.COM, INC.
UNAUDITED PROFORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Homestore Homefair Adjustments Pro Forma
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents....... $ 144,304 $ 1,199 $(35,000)(1) $ 110,503
Accounts receivable, net........ 10,320 1,208 (255)(2) 11,273
Current portion of prepaid dis-
tribution expense.............. 10,461 10,461
Deferred royalties.............. 3,074 3,074
Other current assets............ 2,584 272 (89)(3) 2,767
--------- ------- -------- ---------
Total current assets.............. 170,743 2,679 (35,344) 138,078
Prepaid distribution expense...... 5,577 5,577
Property and equipment, net....... 5,167 544 5,711
Intangible assets, net............ 58,521 10,026 (10,026)(4) 141,795
83,274 (5)
Other assets...................... 322 322
--------- ------- -------- ---------
Total assets.................. $ 240,330 $13,249 $ 37,904 $ 291,483
========= ======= ======== =========
Liabilities and Stockholders'
Equity
Current liabilities:
Accounts payable................ $ 6,228 $ 259 $ (255)(2) $ 6,232
Accrued liabilities............. 19,211 142 19,353
Deferred revenue................ 13,260 13,260
Current portion of note pay-
able........................... 1,797 12 37,500 (1) 39,309
Other current liabilities....... 1,398 800 (6) 2,198
--------- ------- -------- ---------
Total current liabilities......... 40,496 1,811 38,045 80,352
Notes payable..................... 1,333 25 1,358
Other non-current liabilities..... 22 22
--------- ------- -------- ---------
41,829 1,858 38,045 81,732
--------- ------- -------- ---------
Stockholders' equity:
Common stock.................... 69 69
Additional paid-in capital...... 396,448 12,300 (12,300)(7) 407,698
11,250 (1)
Treasury stock.................. (13,676) (13,676)
Notes receivable from stockhold-
ers............................ (12,965) (12,965)
Deferred stock compensation..... (45,657) (45,657)
Accumulated deficit............. (125,718) (909) 909 (7) (125,718)
--------- ------- -------- ---------
Total stockholders' equity.... 198,501 11,391 (141) 209,751
--------- ------- -------- ---------
Total liabilities and
stockholders' equity......... $ 240,330 $13,249 $ 37,904 $ 291,483
========= ======= ======== =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Consolidated
Financial Information.
3
<PAGE>
HOMESTORE.COM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Pr o Forma Pro Forma
Homestore(1) Homefair(2) Adjustments Combined
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues................. $ 39,990 $5,467 (151)(2) $ 45,306
Cost of revenues......... 15,480 736 16,216
-------- ------ ------- ---------
Gross profit............. 24,510 4,731 (151) 29,090
-------- ------ ------- ---------
Operating expenses:
Sales and marketing
(includes $3,421 in
non-cash charges for
Homestore)............ 57,756 1,788 (151)(2) 59,393
Product development.... 4,630 395 5,025
General and
administrative........ 18,422 1,155 19,577
Amortization of
intangible assets..... 8,711 1,810 (1,810)(4) 21,202
12,491 (8)
Stock-based
compensation.......... 12,102 12,102
Litigation settlement.. 8,406 8,406
-------- ------ ------- ---------
Total operating
expenses................ 110,027 5,148 10,530 125,705
-------- ------ ------- ---------
Loss from operations..... (85,517) (417) (10,681) (96,615)
Other income (expense),
net..................... 1,313 (89) (4,634)(9) (3,410)
-------- ------ ------- ---------
Net loss................. $(84,204) $ (506) (15,315) $(100,025)
======== ====== ======= =========
Basic and diluted net
loss per share.......... $ (1.41) $ (1.67)
======== =========
Shares used to calculate
basic and diluted net
loss per share.......... 59,664 59,914 (10)
======== =========
</TABLE>
- --------
(1) See page 7 for a full disclosure of Homestore's unaudited pro forma
condensed consolidated statement of operations for the nine months ended
September 30, 1999.
(2) See page 11 for a full disclosure of Homefair's unaudited pro forma
condensed consolidated statement of operations for the nine months ended
September 30, 1999.
See accompanying Notes Unaudited Pro Forma Condensed Combined Consolidated
Financial Information.
4
<PAGE>
HOMESTORE.COM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Pro Forma Pro Forma
Homestore(1) Homefair(2) Adjustments Combined
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues................. $ 19,125 $ 3,998 $ 23,123
Cost of revenues......... 9,530 603 10,133
-------- ------- ------- ---------
Gross profit............. 9,595 3,395 12,990
-------- ------- ------- ---------
Operating expenses:
Sales and marketing.... 32,787 1,773 34,560
Product development.... 5,252 333 5,585
General and
administrative........ 9,241 2,367 11,608
Amortization of
intangible assets..... 11,242 2,415 (2,415)(4) 27,897
16,655 (8)
Stock-based
compensation.......... 20,455 20,455
-------- ------- ------- ---------
Total operating
expenses................ 78,977 6,888 14,240 100,105
-------- ------- ------- ---------
Loss from operations..... (69,382) (3,493) (14,240) (87,115)
Other income (expense),
net..................... 340 (252) (6,178)(9) (6,090)
-------- ------- ------- ---------
Net loss................. (69,042) (3,745) (20,418) (93,205)
Repurchase of convertible
preferred stock......... (7,727) (7,727)
-------- ------- ------- ---------
Net loss applicable to
common stockholders..... $(76,769) $(3,745) (20,418) $(100,932)
======== ======= ======= =========
Basic and diluted net
loss per share
applicable to common
stockholders ........... $ (1.79) $ (2.33)
======== =========
Shares used to calculate
basic and diluted net
loss per share
applicable to common
stockholders............ 43,001 43,251(10)
======== =========
</TABLE>
- --------
(1) See pages 8 for a full disclosure of Homestore's unaudited pro forma
condensed consolidated statement of operations for the year ended December
31, 1998.
(2) See pages 12 for a full disclosure of Homestore's unaudited pro forma
condensed consolidated statement of operations for the year ended December
31, 1998.
See accompanying Notes to Unaudited Pro Forma Condensed Combined Consolidated
Financial Information.
5
<PAGE>
HOMESTORE.COM, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL INFORMATION
Pro forma adjustments reflect the following in the unaudited pro forma
condensed combined consolidated balance sheet and statements of operations:
(1) Issuance of 250,000 shares of common stock, $35 million in cash and a
$37.5 million note payable
(2) Elimination of intercompany accounts receivable, accounts payable,
revenues and expenses
(3) Valuation allowance related to Homefair's deferred tax assets
(4) Elimination of Homefair's intangible assets and related amortization
(5) Preliminary allocation of the excess purchase consideration over the fair
value of net tangible assets acquired
(6) Estimated acquisition costs
(7) Elimination of Homefair's stockholders' equity, including additional
paid-in capital
(8) Amortization of goodwill
(9) Reduction in interest income related to cash paid as part of the purchase
price, net of an increase in interest expense related to interest on the
note issued in connection with the acquisition
(10) Additional weighted average shares used in the calculation of pro forma
basic and diluted net loss per share applicable to common stockholders
reflect the issuance of 250,000 shares of common stock as part of the
Homefair purchase consideration as if they been issued on January 1, 1998
6
<PAGE>
HOMESTORE.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Pro
Homestore NSI Adjustments Homestore SpringStreet Adjustments Forma
--------- ------- ----------- --------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 35,211 $ 2,433 $ -- $ 37,644 $ 2,346 $ -- $ 39,990
Cost of revenues........ 13,007 798 13,805 1,675 15,480
-------- ------- ------ -------- -------- ------- --------
Gross profit............ 22,204 1,635 -- 23,839 671 -- 24,510
-------- ------- ------ -------- -------- ------- --------
Operating expenses:
Sales and marketing
(includes $3,421 in
non-cash charges for
Homestore)........... 48,186 4,064 52,250 5,506 57,756
Product development... 3,322 174 3,496 1,134 4,630
General and
administrative....... 12,953 1,053 14,006 4,416 18,422
Amortization of
intangible assets.... 4,313 261 4,574 4,137 (1) 8,711
Stock-based
compensation......... 9,290 569 9,859 2,243 12,102
Litigation
settlement........... 8,406 8,406 8,406
-------- ------- ------ -------- -------- ------- --------
Total operating
expenses............... 86,470 6,121 92,591 13,299 4,137 110,027
-------- ------- ------ -------- -------- ------- --------
Loss from operations.... (64,266) (4,486) (68,752) (12,628) (4,137) (85,517)
Other income (expense),
net.................... 1,274 (5) 1,269 44 1,313
-------- ------- ------ -------- -------- ------- --------
Net loss................ (62,992) (4,491) (67,483) (12,584) (4,137) (84,204)
Accretion of redemption
value and dividends on
convertible-preferred
stock.................. (1,846) (207) 2,053 (2)
-------- ------- ------ -------- -------- ------- --------
Net loss applicable to
common stockholders.... $(64,838) $(4,698) $2,053 $(67,483) $(12,584) $(4,137) $(84,204)
======== ======= ====== ======== ======== ======= ========
Historical basic and
diluted net loss per
share applicable to
common stockholders.... $ (2.06)
========
Shares used in the
calculation of
historical basic and
diluted net loss per
share applicable to
common stockholders.... 31,421
========
Pro forma basic and
diluted net loss per
share applicable to
common stockholders.... $ (1.41)
========
Shares used in the
calculation of pro
forma basic and diluted
net loss per share
applicable to common
stockholders........... 59,664 (3)
========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information.
7
<PAGE>
HOMESTORE.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Adjust- Pro Forma Adjust- Pro
Homestore NSI ments Homestore Enterprise MultiSearch SpringStreet ments Forma
--------- -------- ------- --------- ---------- ----------- ------------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............... $ -- $ 15,003 $ -- $ 15,003 $969 $2,054 $ 1,099 $ -- $ 19,125
Cost of revenues....... 7,338 7,338 524 947 721 9,530
------- -------- ------ -------- ---- ------ ------- ------- --------
Gross profit........... -- 7,665 -- 7,665 445 1,107 378 -- 9,595
------- -------- ------ -------- ---- ------ ------- ------- --------
Operating expenses:
Sales and marketing... 25,560 25,560 174 544 6,509 32,787
Product development... 4,139 4,139 24 1,089 5,252
General and
administrative....... 3 6,929 6,932 274 457 1,578 9,241
Amortization of
intangible assets.... 1,893 1,893 9,349 (1) 11,242
Stock-based
compensation......... 20,455 20,455 20,455
------- -------- ------ -------- ---- ------ ------- ------- --------
Total operating expenses.. 3 58,976 58,979 448 1,025 9,176 9,349 78,977
------- -------- ------ -------- ---- ------ ------- ------- --------
Loss from operations... (3) (51,311) (51,314) (3) 82 (8,798) (9,349) (69,382)
Other income (expense),
net................... 343 343 (32) (24) 207 (154)(4) 340
------- -------- ------ -------- ---- ------ ------- ------- --------
Net loss............... (3) (50,968) (50,971) (35) 58 (8,591) (9,503) (69,042)
Accretion of redemption
value and dividends on
convertible preferred
stock................. (1,659) 1,659(2) -- --
Repurchase of
convertible preferred
stock................. (7,727) (7,727) (7,727)
------- -------- ------ -------- ---- ------ ------- ------- --------
Net loss applicable to
common stockholders... $ (3) $(60,354) $1,659 $(58,698) $(35) $ 58 $(8,591) $(9,503) $(76,769)
======= ======== ====== ======== ==== ====== ======= ======= ========
Historical basic and
diluted net loss per
share applicable to
common stockholders... $ --
=======
Shares used in the
calculation of
historical basic and
diluted net loss per
share applicable to
common stockholders... 9,173
=======
Pro forma basic and
diluted net loss per
share applicable to
common stockholders... $ (1.79)
========
Shares used in the
calculation of pro
forma basic and
diluted net loss per
share applicable to
common stockholders... 43,001 (3)
========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information.
8
<PAGE>
HOMESTORE.COM, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
Pro forma adjustments reflect the following in the unaudited pro forma
condensed consolidated statements of operations:
(1) Amortization of goodwill in connection with the following acquisitions:
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, December 31,
1999 1998
----------------- ------------
<S> <C> <C>
Enterprise.................................. $ -- $ 188
MultiSearch................................. -- 934
SpringStreet................................ 4,137 8,227
</TABLE>
(2) Elimination of the accretion of redemption value and dividends on
convertible preferred stock resulting from the assumed conversion of the
Company's preferred stock into common stock in connection with the IPO.
(3) Additional weighted average shares used in the calculation of pro forma
basic and diluted net loss per share applicable to common stockholders
reflect the following, as if they been issued as of January 1, 1998,
except for preferred stock that was not issued in connection with an
acquisition. For this preferred stock, the weighted average shares reflect
the preferred stock as if it had been issued as of January 1, 1998, or the
date of issuance, if later:
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, December 31,
1999 1998
----------------- ------------
<S> <C> <C>
Enterprise acquisition.................... -- 525
MultiSearch acquisition................... -- 1,625
SpringStreet acquisition.................. 4,587 4,587
NSI Reorganization........................ 2,080 5,823
Conversion of preferred stock in connec-
tion with IPO............................ 17,659 17,351
Conversion of NAR's RealSelect shares into
Homestore.com shares..................... 3,917 3,917
</TABLE>
(4) Reduction in interest income related to cash paid for The Enterprise and
MultiSearch acquisitions, net of an increase in interest expense related
to interest imputed on the non-interest bearing notes issued in connection
with the acquisitions of The Enterprise ($39,000) and MultiSearch
($97,000) from January 1, 1998 to the respective acquisition dates. The
notes have been discounted at a discount rate of 10%.
9
<PAGE>
HOMEFAIR GROUP
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION
Overview
On September 9, 1998, Homefair acquired National School Reporting Services,
Inc. ("NSRS") for $6.0 million in cash and other acquisition related expenses.
The acquisition was accounted for as a purchase. The acquisition cost has been
allocated to the assets acquired and liabilities assumed based on their
respective fair values. The excess of purchase consideration over net tangible
assets acquired of $7.2 million is being amortized on a straight-line basis
over 5 years.
On April 1, 1999, Homefair acquired FAS-Hotline, Inc. and The Center For
Mobility Resources, Inc. (collectively referred to as "FAS") for $4.0 million
in cash and 225 shares of common stock, with an estimated fair value of $1.3
million, and other acquisition related expenses. The acquisition was accounted
for as a purchase. The acquisition cost has been allocated to the assets
acquired and liabilities assumed based on their respective fair values. The
excess of purchase consideration over net tangible assets acquired of $4.9
million is being amortized on a straight-line basis over 5 years.
On October 31, 1999, Homestore acquired of all Homefair's outstanding
shares of common stock, at which time Homefair became a wholly-owned
subsidiary of Homestore.
Homefair Group's unaudited pro forma condensed combined consolidated
statements of operations for the nine months ended September 30, 1999 and for
the year ended December 31, 1998 give effect to the acquisitions of NSRS and
FAS as if they had occurred on January 1, 1998.
The unaudited pro forma condensed combined consolidated statements of
operations are not necessarily indicative of the operating results that would
have been achieved had the transactions been in effect as of January 1, 1998
and should not be construed as being representative of future operating
results.
The audited historical financial statements of Homebuyer's Fair, Inc., NSRS
and FAS are included elsewhere in this Form 8-K/A. The unaudited pro forma
condensed combined consolidated financial information presented herein should
be read in conjunction with those financial statements and related notes.
10
<PAGE>
HOMEFAIR GROUP
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Homefair FAS Homefair Adjustments Pro Forma
-------- ---- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues....................... $5,087 $380 $5,467 $ -- $5,467
Cost of revenues............... 716 20 736 736
------ ---- ------ ----- ------
Gross profit................... 4,371 360 4,731 -- 4,731
------ ---- ------ ----- ------
Operating expenses:
Sales and marketing.......... 1,600 188 1,788 1,788
Product development.......... 291 104 395 395
General and administrative... 1,016 139 1,155 1,155
Amortization of intangible
assets...................... 1,567 1,567 243 (1) 1,810
------ ---- ------ ----- ------
Total operating expenses....... 4,474 431 4,905 243 5,148
------ ---- ------ ----- ------
Loss from operations........... (103) (71) (174) (243) (417)
Other expense, net............. (606) (606) (60)(2) (89)
577 (5)
------ ---- ------ ----- ------
Net loss....................... $ (709) $(71) $ (780) $ 274 $ (506)
====== ==== ====== ===== ======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information.
11
<PAGE>
HOMEFAIR GROUP
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Homefair FAS NSRS Homefair Adjustments Pro Forma
-------- ------ ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $2,072 $1,311 $ 615 $ 3,998 $ -- $ 3,998
Cost of revenues........ 261 189 153 603 603
------ ------ ------- ------- ------- -------
Gross profit............ 1,811 1,122 462 3,395 -- 3,395
------ ------ ------- ------- ------- -------
Operating expenses:
Sales and marketing... 528 610 635 1,773 1,773
Product development... 133 27 173 333 333
General and
administrative....... 736 599 1,567 2,902 (535)(3) 2,367
Amortization of
intangible assets.... 480 480 1,935 (1) 2,415
------ ------ ------- ------- ------- -------
Total operating ex-
penses............... 1,877 1,236 2,375 5,488 1,400 6,888
------ ------ ------- ------- ------- -------
Loss from operations.... (66) (114) (1,913) (2,093) (1,400) (3,493)
Other expense, net...... (165) (10) (175) (240)(2) (252)
163 (5)
------ ------ ------- ------- ------- -------
Net loss................ (231) (114) (1,923) (2,268) (1,477) (3,745)
Accrued dividends on
convertible preferred
stock.................. (127) (127) 127 (4)
------ ------ ------- ------- ------- -------
Net loss applicable to
common stockholders.... $ (231) $ (114) $(2,050) $(2,395) $(1,350) $(3,745)
====== ====== ======= ======= ======= =======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Consolidated
Financial Information.
12
<PAGE>
HOMEFAIR GROUP
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
CONSOLIDATED STATEMENT OF OPERATIONS
Pro forma adjustments reflect the following in the unaudited pro forma
condensed consolidated statements of operations:
(1) Amortization of goodwill in connection with the following acquisitions:
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, December 31,
1999 1998
----------------- ------------
<S> <C> <C>
FAS......................................... $243 $975
NSRS........................................ -- 960
</TABLE>
(2) Reduction in interest income due to cash paid for FAS and NSRS
(3) Elimination of NSRS's stock-based compensation
(4) Elimination of NSRS's accrued dividends on redeemable convertible preferred
stock
(5) Elimination of Homefair's income tax expense
13
