Homestore.com (Nasdaq: HOMS), the dominant online real estate company, overstated revenue for the first three quarters of last year, possibly by as much as US$95 million, according to preliminary results of an internal audit of company accounting practices.
Homestore said late Wednesday that accounting errors involving online
advertising 
revenue resulted in a revenue overstatement
of between $54 million and $95 million for the first nine months of 2001.
Results for the quarters ended March 31st, June 30th and September 30th will be restated to reflect the adjustments, the company reported, and in the meantime "investors should not rely" on previous financial statements for those periods, the company said.
Trading Halted
Trading in Homestore shares was halted on December 21st, when the company issued a brief statement saying its board's auditing committee was reviewing financial statements and would likely restate results. At the time, the company did not say which periods might be restated or by how much.
Late Wednesday, Homestore said the investigation was continuing, and cautioned that there could be "additional material restatements" as the audit is completed. Transactions in 2001 and 2000 are still undergoing review, and results for 2000 may also be restated, Homestore said.
The problem, according to Homestore, is that some advertising transactions in the first three quarters of 2001 should have been accounted for as barter transactions, because they were related to purchases of goods and services from other companies.
Homestore shares traded at $3.60 before the December 21st trading halt, down from a 52-week high of $37.25 set last February. Trading was initially halted pending further news, though Nasdaq said on December 24th that the shares would not trade until the company provided more information.
Shareholders Sue
Homestore is also being sued by shareholders who bought company stock between July 2000 and December 2001. The investors say company officers broke securities laws when they issued upbeat press releases regarding quarterly results, omitting disclosures about the company's true status until after they had sold at least $16 million worth of their own shares.
The complaint also alleges that the company engaged in "improper" transactions that led to the overstatement of revenue and assets.
Homestore's chief financial officer, Joseph Shew, resigned in early December, citing "personal reasons." In October, the company announced a restructuring that included 700 job cuts.
Losing Money
Despite its status as the most popular real estate Web site, and although it enjoys an alliance with the National Association of Realtors, Homestore has struggled to make ends meet.
In November, the company reported a third-quarter loss, saying advertising revenue had plunged. At the time, the company said it had revenue of $116.1 million for the three months ended September 30th -- a 34 percent increase from a year earlier.
Homestore said it expects to complete its investigation by the end of the
first quarter.
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