Homestore Inc., the National Association of Realtors-affiliated company that operates popular home-search Web site, today reported net income of $3.3 million for the second quarter of the year, compared to a net loss of about $4.3 million in the same quarter last year.

Total revenue for the second quarter was $63.3 million, a 16 percent increase from $54.3 million in the second quarter of 2004. Net income for the second quarter was $3.3 million, or $0.02 per share, compared to a net loss of $0.03 per share in second-quarter 2004. Revenue for, alone, was up 39 percent over second-quarter 2004, and up 23 percent over the first quarter of this year.

“The second-quarter financial results are the strongest Homestore has delivered since we began the turnaround a little over three years ago,” said Mike Long, Homestore CEO. “Our past investments in our and Top Producer businesses continue to deliver increasingly positive returns.”

Long announced during a conference call today that the company plans to roll out a pay-per-performance system for during the current quarter, though he provided few details about this new offering. Long had announced in a first-quarter earnings call that Homestore would begin testing a Realtor Choice program that would charge Realtors for consumer inquiries they received through the site.

The company had announced that it would track the number of phone calls and e-mails that Realtors received for enhanced property listings at the site, and would assign a unique toll-free number to each enhanced listing in test markets.

But based on the results of the testing, Homestore will be taking its pay-per-performance program in a different direction than originally planned, Long said today. “We are changing our product offering,” he said. “We’re going to be announcing (a new system) and going into production simultaneously. After extensive consumer testing and market research, we’ve made a decision to prioritize a (different) solution.”

Net income for the second quarter of 2005 included legal expense of $4.2 million related to the company’s obligation to advance the defense costs of former officers, and a $1.4 million reduction of previous restructuring charges. Net loss from the second quarter of 2004 included a $2.2 million litigation settlement expense.

The $4.2 million legal expense is in addition to a $7.2 million expense reflected in the third quarter of 2004 and represents the estimated legal costs incurred through June 30 by the former officers. The company, which was forced by a court to advance legal costs to the former officers, announced that it will continue to incur expenses until the legal matters are resolved or it is determined the company is no longer obligated to advance the costs.

The SEC and the U.S. Justice Department in April filed criminal and civil cases against Peter Tafeen, who formerly served as Homestore’s executive vice president of business development, and Stuart Wolff, former CEO of the company, for their alleged participation in a scheme to inflate the company’s online advertising revenues.

Wolff, of Westlake Village, Calif., was Homestore’s CEO and chairman of the board from 1997 until he resigned in January 2002 during an internal investigation into the alleged fraudulent scheme. Tafeen, 36, of Parkland, Fla., was the executive vice president of business development at Homestore from 1997 until November 2001.

Homestore’s income from operations, excluding restructuring charges and certain other non-cash and non-recurring items, principally stock-based charges, depreciation, and amortization (known as EBITDA) for the second quarter of 2005 was $2.9 million, compared to $2.3 million for the second quarter of 2004, the company announced. This calculation for the second quarter excludes the impact of $1.3 million in non-recurring revenue.


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