-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AUV8k1oHSTQuW1QT6fF96l+1fjb2IIGhTuakBD2ZpJC95yy/WNUH98doSlb9tEdA YXJp/OxPgAjDxTzW9x8IHA== 0000912057-02-011738.txt : 20020415 0000912057-02-011738.hdr.sgml : 20020415 ACCESSION NUMBER: 0000912057-02-011738 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEWOLFE COMPANIES INC CENTRAL INDEX KEY: 0000888138 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE AGENTS & MANAGERS (FOR OTHERS) [6531] IRS NUMBER: 042895334 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11278 FILM NUMBER: 02587309 BUSINESS ADDRESS: STREET 1: 80 HAYDEN AVE CITY: LEXINGTON STATE: MA ZIP: 02173 BUSINESS PHONE: 6178635858 MAIL ADDRESS: STREET 1: 30 HAYDEN AVE CITY: LEXINGTON STATE: MA ZIP: 02173 10-K 1 a2073674z10-k.htm FORM 10-K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM l0-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year ended December 31, 2001

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission File No. 1-11278

THE DEWOLFE COMPANIES, INC.

(Exact name of Registrant as specified in its charter)

MASSACHUSETTS
(State or other jurisdiction
incorporation or organization)
80 Hayden Avenue
Lexington, Massachusetts
(Address of principal executive offices)

04-2895334
(IRS Employer
Identification No.)
02421-7962
(Zip Code)

Registrant's telephone number, including area code (781) 863-5858

Securities registered pursuant to Section 12(b) of the Act:

Common Stock $.01 par value
(Title of class)

American Stock Exchange
(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of l934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form l0-K or any amendment to this Form l0-K.

The aggregate market value of the voting stock held by non-affiliates of the Registrant (assuming for these purposes, but without conceding, that all executive officers and Directors are "affiliates" of the Registrant) as of March 11, 2002 (based on the closing sale price as reported on AMEX on such date) was $23,073,592.

The number of shares outstanding of the Registrant's Common Stock as of March 11, 2002 was 3,607,258.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 21, 2002, are incorporated by reference in Part III.

Factors that may affect future results

The Company's prospects are subject to certain uncertainties and risks. This Annual Report on Form 10-K also contains certain forward-looking statements within the meaning of the Federal Securities Laws. The Company's future results may differ materially from its current results and actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors. READERS SHOULD PAY PARTICULAR ATTENTION TO THE CONSIDERATIONS DESCRIBED IN THE SECTION OF THIS REPORT ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—FACTORS AFFECTING FUTURE RESULTS." Readers should also carefully review risk factors that may be described in other documents the Company files from time to time with the Securities and Exchange Commission.

PART I

ITEM 1. BUSINESS

The DeWolfe Companies, Inc. (the "Company") is an integrated homeownership service company, primarily engaged in the business of providing sales and marketing services to consumers in connection with residential real estate transactions. In addition, the Company originates and services residential mortgage loans, markets insurance products, and provides corporate and employee relocation and related services to a variety of clients. As such, the Company describes the services that it renders as "homeownership" services. The Company concentrates primarily in the residential segment of the real estate market. Accordingly, for financial purposes the Company views itself as having three reportable operating segments: real estate, including both real estate brokerage and relocation services, mortgage banking and insurance services. For additional segment information, see Note 12 of Notes to Consolidated Financial Statements. The Company is the largest homeownership company in New England where its services are offered in Massachusetts, New Hampshire, Maine, Connecticut and Rhode Island.

The Company was incorporated in Massachusetts in 1984 at which time it acquired The DeWolfe Company, Inc., which had been incorporated in 1975 as the successor to a real estate brokerage business originally founded in 1949 by the family of the Company's Chairman and Chief Executive Officer, Richard B. DeWolfe. The DeWolfe Companies, Inc. is the parent corporation of five principal subsidiary corporations, which are the Company's operating entities: The DeWolfe Company, Inc. and its subsidiaries provide residential real estate sales and marketing services; DeWolfe Mortgage Services, Inc. originates and services residential real estate mortgage loans; DeWolfe Relocation Services, Inc., and its subsidiaries provide relocation services; The DeWolfe Insurance Agency, Inc. provides insurance products to the Company's customer base; and DeWolfe.com offers integrated homeownership tools and services via the internet. The Company and its subsidiaries do business under the trade name "DeWolfe". Additionally, the Company's subsidiary DeWolfe Cares, Inc. operates as a public charity primarily to provide support and assistance to those in need of housing and related services, through donations and working relationships with community-based charitable organizations and is not included in the Company's consolidated financial statements. References in this report to the business and operations of the Company include the business and operations of the Company and its consolidated subsidiaries.

Residential Real Estate Sales and Marketing

The Company acts as a broker or agent in residential real estate transactions. In performing these services, the Company has historically represented the seller, either as the listing broker, or as a co-broker in the sale. In acting as a broker for the seller, the Company's services include assisting the seller in pricing the property and preparing it for sale, advertising the property, showing the property to prospective buyers, and assisting the seller in negotiating the terms of the sale and in closing the transaction. In exchange for these services, the seller pays to the Company a commission, which is generally a fixed percentage of the

sales price. In a co-broke arrangement the listing broker typically splits its commission with the other co-broker involved in the transaction. The Company also offers buyer brokerage services. When acting as a broker for the buyer, the Company's services include assisting the buyer in locating properties that meet the buyer's personal and financial specifications, showing the buyer properties, and assisting the buyer in negotiating the terms of the purchase and closing the transaction. In exchange for these services a commission is paid to the Company which also is generally a fixed percentage of the purchase price and is usually, with the consent of the listing broker, deducted from, and payable out of, the commission payable to the listing broker. With the consent of a buyer and seller, subject to certain conditions, the Company may, in certain circumstances, act as a selling broker and as a buying broker in the same transaction. The Company's sales and marketing services are mostly provided by licensed real estate sales associates who have entered into independent contractor agreements with the Company. During the year ended December 31, 2000, the Company changed its method of revenue recognition for residential real estate brokerage commissions in accordance with Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB 101"). Previously, the Company had recognized revenue when the buyer and seller of a property entered into a contract of sale and a good faith deposit was made by the buyer. Under the new accounting method adopted retroactive to January 1, 2000, the Company began to recognize revenue upon the consummation of the underlying real estate sale.

Relocation Services

Through DeWolfe Relocation Services, Inc. ("DRS"), and its subsidiaries, the Company offers to employers a variety of specialized services primarily concerned with facilitating the resettlement of transferred employees. These services include sales and marketing of transferees' existing homes for their corporate employer, assistance in finding new homes, moving services, educational and school placement counseling, customized videos, property marketing assistance, rental assistance, area tours, international relocation, group move services, marketing and management of foreclosed properties, career counseling, spouse/partner employment assistance, and financial services. Clients can select these programs and services on a fee basis according to their needs.

Since 1997, the Company has had an agreement with Reliance Relocation Services, Inc. ("RELO") to provide relocation services to the RELO network. The RELO organization comprises a network of nearly 700 independent real estate brokerage firms, which includes 27% of the nation's top 500 real estate firms. The Company is a founding member and shareholder of RELO. The Company anticipates that participation in RELO will continue to provide new relocation opportunities with firms on a national level.

DRS generated approximately 17% of the Company's real estate sales dollar volume (aggregate sales price) in 2001 and 18% in 2000 and 1999. The alliance with RELO accounted for approximately 5% of DRS transactions for the year ended December 31, 2001 and 6% in the years ended December 31, 2000 and 1999.

Real Estate Brokerage Revenues

The following table summarizes the Company's revenues from residential real estate transactions closed, including relocation, for the periods indicated:

	Years ended December 31,
	2001		Percent Increase		2000		Percent Increase		1999
	(Dollar amounts in thousands)
Number of Transactions		25,898	(0.1	)%		25,922	(1.0	)%		26,196
Aggregate Sales Price	$	6,629,773	8.9	%	$	6,088,839	10.0	%	$	5,535,214
Real Estate Brokerage Revenues	$	202,880	8.5	%	$	187,059	8.9	%	$	171,725
Net Real Estate Brokerage Revenues	$	68,156	7.0	%	$	63,719	10.6	%	$	57,616

Real estate brokerage revenues accounted for 95%, 96% and 96% of total revenues and net real estate brokerage revenues accounted for 85%, 90% and 89% of net revenues of the Company for the years ended December 31, 2001, 2000 and 1999, respectively.

Mortgage Banking

The Company, through its wholly owned subsidiary, DeWolfe Mortgage Services, Inc. ("DMS"), is engaged in the residential mortgage business, which involves the origination, sale and servicing of mortgage loans for one-to-four family residences. The Company primarily originates and services loans for purchases of properties located in Massachusetts, New Hampshire, Connecticut, Rhode Island and Maine. The majority of these loans are for home sales transactions in which the Company also acts as a broker. The term "origination" refers generally to the process of providing mortgage financing for the purchase of property directly to the purchaser or for refinancing an existing mortgage. The Company primarily funds mortgage loans under a $50 million line of credit with Comerica Bank. The majority of its mortgage loans are funded by the line of credit, and the remainder of the loans are funded by investors at closing. The Company sells the loans that it funds through the line of credit to investors in the secondary mortgage market, including correspondent relationships with several financial institutions (investors or wholesale lenders). These sales are pursuant to a pre-closing commitment from the investor at a specified price, based upon a specified interest rate and type of mortgage loan. These relationships are governed by contracts which establish procedures for registering certain types of loans, including delegated underwriting and submitting complete loan packages for approval, meeting conditions established by the investors, funding the loans, delivering the closed loan package, and assigning the loan to the investor. The Company originates "conventional" mortgage loans, as well as loans that are guaranteed or insured by agencies of the federal government, secured by one-to-four family residential properties (including condominiums), that comply with the requirements for sale to either the Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"). The Company also originates "jumbo" loans (conventional loans that exceed the maximum amounts qualifying for sale to FNMA or FHLMC but that otherwise generally comply with FNMA or FHLMC requirements) and other loans that do not comply with FNMA or FHLMC requirements but that do comply with requirements for sale to private investors.

The Company is an approved seller/servicer of FNMA and FHLMC, the largest national investors in residential mortgage loans, and the Company sells some of its loans directly to these investors while retaining the rights to service these loans. Mortgage servicing includes processing loan payments, administering escrow funds, monitoring delinquencies, managing foreclosures, and answering borrowers' inquires. Servicing fees are collected by the Company out of mortgage payments and are normally equal to a fixed percentage of the declining principal balance of the loan. In addition, income is derived from earnings on escrow accounts, late fees, and interest on funds received from borrowers prior to remittance to the purchasers of the loan. The right to service these loans has been accounted for as an asset (Originated Mortgage Servicing Rights) of the Company. This servicing asset is subject to adjustments for impairment of valuation due to prepayment risk.

The funding of loans by investors at closing or through the line of credit arrangement subjects the Company to certain risks. For example, if a loan fails to satisfy the terms required under an investor's pre-closing commitment, the investor may decide not to fund or purchase the loan. Alternatively, there is a risk that the Company will fail to obtain a pre-closing commitment from an investor in the secondary market when the Company makes a loan commitment to a borrower. In either case, the Company would then be required to find an alternative investor, which, depending on market conditions, and the nature of the issue giving rise to the first investor's failure to purchase the loan, could result in the loan being unsaleable or saleable only at a loss. The Company believes its exposure to interest rate risk is reasonable, but rapid changes in interest rates could result in loans being sold at a loss.

Another risk the Company faces under this way of doing business is if an error is made in entering into a forward sale commitment, or if an investor breaches its obligation to purchase a loan at the agreed-upon price, which potentially could place the Company at risk for changes in value due to changes in interest rates. The Company manages these risks by maintaining strict policies and procedures to insure proper coverage, and by carefully evaluating the financial capabilities and business practices of its investors.

The Company's mortgage servicing business is also subject to certain risks. For example, the decision to purchase servicing rights or to sell loans while retaining servicing rights is based in part on the Company's estimate of the market value of the servicing rights purchased or retained, which in turn is based on the estimated present value of the expected future cash flows from such rights. Various events, such as a higher than anticipated rate of default or prepayment on loans which the Company has servicing rights, could adversely affect the value of, and earnings from, these rights. However, it is the Company's practice to acquire or retain only servicing rights "without recourse", which means that if a borrower defaults on a loan, then the Company would not be required to remit funds to the loan investor or owner until remittance was received from the borrower.

The Company's mortgage revenues consist of loan origination fees, which are generally a percentage of the original principal amount of the loan and are commonly referred to as "points", application and investor fees paid by the borrowers, originated mortgage servicing rights capitalized and service release premiums paid by the investors. Mortgage revenues are offset by direct loan origination costs, which consist of commissions paid to the Company's mortgage consultants and appraisal fees and credit report fees paid to third parties. The Company recognizes mortgage origination revenues and costs when the sale of a mortgage loan is consummated. DeWolfe Mortgage Services, Inc. is licensed as both a mortgage lender and as a mortgage broker in Massachusetts, New Hampshire, Rhode Island, Maine and Connecticut.

The following table summarizes the Company's mortgage origination and servicing activities for the periods indicated:

	Years ended December 31,
	2001		Percent Increase (Decrease)		2000		Percent Increase (Decrease)		1999
	(Dollar amounts in thousands)
Mortgages Originated and Closed		4,137	63.2	%		2,535	(13.7	)%		2,939
Closed Loan Volume	$	789,097	75.9	%	$	448,676	(0.7	)%	$	451,894
Mortgage Revenues	$	7,727	76.1	%	$	4,387	(6.2	)%	$	4,679
Balance at December 31:
Loans Serviced for Others	$	174,884	43.0	%	$	122,260	10.6	%	$	110,534
Originated Mortgage Servicing Rights, Net	$	1,737	68.2	%	$	1,033	6.6	%	$	969

Insurance Services

In 1996, the Company commenced its insurance agency business, The Company acts as an insurance agent, advising customers as to their insurance needs and the appropriate types and amounts of coverage, placing coverage on their behalf with insurers directly or through wholesale insurance brokers, and assisting them with any subsequent claims. In return for these services, the Company's customers pay premiums based upon the type and amount of coverage purchased and the insurer remits to the Company a commission for sale of the coverage. Premium and commission rates vary in amount depending upon the type of insurance coverage provided, the insurance company underwriting the coverage and other factors. Gross commission revenues from insurance were $2.4 million in 2001, $1.7 million in 2000 and $1.2 million in 1999. In August 2001, DeWolfe Insurance Agency, Inc. acquired the personal lines business of the AON Private Risk Management Insurance Agency, Inc., which included approximately 7,400 policyholders.

Marketing

The Company's real estate sales and marketing, mortgage banking, insurance, and relocation services are marketed by a multimedia program conducted throughout Massachusetts, New Hampshire, Connecticut, Rhode Island and Maine. This program includes direct mail, newspaper, internet, catalog, radio and television advertising. In addition, the integrated nature of the Company's services is designed to produce a flow of customers from its real estate sales and marketing business to its mortgage and insurance businesses.

Competition

The businesses in which the Company is engaged are highly competitive. Many of its competitors, through affiliated franchising organizations, have substantially greater financial resources than the Company. However, the Company believes that its ability to offer its customers a range of inter-related services and its relative strength in residential real estate sales and marketing strongly position it to meet the competition and improve its market share.

In the Company's traditional business of residential real estate sales and marketing, the Company competes primarily with multi-office independent real estate organizations and, to some extent with franchise real estate organizations, such as Century-21, ERA, Realty World, RE/MAX, The Prudential, and Coldwell Banker. The Company believes that its major competitors in 2002 will be multi-office real estate organizations, such as GMAC Home Services and NRT. Companies compete for sales and marketing business primarily on the basis of services offered, reputation, personal contacts, and, to some degree, price.

The Company's relocation business is fully integrated with its residential real estate sales and marketing business. Accordingly, the Company's major competitors are many of the same real estate organizations previously noted. Competition in the relocation business is based primarily on level of service, reputation, personal contact and recently to a greater extent, price.

In its mortgage loan origination business, the Company competes with other mortgage originators, such as mortgage bankers, state and national banks, and thrift institutions. Many of the Company's competitors for mortgage services have substantially greater resources than the Company. The Company competes for loan origination business based on services offered, price and available terms, and its ability to obtain referrals through its sales and marketing services. DMS employs full-time mortgage consultants who are assigned to various Company real estate offices. The mortgage consultants originate mortgage loans almost exclusively from the Company's real estate customers.

In insurance services, the Company competes primarily with locally-owned independent insurance brokers. Competition in insurance services is based primarily on level of service, reputation, personal contact and to a greater extent, price.

Government Regulation

Several facets of the Company's business are subject to government regulation. For example, the Company's real estate sales and marketing subsidiaries are licensed as real estate brokers in the states in which they conduct their real estate brokerage businesses. In addition, the Company's real estate sales associates must be licensed as real estate brokers or salespersons in the states in which they do business. Future expansion of the Company's operations into new geographic markets may subject it to similar licensing requirements in other states.

A number of states and localities have adopted laws and regulations imposing environmental controls, disclosure rules, zoning, and other land use restrictions, which can materially impact the marketability of certain real estate. However, the Company does not believe that compliance with environmental, zoning,

and land use laws and regulations has had, or will have, a materially adverse effect on its financial condition or operations.

In its mortgage business, mortgage loan origination activities are subject to the Equal Credit Opportunity Act, the Federal Truth-in-Lending Act, the Real Estate Settlement Procedures Act, and the regulations promulgated thereunder which prohibit discrimination and require the disclosure of certain information to borrowers concerning credit and settlement costs. As an approved FNMA and FHLMC mortgage seller, the Company is required to comply with FNMA and FHLMC seller guidelines for secondary sale of mortgages.

Additionally, there are various state laws affecting the Company's mortgage operations, including licensing requirements and substantive limitations on the interest and fees that may be charged. States also have the right to conduct financial and regulatory audits of the loans under their jurisdiction.

The Company is licensed as a mortgage lender and as a mortgage broker in Massachusetts, New Hampshire, Maine, Rhode Island, and Connecticut. In Massachusetts, the Company is required to submit annual audited financial statements to the Commissioner of Banks and maintain a minimum net worth of $100,000, $75,000 of which can be in the form of a bond.

There are various state laws affecting the Company's insurance operations, including licensing requirements.

The Company is not aware of any material licensing or other government regulatory requirements governing its relocation business, except to the extent that such business also involves the rendering of real estate brokerage services, the licensing and regulation of which are described above.

Trade Names

The name "DeWolfe" (registered in Massachusetts, New Hampshire, Connecticut, Rhode Island and Maine), the DeWolfe logotype, and the tagline "One Stop and You're Home" are used extensively in the Company's businesses. These service marks are material to the business of the Company and have been registered in the applicable states. The tagline "One Stop and You're Home" has also been registered federally. In addition, the Company continues to use the trade names of certain companies that it has acquired, and has registered other marks used in its businesses.

Seasonality

The residential real estate sales and marketing business, mortgage loan origination business, and relocation services business are subject to seasonal fluctuations. Historically, the Company's revenues from these businesses were greater in the second and third quarters than in first and fourth quarters. As shown below, after adoption of SAB 101 revenues are typically higher in the last three quarters of the year than in the first quarter. The following table illustrates the percentage of the Company's revenues by quarter for the periods indicated.

	Percentage of Revenues
	2001		2000		1999 (1)
First Quarter	14.0	%	14.7	%	20.8	%
Second Quarter	26.2	%	26.7	%	31.8	%
Third Quarter	33.4	%	31.2	%	26.0	%
Fourth Quarter	26.4	%	27.4	%	21.4	%

	100	%	100	%	100	%

(1): 1999 revenues do not include the effect of the change in accounting principle due to SAB 101, which was adopted as of January 1, 2000.

Work Force

At December 31, 2001 the Company's total work force numbered 3,093 people, including 577 employees (including 89 mortgage banking personnel), 2,503 real estate sales associates and 13 relocation associates. The Company believes that its relations with its personnel are satisfactory and none of its employees are represented by a union. All of its real estate sales associates are independent contractors. As independent contractors, the real estate sales associates are paid by commission solely on the basis of closed sales transactions. Mortgage consultants are paid primarily on the basis of closed mortgage loans.

Growth Strategies

Acquisitions

Historically until 1999, the Company's growth has been achieved primarily through acquisitions. In some acquisitions, the Company acquired the respective business under a non-competition, consulting, and cooperation agreement with the acquired firm's principal which provided for contingent cash payments to such principal in exchange for the principal's fulfillment of the terms of the agreement and based upon the net commission income derived from the acquired firm's sales offices during the term of the agreement. In other cases the purchase price was paid primarily with cash and debt or the issuance of shares of the Company's common stock.

The Company expects to fund all or a portion of future acquisitions through credit facilities negotiated with the principals of the acquired businesses or with institutional lenders. Additionally, the Company may continue to issue shares of its common stock to complete acquisitions and in some cases the Company may grant registration rights to the sellers in such acquisitions. As a result, resales of shares issued in such acquisitions may affect the market price of the Company's stock, depending on the number of shares sought to be sold in any particular period.

During 2001 the Company completed the acquisition of one real estate brokerage firm, Lazarus Properties LTD. In addition, during 2001 the Company acquired the personal lines business of the AON Private Risk Management Insurance Agency, Inc.

During 2000 the Company completed the acquisition of two real estate brokerage firms, Yankee Realty Corp. and the Strong Agency, LLC.

Diversification

The Company has expanded by entering businesses related to homeownership such as mortgage banking and insurance sales. The Company expects to continue to investigate other revenue producing services providing a better range of products and quality of service related to homeownership.

ITEM 2. PROPERTIES

The Company's principal executive offices are located at 80 Hayden Avenue, Lexington, Massachusetts where it leases approximately 44,000 square feet of space under leases which require rent of $1,177,000 per year ($27 per square foot) and expire at various dates through January, 2006. In addition, the Company leases office space for its 95 locations and 3 storage space locations, which consist of an average of 3,453 square feet each, under leases which require rent ranging from $8,400 per year ($13 per square foot) to $270,000 per year ($23 per square foot) and expire at various times through December, 2010. The Company owns the land and building occupied by its Westford, Massachusetts sales office. The property includes approximately 4,400 square feet of renovated sales office space. As of December 31, 2001 the property was subject to mortgages in the aggregate amount of $235,000.

ITEM 3. LEGAL PROCEEDINGS

The Company is not party to any legal proceedings, except for litigation and arbitration claims arising in the ordinary course of business which, if adversely determined, should not have, in the opinion of the Company, a material adverse effect either in the aggregate or in any single case on the operations or financial condition of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS

Not Applicable.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The common stock of the Company is traded on the American Stock Exchange under the symbol "DWL". The following table sets forth, for the periods indicated, the high and low selling prices as reported by the American Stock Exchange. As of March 11, 2002, there were 4,318 record holders of the Company's Common Stock.

Calendar Period 2000	High		Low
First Quarter	$	8.00	$	6.38
Second Quarter		8.50		7.00
Third Quarter		8.06		7.25
Fourth Quarter		8.75		7.06
Calendar Period 2001
First Quarter	$	9.13	$	7.50
Second Quarter		7.82		7.40
Third Quarter		9.10		6.70
Fourth Quarter		10.95		8.10

On November 7, 2001, the Company declared a special cash dividend of $0.20 per common share payable on January 3, 2002 to holders of record on December 4, 2001. On November 14, 2000, the Company declared a special cash dividend of $0.18 per common share payable on January 3, 2001 to holders of record on December 5, 2000. On November 9, 1999, the Company declared a special cash dividend of $0.15 per common share payable on January 4, 2000 to holders of record on December 7, 1999. Pursuant to credit agreements with Fleet Bank, N.A., the Company is restricted from paying dividends without the prior written consent of the lender, which was obtained in each case. The Company will periodically evaluate the merits of paying future cash dividends, however, at this time the Company has no plans to pay any future cash dividends.

On February 26, 2002, the Company declared a 3 for 2 stock split in the form of a stock dividend payable to shareholders on March 28, 2002. The effect of the stock split is not reflected in the calculations of per share, shares outstanding or stock price data in this report.

ITEM 6. SELECTED FINANCIAL DATA—Five Year Financial Summary

	Fiscal Year
	2001		2000			1999		1998		1997
	(In thousands, except per share data)
Results of Operations
Total revenue	$	214,499	$	194,435		$	178,829	$	135,420	$	103,144
Commission expense		134,724		123,340			114,109		83,565		64,111

Net revenue		79,775		71,095			64,720		51,855		39,033
Operating income		11,255		9,583			8,656		6,244		2,120
Income before income taxes		11,811		9,738			8,580		5,834		1,946
Income before cumulative effect of change in accounting principle		6,616		5,453			4,984		3,233		1,070
Cumulative effect of change in accounting principle		—		(3,715	)		—		—		—

Net income	$	6,616	$	1,738		$	4,984	$	3,233	$	1,070

Per share data:
Basic earnings per share—
Income before cumulative effect of change in accounting principle	$	1.93	$	1.61		$	1.49	$	0.99	$	0.33
Cumulative effect of change in accounting principle		—		(1.10	)		—		—		—

Net income	$	1.93	$	0.51		$	1.49	$	0.99	$	0.33

Diluted earnings per share—
Income before cumulative effect of change in accounting principle	$	1.76	$	1.51		$	1.41	$	0.95	$	0.32
Cumulative effect of change in accounting principle		—		(1.03	)		—		—		—

Net income	$	1.76	$	0.48		$	1.41	$	0.95	$	0.32

	December 31,
	2001		2000		1999		1998		1997
	(In thousands)
Financial Position
Cash and cash equivalents	$	18,707	$	14,537	$	9,604	$	6,171	$	2,542
Mortgage loans held for sale		65,895		24,668		9,774		24,289		12,508
Total assets		117,278		67,012		65,281		63,652		39,617
Long-term debt		14,564		14,167		15,396		8,195		4,004
Total liabilities		91,145		47,948		47,582		50,581		28,819
Stockholders' equity		26,133		19,064		17,699		13,071		10,798

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this report.

OVERVIEW OF OPERATIONS

Income before the cumulative effect of change in accounting principle for 2001 was $6.6 million compared to $5.5 million in 2000, an increase of 21%. The increase in 2001 was primarily attributed to growth of the Company within its existing real estate markets and an increase in the Company's mortgage business.

As more fully discussed in Note 1 of the Notes to Consolidated Financial Statements, the Company adopted U.S. Securities and Exchange Commission's Staff Accounting Bulletin No. 101 (SAB 101) on Revenue Recognition in the fourth quarter of 2000 and recorded a cumulative effect of change in accounting principle related to real estate brokerage revenues recognized in prior periods. As a result, the Company recorded a one-time, non-cash charge of $3.7 million, which represented the one-time reversal of net real estate commissions receivable that were recorded in revenue as collected in future periods. Previously, the Company had recognized revenue when the buyer and seller of a property entered into a contract of sale and a good faith deposit was made by the buyer. Under the new accounting method adopted retroactive to January 1, 2000, the Company began to recognize revenue upon the consummation of the underlying real estate sale.

The following table summarizes selected operating ratios (shown as a percentage of net revenue) as of December 31 for each of the years indicated:

	2001	2000	1999
Operating income	14.1%	13.5%	13.4%
Income before taxes	14.8%	13.7%	13.3%
Income before the cumulative effect of change in accounting principle	8.3%	7.7%	7.7%

RESULTS OF OPERATIONS

2001 Compared with 2000

Real Estate Brokerage Revenues

Real estate brokerage revenues increased 8% in 2001 to $202.9 million, an increase of $15.8 million over 2000. Real estate brokerage revenue per sales associate was $84 thousand in 2001 and $83 thousand in 2000. The increase in real estate brokerage revenues was primarily attributed to the growth in the Company's existing markets which the Company believes was attributable to the current low interest rate environment, additional acquisitions, and the Company's integrated homeownership services marketing strategy.

Real estate brokerage revenues in 2001 included $8.3 million of revenues from relocation services as compared to $8.5 million in 2000, a decrease of 3%. The decrease was primarily due to a decrease in the number of corporate services client moves.

Net revenues from real estate brokerage increased 7% in 2001 to $68.2 million, an increase of $4.4 million over 2000. Net real estate brokerage revenues as a percentage of real estate brokerage revenues were 34% in 2001 and 2000. Net revenues from real estate brokerage are impacted by many factors, including those beyond the Company's control, such as the number of co-brokered home sales and prevailing market rates for sales associates commission structures.

Mortgage Revenues

Mortgage revenues increased 76% in 2001 to $7.7 million, an increase of $3.3 million from 2000. The increase was primarily due to an increase in mortgage loans closed, which the Company believes was caused by a lower interest rate market and an expansion of the mortgage sales staff. During 2001, the Company's closed loan volume totaled $789.1 million compared to $448.7 million in 2000. The following table shows mortgage closings broken out between home purchase and refinance transactions (dollars in millions):

	2001		2000		$ Increase		% Increase
Purchase	$	558.2	$	433.8	$	124.4	29	%
Refinance		230.9		14.9		216.0	1,450	%

	$	789.1	$	448.7	$	340.4	76	%

Insurance Revenues

Insurance revenues increased 44% in 2001 to $2.4 million, an increase of $739 thousand over 2000. The increase was primarily due to a higher percentage of real estate brokerage customers purchasing their insurance through the Company as well as growth in the Company's group insurance business, and growth in the Company's renewal book of business.

Other Revenues

Other revenues, which primarily consist of revenues related to reimbursement of real estate expenditures and services, increased 13% in 2001 to $1.5 million, an increase of $164 thousand over 2000. The increase was primarily due to growth in the Company's existing real estate markets.

Operating Expenses

Operating expenses increased 11% in 2001 to $68.5 million, an increase of $7.0 million over 2000. Operating expenses as a percentage of net revenues were 86% in 2001 and 2000, respectively. The increase in operating expenses in 2001 was primarily due to costs associated with the increase in the Company's overall business, along with implementation of new marketing strategies and investments in technology and communications.

Other Income (Expense)

Interest expense increased by $737 thousand in 2001 as compared to 2000. The increase in 2001 was primarily due to an increase of $872 thousand in interest on the mortgage warehouse line of credit and increased interest on chattel mortgages of $35 thousand, partially offset by a decrease in interest of $170 thousand primarily related to the financing of acquisitions The increase in interest on the mortgage warehouse line of credit was primarily due to higher average balances outstanding on the line.

The Company realized a gain of $247 thousand in 2001 and $306 thousand in 2000 on the sales of securities held as investments.

Interest income increased by $1.2 million in 2001 as compared to 2000. The increase was primarily due to additional interest earned on mortgage loans held for sale of $1.4 million, and partially offset by a decrease in interest earned on bank accounts of $218 thousand. The change in net interest earned on mortgage loans held for sale was primarily due to increased loan closing volume. The change in interest earned on bank accounts was primarily due to a decline in interest rates.

2000 Compared with 1999

Real Estate Brokerage Revenues

Real estate brokerage revenues increased 9% in 2000 to $187.1 million, an increase of $15.3 million over 1999. Real estate brokerage revenue per sales associate was $83 thousand in 2000 and $89 thousand in 1999. The increase in real estate brokerage revenues was primarily attributed to the growth in the Company's existing markets and the positive effects of the integration of the prior years' acquisitions. The Company's growth in its existing markets was attributed to the continued strong economy combined with the Company's integrated homeownership services marketing strategy.

Real estate brokerage revenues in 2000 included $8.5 million of revenues from relocation services as compared to $7.3 million in 1999, an increase of 16%. The increase was primarily due to an increase in the number of corporate services clients as well as the Company's expansion into new markets.

Net revenues from real estate brokerage increased 11% in 2000 to $63.7 million, an increase of $6.1 million over 1999. Net real estate brokerage revenues as a percentage of real estate brokerage revenues were 34% in 2000 and 1999. Net revenues from real estate brokerage are impacted by many factors, including those beyond the Company's control, such as the number of co-brokered home sales and prevailing market rates for sales associates commission structures.

Mortgage Revenues

Mortgage revenues decreased 6% in 2000 to $4.4 million, a decrease of $292 thousand from 1999. The decrease was primarily due to a decrease in mortgage loans closed and lower margins on loans, which the Company believes was caused by a higher interest rate market, and increased competition in the mortgage industry. During 2000, the Company's closed loan volume totaled $448.7 million compared to $451.9 million in 1999.

Insurance Revenues

Insurance revenues increased 41% in 2000 to $1.7 million, an increase of $486 thousand over 1999. The increase was primarily due to a higher percentage of real estate brokerage customers purchasing their insurance through the Company as well as growth in the Company's group insurance business, and growth in the Company's renewal book of business.

Other Revenues

Other revenues, which primarily consist of revenues related to reimbursement of real estate expenditures and services, increased 6% in 2000 to $1.3 million, an increase of $78 thousand over 1999. The increase was primarily due to growth in the Company's real estate markets.

Operating Expenses

Operating expenses increased 10% in 2000 to $61.5 million, an increase of $5.4 million over 1999. Operating expenses as a percentage of net revenues were 87% in 2000 and 1999. The increase in operating expenses in 2000 was primarily due to costs associated with the increase in the Company's overall business, along with implementation of new marketing strategies, investments in technology and communications, and costs associated with acquired operations.

Other Income (Expense)

Interest expense increased by $377 thousand in 2000 as compared to 1999. The increase in 2000 was primarily due to an increase of $217 thousand in interest on the mortgage warehouse line of credit, additional interest of $118 thousand primarily related to the financing of acquisitions and increased

interest on chattel mortgages of $62 thousand. The increase in interest on the mortgage warehouse line of credit was primarily due to the average balance outstanding on the line.

The Company realized a gain of $306 thousand in 2000 on the sale of securities held as investments.

Interest income increased by $302 thousand in 2000 as compared to 1999. The increase was primarily due to additional interest earned on bank accounts of $448 thousand and partially offset by a decrease in interest earned on mortgage loans held for sale of $146 thousand. The change in net interest earned on bank accounts was primarily due to higher average balances kept in bank accounts.

LIQUIDITY AND SOURCES OF CAPITAL

The Company's cash and cash equivalents at December 31, 2001 totaled $18.7 million compared to $14.5 million at December 31, 2000. Cash used in operating activities was $29.4 million in 2001, as compared to $5.1 million in 2000 and cash provided of $23.1 million in 1999. The changes in cash provided by or used in operations in 2001, 2000, and 1999 were primarily due to the increases and decreases in the Company's mortgage loans held for sale which were funded by the Company's mortgage warehouse line of credit and by cash generated by net earnings. Net cash used relating to an increase in mortgage loans held for sale was $34.9 million in 2001 and $11.0 million in 2000 as compared to net cash provided related to a decrease in mortgage loans held for sale of $18.6 million in 1999.

Expenditures for property and equipment totaled $2.3 million in 2001, $935 thousand in 2000, and $2.1 million in 1999. Capital spending during this period was primarily attributed to the Company's investment in improvements to acquired and existing sales offices and upgrades to systems and technology. The Company intends to continue to make expenditures for property and equipment in order to maintain its standards for a quality appearance and processing systems in all of the Company's locations.

The Company has various credit arrangements with Fleet Bank, N.A., including a $20 million acquisition line of credit, a revolving line of credit of $5.0 million, a $5.0 million relocation revolving line of credit and an aggregate equipment lease line of credit and chattel mortgage financing of $5.0 million. The Company's revolving line of credit and relocation revolving line of credit mature on April 30, 2002 and are expected to be renewed. The current outstanding amount under the Company's acquisition line of credit is scheduled to convert to a five year term note on April 30, 2002.

The outstanding amount of the acquisition line of credit was $13.6 million at December 31, 2001 and $12.4 million at December 31, 2000. There was no outstanding amount under the revolving line of credit at December 31, 2001 and 2000. There was no outstanding amount under the relocation revolving line of credit at December 31, 2001 and 2000. At December 31, 2001 and 2000, the Company had outstanding balances under lease lines of credit and chattel mortgage financing of $3.9 million and $3.5 million, respectively.

In connection with the mortgage loan activity the Company maintains a $50 million mortgage warehouse line of credit with Comerica National Bank that is used to finance mortgage loans that it originates. Prior to June 2001 the line was with First Union National Bank. The Company received a temporary increase in the line to $75 million through February 1, 2002 to accommodate the increased loan volume during the quarter. The credit line had outstanding balances of $62.2 million and $22.9 million at December 31, 2001 and 2000, respectively.

During the third quarter of 2001 the Company authorized a stock repurchase plan of 200,000 shares of the Company's common stock. This plan superseded the Company's prior repurchase plan. During the third and fourth quarter, the Company purchased 27,800 shares of stock at a cost of $223 thousand under the new repurchase plan.

The Company considers its cash flows from operations, combined with its credit arrangements with Fleet Bank, N.A. and Comerica Bank, to be adequate to fund continuing operations. However, the

Company expects to continue to expand its existing businesses, which may include opening new real estate sales offices as well as making investments in or acquiring other real estate and or insurance businesses. As a result, the Company from time-to-time may seek additional or alternate sources of debt or equity financing which could include the issuance of shares of the Company's capital stock.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

General

The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue Recognition

Mortgage loan origination revenues, offset by direct loan origination costs, are deferred and the net amount is recognized as a component of gain on sale of mortgage loans when the sale of the loan has been consummated. Mortgage loan origination revenues consist primarily of loan origination, application and investor fees paid by the borrowers, originated mortgage servicing rights capitalized and service release premiums paid by the investors. Direct loan origination costs consist of commissions paid to the Company's mortgage consultants and appraisal fees and credit report fees paid to third parties. Interest on mortgage loans held for sale is recognized as income when earned.

Derivatives

The Company has designated its derivative instruments as cash flow hedges and gains or losses on these instruments are recognized in shareholders' equity as a component of comprehensive income. The Company's derivatives include (1) forward sale commitments which are used to hedge the anticipated future sale of mortgage loans and generally are entered into for periods of under three months and (2) an interest rate swap agreement which matures on April 30, 2002 with the notional amount of $12.4 million to hedge the anticipated future cash flows related to the Company's acquisition line of credit. The Company does not account for outstanding commitments to extend credit as derivatives. The Financial Accounting Standards Board is currently evaluating whether such commitments should be accounted for as derivatives. The outcome of these deliberations could result in a change in the Company's accounting in a future period.

Goodwill and Intangible Assets

In July 2001, the Financial Accounting Standards Board issued Statement No. 142, Goodwill and Other Intangibles (Statement 142). Under Statement 142, the excess of cost over value in net assets and indefinite lived intangible assets will no longer be amortized but will be reviewed periodically for impairment. The Company is required to adopt Statement 142 on January 1, 2002. In connection with the adoption of Statement 142, approximately $919 thousand of excess cost over value in net assets will be reclassified as an amortizable insurance intangible. The Company has preliminarily concluded that no impairment writedown will be required in connection with the adoption of Statement 142. The Company has adopted Statement 142 for all current year acquisitions, and is not amortizing the excess of cost over value in net assets related to these acquisitions. The Company's non-compete and consulting agreements and insurance intangible will continue to be accounted for as assets subject to amortization.

Costs related to non-compete and consulting agreements entered into as part of the Company's acquisition of real estate agencies are being amortized over the period of the respective agreements which range from three to five years. The Company has recorded $901 thousand as an insurance intangible asset representing the value of insurance policies acquired. The insurance intangible is being amortized over a 15 year period.

Non-Employee Stock Options

The Company accounts for stock options granted to non-employees in accordance with Financial Accounting Standards Board Statement No. 123, Accounting for Stock-Based Compensation (Statement 123). Under Statement 123, the Company expenses options granted to non-employees over the vesting term of the options using the fair value of the options as of the financial statement date.

FACTORS AFFECTING FUTURE RESULTS

Cautionary statement for purposes of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995

Certain statements, which are not historical fact, including but not limited to, statements concerning future acquisitions, financing of such acquisitions, new products, financing of the Company's mortgage line of credit, expenditures for property and equipment, future alternative revenue sources and relocation opportunities, dividends, cash flows, and revenues, both generally and with respect to particular fiscal quarters, and market share, may be deemed to be forward looking statements. There are many important factors that would cause the Company's actual results to differ materially from those indicated in the forward-looking statements. Such factors include, but are not limited to, interest rates and economic conditions generally, regulatory changes (legislative or otherwise) affecting the residential real estate and mortgage lending industries, competition, and prevailing rates for sales associate commission structures.

Inflation

The Company believes that its revenues per transaction are primarily affected by the increase or decrease in home sale prices. However, the Company's expenses are affected by general price changes, which may not necessarily parallel the changes in home sale prices.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest rate risk is the most significant market risk affecting the Company. Interest rate risk is the possibility that changes in interest rates will cause unfavorable changes in net income or in the value of interest-rate sensitive assets, liabilities and commitments. As part of the Company's interest rate risk management programs, the Company purchases financial instruments and enters into agreements with off-balance sheet risk in the normal course of business to manage its exposure to interest rate risk. The

Company uses financial instruments for the purpose of managing interest rate risks to protect the value of its mortgage loans held for sale and mortgage commitment pipeline. Interest rate swap agreements are also used to convert floating rates to fixed rates. The Company has no market risk sensitive instruments held for trading purposes.

Management actively monitors and manages its exposure to interest rate risk. Analyses are performed for various interest rate scenarios to capture the expected economic change in market value of rate sensitive assets, liabilities and commitments.

In the normal course of business, the Company also faces risks that are either nonfinancial and or nonquantifiable. Such risks include credit risk and legal risk and are not included in the following table.

	December 31, Expected Maturity Date
	2002		2003	2004	2005	2006	Thereafter	Total		Value
Rate sensitive assets:
Cash and cash equivalents	$	18,707,000						$	18,707,000	$	18,707,000
Mortgage loans held for sale		65,895,000							65,895,000		66,729,000
Average interest rate		6.70%
Originated mortgage servicing rights		275,000	275,000	275,000	238,000	217,000	457,000		1,737,000		1,896,000
Average interest rate (underlying portfolio)		6.85%	6.85%	6.85%	6.85%	6.85%	6.85%
Rate sensitive liabilities:
Long term debt—fixed rate		2,976,000	1,977,000	844,000	95,000	47,000	35,000		5,974,000		6,353,000
Average interest rate		7.51%	7.09%	7.56%	8.00%	8.00%	8.00%
Long-term debt—variable rate		2,041,000	2,721,000	2,721,000	2,721,000	2,721,000	682,000		13,607,000		13,762,000
Average interest rate		5.75%	5.75%	5.75%	5.75%	5.75%	5.75%
Notes payable, bank		62,179,000							62,179,000		62,179,000
Average interest rate		3.67%
Rate sensitive derivative financial instruments:
Pay fixed/receive variable interest rate swap		12,447,000							12,447,000		(117,000	)
Average pay rate		3.33%
Average receive rate		5.97%
Commitments to extend credit:
Rate locked		61,194,000							61,194,000		(115,000	)
Average interest rate		6.67%
Floating rate		69,106,000							69,106,000		—
Forward sale commitments		126,575,000							126,575,000		1,985,000
Average interest rate		6.67%

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and schedule listed in Item 14 hereof and the report of independent auditors included in this report on Pages F-1 through F-27 are incorporated herein by reference.

ITEM 9. CHANGES IN, AND DISAGREEMENTS WITH, ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not Applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The section under the heading "Business Experience of Nominees and Executive Officers" in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held May 21, 2002 is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION AND OTHER INFORMATION

The section under the heading "Executive Compensation and Other Information" in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held May 21, 2002 is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The section under the heading "Principal Stockholders and Stockholdings of Management" in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held May 21, 2002 is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The section under the heading "Certain Relationships and Related Transactions" in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held May 21, 2002 is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1. Financial Statements:
		Page
Consolidated Balance Sheets—December 31, 2001 and 2000		F-2
Consolidated Statements of Income—Years ended December 31, 2001, 2000 and 1999		F-4
Consolidated Statements of Stockholders' Equity—Years ended December 31, 2001, 2000 and 1999		F-5
Consolidated Statements of Cash Flows—Years ended December 31, 2001, 2000 and 1999		F-6
Notes to Consolidated Financial Statements		F-8
2. Financial Statement Schedule:
Schedule II Valuation and Qualifying Accounts		F-27

All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

3. Exhibits (See the Index to Exhibits included elsewhere in this Report).

(b) Reports on Form 8-K:

None

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		THE DEWOLFE COMPANIES, INC.
		By:	/s/ RICHARD B. DEWOLFE Richard B. DeWolfe, Chairman and Chief Executive Officer

Date: March 18, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/s/ RICHARD B. DEWOLFE

Richard B. DeWolfe
Chairman, Board of Directors,
Chief Executive Officer and
a Director (Principal
Executive Officer)
Date: March 18, 2002

/s/ JAMES A. MARCOTTE

James A. Marcotte
Chief Financial Officer
(Principal Financial Officer)
Date: March 18, 2002

/s/ PAUL R. DEL ROSSI

Paul R. Del Rossi
Director
Date: March 18, 2002

/s/ A. CLINTON ALLEN

A. Clinton Allen, III
Director
Date: March 18, 2002

/s/ R. ROBERT POPEO

R. Robert Popeo
Director
Date: March 18, 2002

/s/ ROBERT N. SIBCY

R. Robert N. Sibcy
Director
Date: March 18, 2002

Report of Independent Auditors

The Board of Directors and Stockholders
The DeWolfe Companies, Inc.

We have audited the accompanying consolidated balance sheets of The DeWolfe Companies, Inc. as of December 31, 2001 and 2000, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The DeWolfe Companies, Inc. at December 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, in 2001 the Company changed its method of accounting for derivative financial instruments, and in 2000 changed its method of revenue recognition for residential real estate brokerage commissions.

/s/ ERNST & YOUNG LLP

Boston, Massachusetts
January 25, 2002

F-1

THE DEWOLFE COMPANIES, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS

			December 31,
			2001			2000
CURRENT ASSETS:
	Cash and cash equivalents		$	18,707,000		$	14,537,000
	Mortgage loans held for sale			65,895,000			24,668,000
	Prepaid expenses and other current assets			3,295,000			2,148,000

		TOTAL CURRENT ASSETS		87,897,000			41,353,000

PROPERTY AND EQUIPMENT:
	Land			80,000			80,000
	Building and improvements			779,000			779,000
	Furniture and equipment			15,458,000			11,713,000
	Leasehold improvements			5,386,000			4,120,000

				21,703,000			16,692,000
	Accumulated depreciation and amortization			(12,463,000	)		(8,866,000	)

		NET PROPERTY AND EQUIPMENT		9,240,000			7,826,000
OTHER ASSETS:
	Note receivable from affiliate			28,000			28,000
	Excess of cost over value in net assets acquired, net of accumulated amortization of $3,750,000 at December 31, 2001 and $2,817,000 at December 31, 2000			11,192,000			11,792,000
	Non-compete and consulting agreements, net of accumulated amortization of $1,287,000 at December 31, 2001 and $969,000 at December 31, 2000			655,000			961,000
	Insurance intangible, net of accumulated amortization of $15,000 at December 31, 2001			886,000			—
	Originated mortgage servicing rights, net			1,737,000			1,033,000
	Net deferred tax assets			2,477,000			2,660,000
	Security deposits and other assets			3,166,000			1,359,000

		TOTAL OTHER ASSETS		20,141,000			17,833,000

		TOTAL ASSETS	$	117,278,000		$	67,012,000

See notes to consolidated financial statements.

F-2

THE DEWOLFE COMPANIES, INC.

CONSOLIDATED BALANCE SHEETS (Continued)

LIABILITIES AND STOCKHOLDERS' EQUITY

			December 31,
			2001			2000
CURRENT LIABILITIES:
	Note payable—bank		$	62,179,000		$	22,911,000
	Accounts payable			762,000			37,000
	Dividend payable			686,000			610,000
	Accrued expenses			7,283,000			5,295,000
	Deferred mortgage fee income			545,000			251,000
	Current portion of long-term debt			4,920,000			4,194,000
	Current portion of obligations under capital leases			97,000			314,000

		TOTAL CURRENT LIABILITIES		76,472,000			33,612,000
	Long-term debt, net of current portion			14,536,000			14,046,000
	Obligations under capital leases, net of current portion			28,000			121,000
	Non-compete agreements and consulting agreements payable			109,000			169,000

		TOTAL LIABILITIES		91,145,000			47,948,000

COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
	Preferred stock, $1.00 par value; 3,000,000 authorized;
	None outstanding			—			—
	Common stock, $.01 par value; 10,000,000 shares authorized; 3,723,876 shares issued at December 31, 2001 and 3,658,544 shares issued at December 31, 2000			37,000			37,000
	Additional paid-in capital			8,335,000			7,832,000
	Treasury stock (291,118 shares at December 31, 2001 and 263,318 shares at December 31, 2000), at cost			(1,743,000	)		(1,520,000	)
	Notes receivable from sale of stock			(941,000	)		(869,000	)
	Accumulated other comprehensive income			1,006,000			75,000
	Retained earnings			19,439,000			13,509,000

		TOTAL STOCKHOLDERS' EQUITY		26,133,000			19,064,000

		TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	117,278,000		$	67,012,000

See notes to consolidated financial statements.

F-3

THE DEWOLFE COMPANIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

			Years Ended December 31,
			2001			2000			1999
REVENUES:
	Real estate brokerage		$	202,880,000		$	187,059,000		$	171,725,000
	Mortgage			7,727,000			4,387,000			4,679,000
	Insurance			2,418,000			1,679,000			1,193,000
	Other			1,474,000			1,310,000			1,232,000

		TOTAL REVENUES		214,499,000			194,435,000			178,829,000
	Commission expense			134,724,000			123,340,000			114,109,000

		NET REVENUES		79,775,000			71,095,000			64,720,000
OPERATING EXPENSES:
	Compensation and benefits			31,190,000			27,509,000			24,170,000
	Facilities			8,698,000			8,557,000			7,738,000
	General and administrative			15,667,000			14,765,000			14,551,000
	Marketing and promotion			9,472,000			7,648,000			7,158,000
	Communications			3,199,000			3,024,000			2,447,000
	Nonemployee stock options			294,000			9,000			—

		TOTAL OPERATING EXPENSES:		68,520,000			61,512,000			56,064,000

		OPERATING INCOME		11,255,000			9,583,000			8,656,000
OTHER INCOME (EXPENSES):
	Interest expense			(3,121,000	)		(2,384,000	)		(2,007,000	)
	Gain on sale of investments			247,000			306,000			—
	Interest income			3,430,000			2,233,000			1,931,000

INCOME BEFORE INCOME TAXES				11,811,000			9,738,000			8,580,000
	Income taxes			5,195,000			4,285,000			3,596,000

INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE				6,616,000			5,453,000			4,984,000
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (NET OF TAX BENEFIT OF $2,637,000)				—			(3,715,000	)		—

		NET INCOME	$	6,616,000		$	1,738,000		$	4,984,000

BASIC EARNINGS PER SHARE:
	Income before cumulative effect of change in accounting principle		$	1.93		$	1.61		$	1.49
	Cumulative effect of change in accounting principle			—			(1.10	)		—

		NET INCOME	$	1.93		$	0.51		$	1.49

DILUTED EARNINGS PER SHARE:
	Income before cumulative effect of change in accounting principle		$	1.76		$	1.51		$	1.41
	Cumulative effect of change in accounting principle			—			(1.03	)		—

		NET INCOME	$	1.76		$	0.48		$	1.41

	Basic weighted average shares outstanding			3,428,000			3,381,000			3,350,000
	Diluted weighted average shares outstanding			3,755,000			3,623,000			3,538,000

See notes to consolidated financial statements.

F-4

THE DEWOLFE COMPANIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999

	Common Stock		Additional Paid-in Capital		Treasury Stock at Cost			Notes Receivable from Sale of Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
BALANCE AT DECEMBER 31, 1998	$	35,000	$	6,842,000	$	(1,439,000	)	$	(270,000	)	$	7,903,000		$	—		$	13,071,000

Issuance of Common Stock		1,000		710,000		—			—			—			—			711,000
Purchase of Treasury Shares		—		—		(31,000	)		—			—			—			(31,000	)
Notes Receivable from Sale of Stock, net		—		—		—			(601,000	)		—			—			(601,000	)
Cash Dividends Declared on Common Stock ($0.15 per share)		—		—		—			—			(506,000	)		—			(506,000	)
Effect of Issuance of Stock Options		—		71,000		—			—			—			—			71,000
Net Income		—		—		—			—			4,984,000			—			4,984,000

BALANCE AT DECEMBER 31, 1999		36,000		7,623,000		(1,470,000	)		(871,000	)		12,381,000			—			17,699,000

Issuance of Common Stock		1,000		177,000		—			—			—			—			178,000
Purchase of Treasury Shares		—		—		(50,000	)		—			—			—			(50,000	)
Notes Receivable from Sale of Stock, net		—		—		—			2,000			—			—			2,000
Cash Dividends Declared on Common Stock ($0.18 per share)		—		—		—			—			(610,000	)		—			(610,000	)
Effect of Exercise of Stock Options		—		32,000		—			—			—			—			32,000
Comprehensive Income:
Unrealized Appreciation on Marketable Securities (net of tax of $50,000)		—		—		—			—			—			75,000			75,000
Net Income		—		—		—			—			1,738,000			—			1,738,000

Comprehensive Income		—		—		—			—			—			—			1,813,000

BALANCE AT DECEMBER 31, 2000		37,000		7,832,000		(1,520,000	)		(869,000	)		13,509,000			75,000			19,064,000

Issuance of Common Stock		—		342,000		—			—			—			—			342,000
Purchase of Treasury Shares		—		—		(223,000	)		—			—			—			(223,000	)
Notes Receivable from Sale of Stock, net		—		—		—			(72,000	)		—			—			(72,000	)
Cash Dividends Declared on Common Stock ($0.20 per share)		—		—		—			—			(686,000	)		—			(686,000	)
Effect of Issuance of Stock Options		—		161,000		—			—			—			—			161,000
Comprehensive Income:
Cumulative Effect of Change in Accounting for Derivative Financial Instruments (net of tax of $20,000)		—		—		—			—			—			26,000			26,000
Reclassification Adjustment for Realized Gains On Marketable Securities of $247,000 (net of tax of $109,000)		—		—		—			—			—			(138,000	)		(138,000	)
Unrealized Gains on Marketable Securities of $127,000 (net of tax of $56,000)		—		—		—			—			—			71,000			71,000
Unrealized Appreciation on Derivative Financial Instruments (net of tax of $764,000)		—		—		—			—			—			972,000			972,000
Net Income		—		—		—			—			6,616,000			—			6,616,000

Comprehensive Income		—		—		—			—			—			—			7,547,000

BALANCE AT DECEMBER 31, 2001	$	37,000	$	8,335,000	$	(1,743,000	)	$	(941,000	)	$	19,439,000		$	1,006,000		$	26,133,000

See notes to consolidated financial statements.

F-5

THE DEWOLFE COMPANIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

				Years Ended December 31,
				2001			1000			1999
OPERATING ACTIVITIES:
	Net Income			$	6,616,000		$	1,738,000		$	4,984,000
	Adjustments to reconcile net income to net cash (used in) provided by operating activities:
		Deferred income tax			183,000			(2,298,000	)		(120,000	)
		Depreciation			3,597,000			3,276,000			3,097,000
		Amortization—noncompete and insurance intangible			562,000			589,000			634,000
		Amortization—goodwill			933,000			880,000			730,000
		Additions to valuation allowance for mortgage servicing rights			102,000			23,000			38,000
		Gain on sale of mortgage loans, net			(7,341,000	)		(4,096,000	)		(4,429,000	)
		Gain on sale of investments			(247,000	)		(306,000	)		—
	Change in assets and liabilities:
		Decrease (increase) in commissions receivable			—			21,688,000			(945,000	)
		Increase in prepaid expenses and other current assets			(1,026,000	)		(440,000	)		(745,000	)
		Increase in security deposits and other assets			(47,000	)		(659,000	)		(135,000	)
		Mortgage loans held for sale			(628,455,000	)		(448,676,000	)		(352,661,000	)
		Proceeds from mortgage loans sales			593,552,000			437,643,000			371,212,000
		(Decrease) increase in commissions payable			—			(15,183,000	)		1,421,000
		Increase in accounts payable and accrued expenses			1,909,000			644,000			56,000
		Increase (decrease) in deferred mortgage fee income			294,000			118,000			(83,000	)

			Total adjustments		(35,984,000	)		(6,797,000	)		18,070,000

			Cash (used in) provided by operating activities		(29,368,000	)		(5,059,000	)		23,054,000
INVESTING ACTIVITIES:
		Proceeds from sale of investments			267,000			326,000			—
		Expenditures for business combinations, net of cash acquired			(700,000	)		(900,000	)		(6,356,000	)
		Expenditures for property and equipment			(2,286,000	)		(935,000	)		(2,077,000	)

		Cash used in investing activities			(2,719,000	)		(1,509,000	)		(8,433,000	)
FINANCING ACTIVITIES:
		Net borrowings (repayments) on notes payable-bank			39,268,000			13,884,000			(14,798,000	)
		Borrowing on acquisition line of credit			695,000			900,000			6,472,000
		Repayment of notes receivable from stockholders			—			66,000			—
		Repayment (issuance) of notes receivable from sale of stock			23,000			2,000			(601,000	)
		Repayment of long-term debt			(3,238,000	)		(3,005,000	)		(2,552,000	)
		Payment of cash dividends			(610,000	)		(506,000	)		(389,000	)
		Issuance of common stock			342,000			210,000			711,000
		Purchase of treasury stock			(223,000	)		(50,000	)		(31,000	)

			Cash provided by (used in) financing activities		36,257,000			11,501,000			(11,188,000	)

NET INCREASE IN CASH AND CASH EQUIVALENTS					4,170,000			4,933,000			3,433,000
		Cash and cash equivalents at beginning of year			14,537,000			9,604,000			6,171,000

CASH AND CASH EQUIVALENTS AT END OF YEAR				$	18,707,000		$	14,537,000		$	9,604,000

See notes to consolidated financial statements.

F-6

		Years Ended December 31,
		2001			2000			1999
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:
Leases capitalized and property and equipment financed		$	2,725,000		$	2,514,000		$	1,597,000
Cash paid for interest			3,176,000			2,199,000			2,075,000
Expenditures for business combinations, net of cash acquired:
	Commissions receivable		(141,000	)		(132,000	)		(3,524,000	)
	Property and equipment, net		—			(13,000	)		(277,000	)
	Excess of cost over value in net assets acquired		(329,000	)		(1,113,000	)		(5,721,000	)
	Insurance intangible		(901,000	)		—			—
	Non-compete and consulting agreements		(12,000	)		(30,000	)		(1,363,000	)
	Other assets		—			—			(495,000	)
	Commissions payable		—			—			2,119,000
	Long-term debt		662,000			375,000			1,930,000
	Accounts payable and accrued expenses		21,000			8,000			904,000
	Additional paid-in capital		—			5,000			71,000

		$	(700,000	)	$	(900,000	)	$	(6,356,000	)

See notes to consolidated financial statements.

F-7

THE DEWOLFE COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Summary of Business Operations and Significant Accounting Policies

Business Operations

The DeWolfe Companies, Inc. (together with its subsidiaries, "the Company") is a provider of integrated homeownership services, and is primarily engaged in the business of providing sales and marketing services to consumers in connection with residential real estate transactions in Massachusetts, New Hampshire, Rhode Island, Maine, and Connecticut. In addition, the Company originates and services residential mortgage loans, provides corporate and employee relocation services and other related services to a variety of clients, and provides insurance products to its homeownership customers.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. Significant intercompany accounts and transactions are eliminated in consolidation.

Revenue Recognition

The Company's real estate brokerage services principally involve providing a ready, willing and able buyer of a property to the seller. During the year ended December 31, 2000, the Company changed its method of revenue recognition for residential real estate brokerage commissions in accordance with Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements. Previously, the Company had recognized revenue when the buyer and seller of a property entered into a contract of sale and a good faith deposit was made by the buyer. Under the new accounting method adopted retroactive to January 1, 2000, the Company now recognizes revenue upon the consumation of the underlying real estate sale. The cumulative effect of the accounting change resulted in a charge to income of $3.7 million (net of an income tax benefit of $2.6 million), which is included in income for the year ended December 31, 2000. The effect of the change on the year-ended 2000 was to decrease income before cumulative effect of the accounting change by $64,000 ($0.02 and $0.01 per basic and diluted shares, respectively).

The following table shows the amounts reported and pro forma amounts that would have been reported if SAB 101 had been applied retroactively:

	Year Ended December 31, 1999
	(Dollar amounts in thousands)
	Pro Forma		As Reported
Net Income	$	4,266	$	4,984
Basic Earnings Per Share	$	1.27	$	1.49
Diluted Earnings Per Share	$	1.21	$	1.41

The cumulative effect adjustment as of January 1, 2000 included the reversal of net real estate brokerage commission revenues of approximately $6.4 million. Substantially all of the revenues were subsequently recognized in 2000, principally in the first quarter.

F-8

premiums paid by the investors. Direct loan origination costs consist of commissions paid to the Company's mortgage consultants and appraisal fees and credit report fees paid to third parties. Interest on mortgage loans held for sale is recognized as income when earned.

Originated mortgage servicing rights are capitalized based on their fair value and are amortized in proportion to, and over the period of, estimated net servicing income. Amortization is adjusted prospectively to reflect changes in prepayment experience. The Company periodically evaluates and measures the value of the servicing rights to determine impairment. In determining the value, the Company stratifies the servicing rights based on predominant risk characteristics of the underlying loans. The characteristics that the Company uses are interest rate, date of origination and loan term. Impairment is recognized in a valuation allowance in the period of impairment.

Servicing income represents net fees earned for servicing real estate mortgage loans owned by outside investors and is recognized as income when received.

Insurance revenue is generally recognized as of the effective date of the insurance policy. Contingent insurance revenue is recognized as income when received.

Mortgage Loans Held for Sale

Mortgage loans held for sale are carried at the lower of cost or market determined on a net aggregate basis. Forward sale commitments are used to protect the value of mortgage loans held for sale and loan applications with interest rate commitments from increases in interest rates.

Fair Value Disclosures

Financial Accounting Standards Board Statement No. 107, Disclosures about Fair Value of Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Statement No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

Property and Equipment

Property and equipment is stated at cost, except for equipment under capital leases, which is recorded at the net present value of the minimum lease payments at inception of the lease.

Depreciation and amortization is provided using the straight-line method over the estimated useful asset lives for owned assets (three to thirty years), the related lease term for equipment under capital leases (three to five years), and the shorter of the lease term or estimated useful life of the asset for leasehold improvements.

Accounting for Computer Software Costs

In accordance with Statement of Position No. 98-1, Accounting for the Cost of Computer Software Developed or Obtained for Internal Use, the Company capitalizes qualified software costs and amortizes these costs over three to five years.

F-9

Derivative Financial Instruments

As of January 1, 2001, the Company adopted Financial Accounting Standards Board Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement 133) which was issued in June, 1998 and its amendments Statements 137, Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133, and 138, Accounting for Derivative Instruments and Certain Hedging Activities, issued in June 1999 and June 2000, respectively (collectively referred to as Statement 133).

As a result of adoption of Statement 133, the Company recognizes all derivative financial instruments, such as interest rate swap contracts and forward sale commitments, in the consolidated financial statements at fair value regardless of the purpose or intent for holding the instrument. Under Statement 133, changes in the fair value of derivative financial instruments are either recognized periodically in income or in shareholders' equity as a component of comprehensive income depending on whether the derivative financial instrument qualifies for hedge accounting, and if so, whether it qualifies as a fair value or cash flow hedge.

The Company accounted for the adoption of Statement 133 as a cumulative effect of a change in accounting principle, which resulted in an increase of $26,000, net of applicable income taxes of $20,000, to other comprehensive income.

The Company has designated its derivative instruments as cash flow hedges and gains or losses on these instruments are recognized in shareholders' equity as a component of comprehensive income.

The Company's derivatives include (1) forward sale commitments which are used to hedge the anticipated future sale of mortgage loans and generally are entered into for periods of under three months and (2) an interest rate swap agreement which matures on April 30, 2002 with the notional amount of $12.4 million to hedge the anticipated future cash flows related to the Company's acquisition line of credit.

The Company does not account for outstanding commitments to extend credit as derivatives. The Financial Accounting Standards Board is currently evaluating whether such commitments should be accounted for as derivatives. The outcome of these deliberations could result in a change in the Company's accounting in a future period.

Goodwill and Other Intangible Assets

The excess of cost over value in net assets of companies acquired is currently being amortized using the straight-line method over fifteen to twenty-year periods and is reviewed on an ongoing basis by the Company's management based on several factors, including the Company's projection of undiscounted operating cash flows from such acquisitions. If an impairment of the carrying value were identified by this review, the Company would adjust the carrying value of the excess of cost over value in net assets acquired to its estimated fair value.

F-10

In July 2001, the Financial Accounting Standards Board issued Statement No. 142, Goodwill and Other Intangibles (Statement 142). Under Statement 142, the excess of cost over value in net assets and indefinite lived intangible assets will no longer be amortized but will be reviewed periodically for impairment. The Company is required to adopt Statement 142 on January 1, 2002. In connection with the adoption of Statement 142, approximately $919 thousand of the excess cost over value of net assets will be reclassified as an amortizable insurance intangible. The Company has preliminarily concluded that no impairment writedown will be required in connection with the adoption of Statement 142. The Company has adopted Statement 142 for all current year acquisitions, and is not amortizing the excess of cost over value in net assets related to these acquisitions. The Company's non-compete and consulting agreements and insurance intangible will continue to be accounted for as assets subject to amortization.

Stock Options

Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25") in accounting for its stock-based compensation plans, rather than the alternative fair value accounting method provided for under Financial Accounting Standards Board Statement No. 123, Accounting for Stock-Based Compensation (Statement No. 123). Under APB 25, when the exercise price of options granted under these plans equals the market price of the underlying stock on the date of grant (as is the case with the Company's options), no compensation expense is required.

Non-Employee Stock Options

The Company accounts for stock options granted to non-employees in accordance with Statement 123. Under Statement 123, the Company expenses options granted to non-employees over the vesting term of the options using the fair value of the options as of the financial statement date.

Advertising

Advertising costs are expensed as incurred and are classified as marketing and promotion on the accompanying Consolidated Statements of Income.

Income Taxes

Income taxes have been provided using the liability method in accordance with the requirements of Financial Accounting Standards Board Statement No. 109, Accounting For Income Taxes.

Statement of Cash Flows

For purposes of the statement of cash flows, cash includes cash and short-term highly liquid investments with original maturities of three months or less.

Basic Earnings per Share and Diluted Earnings per Share

Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the assumed conversion of all dilutive securities, such as options and warrants.

F-11

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates, and such differences may be material.

Reclassifications

Certain prior year balances have been reclassified to conform with current year presentation.

Note 2—Acquisitions

The Company has expanded its operations through the acquisition of 13 independent real estate agencies in the three year period ended December 31, 2001 (1 in 2001, 2 in 2000 and 10 in 1999). Additionally, in August 2001, The DeWolfe Insurance Agency, Inc. acquired the personal lines business of the AON Private Risk Management Insurance Agency, Inc., which included approximately 7,400 policyholders.

The total purchase price of acquisitions in 2001 was $1.4 million. The agreements also require additional payments to be made not to exceed $150,000 if specific operating goals are achieved by the acquired entities. The total purchase price of the acquisitions in 2000 was $900,000. The agreements also require additional payments to be made not to exceed $700,000 if specific operating goals are achieved by the acquired entities. The total purchase price of the acquisitions in 1999 was $8.7 million and additional payments not to exceed $2.3 million if specific operating goals are achieved by the acquired entities. The acquisitions were funded by borrowings from the Company's acquisition line of credit and by loans from the principals of the acquired companies. The Company recorded the present value of minimum estimated payments to be made pursuant to non-competition, consulting and cooperation agreements related to acquisitions of $12,000 in 2001, $30,000 in 2000, and $1.4 million in 1999. Additionally, as a result of the Company's acquisitions, the Company recorded the excess of cost over value in net assets acquired of $329,000 in 2001, and $1.1 million and $5.7 million during 2000, and 1999, respectively. Acquisition related costs of $20,000, $56,000 and $660,000 were incurred in 2001, 2000 and 1999, respectively.

In connection with the acquisition of the assets of various real estate agencies, the Company entered into non-competition, consulting and cooperation agreements that expire at various dates through August 2004. Future payments, as called for in the agreements, are contingent upon the fulfillment of the terms of these agreements by the sellers and provide for certain percentage payments of the net commission income of various sales office locations. During 2001, 2000 and 1999, payments of $318,000, $375,000, and $744,000, respectively, were expensed. The annual minimum commitment for these payments, assuming the contracted commitments are fulfilled, will be approximately $44,000 in 2002, and $40,000 in 2003, and $40,000 in 2004.

F-12

The following table shows the Company's unaudited consolidated results of operations for the year ended December 31, 1999 on a pro forma basis assuming the 1999 acquisitions had occurred as of January 1, 1999. The effect of the 2001 and 2000 acquisitions on pro forma results of operations was not material.

	Year Ended December 31, 1999
	(in thousands except per share amounts)
Revenues	$	188,977
Net Income	$	5,337
Basic Earnings Per Share	$	1.59
Diluted Earnings Per Share	$	1.51

Note 3—Related Party Transactions

The Company has various advances and notes receivables with related parties as described below:

	December 31,
	2001		2000
Notes receivable from the Company's principal stockholder and spouse, with interest at prime plus 0.25%. At December 31, 2001 the rate in effect was 5.00%. The proceeds were used to purchase the Company's stock. The notes are secured by a pledge of certain shares of common stock of the Company. Principal and interest are due at various dates through April 2002. The notes receivable are carried as a reduction of stockholders' equity.	$	642,000	$	642,000
Notes receivable from an executive officer of the Company, with interest at prime plus 0.25%. At December 31, 2001 the rate in effect was 5.00%. The proceeds were used to purchase the Company's stock. The notes are secured by a pledge of certain shares of common stock of the Company. Principal and interest are due at various dates through April 2002. The note receivable is carried as a reduction of stockholders' equity.		299,000		204,000
Note receivable from an executive officer of the Company, with interest at prime plus 0.25%. At December 31, 2001 the rate in effect was 5.00%. The proceeds were used to purchase the Company's stock. The note was secured by a pledge of certain shares of common stock of the Company, and was due in February 2002, but was repaid before maturity. The note receivable was carried as a reduction of stockholders' equity.		—		23,000

Total notes receivable from sale of stock		941,000		869,000

F-13

Note 4—Indebtedness

In June 2001, the Company entered into a $40.0 million mortgage warehouse line of credit with Comerica Bank to replace the $40.0 million mortgage warehouse line of credit with First Union National Bank. The purpose of the facility is to provide financing for mortgage loans that it originates. The line of credit is due on demand and requires monthly interest payments at the Federal Funds rate plus 1.50% for balances up to $25.0 million, and interest payments at the Federal Funds rate plus 1.30% for balances exceeding $25.0 million. The amount of the facility was increased to $50.0 million in July 2001. During the fourth quarter of 2001, the amount of the facility was temporarily increased to $75 million through February 1, 2002. At December 31, 2001, the Federal Funds rate in effect was 2.25%. The balances due at December 31, 2001 and 2000 were $62.2 million and $22.9 million, respectively.

The Company has various credit arrangements with Fleet Bank, N.A., which include a $20.0 million acquisition line of credit, a revolving line of credit of $5.0 million, a relocation revolving line of credit of $5.0 million, and an equipment lease line of credit and chattel mortgage financing of $5.0 million. The credit agreements require the Company to obtain the written consent of the lender prior to paying dividends.

The following table describes the detail of the indebtedness:

	December 31,
	2001		2000
Note payable (acquisition facility note) maturing on April 30, 2006. The note requires interest only payments at the Fleet Bank, N.A. prime rate (4.75% at December 31, 2001) for $12,447,000 of the note and 4.72% on the remainder of the note until April 30, 2002 (see "interest rate swap" information below). On April 30, 2002, at the Company's option, the interest rate will be either the Fleet Bank prime rate plus 1.0% or a fixed rate of interest specified by Fleet Bank, N.A. The principal balance of the note on April 30, 2002 will be due in sixty installments as follows: 59 equal principal installments each equal in amount to the principal balance on April 30, 2002 divided by sixty and one final principal installment in an amount equal to the then unpaid principal amount of all acquisition facility loans. This note is secured by all personal and real property of the Company, except for the assets of DeWolfe Mortgage Services, Inc.	$	13,607,000	$	12,447,000
Note payable (revolving line of credit) maturing on April 30, 2002. The note requires monthly interest only payments, based on the Company's option, of either the Fleet Bank, N.A. prime rate or the LIBOR rate plus 1.25%. This note is secured by all personal and real property of the Company, except for the assets of DeWolfe Mortgage Services, Inc.		—		—

F-14

Note payable (relocation revolving line of credit ) maturing on April 30, 2002. The note requires monthly interest only payments, based on the Company's option of either the Fleet Bank, N.A. prime rate or the LIBOR rate plus 1.25%. This note is secured by all personal and real property of the company, except for the assets of DeWolfe Mortgage Services, Inc.		—		—
Promissory note payable (due to principal of company acquired in 1998) in monthly principal and interest payments of $12,524 at an interest rate of 7.50% maturing in May 2003.		201,000		359,000
Promissory notes payable (due to principals of companies acquired in 1999) in monthly principal and interest payments of $35,541 and annual principal and interest payments of $100,000 at interest rates ranging from 7.75% to 8.50%, maturing between October, 2002 and May, 2004.		941,000		1,374,000
Promissory notes payable (due to principals of companies acquired in 2000) in monthly principle and interest payments of $3,750 and annual principal and interest payments of $90,000 at interest rates ranging from 9.00% to 9.50%, maturing at various dates in 2004.		316,000		384,000
Promissory notes payable (due to principal of company acquired in 2001) in annual principal and interest payments of $22,500 at an interest rates of 6.50%, maturing in January 2005.		200,000		—
Chattel promissory notes payable maturing at various dates through November, 2004. The notes require monthly principal and interest payments of $207,353 at interest rates from 6.06% to 9.26%. The notes are secured by the underlying furniture and equipment.		3,812,000		3,095,000
Mortgage note payable in monthly principal and interest payments of $4,297 to maturity on May 1, 2009 with interest at 8.00%. The note is secured by land and building housing the Westford, MA sales office.		235,000		266,000
Unsecured note payable in monthly principal and interest payments of approximately $11,000, maturing in February, 2003 with interest at 14.3%. This note is guaranteed by the chairman and principal stockholder.		144,000		249,000
Unsecured payment plan agreement with Oracle Credit Corporation payable in quarterly principal and interest payments of $31,864 with interest at 7.50%.		—		66,000
Obligations under capital leases (Note 5)		125,000		435,000

		19,581,000		18,675,000
Less current portion		5,017,000		4,508,000

	$	14,564,000	$	14,167,000

The Company has entered into an interest rate swap agreement in the notional amount of $12,447,000 to reduce the impact of increases in the interest rate on its borrowings under its variable rate acquisition line of credit with Fleet Bank, N.A. The agreement effectively entitles the Company to convert its variable rate agreement to a fixed rate of 4.72% on borrowings under the facility up to $12,447,000 through April 30, 2002. Payments received or paid as a result of the swap are accrued as a reduction of, or an increase to, interest expense on the variable rate line of credit.

F-15

Aggregate annual maturities of long-term debt as of December 31, 2001, are as follows:

2002	$	5,017,000
2003		4,699,000
2004		3,565,000
2005		2,817,000
2006		2,768,000
Thereafter		715,000

	$	19,581,000

Note 5—Commitments and Contingencies

Non-Competition and Consulting Agreements

Funds Held in Escrow

The Company acts as escrow agent in connection with the performance of its real estate services. Accordingly, the Company held escrow funds totaling $15.0 million and $16.5 million at December 31, 2001 and 2000, respectively. These funds are not recorded in the Company's consolidated financial statements.

Lease Commitments

The Company leases office facilities under operating leases that expire at various dates through 2010. The Company anticipates renewing or replacing leases that expire in the normal course of business. The terms of the leases provide for the payment of minimum annual rentals and generally for the payment of insurance, maintenance, and certain other operating expenses. The Company also leases various items of equipment used for sales and administrative activities. The leases expire at various dates through 2003. Leases that meet criteria for capitalization have been recorded as capital leases.

F-16

The following is a schedule of the future minimum payments under operating and capital leases for each of the five years in the period ending December 31, 2006 and thereafter:

	Capital Leases		Operating Leases
2002	$	103,000	$	6,319,000
2003		29,000		4,865,000
2004		—		2,676,000
2005		—		1,067,000
2006		—		350,000
Thereafter		—		466,000

Total minimum lease payments		132,000	$	15,743,000

Less amount representing interest at various rates from 7.5% to 15.5%		7,000

Present value of minimum lease payments	$	125,000

Rent expense under the non-cancelable operating leases was $6.6 million in 2001, $6.5 million in 2000 and $6.1 million in 1999.

Equipment and improvements recorded under capital leases, which are included with company-owned property and equipment at December 31, 2001 and 2000, totaled $90,000 and $328,000, respectively, net of accumulated amortization at those dates of $2.7 million and $2.5 million, respectively.

Commitments and Contingencies with Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit to customers and forward sale commitments to sell mortgage loans to investors. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The Company uses the same credit policies in making commitments and conditional obligations as it does for making loans. In the opinion of management, the Company's outstanding commitments do not reflect any unusual risk.

The contract or notional amount of commitments outstanding are as follows:

		December 31,
		2001		2000
Financial instruments whose contract amounts represent credit risk:
	Rate locked commitments to extend credit	$	61,194,000	$	11,641,000
Financial instruments whose notional or contract amounts exceed the amount of credit risk:
	Forward sale commitments	$	126,575,000	$	33,981,000

F-17

Floating rate commitments to extend credit totalled $69.1 million and $73.0 million at December 31, 2001 and 2000, respectively.

Commitments and Contingencies with Off-Balance Sheet Risk

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Loan applications must be approved by the Company's underwriting department, before a commitment is issued, for compliance with underwriting criteria of FNMA, FHLMC, or other investors.

Forward sale commitments are contracts for the future delivery of loans or securities at a specific future date, at a specified price and yield, and are entered into to reduce market risk associated with originating and holding loans for sale by protecting the value of the anticipated closing of loan applications for which the interest rate has been locked by the borrower. These loans usually close within three months from the time of the application. The risks associated with forward sale commitments arise from the possible inability of the counterparties to meet the contract terms, or the Company's inability to generate loans to fulfill the contracts.

The Company sells, without recourse, all its mortgage loan production to investors.

Other Contingencies

The Company is currently a defendant in certain litigation arising in the ordinary course of business. It is management's opinion that the outcome of these actions will not have a material effect on operations or the financial condition of the Company.

Note 6—Fair Value of Financial Instruments

The following table represents the carrying amounts and estimated fair values of the Company's financial instruments:

			December 31,
			2001				2000
			Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
	Cash and cash equivalents		$	18,707,000	$	18,707,000	$	14,537,000	$	14,537,000
	Mortgage loans held for sale			65,895,000		66,729,000		24,668,000		25,075,000
	Originated mortgage servicing rights, net			1,737,000		1,896,000		1,033,000		1,300,000

		Total financial assets	$	86,339,000	$	87,332,000	$	40,238,000	$	40,912,000

Financial Liabilities:
	Long-term debt		$	19,456,000	$	19,993,000	$	18,240,000	$	18,145,000
	Note payable—bank			62,179,000		62,179,000		22,911,000		22,911,000

		Total financial liabilities	$	81,635,000	$	82,172,000	$	41,151,000	$	41,056,000

F-18

Estimation of Fair Values

The following notes summarize the major methods and assumptions used in estimating the fair values of financial instruments shown above and the Company's commitment to extend credit and forward sale commitments.

Cash and cash equivalents

The fair value of cash and cash equivalents approximates the carrying amount as a result of the highly liquid and short-term nature of the instruments.

Mortgage loans held for sale

The fair value of mortgage loans held for sale was determined using the specified prices to be realized based on the Company's forward sale commitment contracts.

Originated mortgage servicing rights

The fair value of mortgage servicing rights is determined using a valuation model that calculates the present value of estimated expected future net servicing cash flows. The Company utilized assumptions that market participants would use in their estimates of future servicing income and expense. The significant assumptions utilized in the valuation were discount rate, prepayment estimates, and cost to service.

Note payable-bank and long-term debt

The fair value of the note payable-bank is stated at carrying amount as a result of the short-term nature of the instrument and the variable interest rate. The fair value of long-term debt reflects current rates for similar debt. The fair value of the interest rate swap agreement reflects a loss of $119,000 and a gain of $6,000 at December 31, 2001 and 2000, respectively, based on quoted market prices.

Commitments to extend credit

The fair value of the Company's commitments to extend credit is estimated by comparing the Company's cost to acquire mortgages to the current price for similar mortgage loans, taking into account the terms of the commitments and creditworthiness of the counterparties, but not giving effect to forward sale commitments. For fixed rate loan commitments, fair value also considers the difference between the current levels of interest rates and the committed rates. The fair value of the Company's commitments to extend credit reflect a loss of $115,000 and a gain of $173,000, at December 31, 2001 and 2000, respectively.

Forward sale commitments

The fair value of forward sale commitments is estimated to be the amount that the Company would receive or pay to terminate the forward sale commitments at the reporting date based on market prices for similar financial instruments. The fair value of the Company's forward sale commitments reflect gains of $2.0 million and $41,000 at December 31, 2001 and 2000, respectively. The fair value estimates of the Company's forward sale commitments are estimated without consideration of the future earnings attributable to loans that have been or will be originated to satisfy the forward sale commitments.

F-19

Note 7—Retirement Plans

Effective December 1, 1996, the Company established a qualified 401(k) retirement plan for the benefit of eligible employees. The Company has made discretionary contributions to the plan by matching 25% of employee contributions (up to 6% of individual employee income) in 2001, 2000 and 1999. The Company contributed $259,000, $205,000 and $181,000 to this plan in 2001, 2000, and 1999, respectively.

Note 8—Income Taxes

Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, 2001 and 2000 are as follows:

		2001			2000
Current deferred tax assets (liabilities):
	Real estate revenues	$	663,000		$	—
	Mortgage servicing revenues		(106,000	)		—
	Other		16,000			—

		$	573,000		$	—

		2001			2000
Long-term deferred tax assets (liabilities):
	Book over tax depreciation	$	1,281,000		$	828,000
	Real estate revenues		1,325,000			1,886,000
	Mortgage servicing revenues		(212,000	)		—
	Allowance for doubtful accounts		11,000			11,000
	Other		72,000			(65,000	)

		$	2,477,000		$	2,660,000

The provision for income taxes for 2001, 2000 and 1999 consisted of the following:

	2001					2000					1999
	Current		Deferred			Current		Deferred			Current		Deferred
Federal	$	4,267,000	$	(298,000	)	$	3,614,000	$	(297,000	)	$	2,803,000	$	(90,000	)
State		1,318,000		(92,000	)		1,084,000		(116,000	)		913,000		(30,000	)

Total	$	5,585,000	$	(390,000	)	$	4,698,000	$	(413,000	)	$	3,716,000	$	(120,000	)

F-20

The provision for income taxes is different from that which would be obtained by applying the statutory Federal income tax rate to income before taxes. The items causing the difference are as follows:

	2001		2000		1999
Tax expense at statutory rate	$	4,204,000	$	3,311,000	$	2,917,000
State income tax		740,000		640,000		583,000
Permanent differences		251,000		334,000		96,000

	$	5,195,000	$	4,285,000	$	3,596,000

Deferred tax expense (benefits) result from temporary differences in the recognition of revenues and expenses for tax and financial reporting purposes. The sources of these differences and their tax effect are as follows:

	2001			2000			1999
Book depreciation more than tax depreciation	$	(453,000	)	$	(413,000	)	$	(188,000	)
Mortgage servicing income		318,000			—			—
Other temporary differences		(255,000	)		—			68,000

	$	(390,000	)	$	(413,000	)	$	(120,000	)

Note 9—Concentration of Credit Risk

The Company sells its services to homeowners and buyers. The Company is affected by the cyclical nature of the residential real estate industry and the availability of financing for the homebuyer.

Note 10—Stockholders' Equity

The Company established a policy in 1993 pursuant to which one share of common stock is issued as a bonus under the Company's Company Stock Purchase Plan to each employee, consultant, sales associate, or advisor who joins the Company, subject to a ninety-day waiting period. During 2001, 2000, and 1999, 572, 624 and 1,090 shares, respectively, were issued pursuant to this policy. The total value of these shares amounted to $5,000 in 2001, $5,000 in 2000 and $8,000 in 1999 using as a value the closing sale price of the common stock on the American Stock Exchange on the day immediately preceding the date of issuance.

In 1996, the Company approved a stock repurchase plan authorizing the Company to repurchase shares of its common stock in the open market or in private transactions. In May of 1998, the Company authorized an increase in the amount of the Company's stock that may be repurchased under the repurchase plan to a total of $1.9 million. At December 31, 2000, 243,255 shares at a cost of $1,399,000 million had been acquired under this plan, of which 7,207 shares at a cost of $50,000 were acquired in 2000, and 4,500 shares at a cost of $31,000 were acquired in 1999. During the third quarter of 2001 the Company authorized a stock repurchase plan of 200,000 shares of Company stock. This plan superseded the Company's prior repurchase plan. During the third and fourth quarters, the Company purchased 27,800 shares of stock at a cost of $223,000 under the new repurchase plan.

In 2001 and 2000, the Company issued notes receivable to the Company's principal stockholder and spouse and to executive officers totaling $95,000 and $17,000, respectively. The proceeds from these

F-21

transactions were used to purchase shares of the Company's stock. The notes receivable are carried as a reduction of stockholders' equity.

The Company has various stock option plans under which shares of common stock may be granted to key employees, consultants, sales associates, advisers, and directors of the Company. Options granted under the plans are non-qualified or incentive stock options, and are granted at a price that is not less than the fair market value of the common stock at the date of grant. These options have lives of five or ten years and vest over periods from zero to four years. Options available for future grant under these plans totaled 57,938 and 359,900 at December 31, 2001 and 2000, respectively.

At December 31, 1998 the Company had 500,000 warrants outstanding with exercise prices ranging from $6.00 to $9.00 per share. During 1999, 5,960 warrants were exercised at $6.00 per share. The remaining 494,040 warrants expired unexercised.

Pursuant to the requirements of Statement 123, the following are the pro forma net income and net income per share amounts for 2001, 2000, and 1999, as if the compensation cost for the stock option and stock purchase plans had been determined based upon the fair value at the grant date for grants in 2001, 2000, and 1999:

	Years Ended December 31,
	2001				2000				1999
	As Reported		Pro Forma		As Reported		Pro Forma		As Reported		Pro Forma
Net income	$	6,616,000	$	5,964,000	$	1,738,000	$	1,179,000	$	4,984,000	$	4,488,000
Basic earnings per share	$	1.93	$	1.74	$	0.51	$	0.36	$	1.49	$	1.34
Diluted earnings per share	$	1.76	$	1.59	$	0.48	$	0.33	$	1.41	$	1.27

The above pro forma estimates were made using the Black-Scholes option pricing model. The following assumptions were used to estimate the fair value of the options issued in 2001: risk free interest rate of 4.94%, expected volatility of .294, expected dividend yield of 2% and an estimated life of the options of 5 and 10 years based on the grant. The following assumptions were used to estimate the fair value of the options issued in 2000: risk free interest rate of 4.98%, expected volatility of .299, expected dividend yield of 2% and an estimated life of the options of 5 and 10 years based on the grant. The following assumptions were used to estimate the fair value of the options issued in 1999: risk free interest rate of 6.46%, expected volatility of .309, expected dividend yield of 2% and an estimated life of the options of 5 and 10 years based on the grant.

The values estimated related to options are based on management estimates in conjunction with the Black-Scholes valuation model and may not reflect the actual values of these options.

F-22

A summary of stock option transactions is as follows:

	Years Ended December 31,
	2001				2000
	Number		Weighted Average Exercise Price		Number		Weighted Average Exercise Price
Options outstanding at beginning of year	1,606,775		$	6.43	1,249,850		$	6.18
Options granted (1)	459,774			7.91	388,815			7.04
Options granted (2)	12,626			8.71	14,285			7.70
Options granted (3)	—			—	—			—
Options exercised	(66,575	)		5.29	(34,675	)		4.63
Cancelled options	(31,338	)		7.28	(11,500	)		6.16

Options outstanding at end of year	1,981,262		$	6.81	1,606,775		$	6.43

Options exercisable at December 31,	1,098,951		$	6.30	867,097		$	5.77

	Price		Number	Price		Number
Price and number of options outstanding at end of year	$	3.50-$5.00	80,000	$	3.50-$5.00	125,925
	$	5.01-$7.24	1,377,465	$	5.01-$7.24	1,408,715
	$	7.25-$9.00	523,797	$	7.25-$9.00	72,135

(1): Options granted during the year where the exercise price equaled the market price on the grant date.
(2): Options granted during the year where the exercise price exceeds the market price on the grant date.
(3): Options granted during the year where the exercise price was less than the market price on the grant date.

The weighted average remaining life of stock options outstanding at December 31, 2001 was approximately 7 years.

The weighted average fair value of options granted during 2001 and 2000 for options where the exercise price equaled the market price on the grant date was $2.14 and $2.02, respectively. The weighted average fair values of options granted during 2001 and 2000 where the exercise price exceeds the market price on the grant date were $1.74 and $1.77, respectively. There were no options granted in 2001 or 2000 where the exercise price was less than the market price on the grant date. These fair values were estimated using the Black-Scholes valuation model and the assumptions noted above.

The Company has granted non-qualified stock options to non-employees as part of various stock option plans. The expense incurred by the Company related to non-employee stock option grants totaled $294,000 and $9,000 for the years ended December 31, 2001 and 2000, respectively.

F-23

The following table sets forth the computation of basic earnings per share and diluted earnings per share:

		Years Ended December 31,
		2001		2000			1999
Numerator:
	Income before cumulative effect of change in accounting principle	$	6,616,000	$	5,453,000		$	4,984,000
	Cumulative effect of change in accounting principle		—		(3,715,000	)		—

	Net income	$	6,616,000	$	1,738,000		$	4,984,000

Denominator:
	Basic weighted average shares		3,428,000		3,381,000			3,350,000
	Effect of stock options		327,000		242,000			188,000

	Diluted weighted average shares		3,755,000		3,623,000			3,538,000

Basic Earnings per share:
	Income before cumulative effect of change in accounting principle	$	1.93	$	1.61		$	1.49
	Cumulative effect of change in accounting principle		—		(1.10	)		—

	Net income	$	1.93	$	0.51		$	1.49

Diluted Earnings per share:
	Income before cumulative effect of change in accounting principle	$	1.76	$	1.51		$	1.41
	Cumulative effect of change in accounting principle		—		(1.03	)		—

	Net income	$	1.76	$	0.48		$	1.41

Note 11—Originated Mortgage Servicing Rights

The following table represents activity and carrying amounts for originated mortgage servicing rights:

	Years Ended December 31,
	2001			2000
Beginning Balance, January 1	$	1,211,000		$	1,124,000
Originated Mortgage Servicing Rights capitalized		1,017,000			235,000
Amortization		(211,000	)		(148,000	)

Balance at December 31	$	2,017,000		$	1,211,000

F-24

The following table represents activity and carrying amounts for the valuation allowance for originated mortgage servicing rights:

	Years Ended December 31,
	2001		2000
Beginning Balance, January 1	$	178,000	$	155,000
Additions to Valuation Allowance		102,000		23,000

Balance at December 31	$	280,000	$	178,000

The estimated fair value of the servicing assets aggregated $1.9 million and $1.3 million at December 31, 2001 and 2000, respectively. Fair value is estimated by discounting estimated future cash flows from the servicing assets using discount rates that approximate current market rates and using current expected future prepayment rates.

Note 12—Segment Reporting

The Company has three reportable operating segments based upon its services: real estate, including both real estate brokerage and relocation services; mortgage banking; and insurance services. The Company evaluates its segments based on pre-tax income. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Financial information for the three operating segments is provided in the following table:

		Years Ended December 31,
		2001		2000			1999
Revenues:
	Real Estate	$	204,354,000	$	188,369,000		$	172,957,000
	Mortgage Banking		7,727,000		4,387,000			4,679,000
	Insurance Services		2,418,000		1,679,000			1,193,000

Total Segment Revenues		$	214,499,000	$	194,435,000		$	178,829,000

Net Revenues:
	Real Estate	$	69,630,000	$	65,029,000		$	58,848,000
	Mortgage Banking		7,727,000		4,387,000			4,679,000
	Insurance Services		2,418,000		1,679,000			1,193,000

Total Segment Net Revenues		$	79,775,000	$	71,095,000		$	64,720,000

Pre-tax Income (Loss):
	Real Estate	$	8,428,000	$	9,360,000		$	7,971,000
	Mortgage Banking		3,259,000		728,000			1,133,000
	Insurance Services		124,000		(350,000	)		(524,000	)

Total Segment Pre-tax Income		$	11,811,000	$	9,738,000		$	8,580,000

Assets:
	Real Estate	$	41,847,000	$	37,564,000		$	49,904,000
	Mortgage Banking		72,869,000		27,736,000			13,658,000
	Insurance Services		2,562,000		1,712,000			1,719,000

Total Segment Assets		$	117,278,000	$	67,012,000		$	65,281,000

F-25

Note 13—Selected Quarterly Data (Unaudited)

(In thousands except share and per share amounts)

Calendar Year 2001	First Quarter			Second Quarter		Third Quarter		Fourth Quarter		Year
Revenues	$	30,042		$	56,139	$	71,573	$	56,745	$	214,499
Net Revenues		12,004			21,124		24,993		21,654		79,775
Operating income (loss)		(4,039	)		3,641		8,225		3,428		11,255
Net income (loss)		(2,256	)		2,197		4,623		2,052		6,616
Basic Earnings per share		(0.66	)		0.64		1.34		0.60		1.93
Diluted Earnings per share	$	(0.66	)	$	0.60	$	1.26	$	0.52	$	1.76
Basic Weighted Average shares outstanding		3,406,000			3,435,000		3,442,000		3,430,000		3,428,000
Diluted Weighted Average shares outstanding		3,406,000			3,681,000		3,678,000		3,936,000		3,755,000

Calendar Year 2000	First Quarter			Second Quarter		Third Quarter		Fourth Quarter		Year
Revenues	$	28,566		$	51,901	$	60,639	$	53,329	$	194,435
Net Revenues		11,226			19,107		22,096		18,666		71,095
Operating income (loss)		(3,448	)		3,665		5,972		3,394		9,583
Income before cumulative effect of change in accounting principle		(2,011	)		1,975		3,387		2,102		5,453
Cumulative effect of change in accounting principle		(3,715	)		—		—		—		(3,715	)

Net income (loss)		(5,726	)		1,975		3,387		2,102		1,738
Basic Earnings per share:
Income before cumulative effect of change in accounting principle		(0.60	)		0.58		1.00		0.62		1.61
Cumulative effect of change in accounting principle		(1.10	)		—		—		—		(1.10	)

Net Income		(1.70	)		0.58		1.00		0.62		0.51
Diluted Earnings per share:
Income before cumulative effect of change in accounting principle		(0.60	)		0.55		0.93		0.57		1.51
Cumulative effect of change in accounting principle		(1.10	)		—		—		—		(1.03	)

Net Income	$	(1.70	)	$	0.55	$	0.93	$	0.57	$	0.48
Basic Weighted Average shares outstanding		3,362,000			3,379,000		3,389,000		3,394,000		3,381,000
Diluted Weighted Average shares outstanding		3,362,000			3,614,000		3,647,000		3,697,000		3,623,000

F-26

THE DEWOLFE COMPANIES, INC.
SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

Description			Balance at Beginning of Year		Charged to Operations		Deductions			End of Year Balance

Year ended December 31, 2000			$	933,000		—	$	933,000	(2)		—
Year ended December 31, 1999
	Deducted from asset accounts:
		Allowance for doubtful accounts	$	826,000	$	440,000	$	333,000	(1)	$	933,000

(1): Represents primarily write-offs of net commissions on real estate sales, which were not consummated.
(2): Due to the adoption of SAB 101.

F-27

THE DEWOLFE COMPANIES, INC.
EXHIBIT INDEX
FORM 10K
12/31/01

Exhibit No.	Description	Reference
3.1	Restated Articles of Organization of the Registrant	A-3.1
3.2	Amendment to Articles 3 and 4 of Restated Articles of Organization	B-3(i)
3.3	By-laws of the Registrant, as amended	C-3(ii)
4.1	Speciman Certificate of shares of Common Stock. $.01 par value	C-4.1
10.1	1992 Stock Option Plan, as amended*	F-10.4
10.2	1992 Non-Employee Director Stock Option Plan*	E-10.2
10.3	Employment Agreement dated May 20, 1992 with Richard B. DeWolfe*	A-10.16
10.4	Stock Option Agreement dated May 20, 1992 with Richard B. DeWolfe*	A-10.17
10.5	Employment Agreement dated May 20, 1992 with Patricia A. Griffin*	A-10.20
10.6	Employment Agreement dated May 20, 1992 with Paul J. Harrington*	A-10.21
10.7	$10,507 Note dated June 1, 1990 from Amherst Realty Trust	A-10.24.1
10.8	Mortgage dated June 23, 1991 from Richard B. DeWolfe and Marcia A. DeWolfe	A-10.24.2
10.9	Employment Agreement dated April 29, 1996 with James A. Marcotte*	D -10(i)
10.10	Employment Agreement dated May 14, 1998 with Richard Pucci*	F-10.3
10.11	Employment Agreement dated February 20, 1998 with Richard Loughlin*	G-10.20
10.12	Employment Agreement dated July 6, 2000 with John R. Penrose*	H-10.21
10.13	1998 Stock Option Plan, as amended*	I-B
10.14	Consulting Agreement dated January 1, 1999 with A. Clinton Allen	J-10.15
10.15	Employment Agreement dated November 26, 2001 with Charles A. Ferraro*	filed herewith
21	Subsidiaries of the Registrant	filed herewith
23	Consent of Ernst & Young LLP	filed herewith
99	Copy of Section 67 of the Massachusetts Business Corporation Law	A-28.1

A	–	Incorporated by reference from the registrant's Registration Statement on Form S-18 (File No. 33-48113-B). The page or reference set forth herein is the exhibit number in said Registration Statement.
B	–	Incorporated by reference from the registrant's Quarterly Report on Form 10-Q for the period ending June 30, 1995. The page or reference set forth herein is the exhibit number in said quarterly report.
C	–	Incorporated by reference from the registrant's Annual Report on Form 10-K for for the fiscal year ended December 31, 1995. The number set forth herein is the exhibit number in said report.
D	–	Incorporated by reference from the registrant's Quarterly Report on Form 10-Q for the period ending June 30, 1996. The page or reference set forth herein is the exhibit number in said quarterly report.

E	–	Incorporated by reference from the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. The page or reference set forth herein is the exhibit number in said report.
F	–	Incorporated by reference from the registrant's Quarterly Report on Form 10-Q for the period ending June 30, 1998. The page or reference set forth herein is the exhibit number in said quarterly Report.
G	–	Incorporated by reference from the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. The page or reference set forth herein is the exhibit number in said report.
H	–	Incorporated by reference from the registrant's Quarterly Report on Form 10-Q for the period Ending September 30, 2000. The page or reference set forth herein is the exhibit number in said quarterly Report.
I	–	Incorporated by reference from the registrant's 2002 Proxy Statement. The reference set forth herein is the exhibit letter in said Proxy Statement.
J	–	Incorporated by reference from the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. The page or reference set forth herein is the exhibit number in said report.

*: Represents a management contract or compensatory plan in which a director or excutive officer of the registrant participates.

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DOCUMENTS INCORPORATED BY REFERENCE
PART I
PART II
OVERVIEW OF OPERATIONS
RESULTS OF OPERATIONS
LIQUIDITY AND SOURCES OF CAPITAL
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
FACTORS AFFECTING FUTURE RESULTS
PART III
PART IV
SIGNATURES
Report of Independent Auditors
THE DEWOLFE COMPANIES, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
THE DEWOLFE COMPANIES, INC. EXHIBIT INDEX FORM 10K 12/31/01
EX-10.15 3 a2073674zex-10_15.txt EXHIBIT 10-15 Exhibit 10.15 EMPLOYMENT AGREEMENT This agreement is made between The DeWolfe Companies, Inc. ("DeWolfe") and Charles A. Ferraro ("Employee"). DeWolfe agrees to associate with Employee upon the terms contained in this agreement, and Employee agrees to work in the best interests of DeWolfe at all times, upon the terms contained in this agreement. TERM: The employment shall commence on November 26, 2001, and will continue until canceled, amended or terminated as described in this agreement. TITLE: The Employee will be appointed as President of DeWolfe Mortgage Services, Inc and Vice President of The DeWolfe Companies, Inc. ASSIGNMENT: The Employee's assignment and responsibilities will be defined by DeWolfe, and may be changed at any time. In general, the Employee is responsible for managing the operations and activities of DeWolfe Mortgage Services, including, but not limited to, (i) managing all employees hired or assigned, (ii) planning, budgeting, and implementing DeWolfe's strategies toward achieving service and financial goals, and (iii) in general, directing a service-oriented Mortgage Company toward achieving the business goals established by senior management of DeWolfe. The Employee will keep informed about the company's business in general, and shall participate in all training, meetings and functions required by DeWolfe. COMPENSATION: Compensation will be established by DeWolfe from time to time, and initially will be paid in accordance with the Compensation Schedule attached as Exhibit A. The Employee shall be entitled to all benefits generally provided by DeWolfe to its senior executives. The Employee shall be entitled to 4 weeks vacation time, mutually agreed upon and submitted in writing, to accrue at a rate of two days every month of employment. (Vacation time accrues ten months per year, according to the Company's accrual policy). TERMINATION: This Agreement and the employment created thereby may be terminated at any time without cause by either party upon sixty (60) days written notice. If employee is terminated by DeWolfe without cause, employee will be paid a minimum of six months base pay. DeWolfe may terminate this agreement and the employment created herein without notice for cause, including fraud, criminal activity, dereliction of duties or failure to comply with the terms of this agreement or DeWolfe policies and procedures. After termination, the Employee will not solicit any employee, sales associate, manager, or other person associated with DeWolfe or its affiliated Companies for the purpose of inducing that person(s) to terminate employment or association with DeWolfe. CONFIDENTIALITY: It is understood that the Employee may from time to time have knowledge of information which is confidential in nature, including, but not limited to customer and client lists, agent and management information, training and procedures, manuals, sales tactics, strategies, financial results and other trade secrets. The Employee will not, at any time during employment or after termination, disclose any confidential information, nor trade in the stock of The DeWolfe Companies, Inc. based upon confidential information, nor use such confidential information in any other manner. NOTICES: Any notice required under this agreement will be deemed sufficient if mailed or delivered to the parties at the following addresses: Employee: Charles A. Ferraro 43 Spencer Brook Lane Carlisle, MA 01741 DeWolfe: The DeWolfe Companies, Inc. 80 Hayden Avenue Lexington, MA 02173 Attn: Paul J. Harrington, President GOVERNING LAW: This agreement shall be governed by the laws of the Commonwealth of Massachusetts. Signed this 26th day of November, 2001. Employee: The DeWolfe Companies, Inc. /S/ CHARLES A. FERRARO By: /S/ PAUL J. HARRINGTON - ---------------------- ------------------------- Charles A. Ferraro Paul J. Harrington, President 2 EX-21 4 a2073674zex-21.txt EXHIBIT 21 Exhibit 21 SUBSIDIARIES OF THE REGISTRANT 1. Each of The DeWolfe Company, Inc., DeWolfe Relocation Services, Inc., DeWolfe Mortgage Services, Inc., The DeWolfe Insurance Agency, Inc., DeWolfe.com, Inc., DeWolfe Cares, Inc. and DeWolfe Direct, Inc. is a Massachusetts corporation and is a wholly-owned subsidiary of The DeWolfe Companies, Inc. 2. Each of Hillshire House, Inc., A Connecticut corporation, J.W. Riker Northern Rhode Island, Inc., a Rhode Island Corporation, Mark Stimson Associates, A Maine Corporation, and DeWolfe Realty Affiliates, A Maine Corporation, is a wholly-owned subsidiary of The DeWolfe Company, Inc. 3. Referral Associates of New England, Inc., a Massachusetts corporation, is a wholly-owned subsidiary of DeWolfe Relocation Services, Inc. 4. Real Estate Referral, Inc., a Connecticut corporation, is a wholly-owned subsidiary of Hillshire House, Inc. EX-23 5 a2073674zex-23.txt EXHIBIT 23 Exhibit 23 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statement (Form S-8, No 333-47410) pertaining to the 1998 Stock Option Plan; Registration Statement (Form S-8, No 333-93513) pertaining to the 1998 Stock Option Plan; Registration Statement (Form S-8, No 333-46291) pertaining to the 1998 Stock Option Plan; Registration Statement (Form S-8, No 33-56504) pertaining to the 1992 Stock Option Plan and the 1992 Non-Employee Director Stock Option Plan; Registration Statement (Form S-8, No 33-63600) pertaining to the 1993 Company Stock Purchase Plan; Registration Statement (Form S-8, No 333-18995) pertaining to the 1992 Non-Employee Director Stock Option Plan; Registration Statement (Form S-8, No 33-84136) pertaining to the 1992 Stock Option Plan; Registration Statement (Form S-3, No 33-92016); and Registration Statement (Form S-8, No 333-74744) of The DeWolfe Companies, Inc. of our report dated January 25, 2002, with respect to the consolidated financial statements and schedule of The DeWolfe Companies, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 2001. Ernst & Young, LLP Boston, Massachusetts March 21, 2002 -----END PRIVACY-ENHANCED MESSAGE-----

Note receivable from an entity controlled by the Company's principal stockholder. The note is collateralized by a mortgage lien on the commercial property that was leased to the Company until January, 1999. The Company provided rent payments for this property of $3,000 in 1999.

Total advances and notes receivable