UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM  10-Q

Commission File No. 000-26781

QUOTESMITH.COM, INC.

(Exact name of Registrant as specified in its charter)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(b) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ý Yes  o No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  o Yes  ý No

The number of outstanding shares of the regisrant’s common stock was 7,329,368 net of treasury shares, on May 6, 2005.

INDEX

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PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

QUOTESMITH.COM, INC.

BALANCE SHEETS

See accompanying notes.

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QUOTESMITH.COM, INC.

STATEMENTS OF OPERATIONS

See accompanying notes.

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QUOTESMITH.COM, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

See accompanying notes.

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QUOTESMITH.COM, INC.

STATEMENTS OF CASH FLOWS

See accompanying notes.

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QUOTESMITH.COM, INC.

NOTES TO FINANCIAL STATEMETS

(Unaudited)

1.          Description of Business

Quotesmith.com, Inc. (the Company) is an insurance agency and brokerage.  Since its inception in 1984, the Company has been continuously developing a proprietary and comprehensive insurance price comparison and order-entry system that provides instant quotes from over 200 insurance companies for numerous life and health insurance products.  The Company uses this database to provide customers with a large array of comparative life and health insurance quotes online, over the phone or by mail, and allows the customer to purchase insurance from the insurance company of their choice either online or over the phone with the Company’s licensed insurance customer service staff.  The Company’s website also provides insurance information and decision-making tools, along with access to other forms of personal insurance, such as auto, homeowners, renters, long-term care and travel insurance through various partners.  The Company generates revenues from the receipt of commissions and fees paid by various sources, that are tied directly to the volume of insurance sales or traffic that we produce.  The Company conducts its insurance agency and brokerage operations using both salaried and commissioned personnel and generates prospective customer interest using traditional direct response advertising methods conducted primarily offline

2.          Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  In the opinion of management, all adjustments, (consisting of normal recurring accruals), considered necessary for a fair presentation have been included.  Operating results for the three-month period ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

The balance sheet at December 31, 2004 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

Stock Options

The Company accounts for stock option grants in accordance with Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees” and related interpretations, and, accordingly, recognizes no compensation expense for stock options granted to employees where the exercise price is equal to or greater than the market price at the date of the grant.  SFAS 123, “Accounting for Stock Based Compensation”, requires disclosure of pro forma information regarding net income (loss) per share, using pricing models to estimate the fair value of stock option grants.  Had compensation expense for the Company’s stock option plans been determined based on the estimated fair value at the date of grant consistent with the methodology prescribed under SFAS 123, approximate net loss and net loss per share would have been as follows:

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On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation.  Statement 123 (R) supersedes APB Opinion 25 and amends FASB Statement No. 95, Statement of Cash Flows.  Generally, the approach in Statement 123 (R) is similar to the approach described in Statement 123.  However, Statement 123 (R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.  Pro forma disclosure is no longer an alternative.

Statement 123 (R) must be adopted no later then January 1, 2006.  Early adoption will be permitted in periods in which financial statements have not yet been issued.  We expect to adopt Statement 123 (R) on January 1, 2006.

Statement 123 (R) permits public companies to adopt its requirements using one of two methods:

1.               A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of Statement 123 (R) for all share-based payments granted after the effective date and (b) based on the requirements of Statement 123 for all awards granted to employees prior to the effective date of Statement 123 (R) that remain unvested on the effective date.

2.               A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under Statement 125 for purposes of pro forma disclosure either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

The Company plans to adopt Statement 123 (R) using the modified prospective method.

As permitted by Statement 123, the Company currently accounts for share-based payments to employees using Opinion 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options.  Accordingly, the adoption of Statement123 (R)’s fair value method will have a significant impact on our results of operations, although it will have no impact on our overall financial position.  The impact of adoption of Statement 123 (R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future.  However, had we adopted Statement 123 (R) in prior periods, the impact of the standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income and earnings per share reported above.  Statement 123 (R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than an operating cash flow as required under current literature.  This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption.  While the Company cannot estimate what those amounts will be in the future because they depend on, among other things, when employees exercise options, the amount of operating cash flows recognized in prior periods for such excess tax deductions were $0 in all periods, due to our net operating loss.

3.          Commitments and Contingencies

The Company is subject to legal proceedings and claims in the ordinary course of business.  The Company is not aware of any legal proceedings or claims that are believed to have a material effect on the Company’s financial position.

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4.              Acquisition

On May 7, 2004, the Company acquired selected assets of Life Quotes, Inc. for $18,400,000.  Life Quotes was an Evergreen, Colorado-based life insurance brokerage that marketed term life insurance utilizing direct response marketing methods combined with a call center staffed with licensed agents.  The Company believes that this acquisition provides an important capability that had been missing from its business model, that is, the ability to service customers by telephone in addition to its internet-based service.  The Company acquired approximately $2 million of receivables, $5.5 million of building and land, intangible assets and other assets and liabilities

The accompanying financial statements include the operations of Life Quotes, Inc. from May 7, 2004, the date of acquisition.  The following table presents unaudited pro forma results as if the acquisition had occurred at the beginning of 2004.

5.              Intangible Assets Acquired

As a result of the acquisition of selected assets of Life Quotes, Inc. described above, the Company has completed an allocation of the cost of the acquisition to the assets acquired.  The allocation is preliminary and may be adjusted as additional facts and costs of the acquisition are determined.

Intangible assets acquired in 2004 in the acquisition of certain assets of Life Quotes, Inc., consist of the following:

The fair value of insurance contract renewals was estimated based on the actual policies in force as of the acquisition date, and the renewal commission rates paid by each insurance carrier.  These commissions were estimated to have a maximum useful life of ten years, based on the terms of the contracts with the insurance carriers, and an annual lapse rate was applied to the expected renewals for each carrier based on historical trends.  Amortization is on an accelerated basis, as renewal commissions will decline each year due to lapses.  The ultimate realization of the value of the contract renewals is dependant on a number of factors, including actual lapse ratios, which can be affected by factors not under our control, such as death rates and the pricing level of insurance policies that could be purchased to replace the policies in the renewal stream.  As a result, the actual amount realized from the contract renewals acquired may differ significantly from the amount recorded in the pro forma financial statements, causing impairment.

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The excess of the purchase price over the costs allocated to the assets acquired is being recorded as goodwill.  As of March 31, 2005, the amount allocated to goodwill is $6,867,470.  This amount is preliminary and may be adjusted as additional facts and costs of the acquisition are determined.

6.              Legal and Regulatory Proceedings

On November 11, 2004, the Company received a subpoena from the Illinois Department of Financial and Professional Regulation, Division of Insurance, seeking information and documents related to compensation arrangements with insurance companies.  This action is related to investigations by regulatory bodies, including state insurance departments, of certain contingent commission arrangements between insurance brokers and insurance companies.  A discussion of these industry developments and the possible impact on the Company is included in Item 2 of this Report, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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ITEM 2:  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Because we want to provide you with more meaningful and useful information, this Quarterly Report on Form 10-Q includes forward-looking statements that reflect our current expectations and projections about our future results, performance, prospects, and opportunities.  We have attempted to identify these forward-looking statements by using words such as “may,” “will,” “expects,” “anticipates,” “believes,” “intends,” “estimates,” “could,” or similar expressions.  These forward-looking statements are based on information currently available to us and are subject to a number of risks in 2005 and beyond.  Actual results may differ materially from those expressed in, or implied by, these forward-looking statements.  These risks, uncertainties, and other factors include, without limitation:  our ability to achieve and sustain profitability; successful integration and profitable operation of the Life Quotes business; realization of sufficient revenue from contract renewals acquired in the Life Quotes acquisition to prevent impairment of the acquired asset; demand for life insurance; results of investigations by regulatory authorities into the insurance brokerage industry; effects of the war in Iraq on the purchasing decisions of consumers; significant fluctuations in our quarterly results; our ability to develop our brand recognition; our number of agency contracts; our ability to generate revenue from our strategic relationships; our ability to manage our growth; providing accurate insurance quotes; our ability to manage our expenses, quickly respond to changes in our marketplace, and meet consumer expectations; the complexity of our technology and our use of new technology; our ability to hire and retain senior management and other qualified personnel; intense competition in the insurance industry; the rate of acceptance and use of the Internet as a means for commerce; our ability to keep pace with technological changes and future regulations affecting our business; constraints of the systems we employ; and our ability to raise additional capital if necessary.  See the section of this Quarterly Report entitled “Factors That May Affect Our Future Operating Results” for a description of these and other risks, uncertainties, and factors.

You should not place undue reliance on any forward-looking statements.  Except as required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances, or any other reason after the date of this quarterly report.  All references to “we,” “us,” “our,” “Quotesmith,” and the “Company” refer to Quotesmith.com, Inc. and its subsidiary.

Overview and Critical Accounting Policies

We generate revenues primarily from the receipt of commissions paid to us by insurance companies based upon the policies sold to consumers through our service. These revenues come in the form of first year, bonus and renewal commissions that vary by company and product. We recognize the full first year commission revenues on term life insurance after the insurance company approves the policy and accepts the initial premium payment. At the time revenue is recognized, an allowance is recorded based on historical information for estimated commissions that will not be received due to the non-payment of installment first year premiums and any premium refunds made by the insurance carriers. We recognize commissions on all other lines of business after we receive notice that the insurance company has received payment of the related premium.  First year commission revenues per policy can fluctuate due to changing premiums, commission rates, and types or amount of insurance sold. We receive bonuses based upon individual criteria set by insurance companies. We recognize bonus revenues when we receive notification from the insurance company of the bonus due to us. Bonus revenues are typically higher in the fourth quarter of our fiscal year due to the bonus system used by many life insurance companies. Revenues for renewal commissions are recognized after we receive notice that the insurance company has received payment for a renewal premium. Renewal commission rates are significantly less than first year commission rates and may not be offered by every insurance company. We also generate revenues from the receipt of fees paid by various sources, that are tied directly to the volume of insurance sales or traffic that we produce for such third-party entities.  Our revenue recognition accounting policy has been applied to all periods presented in this report.

The timing between when we submit a consumer’s application for insurance to the insurance company and when we generate revenues has varied over time. The type of insurance product and the insurance company’s backlog are the primary factors that impact the length of time between submitted applications and revenue recognition. Over the past three years, the time between application submission and revenue recognition has averaged approximately four months. Any changes in the amount of

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time between submitted application and revenue recognition, of which a significant portion of time is not under our control, will create fluctuations in our operating results and could harm our business, operating results and financial condition.

Operations expenses are comprised of both variable and semi-variable expenses, including wages, benefits, and expenses associated with processing insurance applications and maintaining our database and Web site. The historical lag between the time an application is submitted to the insurance companies and when we recognize revenues significantly impacts our operating results as most of our variable expenses are incurred prior to application submission.

Selling and marketing expenses consist primarily of direct advertising costs.  The costs of communicating the advertising are expensed in the period the advertising is communicated.

We have established the 1997 Stock Option Plan and the 2004 Non-Qualified Stock Option Plan, or the plans, to provide additional incentives to our employees, officers and directors.  Under the plans, an aggregate of 800,000 shares of Quotesmith.com common stock may be granted to participants in the plan.  We account for stock option grants in accordance with Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees” and related interpretations and, accordingly, recognize no compensation expense for stock options granted to employees where the exercise price is equal to or greater than the market price at the date of the grant.

Intangible assets acquired in 2004 in the acquisition of certain assets of Life Quotes, Inc., consist of the following:

The fair value of insurance contract renewals was estimated based on the actual policies in force as of the acquisition date, and the renewal commission rates paid by each insurance carrier.  These commissions were estimated to have a maximum useful life of ten years, based on the terms of the contracts with the insurance carriers, and an annual lapse rate was applied to the expected renewals for each carrier based on historical trends.  Amortization is on an accelerated basis, as renewal commissions will decline each year due to lapses.  The ultimate realization of the value of the contract renewals is dependant on a number of factors, including actual lapse ratios, which can be affected by factors not under our control, such as death rates and the pricing level of insurance policies that could be purchased to replace the policies in the renewal stream.  As a result, the actual amount realized from the contract renewals acquired may differ significantly from the amount recorded in the financial statements, causing impairment.

Goodwill is not subject to amortization.  Allocation of intangible assets between goodwill and other intangible assets and the determination of estimated useful lives are based on valuations that we receive from independent appraisers.  The calculations of these amounts are based on estimates and assumptions using historical and pro forma data and recognized valuation methods.  The use of different estimates or assumptions could produce different results.

While goodwill is not amortized, it is subject to periodic reviews for impairment (at least annually, or more frequently if impairment indicators arise).  We review goodwill for impairment periodically and whenever events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable.  Such impairment reviews are performed at the entity level with respect to goodwill, as we have one reporting unit.  Under those circumstances, if the fair value were less than the carrying amount of the entity, an indicator of impairment would exist and further analysis would be required to determine whether or not a loss would need to be charged against current period earnings.  No such indicators were noted to date in 2005.  The determinations of impairment indicators and fair value are based on estimates and assumptions related to the amount and timing of future cash flows and future interest rates.  The use of different estimates or assumptions could produce different results.

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No income tax credits have been recognized relating to our tax loss carryforwards due to uncertainties relating to future taxable income.

Industry Developments

Our bonus commission revenues relate to the amount of premiums paid for new insurance policies to a single insurance company.  Bonus commission revenues were $655,000 for the three months ended March 31, 2005, and $247,000 for the three months ended March 31, 2004.

The New York Attorney General has issued subpoenas to numerous insurance brokers related to an inquiry into market service agreements and other similar agreements which compensate brokers for distribution and other services provided to insurance carriers.  Additionally, some state regulators are also investigating these types of agreements, and we have received a subpoena from the Illinois Department of Financial and Professional Regulation, Division of Insurance, seeking information regarding these types of arrangements.  It appears that these investigations could have far-reaching consequences in the insurance industry.  For example, Marsh & McLennan Companies, Inc. (Marsh), Willis Group Holdings Ltd. and Aon Corp., three of the largest insurance brokerage firms in the industry, have each announced that they will no longer accept contingent commissions.  Although the New York Attorney General’s October 14, 2004 complaint against Marsh focused primarily upon arrangements with property and casualty insurance carriers, subpoenas have been served on a number of group life and disability and traditional health carriers, as well as the insurance brokerage companies who assist in the placement of such types of insurance. At the press conference announcing its complaint against Marsh, the New York Attorney General indicated that its investigation would look across various lines of insurance. In addition, the departments of insurance for various states have proposed new regulations, and other state insurance departments have indicated that they will propose new regulations, that address contingent commission arrangements, including prohibitions involving the payment of money by insurance carriers in return for steering business and enhanced disclosure of contingent commission arrangements to insureds. On December 29, 2004, the National Association of Insurance Commissioners announced that it has proposed model legislation to implement new disclosure requirements related to broker compensation arrangements.

We cannot predict how the outcome of these investigations will affect how insurance brokers will be compensated or contingent commissions in the insurance brokerage industry or what effect, if any, it will have on our operations.  We continue to monitor the situation.

Results of Operations

Comparison of the Quarters Ended March 31, 2005 and March 31, 2004

Revenues

Revenues increased $1.9 million, or 79%, in the quarter ended March 31, 2005 when compared to revenue in the first quarter of 2004.  The components of commissions and fees revenue are as follows:

Life insurance commission revenue increased $1.9 million, or 104%, for the quarter primarily as a result of telephone sales in our new Life Quotes division, which was acquired on May 7, 2004.  Life Quotes provided life insurance commission revenue of $2.0 million in the first quarter. Health insurance commission revenue decreased $78,000, or 28% for the quarter as we have discontinued brokerage operations for health insurance in favor of outsourcing this business to a third party provider. 

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Total policies sold for both life and health insurance increased by 872 in the first quarter of 2005 to 4,510 from 3,638 in the first quarter of 2004, again primarily as a result of telephone sales in our new Life Quotes division.  Fees from strategic partners who provide outsourced services for other lines of insurance, primarily auto, increased $128,000, or 35%, during the first quarter when compared with the revenue generated in the comparable period in 2004.

Expenses

Selling and Marketing.  Selling and marketing expenses increased $622,000, or 46%, to a total of $2.0 million for the first quarter of 2005.  We have increased our advertising costs since the Life Quotes acquisition in order to maintain lead flow to the telephone sales staff.  However, selling and marketing expenses have dropped as a percentage of revenue from 55% to 45% in the first quarter, when compared with the comparable period in 2004.

Operations.   Operations expenses increased $965,000 in the first quarter of 2005.  Operations expenses for the Life Quotes call center were $959,000 for the first quarter, accounting for most of the increase.

General and Administrative.  General and administrative costs increased $190,000 in the quarter. Higher costs for insurance and property taxes on the Life Quotes building accounted for most of the increase.

Depreciation and Amortization.  Depreciation and amortization charges increased $31,000 in the first quarter, when compared to the results in the comparable periods in 2004.  Depreciation of the building and other assets acquired in the Life Quotes transaction, as well as amortization of intangibles acquired in the same transaction, account for $207,000 of these expenses in the first quarter of 2005.  The expenses for the same period in 2004 included $119,000 of amortization resulting from the 2001 acquisition of certain intangible assets of Insurance News Network, LLC.  Those intangibles assets have since been fully amortized.

Interest Income - Net

Net interest income fell $25,000 in the first quarter as compared to the first quarter of 2004, resulting from a smaller portfolio of invested assets.  We used approximately $6 million of our invested assets in connection with the Life Quotes acquisition in 2004, resulting in the smaller invested asset portfolio.

Income Taxes (Credit)

We had no income tax credit for 2005 and 2004 due to valuation allowances provided against net deferred tax assets.

Liquidity and Capital Resources

We currently expect that the cash and fixed maturity investments we now hold will be sufficient to meet our anticipated cash requirements for at least the next 12 months.

The timing and amounts of our working capital expenditures are difficult to predict, and should we decide to purchase more shares of our common stock, engage in acquisitions of companies or their assets, or begin new projects requiring additional resources, we may require additional financing.  If we require additional equity financing for operations, it may be dilutive to our stockholders and the equity securities issued in a subsequent offering may have rights or privileges senior to the holders of our common stock.  If debt financing is available, it may require restrictive covenants with respect to dividends, raising capital, and other financial and operational matters, which could impact or restrict our operations.  If we cannot obtain adequate financing on acceptable terms, we may be required to reduce the scope of our marketing or operations, which could harm our business, results of operations, and our financial condition.

Our sources of funds will consist primarily of commissions and fee revenue generated from the sale of insurance products, investment income, and sales and maturity proceeds from our fixed income portfolio.  The principal uses of funds are selling and marketing expenses, operations, general and administrative expenses and purchases of furniture, equipment and software.

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Cash used by operating activities was approximately $69,000 for the first three months of 2005, compared with cash used by operating activities of $496,000 for the same period in 2004.  Cash was used by operating activities in 2005 primarily to fund the net loss for the period, less the non-cash portion of the loss represented by depreciation and amortization. The 2005 loss was also partially offset by an increase in accounts payable and accrued liabilities and a reduction in commissions receivable.  In the first three months of 2004, cash was used to fund the net loss.

Cash used by investing activities was $32,000 in the first three months of 2005, consisting of the purchase of fixed assets.  During the first three months of 2004, the sale of investments provided cash from investing activities.

There were no financing transactions during the first quarter of 2005.  Cash was used during the first quarter of 2004 to make payments under a capital lease obligation.

Cash Flow Obligations

In the normal course of business, we enter into financing transactions, lease agreements or other commitments. These commitments may obligate us to certain cash flows during future periods. The following table summarizes such obligations as of March 31, 2005.

Factors That May Affect Our Future Operating Results

Risks Related to Our Business

Our insurance brokerage business has not been profitable and may not become profitable in the future, even with the new telephone sales and fulfillment facility

Our first complete year of focusing on our Internet based insurance service was 1997.  We incurred operating losses each year subsequent to 1997, through the year ended December 31, 2004 and the quarter ended March 31, 2005.  Because of our overhead structure, including the ongoing costs of employing highly-skilled technical personnel, we will need to generate higher revenues than we did in 2004 in order to achieve profitability.  Even if we achieve profitability, we may not be able to maintain profitability in the future.

If the term life insurance industry declines, our business will suffer because 83% of our 2004 revenues were derived from the sale of term life insurance

For the year ended December 31, 2004 and the quarter ended March 31, 2005, approximately 83% and 84%, respectively, of our revenue was derived from the sale of individual term life insurance.  Because of this high concentration of revenue from one line of insurance, our current financial condition is largely dependent on the economic health of the term life insurance industry.  If sales of term life insurance decline, for any reason, our business would be substantially harmed.  In addition, in recent years, term life insurance premiums have been declining.  If term life insurance premiums continue to decline, it will become even more difficult for us to become profitable.

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We may generate limited commission revenues because consumers can obtain free quotes and other information without purchasing insurance through our Web site

We generate commission revenues only if a consumer purchases insurance through our service.  Consumers can access our Web site and obtain quotes and other information free of charge without any obligation to purchase insurance through us.  Because all of the insurance policies quoted at our Web site can be purchased through sources other than us, consumers may take the quotes and other information that we provide to them and purchase one of our quoted policies from the agent or broker of their choice.  If consumers only use our Web site for insurance quote information purposes, we will not generate revenues and our business would be significantly harmed.

We expect to experience significant fluctuations in our quarterly results, which makes it difficult for investors to make reliable period-to-period comparisons and may contribute to volatility in our stock price

Our quarterly revenues and operating results have fluctuated widely in the past and may continue to fluctuate widely in the future.  Causes of these fluctuations could or have included, among other factors:

•                                          changes in selling and marketing expenses, as well as other operating expenses;

•                                          the length of time it takes for an insurance company to verify that an applicant meets the specified underwriting criteria—this process can be lengthy, unpredictable and subject to delays over which we have little or no control, including underwriting backlogs of the insurance company and the accuracy of information provided by the applicant; we tend to place a significant number of policies with the most price-competitive insurance companies, who, due to volume, have longer and more unpredictable underwriting time frames;

•                                          volatility in bonus commissions paid to us by insurance companies which typically are highest in the fourth quarter;

•                                          volatility in renewal commission income;

•                                          the conversion and fulfillment rates of consumers’ applications;

•                                          new Web sites, services and products by our competitors;

•                                          price competition by insurance companies in the sale of insurance policies; and

•                                          the level of Internet usage for insurance products and services.

In addition, we have a very long revenue cycle.  As a result, substantial portions of our expenses, including selling and marketing expenses, are incurred well in advance of potential matching revenue generation.  If revenues do not meet our expectations as a result of these selling and marketing expenses, our results of operations will be negatively affected.

Any one or more of the above-mentioned factors could harm our business and results of operations, which makes quarterly predictions difficult and often unreliable.  As a result, we believe that quarter-to-quarter comparisons of our operating results are not necessarily meaningful and not good indicators of our future performance.  Due to the above-mentioned and other factors, it is possible that in one or more future quarters our operating results will fall below the expectations of securities analysts and investors.  If this happens, the trading price of our common stock would likely decrease.

We must further develop our brand recognition in order to remain competitive

There are a many other insurance brokers, insurance carriers and Web sites that offer services that are competitive with our services.  Therefore, we believe that broader recognition and a favorable consumer perception of the Insure.com and Life Quotes brands are essential to our future success.  Accordingly, we intend to continue to pursue an aggressive brand-enhancement strategy consisting of advertising, online marketing, and promotional efforts.  If these expenditures do not result in a sufficient increase in revenues to cover these additional selling and marketing expenses, our business, results of operations and financial condition would be harmed.

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Our strategic relationships and agreements may not generate a material amount of revenues for us

As part of our marketing strategy, we have entered into certain strategic relationships and agreements with third-party Web sites and companies in order to increase the realized revenue from visitors to our Web sites.  During 2004, we generated fee revenues totaling $1.6 million from these sources.  Most of these strategic agreements permit either party to terminate the agreement with short notice.  As a result, we cannot assure you that any of these relationships or agreements will be profitable or generate any material amount of revenues in the future.  If our strategic relationships and agreements do not meet our expectations regarding revenues and earnings, our business could be harmed.

If we lose any of our key executive officers our business may suffer because we rely on their knowledge of our business

We believe that our success is significantly dependent upon the continued employment and collective skills of our executive officers, including founder and Chief Executive Officer, Robert S.  Bland, and Executive Vice President and Chief Operating Officer, William V.  Thoms.  We maintain key man life insurance policies on Messrs. Bland and Thoms and both of these officers have entered into employment contracts with us.  The loss of either of these two executives or any of our other key executive officers could harm us.

If our insurance quotes are inaccurate and we must pay out cash reward guarantees, our business could be harmed

We offer consumers a $500 cash reward guarantee that we provide an accurate insurance quote.  For the year ended December 31, 2004, we paid $3,500 in such cash rewards, and have paid no such awards so far in 2005.  If our quotes or those of services whose technology we utilize are inaccurate and we are required to pay a material number of cash reward guarantees, it could have a negative effect on our operation results.

The former owner of Life Quotes has a limited non-competition agreement with us.

Kenneth Manley, the former owner of Life Quotes, has a non-competition agreement with us that prevents him from competing with us for up to six years.  However, the agreement allows Manley to form a life insurance agency with members of his family provided that he acts only as a general agent placing business through Quotesmith.com as managing general agent.  He is limited to being able to produce a maximum of $2 million per year in commissionable premium, subject to annual inflationary adjustments.  This arrangement could result in Manley obtaining business that we might otherwise have obtained directly.

Risks Related to the Insurance Industry

Our bonus commission revenues are highly unpredictable and may cause fluctuations in our operating results

Our bonus commission revenues relate to the amount of premiums paid for new insurance policies to a single insurance company.  In other words, if consumers purchase policies from a fewer number of insurance companies our bonus commissions may be higher than if the same policies were purchased from a larger number of insurance companies.  The decision to purchase a policy from a particular insurance company typically relates to, among other factors, price of the policy and rating of the insurance company, both of which are factors over which we have no control.  Insurance companies often change their prices in the middle of the year for competitive reasons.  This may reduce the number of policies placed with that insurance company which may then reduce our potential bonus commissions.  In addition, we have no control over the bonus commission rates that are set by each individual insurance company.  As a result of these factors, we are unable to control the amount and timing of bonus commission revenues we receive in any particular quarter or year and these amounts may fluctuate significantly.  Bonus commission revenues were $2.9 million for the year ended December 31, 2004, and $248,000 for the quarter ended March 31, 2005.

The New York Attorney General has issued subpoenas to numerous insurance brokers related to an inquiry into market service agreements and other similar agreements which compensate brokers for distribution and other services provided to insurance carriers.  Additionally, some state regulators are also investigating these types of agreements, and we have received a subpoena from the Illinois Department of Financial and Professional Regulation, Division of Insurance, seeking information regarding these types of arrangements.  It appears that these investigations could have far-reaching

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consequences in the insurance industry.  For example, Marsh & McLennan Companies, Inc. (Marsh), Willis Group Holdings Ltd. and Aon Corp., three of the largest insurance brokerage firms in the industry, have each announced that they will no longer accept contingent commissions.  Although the New York Attorney General’s October 14, 2004 complaint against Marsh focused primarily upon arrangements with property and casualty insurance carriers, subpoenas have been served on a number of group life and disability and traditional health carriers, as well as the insurance brokerage companies who assist in the placement of such types of insurance. At the press conference announcing its complaint against Marsh, the New York Attorney General indicated that its investigation would look across various lines of insurance. In addition, the departments of insurance for various states have proposed new regulations, and other state insurance departments have indicated that they will propose new regulations, that address contingent commission arrangements, including prohibitions involving the payment of money by insurance carriers in return for steering business and enhanced disclosure of contingent commission arrangements to insureds. On December 29, 2004, the National Association of Insurance Commissioners announced that it has proposed model legislation to implement new disclosure requirements related to broker compensation arrangements.

We cannot predict how the outcome of these investigations will affect how insurance brokers will be compensated or contingent commissions in the insurance brokerage industry or what effect, if any, it will have on our operations.  We continue to monitor the situation.

The insurance sales industry is intensely competitive, and if we fail to successfully compete in this industry our market share and business will be harmed

The markets for the products and services we offer are intensely competitive and characterized by rapidly changing technology, evolving regulatory requirements and changing consumer demands.  We compete with traditional insurance distribution channels, including insurance agents and brokers, new non-traditional channels such as commercial banks and savings and loan associations, and a growing number of direct distributors including other online services, such as InsWeb Corporation and SelectQuote.

We also potentially face competition from a number of large online services that have expertise in developing online commerce and in facilitating a high volume of Internet traffic for or on behalf of our competitors.  For instance, some of our competitors have relationships with major electronic commerce companies.  Other large companies with strong brand recognition, technical expertise and experience in online commerce and direct marketing could also seek to compete in the online insurance market.

There can be no assurance that we will be able to successfully compete with any of these current or potential insurance providers.

Insurance companies that have appointed us as agents may cancel those appointments

Most of our agency contracts allow the insurance company to cancel our agency appointment at any time.  Should any of the companies with which we place significant amounts of business decide to cancel our appointments, our business could be harmed.

Risks Related to Regulation

Our compliance with the strict regulatory environment applicable to the insurance industry is costly, and if we fail to comply with the numerous laws and regulations that govern the industry we could be subject to penalties

We must comply with the complex rules and regulations of each jurisdiction’s insurance department which impose strict and burdensome guidelines on us regarding our operations.  Compliance with these rules and regulations imposes significant costs on our business.  Each jurisdiction’s insurance department typically has the power, among other things, to:

•                                          authorize how, by which personnel and under what circumstances an insurance premium can be quoted and published;

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•                                          approve which entities can be paid commissions from insurance companies;

•                                          license insurance agents and brokers;

•                                          monitor the activity of our non-licensed customer service representatives; and

•                                          approve policy forms and regulate some premium rates.

Due to the complexity, periodic modification and differing statutory interpretations of these laws, we may not have always been and we may not always be in compliance with all these laws.  In addition, Life Quotes has at times been subject to regulatory action for failing to comply with these laws.  Failure to comply with these numerous laws in the future could result in fines, additional licensing requirements or the revocation of our license in the particular jurisdiction.  These penalties could significantly increase our general operating expenses and harm our business.  In addition, even if the allegations in any regulatory action against us turn out to be false, negative publicity relating to any allegations could result in a loss of consumer confidence and significant damage to our brand.  We believe that because many consumers and insurance companies are not yet comfortable with the concept of purchasing insurance online, the publicity relating to any such regulatory or legal issues could harm our business.

Regulation of the sale of insurance over the Internet and other electronic commerce is unsettled, and future regulations could force us to change the way we do business or make operating our business more costly

As a company involved in the sale of insurance over the Internet, we are subject to additional regulatory risk as insurance regulations have not been fully modified to cover Internet transactions.  Currently, many state insurance regulators are exploring the need for specific regulation of insurance sales over the Internet.  Any new regulation could dampen the growth of the Internet as a means of providing insurance services.  Moreover, the laws governing general commerce on the Internet remain largely unsettled, even in areas where there has been some legislative action.  It may take years to determine whether and how existing laws such as those governing intellectual property, privacy and taxation apply to the Internet.  In addition, the growth and development of the market for electronic commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on companies conducting business over the Internet.  Any new laws or regulations or new interpretations of existing laws or regulations relating to the Internet could harm our business.

If we become subject to legal liability for the information we distribute on our Web site or communicate to our customers, our business could be harmed

Our customers rely upon information we provide regarding insurance quotes, coverage, exclusions, limitations and ratings.  To the extent that the information we provide is not accurate, we could be liable for damages from both consumers and insurance companies.  These types of claims have been brought, sometimes successfully, against agents, online services and print publications in the past.  These types of claims could be time-consuming and expensive to defend, divert management’s attention, and could cause consumers to lose confidence in our service.  As a result, these types of claims, whether or not successful, could harm our business, financial condition and results of operations.

Risks Related to the Internet and Electronic Commerce

Any failures of, or capacity constraints in, our systems or the systems of third parties on which we rely could reduce or limit visitors to our Web site and harm our ability to generate revenue

We use both internally developed and third-party systems to operate our service.  If the number of users of our service increases substantially, we will need to significantly expand and upgrade our technology, transaction processing systems and network infrastructure.  We do not know whether we will be able to accurately project the rate or timing of any of these increases, or expand and upgrade our systems and infrastructure to accommodate these increases in a timely manner.  Our ability to facilitate transactions successfully and provide high quality customer service also depends on the efficient and uninterrupted operation of our computer and communications hardware systems.  Our service has experienced periodic system interruptions, and it is likely

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that these interruptions will continue to occur from time to time.  Additionally, our systems and operations are vulnerable to damage or interruption from human error, natural disasters, power loss, telecommunication failures, break-ins, sabotage, computer viruses, acts of vandalism and similar events.  We may not carry sufficient business interruption insurance to compensate for losses that could occur.  Any system failure that causes an interruption in service or decreases the responsiveness of our service would impair our revenue-generating capabilities, and could damage our reputation and our brand name.

Our success depends, in part, on our ability to protect our proprietary technology

We believe that our success depends, in part, on protecting our intellectual property.  Other than our trademarks, most of our intellectual property consists of proprietary or confidential information that is not subject to patent or similar protection.  Competitors may independently develop similar or superior products, software or business models.

We cannot guarantee that we will be able to protect our intellectual property.  Unauthorized third parties may try to copy our products or business model or use our confidential information to develop competing products.  Legal standards relating to the validity, enforceability and scope of protection of proprietary rights in Internet-related businesses are uncertain and still evolving.  As a result, we cannot predict the future viability or value of our proprietary rights and those of other companies within the industry.

We may be subject to claims of infringement that may be costly to resolve and, if successful, could harm our business

Our business activities and products may infringe upon the proprietary rights of others.  Parties may assert valid or invalid infringement claims against us.  Any infringement claims and resulting litigation, should it occur, could subject us to significant liability for damages and could result in invalidation of our proprietary rights.  Even if we eventually won, any resulting litigation could be time-consuming and expensive to defend and could divert our management’s attention.

If we are unable to adapt to the rapid technological change in our industry, we will not remain competitive and our business will suffer

Our market is characterized by rapidly changing technologies, frequent new product and service introductions, and evolving industry standards.  The recent growth of the Internet and intense competition in our industry exacerbate these market characteristics.  Our future success will depend on our ability to adapt to rapidly changing technologies by continually improving the features and reliability of our database and service.  We may experience difficulties that could delay or prevent the successful introduction or marketing of new products and services.  In addition, new enhancements must meet the requirements of our current and prospective customers and must achieve significant market acceptance.  We could also incur substantial costs if we need to modify our service or infrastructures or adapt our technology to respond to these changes.

Demand for our services may be reduced if we are unable to safeguard the security and privacy of our customer’s information

A significant barrier to electronic commerce and online communications has been the need for secure transmission of confidential information over the Internet.  Our ability to secure the transmission of confidential information over the Internet is essential in maintaining consumer and insurance company confidence in our service.  In addition, because we handle confidential and sensitive information about our customers, any security breaches would damage our reputation and could expose us to litigation and liability.  We cannot guarantee that our systems will prevent security breaches.

Our business assumes the continued dependability of the Internet infrastructure

Our success will depend upon the development and maintenance of the Internet’s infrastructure to cope with its significant growth and increased traffic.  This will require a reliable network backbone with the necessary speed, data capacity and security, and the timely development of complementary products, such as high-speed modems, for providing reliable Internet access and services.  The Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure and could face outages and delays in the future.  Outages and delays are likely to cause a loss of business by affecting the level of Internet usage and the processing of insurance quotes and applications requests made through our Web site.  We are unlikely to make up for this loss of business.

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Risks Related to Ownership of Our Common Stock

Zions Bancorporation, together with two of our officers and directors, own a significant portion of our stock and control Quotemsith.com and their interests may not be the same as our public stockholders

As of April 13, 2005, Robert Bland, our chairman, President and Chief Executive Officer directly or indirectly controlled 31.1% of our outstanding common stock, William Thoms, our Executive Vice President and Chief Operating Officer, directly controlled 7.9% of our outstanding common stock, and Zions Bancorporation controlled 32.2% of our common stock. As a result, if Zions and Messrs. Bland and Thoms act together, or if Zions and Mr. Bland act together, they will be able to take any of the following actions without the approval of additional public stockholders:

•                                          elect our directors;

•                                          amend certain provisions of our certificate of incorporation,

•                                          approve a merger, sale of assets or other major corporate transaction;

•                                          defeat any takeover attempt, even if it would be beneficial to our public stockholders; and

•                                          otherwise control the outcome of all matters submitted for a stockholder vote.

If these persons act together and take any of the actions described above, the interests of our other stockholders may be harmed.  For example, these persons could discourage or prevent potential mergers, takeovers or other change of control transactions that could be beneficial to our public stockholders, which could adversely affect the market price of our common stock.  They may also be able to prevent or frustrate attempts to replace or remove incumbent management through their ability to elect directors.  Furthermore, they may choose to advance their own interests at the expense of other stockholders, such as by acting to entrench themselves in a management position or electing themselves as directors.

The investor rights agreement we signed with Zions contains supermajority board voting provisions that could make it more difficult for stockholders to change the policies of our Board of Directors and elect new members to our Board of Directors

So long as Zions holds 40% of the shares issued to them, the investor rights agreement we signed with Zions gives Zions the right to nominate or appoint one member of our Board of Directors.  We must also receive a vote of 75% of our directors for us to:

•                  authorize, issue or sell any equity security (including options), other than certain specified options or pursuant to our employee stock purchase plan (of which there are presently 188,593 options available for grant under our stock option plans and 63,929 shares available for purchase under our employee stock purchase plan):

•                  increase the authorized number of shares of our stock;

•                  enter into any registration rights agreement;

•                  repurchase or redeem any of our securities other than on a pro rate basis;

•                  (i) merge, combine or consolidate with, or agree to merge, combine or consolidate with any entity, (ii) purchase, or agree to purchase all or substantially all of the securities of, any entity, or (iii) purchase, or agree to purchase, all or substantially all of the assets and properties of, or otherwise acquire, or agree to acquire, all or any portion of, any entity, in each case, for consideration in an amount, which when combined with all other such transactions in a fiscal year, exceeds $5,000,000;

•                  (i) merge, combine or consolidate with, or agree to merge, combine or consolidate with any entity in which it is not the surviving entity or (ii) sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its assets;

•                  sell or dispose of business or assets in excess of $1,000,000;

•                  alter or change materially and adversely the rights of holders of our common stock;

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•                  incur indebtedness or guarantees in excess of $2,500,000 individually or $5,000,000 in the aggregate;

•                  amend or propose to amend our charter or bylaws

•                  liquidate, dissolve, recapitalize, or effect a stock split or reverse stock split, or obligate ourselves to do so;

•                  engage in any other business other than the business we are currently engaged in; or

•                  declare any dividends or distributions.

The supermajority provision, combined with Zions’ right to nominate or appoint one member of our Board of Directors, could discourage others from initiating a potential merger, takeover or another change of control transaction that could be beneficial to our public stockholders.  In addition this supermajority provision could make it more difficult for stockholders to change the members and policies of the Board of Directors because any of the actions described above would require the approval of six of our seven directors.  As a result, the market price of our stock could be harmed.

If Zions chooses to exercise its registration rights and sell its stock, the market price of our common stock could decrease and our ability to raise capital in the public markets may be adversely affected

The 2,363,636 shares we issued to Zions are not registered and are restricted securities.  However, the holders of these shares have registration rights under the investor rights agreement.  The investor rights agreement provides both demand registration rights and piggyback registration rights to the holders of these shares.  Sales of significant amounts of these shares following registration in accordance with the investor rights agreement or the perception that such sales will occur could adversely affect the market price of our common stock or our future ability to raise capital through an offering of equity securities or debt securities convertible into equity securities.

Our common stock is currently trading at low prices which could further reduce the liquidity of the market for, and the price of our common stock

We believe that the current per share price level of the common stock has reduced the effective marketability of our shares of common stock because of the reluctance of many leading brokerage firms to recommend low-priced stock to their clients.  Certain investors view low-priced stock as speculative and unattractive, although certain other investors may be attracted to low-priced stock because of the greater trading volatility sometimes associated with such securities.  In addition, a variety of brokerage house policies and practices tend to discourage individual brokers within those firms from dealing in low-priced stock.  Such policies and practices pertain to the payment of brokers’ commissions and to time-consuming procedures that function to make the handling of low-priced stocks unattractive to brokers from an economic standpoint.

In addition, because brokerage commissions on low-priced stock generally represent a higher percentage of the stock price than commissions on higher-priced stock, the current share price of the common stock can result in individual stockholders paying transaction costs (commissions, markups or markdowns) that represent a higher percentage of their total share value than would be the case if the share price were substantially higher.  This factor also may limit the willingness of institutions to purchase the common stock at its current low share price.

We believe that the current price of our common stock may have a negative impact on the liquidity and price of our common stock and investors may find it more difficult to purchase or dispose of, or to obtain accurate quotations as to the market value of, our common stock.

Our stock price may have wide fluctuations and Internet-related stocks have been particularly volatile

The market price of our common stock has been highly volatile and subject to wide fluctuations.  The Nasdaq stock market has experienced significant price and volume fluctuations and the market prices of securities of technology companies, particularly Internet-related companies, have been highly volatile.  Market fluctuations, as well as general political and economic conditions, such as a recession or interest rate fluctuations, could adversely affect the market price of our common stock.  In addition, the market prices for stocks of Internet-related and technology companies, particularly following an initial public offering, frequently reach levels that bear no relationship to the operating performance of such companies.  These market prices generally are not sustainable and are subject to wide variations.  If our common stock trades to unsustainably high levels, it likely will thereafter experience a material decline.

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In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of their securities.  We may in the future be the target of similar litigation.  Securities litigation could result in substantial costs, divert management’s attention and resources, and harm our financial condition and results of operations.

Certain provisions in our charter documents and Delaware law, together with our concentration of stock ownership in a few persons,  could discourage takeover attempts and lead to management entrenchment

Our certificate of incorporation and bylaws and Delaware law contain anti-takeover provisions that could have the effect of delaying or preventing changes in control that a stockholder may consider favorable.  The provisions in our charter documents include the following:

•                                          we have a classified Board of Directors with three-year staggered terms that will delay the ability of stockholders to change the membership on the Board of Directors;

•                                          our Board of Directors has the ability to issue shares of preferred stock and to determine the price and other terms, including preferences and voting rights, of those shares without stockholder approval;

•                                          stockholder action may be taken only at a special or regular meeting; and

•                                          we have advance notice procedures that must be complied with by stockholders for them to nominate candidates to our Board of Directors.

Our preferred stock purchase rights could cause substantial dilution to any person or group who attempts to acquire a significant interest in Quotesmith.com without advance approval of our Board of Directors.  We have amended our rights plan to exempt acquisitions of shares of our common stock by Zions from the operation of the rights plan.  In addition, our executive officers have employment agreements that may entitle them to substantial payments in the event of a change of control.  We entered into amendments to our employment agreements with Messrs. Bland and Thoms that exempted the issuance of stock to Zions from constituting a change of control under these employment agreements.

Furthermore, as of April 13, 2005, Messrs. Bland and Thoms, together with Zions, directly or indirectly controlled approximately 71% of our outstanding common stock.  This high concentration of stock ownership, together with the anti-takeover measures described above, could prevent or frustrate attempts to remove or replace incumbent management, including Messrs. Bland and Thoms.  These persons may act to further their interests as management rather than the interests of the public stockholders.

The foregoing could have the effect of delaying, deferring or preventing a change in control of Quotesmith.com, discourage bids for our common stock at a premium over the market price, or harm the market price of, and the voting and other rights of the holders of, our common stock.  We also are subject to Delaware laws that could have similar effects.  One of these laws prohibits us from engaging in a business combination with any significant stockholder for a period of three years from the date the person became a significant stockholder unless specific conditions are met.

Continued terrorist attacks or war could lead to further economic instability and adversely affect our stock price, operations, and profitability.

The terrorist attacks that occurred in the United States on September 11, 2001 caused periodic major instability in the U.S. and other financial markets.  Possible further acts of terrorism and current and future war risks could have a similar impact.  The United States continues to take military action against terrorism and has recently taken military action in Iraq.  Terrorist attacks and potential war in the Middle East may lead to additional armed hostilities or to further acts of terrorism and civil disturbance in the United States or elsewhere, which may further contribute to economic instability.  Any such attacks could, among other things, cause further instability in financial markets and could directly, or indirectly through reduced demand, negatively affect our facilities and operations or those of its customers or suppliers.

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ITEM 3.                 Quantitative and Qualitative Disclosures About Market Risk

The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk.  To achieve this objective, we maintain a portfolio of cash and equivalents and investments in a variety of securities including both government and corporate obligations and money market funds.

Substantially all of our investments are subject to interest rate risk.  We consider all investments as available-for-sale, and unrealized losses on those investments totaled $229,231 at March 31, 2005, and $147,317 at December 31, 2004.

We did not hold any derivative financial instruments as of March 31, 2005, and have never held such instruments in the past.  Additionally, all our transactions have been denoted in U.S. currency, and we do not have any risk associated with foreign currency transactions.

Due to the short-term nature of our investments, a 1% increase in interest rates would decrease the fair value of our investments by an immaterial amount.

ITEM 4.                 Controls and Procedures

We completed an evaluation as of the end of the period covered by this quarterly report under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2005 in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion.  There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.        Legal Proceedings

Not applicable.

Item 2.        Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3.        Defaults Upon Senior Securities

Not applicable.

Item 4.        Submission of Matters To a Vote of Security Holders

None

Item 5.        Other Information

Not applicable.

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Item 6.        Exhibits

(a).Exhibits

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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