Ebix Inc (EBIX) - Description of business
Risk Factors. Except as expressly required by the federal securities laws, the Company undertakes no obligation to update any such factors or to publicly announce the results of , or changes to, any of, or change, the forward-looking statements contained herein to reflect future events or developments or changed circumstances or for any other reason. PART I Item 1. BUSINESS Ebix, Inc. (the Company), which changed its name from ebix.com, Inc. on December 30, 2003, was founded in 1976 as Delphi Systems, Inc., a California corporation. In this report, Ebix, Inc. is referred to as the Company, while Ebix.com (Ebix.com is a registered trademark of Ebix, Inc.) refers to the Companys website. The Company is an international provider of software and Internet-based solutions for the insurance industry. International revenue accounted for 37%, 33% and 31% of total revenue in 2005, 2004 and 2003, respectively. Historically and during 2005, the Companys revenue has been derived primarily from professional and support services (95% of revenue in 2005) and from the licensing and sale of software comprised of proprietary software and third-party software (5% of revenue in 2005). Professional services and support include software development projects, transaction based fees, fees for software license maintenance, initial registration and ongoing monthly subscription fees from the EbixASP product and business process outsourcing revenue. Also included in professional services and support are fees for consulting, implementation, training, and project management provided to the Companys customers with installed systems and those in the process of installing systems. On February 23, 2004 the Company acquired LifeLink Corporation (LifeLink) located in Park City, Utah. LifeLink markets a number of software products that provide sales illustrations and quote comparison services to insurance carriers and wholesalers operating in the life insurance and long-term care markets. The Company acquired all of the outstanding stock of LifeLink from its shareholders in exchange for an aggregate purchase price of $10,354,000, payable in cash and stock. See note 13 to the consolidated financial statements included in this Form 10-K. The acquisition of LifeLink has provided the Company with an entrée to the life insurance segment of the insurance market from both the agent/broker and carrier perspective. On May 2, 2005, the LifeLink name was changed to EbixLife Inc. (EbixLife). On July 1, 2004, Ebix Australia Pty Ltd (VIC), which is a wholly-owned subsidiary of the Company, acquired certain operating assets of Heart Consulting Services Pty Ltd (Heart). Heart was a broker systems vendor in Australia that provided end-to-end ASP broker systems to more than 650 brokers in Australia. Under terms of the agreement, the Company acquired the operating assets of Heart in exchange for an aggregate purchase price of $7,116,000 payable in cash, letters of credit and stock. See note 14 to the consolidated financial statements included in this Form 10-K. The acquisition of Heart provided us with a significant share of the smaller broker market in Australia, substantially raising our overall insurance broker market share in Australia. Prior to the acquisition of certain assets of Heart, the Company had a large share of the mid-sized broker market in Australia. Information on the Companys revenues, net income and fixed assets in different geographic areas is furnished in note 12 to the consolidated financial statements, included elsewhere in this Form 10-K. Industry overview The insurance industry has undergone significant consolidation over the past several years driven by the need for, and benefits from, economies of scale and scope in providing insurance in a competitive environment. Consolidation has involved both insurance carriers and insurance brokers and is directly impacting the manner in which insurance products are distributed. Management believes the insurance industry will continue to experience significant changes in the next several years to meet the changing distribution model. Changes in the insurance industry may create both opportunities and challenges for the Company. Business and Growth Strategy The Company intends to grow its business in the future both organically and through additional synergistic acquisitions. Over the past year the Company has emphasized its software development business along with identifying synergistic acquisitions, while decreasing its emphasis on businesses having more intense competition such as business process outsourcing and call center. Products and Services The Companys product and service strategy focuses on the following five areas: (1) providing software development services to insurance carriers, brokers and agents; (2) worldwide sale, customization, development, implementation and support of its insurance carrier system product, named Business Reinsurance and Insurance Company System (BRICS); (3) worldwide sales and support of agency management systems including EbixASP and eGlobal; (4) expansion of connectivity between consumers, agents, carriers, and third party providers through its exchange family of products worldwide namely, EbixLife and EbixExchange; and (5) business process outsourcing services, which include call center and back office, either off site or at the Companys facilities. Software delivered online through application service provider (ASP) models and connectivity products are recorded as services by the Company. The Company anticipates that future revenue will be provided principally by development services, system sales, the sale and licensing of BRICS, international operations, EbixLife, EbixExchange, call center services and support. The Company provides development consulting to brokers, carriers and agents. Some of the Companys recent projects for clients include: development of a reinsurance exchange for a European company; design and development of a carrier system over the web for a large European company; design and development of a carrier system for a U.S. company; and development of an online application, underwriting, policy issuance, and claims system for an insurance carrier; development of bank assurance system for an international broker/banker; and development and deployment of new exchange functionality in Australia, etc. In addition, the Company has developed call center and business process outsource operations for large brokers, insurance companies and retail brokers. EbixLife markets a number of software products that provide sales illustrations and quote comparison services to insurance carriers and wholesalers operating in the life insurance, annuity and long-term care markets. The assets of EbixLife acquired by the Company were utilized by EbixLife in connection with the life insurance sales software applications business, and the Company intends to continue such use of these assets into the foreseeable future. In 2001, the Company began marketing the EbixASP product to beta customers, and it became available to the general public in 2002. EbixASP is a web-enabled system for insurance agencies to manage their businesses. EbixASP is sold both as a hosted and a self-hosted product. Revenues generated from the sale of EbixASP hosted by the Company are recorded in services revenue, while revenues generated from the sale of self-hosted EbixASP are recorded in software revenue. The Company-hosted product generates revenues through initial registration and ongoing monthly subscription fees based on the number of personnel accessing the software. As a result of the Companys acquisition of certain assets of Heart in July 2004, the Company focuses on providing ASP based broker systems to small and midsize brokers in the Australian market. Ebix.mall generates revenues through transaction fees billed to insurance agencies and carriers who use the Ebix.com website. The product BRICS refers to custom software development of systems for insurance carriers on a contractual basis. These systems are unique for each customer and are client hosted. EbixExchange is an Internet based service developed by the Company to facilitate connectivity for upload, download, and data exchange between carriers, agents and third party providers and is part of the total revenue generation from the other product offerings, which feature EbixExchange as part of their technology. The service was completed in late 2002 and is currently being used for the download function in EbixASP and the rating functionality in the Companys business to consumer exchange, Ebix.mall. In May 2001, the Company purchased the INS-Site product line. The INS-Site product line could be characterized as an earlier model of EbixExchange, facilitating carrier-to-agent workflow such as download of policy information, upload of new business or policy change requests, as well as agent inquiry of key policy information such as status, billing and claims. INS-Site generates revenue through hosting and service fees. The Company also continues to provide its agency management software product line, which is comprised of eGlobal, a modular agency management solution providing flexibility and the ability to handle unstructured data and complex risk, and Ebix.one, a structured system utilizing many features of the Companys previous products. The Company also continues to support but no longer sells six legacy products: INfinity, INSIGHT, PC-ELITE, Insurnet, SMART, and Vista. The legacy products provide basic functions such as policy administration, claims handling, accounting, and financial reporting. The Company expects to maintain and support the legacy products as long as it believes there is adequate economic and strategic justification. The Company will continue to encourage customers utilizing legacy products to migrate to newer products. The software products offered by the Company range in price from $85 per month per seat to $2,700 per license, depending on whether the customers are obtaining the products through a service hosted by the Company or hosting the products themselves, and the total contract value for certain multiple-site global brokers can be over $1,000,000. For the years ended December 31, 2005 and December 31, 2004, Brit Insurance Holdings PLC (Brit) and its affiliates, accounted for approximately 16% and 18%, respectively, of consolidated revenue. See note 2 to the consolidated financial statements included in this Form 10-K. In addition to Brit and its affiliates, one customer, AON, accounted for approximately 11% of consolidated revenue for the year ended December 31, 2003. AON accounted for less than 10% of the consolidated revenue for the years ended December 31, 2005 and December 31, 2004. System Design and Architecture The Companys new product offerings utilize the latest Internet based architecture. eGlobal is a client/server based system, which runs on an Oracle relational database software technology. Ebix.one is operational on Pervasive database software. EbixASP is an e-commerce enabled agency management system that can be hosted on an ASP basis by the Company or licensed to a customer to self-host. The product is hosted by the Company at a fully managed hosting facility, Sungard eSourcing (Sungard), using a MS-SQL server, Microsoft ASP on multiple servers in a load balanced environment with redundancy in terms of back ups and downtime. All agencies using EbixASP need only one software product, Microsoft Internet Explorer, as the back end software is hosted at Sungard. BRICS is a Microsoft dot net based system that can be hosted on an ASP basis by the Company or licensed to the customer on a self-hosted basis. EbixExchange operates on Microsoft dot net technology. INS-Site is one of the products offered by Ebix under the EbixExchange family of products. This product allows insurance data to be downloaded from and into multiple insurance company systems automatically. This product is hosted by the Company. EbixLifes WinFlex is a life insurance sales presentation system. The product is hosted by the Company at a fully managed hosting facility, Consonus, using a MS-SQL server, Microsoft ASP on multiple servers in a load balanced environment with redundancy in terms of back ups and downtime. Backlog There was no significant backlog as of December 31, 2005 or December 31, 2004. Product Development At December 31, 2005, the Company employed 95 (72 international and 23 domestic) full-time employees engaged in product development activities. These activities include research and development of software enhancements such as adding functionality, improving usefulness, increasing responsiveness, adapting to newer software and hardware technologies and developing and maintaining the website. Development of custom software enhancements for customers can be used in system development for other customers. The Companys development focus is in four areas: (i) continued enhancement of EbixASP and eGlobal, (ii) developing technology for insurance carriers, brokers and agents, including, in some cases, hosting the systems developed, (iii) continued enhancement of EbixExchange, and (iv) continued maintenance of the Ebix.com website. Product development expenditures were $3,258,000, $3,016,000 and $1,552,000 in 2005, 2004 and 2003, respectively. Increases in product development are a result of the acquisition of EbixLife in 2004 and an increase in developers internationally. Product development expenditures related to general product development and specific projects for clients. Competition Management believes its principal competition varies by each area of focus. In the area of connectivity, the Company competes with a large carrier owned network that provides transaction connections to agents and carriers, and in-house systems developed by carriers. In addition, the Company competes, to a much lesser extent, with operators of several smaller websites that enter and leave the market on a regular basis. Key competitive features in the area of connectivity include: (1) ability to complete end-to-end conversion of data between systems and from input to policy issuance, (2) offerings and services for both personal and commercial lines, (3) affording insurance customers a marketplace in which insurance can be priced on an objective, competitive basis, and (4) ability to complete transactions online for insurance customers, agents, and carriers. Management believes that, overall, with respect to Ebix.com, INS-Site, and EbixExchange, the Company competes favorably with respect to these factors. In the area of agency management systems, while the Company believes that EbixASP provides a strategic advantage for the Company, two companies provide client/server software which are in competition with those historically offered by the Company. These companies are larger than the Company and may have greater resources. Additionally, certain large hardware suppliers sell systems and system components to independent agencies. The Company also experiences competition to a much lesser extent from small, independent or freelance developers and suppliers of software who sometimes work in concert with hardware providers to supply systems to independent agencies. The Company believes that some insurance carriers continue to operate subsidiaries that actively compete with the Company to provide agency systems to their in-house agency or brokerage efforts. These carriers generally have much greater financial resources than the Company and have in the past subsidized the automation of independent agencies through various incentives offered to promote the sale of the carriers insurance products. In the area of insurance company systems, the Company competes with established venders like Computer Science Corporation (CSC), Rebus and PMSC. Management believes that its focus and current technology will differentiate it from the competition. In the area of consulting, the Company competes with hardware, development, and software providers and in-house information technology departments in carriers and targeted clients. These companies and carriers generally have much greater financial resources than the Company. The Company also experiences, to a much lesser extent, competition from small, independent or freelance developers and suppliers of software who sometimes work in concert with hardware providers to supply consulting and development. Key competitive factors for the Companys software, services and consulting are product technology, features and functions, ease of use, price, project management, service, reputation, reliability, effects of insurance regulation, insurance knowledge, technology expertise, and quality of customer support and training. Management believes that, overall, the Company competes favorably with respect to these factors. Proprietary Rights The Company regards its software as proprietary and attempts to protect it with copyrights, trade secret laws and restrictions on disclosure and transferring title. Despite these precautions, it may be possible for third parties to copy aspects of the Companys products or, without authorization, to obtain and use information which the Company regards as trade secrets. Existing copyright law affords only limited practical protection and the Companys software is unpatented. Employees At December 31, 2005, the Company had 229 employees, including 16 in sales and marketing, 95 in product development, 71 in customer service and operations, 19 in call center and 28 in general management, administration and finance. None of the Companys employees are presently covered by a collective bargaining agreement. Management believes that its relations with its employees are good. Item 1A. RISK FACTORS You should carefully consider the risks, uncertainties and other factors described below, along with all of the other information included in this annual report on Form 10-K, because they could materially and adversely affect our business, financial condition, operating results and prospects and/or the market price of our common stock. This risk factors section is written in response to the Securities and Exchange Commissions plain English guidelines. In this section, the words we, us, our and ours refer to the Company and not any other person. Risks Related To Our Business and Our Industry You may have difficulty evaluating our business because of our limited history of Internet, call center and other business process outsourcing. Although our predecessor began operations in 1976, we did not begin any Internet operations until September 1999 and did not begin generating revenues from these operations until the fourth quarter of 2000. We did not begin any call center or other business process outsourcing operations or begin generating revenues from these operations until the first quarter of 2003. Accordingly, there is a limited history of these operations on which you can evaluate our company and prospects. We cannot be certain that our Internet, call center and other business process outsourcing strategies will be successful, because these strategies are new. Our early-stage Internet, call center and other business process outsourcing operations will be particularly susceptible to the risks and uncertainties described in these risk factors and more likely to incur the expenses associated with addressing them. Our prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in a transitional stage of development, particularly companies in new and rapidly evolving markets, such as electronic commerce, and using new and unproven business models. Because the support revenue that we have traditionally relied upon has been steadily declining, it is important that new sources of revenue continue to be developed. Our revenue from the support services we offer in connection with our legacy software products has been decreasing significantly over the course of the past few years. This decline can be attributed to the fact that many of our support clients are not renewing their support agreements with us, in many cases because they are no longer using our legacy software. Even if they are continuing to use our legacy software, our support clients may choose not to renew their support agreements if their legacy software products no longer require support or they use third party support. In addition, some of the clients who use our support services have reduced the level of support that we provide them, which in turn reduces our support revenue. This downward trend in our support revenue makes us particularly dependent upon our other sources of revenue. Two customers currently provide a significant percentage of our total revenue. Revenues from one customer, Brit Insurance Holdings PLC and its affiliates, which at March 16, 2006 owned approximately 34.0% of our common stock and approximately 78% of CF Epic Insurance and General Fund, which at that date owned approximately 8.1% of our common stock, represented approximately 16% ($3,762,000) of our total revenue in 2005 and 18% ($3,551,000) of our total revenue in 2004. If revenues from this customer were to discontinue, our operating results could be adversely affected. Revenues from another customer, AON, represented approximately 7% ($1,594,000) and 9% ($1,856,000) of our total revenue in 2005 and 2004, respectively. If revenues from this customer were to discontinue, our operating results could be adversely affected. Adverse insurance industry economics could adversely affect our revenues. We are dependent on the insurance industry, which may be adversely affected by current economic and world political conditions. Our operating results may fluctuate dramatically. Our quarterly operating results may fluctuate significantly in the future due to a variety of factors that could affect our revenues or our expenses in any particular quarter. You should not rely on our results of operations during any particular quarter as an indication of our results for a full year or any other quarter. Factors that may affect our quarterly results may include the loss of a significant insurance agent, carrier or broker relationship or the merger of any of our participating insurance carriers with one another. Our operating expenses are based in part on our expectations of our future revenues and are relatively fixed in the short term. We may be unable to adjust spending quickly enough to offset any unexpected revenue shortfall. We cannot predict our future capital needs and we may not be able to secure additional financing when we need it. We may need to raise additional funds in the future in order to fund more aggressive brand promotion or more rapid expansion, to develop new or enhanced services, to respond to competitive pressures or to make acquisitions. Any required additional financing may not be available on terms favorable to us, or at all. If adequate funds are not available on acceptable terms, we may be unable to meet our business or strategic objectives or compete effectively. If additional funds are raised by our issuing equity securities, stockholders may experience dilution of their ownership interests, and the newly issued securities may have rights superior to those of our common stock. If additional funds are raised by our issuing debt, we may be subject to limitations on our activities. Any acquisitions that we undertake could be difficult to integrate, disrupt our business, dilute stockholder value and harm our operating results. In the event we complete one or more acquisitions, we may be subject to a variety of risks, including risks associated with an ability to integrate acquired assets or operations into our existing operations, higher costs or unexpected difficulties or problems with acquired assets or entities, outdated or incompatible technologies, labor difficulties or an inability to realize anticipated synergies and efficiencies, whether within anticipated timeframes or at all, one or more of which risks, if realized, could have an adverse impact on our operations. We may not be able to continue to develop new products to effectively adjust for rapid technological changes. To be successful, we must adapt to rapidly changing technological and market needs, by continually enhancing our website and introducing new products and services to address our users changing demands. The marketplaces in which we operate are characterized by: · rapidly changing technology; · evolving industry standards; · frequent new product and service introductions; · shifting distribution channels; and · changing customer demands. Our future success will depend on our ability to adapt to this rapidly evolving marketplace. We could incur substantial costs if we need to modify our services or infrastructure in order to adapt to changes affecting our market, and we may be unable to adapt to these changes. The markets for our products are highly competitive and are likely to become more competitive, and our competitors may be able to respond more quickly to new or emerging technology and changes in customer requirements. We operate in highly competitive markets. In particular, the online insurance distribution market, like the broader electronic commerce market, is rapidly evolving and highly competitive. Our software business also experiences some competition from certain large hardware suppliers that sell systems and systems components to independent agencies and from small, independent or freelance developers and suppliers of software, who sometimes work in concert with hardware vendors to supply systems to independent agencies. Our Internet business may also face indirect competition from insurance carriers that have subsidiaries which perform in-house agency and brokerage functions. Some of our current competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. In addition, we believe we will face increasing competition as the online financial services industry develops and evolves. Our current and future competitors may be able to: · undertake more extensive marketing campaigns for their brands and services; · devote more resources to website and systems development; · adopt more aggressive pricing policies; and · make more attractive offers to potential employees, online companies and third-party service providers. If we are unable to protect our intellectual property, our reputation and competitiveness in the marketplace may be materially damaged. We regard our intellectual property in general and our software in particular as critical to our success. It may be possible for third parties to copy aspects of our products or, without authorization, to obtain and use information that we regard as trade secrets. Existing copyright law affords only limited practical protection, and our software is unpatented. If we infringe on the proprietary rights of others, we may be at a competitive disadvantage, and any related litigation could be time consuming and costly. Third parties may claim that we have violated their intellectual property rights. Any of these claims, with or without merit, could subject us to costly litigation and divert the attention of key personnel. To the extent that we violate a patent or other intellectual property right of a third party, we may be prevented from operating our business as planned, and we may be required to pay damages, to obtain a license, if available, to use the right or to use a non-infringing method, if possible, to accomplish our objectives. We depend on the continued services of our senior management and our ability to attract and retain other key personnel. Our future success is substantially dependent on the continued services and continuing contributions of our senior management and other key personnel, particularly Robin Raina, our President and Chief Executive Officer. The loss of the services of any of our executive officers or other key employees could harm our business. We have no long-term employment agreements with any of our key personnel, nor do we maintain key man life insurance policies on any of our key employees. Our future success depends on our continuing to attract, retain and motivate highly skilled employees. If we are not able to attract and retain new personnel, our business will be harmed. Competition for personnel in our industry is intense. We may be unable to retain our key employees or attract, assimilate or retain other highly qualified employees in the future. Our international operations are subject to a number of risks that could affect our income and growth. We market our software internationally and plan to expand our Internet services to locations outside of the United States. In 2004, we acquired certain assets from Heart Consulting Services Pty. Ltd. in Australia. In addition, commencing in 2002, we began development activities, call center services and other operations in India. Our international operations may not produce enough revenue to justify our investments in establishing them and are subject to other inherent risks, including: · the impact of recessions in foreign economies on the level of consumers insurance shopping and purchasing behavior; · greater difficulty in collecting accounts receivable; · difficulties and costs of staffing and managing foreign operations; · reduced protection for intellectual property rights in some countries; · seasonal reductions in business activity during the summer months in Europe and other parts of the world; · burdensome regulatory requirements, other trade barriers and differing business practices; · fluctuations in exchange rates; · potentially adverse tax consequences; and · political and economic instability. Furthermore, our entry into additional international markets requires significant management attention and financial resources, which could lessen our ability to manage our existing business effectively. Laws and regulations that govern the insurance industry could expose us or the agents, brokers and carriers who participate in our online marketplace to legal penalties. We perform functions for licensed insurance agents, brokers and carriers and are, therefore, required to comply with a complex set of rules and regulations that often vary from state to state. These rules and regulations can be difficult to comply with and are ambiguous and open to interpretation. If we fail to properly interpret and/or comply with these rules and regulations, we, the insurance agents, brokers or carriers doing business with us, our officers, or agents with whom we contract could be subject to various sanctions, including censure, fines, cease-and-desist orders, loss of license or other penalties. This risk, as well as other laws and regulations affecting our business and changes in the regulatory climate or the enforcement or interpretation of existing law, could expose us to additional costs, including indemnification of participating insurance agents, brokers or carriers for their costs, and could require changes to our business or otherwise harm our business. Furthermore, because the application of online commerce to the consumer insurance market is relatively new, the impact of current or future regulations on our business is difficult to anticipate. To the extent that there are changes in the rules and regulations regarding the manner in which insurance is sold, our business could be adversely affected. Governmental regulation of the telemarketing industry may increase our costs and restrict the operation and growth of our call center business. The telemarketing industry and, therefore, our call center business are subject to an increasing amount of governmental regulation. In particular, telemarketers are now barred from contacting persons who have registered their phone numbers on the National Do Not Call Registry maintained by the Federal Trade Commission. We could be subject to a variety of enforcement or private actions for our failure or the failure of our clients to comply with these regulations. Furthermore, our costs may increase as a result of having to comply with these regulations, and these regulations may limit our call center activities or reduce the demand for our call center services. Risks Related to Our Conduct of Business on The Internet Any disruption of our Internet connections could affect the success of our Internet based products. Any system failure, including network, software or hardware failure, that causes an interruption in our network or a decrease in responsiveness of our website could result in reduced user traffic and reduced revenue. Continued growth in Internet usage could cause a decrease in the quality of Internet connection service. Websites have experienced service interruptions as a result of outages and other delays occurring throughout the Internet network infrastructure. In addition, there have been several incidents in which individuals have intentionally caused service disruptions of major e-commerce websites. If these outages, delays or service disruptions frequently occur in the future, usage of our website could grow more slowly than anticipated or decline, and we may lose revenues and customers. If the computer hardware operations that host our website were to experience a system failure, the performance of our website would be harmed. These systems are also vulnerable to damage from fire, floods, earthquakes, acts of terrorism, power loss, telecommunications failures, break-ins and similar events. Our property and business interruption insurance coverage may not be adequate to compensate us for all losses that may occur. In addition, our users depend on Internet service providers, online service providers and other website operators for access to our website. Each of these providers has experienced significant outages in the past, and could experience outages, delays and other difficulties due to system failures unrelated to our systems. Concerns regarding security of transactions or the transmission of confidential information over the Internet or security problems we experience may prevent us from expanding our business or subject us to legal exposure. If we do not offer sufficient security features in our online product and service offerings, our products and services may not gain market acceptance, and we could be exposed to legal liability. Despite the measures that we may take, our infrastructure will be potentially vulnerable to physical or electronic break-ins, computer viruses or similar problems. If a person circumvents our security measures, that person could misappropriate proprietary information or disrupt or damage our operations. Security breaches that result in access to confidential information could damage our reputation and subject us to a risk of loss or liability. We may be required to make significant expenditures to protect against or remedy security breaches. Additionally, if we are unable to adequately address our customers concerns about security, we may have difficulty selling our goods and services. Uncertainty in the marketplace regarding the use of Internet users personal information, or proposed legislation limiting such use, could reduce demand for our services and result in increased expenses. Concern among consumers and legislators regarding the use of personal information gathered from Internet users could create uncertainty in the marketplace. This could reduce demand for our services, increase the cost of doing business as a result of litigation costs or increased service delivery costs, or otherwise harm our business. Legislation has been proposed that would limit the users of personally identifiable information of Internet users gathered online or require online services to establish privacy policies. Many state insurance codes limit the collection and use of personal information by insurance agencies, brokers and carriers or insurance service organizations. Moreover, the Federal Trade Commission has settled a proceeding against one online service that agreed in the settlement to limit the manner in which personal information could be collected from users and provided to third parties. Future government regulation of the Internet could place financial burdens on our businesses. Because of the Internets popularity and increasing use, new laws and regulations directed specifically at e-commerce may be adopted. These laws and regulations may cover issues such as the collection and use of data from website visitors, including the placing of small information files, or cookies, on a users hard drive to gather information, and related privacy issues; pricing; taxation; telecommunications over the Internet; content; copyrights; distribution; domain name piracy; and quality of products and services. The enactment of any additional laws or regulations, including international laws and regulations, could impede the growth of our revenue from our Internet operations and place additional financial burdens on our business. Risks Related To Our Common Stock The price of our common stock may be extremely volatile. In some future periods, our results of operations may be below the expectations of public market investors, which could negatively affect the market price of our common stock. Furthermore, the stock market in general has experienced extreme price and volume fluctuations in recent years. We believe that, in the future, the market price of our common stock could fluctuate widely due to variations in our performance and operating results or because of any of the following factors which are, in large part, beyond our control: · announcements of new services, products, technological innovations, acquisitions or strategic relationships by us or our competitors; · trends or conditions in the insurance, software, business process outsourcing and Internet markets; · changes in market valuations of our competitors; and · general political, economic and market conditions. In addition, the market prices of securities of technology companies, including our own, have been volatile and have experienced fluctuations that have often been unrelated or disproportionate to operating performance. As a result, you may not be able to sell shares of our common stock at or above the price at which you purchase them. In the past, following periods of volatility in the market price of a companys securities, securities class action litigation has often been instituted against that company. If any securities litigation is initiated against us, we could incur substantial costs and our managements attention and resources could be diverted from our business. The significant concentration of ownership of our common stock will limit your ability to influence corporate actions. The concentration of ownership of our common stock may have the effect of delaying, preventing or deterring a change in control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company, and may affect the market price of our common stock. At March 16, 2006, Brit Insurance Holdings PLC beneficially owned approximately 34.0% of our outstanding common stock and, together with our executive officers and directors, beneficially owned approximately 54.4% of our outstanding common stock. In addition, at March 16, 2006, CF Epic Insurance and General Fund, of which Brit owns approximately 78% of the equity interests, beneficially owned 8.1% of our outstanding common stock. As a result, those stockholders, if they act together, are able to control all matters requiring stockholder approval, including the election of all directors and approval of significant corporate transactions and amendments to our certificate of incorporation. These stockholders may use their ownership position to approve or take actions that are adverse to your interests or prevent the taking of actions that are consistent with your interests. Item 1B. UNRESOLVED STAFF COMMENTS Not applicable.