Home Equity Revenues. Home equity revenues are derived from the origination and sale of loans. Home equity loans are funded through the Company's warehouse lines of credit and sold to home equity loan purchasers in approximately forty days from funding. Home equity loan revenues consist of proceeds recorded at settlement in excess of the carrying value of the loan, origination fees less certain direct origination costs and other processing costs. These revenues are recognized at the time the loan is sold. Home equity revenues increased $0.7 million to $10.3 million for the three months ended March 31, 2005 from $9.6 million for the three months ended March 31, 2004. The increase in home equity revenue is due to increased volume of sold loans despite a slight decrease in gain on sale in basis points.

Interest Income on Mortgage and Home Equity Loans. The Company generates revenues from interest income on mortgage and home equity loans. The revenues realized are based on the loan amount multiplied by the contractual interest rate from the time of funding by the Company through time of sale. These revenues are recognized as earned during the period from funding to sale. Interest income is correlated to the volume of loans funded. While funded volume was up in the period for both Mortgage and Home Equity loans, the increase in interest income is the result of loans being held longer, prior to sale. As such, interest income on mortgage increased $1.4 million to $2.7 million for the three months ended March 31, 2005 from $1.3 million for the three months ended March 31, 2004 and interest income on home equity loans increased $0.9 million to $1.4 million for the three months ended March 31, 2005 from $0.5 million for the three months ended March 31, 2004.

Auto Revenues. The Company funded prime auto loans using a line of credit and, prior to April 2005, sold them either via whole loan sales or to a qualified special purpose entity (QSPE), which was created in July 2002. Revenues from sales to the QSPE consisted of the estimated future discounted cash flows net of interest, servicing fees and credit losses. Revenues on prime auto loan sales to the QSPE were recognized when the loan is sold to the QSPE. In addition, in exchange for the loans sold, the Company recorded a retained interest. A discount rate was applied to the asset to account for the present value of the cash flows to be received over the life of the loans. The retained interest was an interest-earning asset. The difference between the estimated discounted cash flows and the actual cash flows received over time was accreted and included as auto revenue.

On March 30, 2005, Merrill Lynch Bank USA purchased $651 million in auto loans held by E-LOAN Auto. The Company received $16.4 million in net proceeds associated with the liquidation of E-LOAN Auto's assets, which resulted in a $2.7 million increase in the fair value of the Company's retained interest in the purchased auto loans. As the retained interest asset is classified as a trading asset, the fair value adjustment is included in current period income as a component of auto revenue. As of the purchase date, E-LOAN Auto was no longer a qualifying special purpose entity (QSPE) as there were no external beneficial interest holders remaining. In accordance with EITF 2002-09, "Accounting for Changes That Result in a Transferor Regaining Control of Financial Assets Sold", the Company deferred gain recognition on approximately $475 thousand in auto loans retained by E-LOAN Auto and those assets were consolidated in the Company's financial statements as of March 31, 2005.

In July 2004, the Company began selling a portion of its prime auto loan production to Merrill Lynch Bank USA pursuant to a Purchase and Sale agreement. The revenue on these loans is based on a fee derived from the composition of the loans being sold, and is recognized at time of transfer. As of April 2005, all prime auto loan production is being sold under this agreement.

Prior to the third quarter of 2003, sub-prime auto loans were sold to sub-prime auto loan purchasers. The revenue on these loans consisted of the mark-up to the lending partner's loan price or a set origination fee. These revenues were recognized at the time the loan was sold. In the third quarter of 2003, the Company stopped processing and funding sub-prime auto loans and shifted this portion of the business to a referral based system. Presently loan applications that do not meet the prime auto lending criteria are referred out to other sub-prime lenders in exchange for a fee. This fee is recognized as revenue at the time of transfer to the sub-prime lender and paid to the Company monthly for the previous month's referrals.

Closing Services Revenues. In the fourth quarter of 2003, the Company formed Escrow Closing Services, Inc. ("ECS"), a wholly-owned subsidiary, which provides mortgage closing services, including HUD-1 and document preparation and signing, disbursement and recording services for a portion of our home equity business. In the first quarter of 2005, ECS began offering appraisal services for a portion of the company's mortgage business. For the three months ended March 31, 2005, closing services revenues were $1.4 million up $1.0 million from $0.4 million for the three months ended March 31, 2004. The Company expects that closing services revenue will continue to grow throughout 2005 as volume increases.

Total Operating Expenses. Total operating expenses include operational costs associated with the origination of mortgage, home equity and auto loans, including interest expense on warehouse lines, as well as costs associated with marketing, technology and administrative.

The following table provides detail of the Company's total operating expenses classified by major types of expense, expressed as a percentage of total operating expenses:

                                       Three Months Ended
                                            March 31,
                                       2004       2005
                                     ---------  ---------
Compensation & Benefits                    44%        39%
Processing Costs                            9%         9%
Advertising & Marketing                    31%        34%
Occupancy & Administrative                 13%        11%
Interest Expense on Warehouse               3%         7%

As almost half of the total operating expenses of the Company are compensation and benefit related, the following table shows full-time headcount (including temporary and contract employees) by function at the end of each respective quarter:

                                       Three Months Ended
                                            March 31,
                                       2004       2005
                                     ---------  ---------
Mortgage                                  277        307
Home Equity                               256        308
Auto                                       81         87
Closing Services                           14         28
Sales & Marketing                          26         26
Technology                                 62         67
General & Administrative                   67         75
                                     ---------  ---------
Total                                     783        898

Operations.Operations expense is comprised of both fixed and variable expenses, including employee compensation and expenses associated with the production and sale of loans and interest expense paid by the Company under the warehouse and line of credit facilities it uses to fund mortgage, home equity and auto loans held-for-sale.

The following table provides detail of the Company's operations expenses classified by the following revenue-related categories (in thousands):

                                                         Three Months Ended
                                                              March 31,
                                                         2004         2005
                                                      -----------  -----------
Mortgage ........................................... $     6,648  $     6,927
Interest expense on mortgage loans..................         602        1,811
Home equity.........................................       5,070        4,972
Interest expense on home equity loans...............         283          786
Auto................................................       1,834        2,000
Closing services....................................         505        1,099
                                                      -----------  -----------
Total operations.................................... $    14,942  $    17,595
                                                      ===========  ===========

Operations expense increased $2.7 million to $17.6 million for the three months ended March 31, 2005 from $14.9 million for the three months ended March 31, 2004. However, operations expense decreased as a percentage of revenue from 49% to 46% for the three months ended March 31, 2004 and 2005, respectively. The decrease in operations expense as a percentage of revenue in the first quarter of 2005 was due to increased revenue, partly attributed to the benefit from the sale of loans held by E-LOAN Auto Fund One, LLC.

The following table provides detail of the Company's total mortgage operations expenses (excluding interest expense) classified by major types of expense, expressed as a percentage of total mortgage operations expenses (excluding interest expense):

                                       Three Months Ended
                                            March 31,
                                       2004       2005
                                     ---------  ---------
Mortgage Operations
   Headcount & Related                     47%        50%
   Commissions                             20%        21%
   Processing Costs                        19%        18%
   Facilities & Other                      14%        11%

The following table provides detail of the Company's total home equity operations expenses (excluding interest expense) classified by major types of expense, expressed as a percentage of total home equity operations expenses (excluding interest expense):

                                       Three Months Ended
                                            March 31,
                                       2004       2005
                                     ---------  ---------
Home Equity Operations
   Headcount & Related                     59%        63%
   Commissions                             12%        13%
   Processing Costs                        18%        15%
   Facilities & Other                      11%         9%

The following table provides detail of the Company's total auto operations expenses (excluding interest expense) classified by major types of expense, expressed as a percentage of total auto operations expenses (excluding interest expense):

                                       Three Months Ended
                                            March 31,
                                       2004       2005
                                     ---------  ---------
Auto Operations
   Headcount & Related                     68%        66%
   Commissions                             --         --
   Processing Costs                        13%        20%
   Facilities & Other                      19%        14%

Direct Margin. Direct margin is defined as revenue minus operations expense, which includes variable and fixed expenses.

The following table provides detail of the Company's direct margin classified by the following revenue-related categories (in thousands):

                                       Three Months Ended
                                            March 31,
                                       2004       2005
                                     ---------  ---------
Mortgage........................... $   8,860  $   9,859
Mortgage interest margin...........       657        926
Home equity........................     4,485      5,275
Home equity interest margin........       197        603
Auto...............................     1,228      3,494
Closing services...................       (54)       339
Other..............................       316        294
                                     ---------  ---------
Total direct margin................ $  15,689  $  20,790
                                     =========  =========

Direct margin increased $5.1 million to $20.8 million for the three months ended March 31, 2005 from $15.7 million for the three months ended March 31, 2004. The increase in direct margin was primarily due to the $2.7 million benefit from the sale of loans held by E-LOAN Auto Fund One, LLC.

Sales and Marketing. Sales and marketing expense is primarily comprised of expenses related to advertising, promotion and marketing agreements, employee compensations and other expenses related to marketing personnel. Sales and marketing expense increased $2.3 million to $13.4 million for the three months ended March 31, 2005 from $11.1 million for the three months ended March 31, 2004. Sales and marketing expense increased as a direct result of increased spending for online advertising. Sales and marketing expense decreased as a percentage of revenue from 36% to 35% for the three months ended March 31, 2004 and 2005, respectively.

The following table provides detail of the Company's total sales and marketing expenses classified by major types of expense, expressed as a percentage of total sales and marketing expenses:

                                       Three Months Ended
                                            March 31,
                                       2004       2005
                                     ---------  ---------
Direct Response TV                         54%        45%
Direct Response Mail                       15%         1%
Online Advertising                         19%        41%
Other Advertising                           1%         5%
Headcount & Administrative                 11%         8%

Technology. Technology expense includes employee compensation, the introduction of new technologies and the support of E-LOAN's existing technological infrastructure. Technology expense increased $0.3 million to $2.5 million for the three months ended March 31, 2005 from $2.2 million for the three months ended March 31, 2004. Technology expense decreased as a percentage of revenue from 7% to 6% for the three months ended March 31, 2004 and 2005, respectively. The Company expects technology expense to be approximately 6% of total revenues throughout the remainder of 2005.

General and Administrative. General and administrative expense is primarily comprised of employee compensation and professional services. General and administrative expense decreased $0.8 million to $2.7 million for the three months ended March 31, 2005 from $3.5 million for the three months ended March 31, 2004. Included in general administrative expenses for the three months ended March 31, 2004 was a charge of approximately $1.0 million as a result of the resignation of the Company's prior President and Chief Operating Officer. Excluding this charge, general and administrative expense increased $0.2 million from March 31, 2004 to March 31, 2005. Excluding this one-time charge, general and administrative expense decreased as a percentage of revenue from 8% to 7% for the three months ended March 31, 2004 and 2005, respectively. The Company expects general and administrative expense to be approximately 7% of total revenues throughout the remainder of 2005.

Other Income, net. Other income, net, is related to interest earned on cash equivalents offset by expense incurred on non-warehouse facility borrowings. Other income, net, remained consistent at less than $0.1 million for the three months ended March 31, 2004 and 2005.

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S., which require the Company to make estimates and assumptions (see Note 3 to the consolidated financial statements). The Company believes that of its significant accounting policies (see Note 3 to the consolidated financial statements), the following may involve a higher degree of judgment and complexity.

Revenue Recognition. The Company's mortgage and home equity revenues are derived from the origination and sale of loans. Mortgage and home equity loans are funded through the Company's warehouse lines of credit and sold to loan purchasers typically within thirty days. Mortgage and home equity loan revenues consist of proceeds in excess of the carrying value of the loan, origination fees less certain direct origination costs and other processing costs. These revenues are recognized at the time the loan is sold. In addition, the Company generates revenues from interest income on mortgage and home equity loans. The revenues realized are based on the loan amount multiplied by the contractual interest rate from the time of funding by the Company through time of sale. These revenues are recognized as earned during the period from funding to sale. Also included in mortgage and home equity loan revenues are amounts recorded in connection with loans sold under a Purchase and Sale Agreement with Greenwich Capital (see "Off-Balance Sheet Arrangements"). These amounts consist of gain on sale from transferred loans, in the form of a retained interest comprised of interest income, net of interest expense, and additional cash flows to be received at the time of settlement with the committed loan purchaser. The Company sells all loans to loan purchasers on a servicing released basis without recourse, subject to certain representations and warranties. Additionally, the Company is responsible for a minimum number of payments to be made on these loans. As such, the Company records reserves as a contra-revenue at the time a loan is sold, based on certain assumptions in anticipation of future losses as a result of current activity.

The Company funds prime auto loans using a line of credit and sold them either via whole loan sales or to a qualified special purpose entity (QSPE), which was created in July 2002 (see "Off-Balance Sheet Arrangements"). Revenues from sales to the QSPE consisted of the estimated future discounted cash flows net of interest, servicing fees and credit losses recorded in the form of the residual interest. Revenues on prime auto loan sales to the QSPE were recognized when the loan was sold to the QSPE. In addition, in exchange for the loans sold, the Company received cash and a retained interest. A market discount rate was applied to the asset to account for the present value of the cash flows to be received over the life of the loans. As a result, the retained interest asset was an interest-earning asset, and the difference between the estimated discounted cash flows and the actual cash flows received over time was accreted and included as auto revenue. Effective in the fourth quarter of 2003, the Company adopted Financial Interpretation No. 46(R), "Consolidation of Variable Interest Entities", ("FIN 46(R)"). FIN 46(R) requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. The Company had variable interests in its qualified special purposes entity ("QSPE"), which were exempt from the provisions of FIN 46(R). The Company reported the rights and obligations related to the QSPE according to the requirements of Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." As of March 31, 2005 there was no retained interest balance outstanding.

In July 2004, the Company began selling a portion of its prime auto loan production to Merrill Lynch Bank USA pursuant to a Purchase and Sale agreement. The revenue on these loans is based on a fee derived from the composition of the loans being sold, and is recognized at time of transfer. As of April 2005, all prime auto loan production is being sold under this agreement.

Prior to the third quarter of 2003, sub-prime auto loans were sold to sub-prime auto loan purchasers. The revenue on these loans consisted of the mark-up to the lending partner's loan price or a set origination fee. These revenues were recognized at the time the loan was sold. In the third quarter of 2003, the Company stopped processing and funding sub-prime auto loans and shifted this portion of the business to a referral based system. Loan applications that do not meet the prime auto lending criteria are referred to other sub-prime lenders in exchange for a fee. This fee is recognized as revenue at the time of transfer to the sub-prime lender.

The Company's management has made complex judgments in their application of SFAS 133. The judgments include the identification of hedging instruments, hedged items, nature of the risk being hedged, and how the hedging instrument's effectiveness will be measured. The Company designates forward delivery commitments, where the company intends to deliver the underlying loan into the commitment, as a fair value SFAS 133 hedge at the commitment date. In addition, the Company designates all best efforts sell forward commitments as fair value SFAS 133 hedges for underlying loans at funding date. The Company does not designate mandatory sell forward agreements as SFAS 133 hedges but does utilize them to economically hedge the changes in fair value of rate lock commitments with borrowers for which a best efforts sell forward commitment has not been obtained. The Company did not have a material gain or loss representing the amount of hedge ineffectiveness related to designated SFAS 133 hedges during the three months ended March 31, 2004 and 2005.

In September 2003, the Company began hedging its interest rate risk on auto loan approvals. When the Company issues an auto loan approval, the Company extends a put option to the borrower, whereby the borrower is not obligated to enter into the loan agreement, but the Company must honor the interest rate for up to a 45-day period. Under SFAS 133, auto loan approvals are not considered derivatives. However, the company is still exposed to interest rate risk from issuance of approval to loan sale. The Company enters into amortizing swap contracts to economically hedge the interest rate changes in auto loan approvals. These swap contracts are considered derivatives under SFAS 133 and are recorded at fair value. Subsequent changes in the value of outstanding swap contracts are recorded as unrealized gains and losses and included in the statement of operations in auto revenue.

Capitalized software. In 1999, the Company adopted SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, which requires that the Company expense computer software costs as they are incurred in the preliminary project stage. Once the capitalization criteria of the SOP have been met, external direct costs of materials and services consumed in developing or obtaining internal-use computer software and payroll and payroll related costs for employees who are directly associated with and who devote time to the internal-use computer software are capitalized. Capitalized costs are generally amortized over one to three years on a straight-line basis.

Reserves for loan sales. The Company sells loans to loan purchasers on a servicing released basis subject to certain representations and warranties from the Company to the purchaser. As such, the risk of loss or default by the borrower has generally been assumed by these purchasers. However, the Company is generally required by these purchasers to make certain representations relating to borrower creditworthiness, loan documentation and collateral. To the extent that the Company does not comply with such representations, or there are early payment defaults, the Company may be required to repurchase loans or indemnify these purchasers for any losses from borrower defaults. In connection with a majority of its loan sales agreements, the Company is also responsible for a minimum number of payments to be made on each loan, or else the Company may be required to refund the premium paid to it by the loan purchaser. As such, the Company records reserves based on certain assumptions in anticipation of future losses as a result of current sales activity.

Loan loss reserves due to potential violations of representations and warranties are recorded based on a percentage of current month sales. The Company currently calculates this loss rate exposure based on its historical loss rates as well as similar lending portfolios. Once the Company has endured a complete economic cycle, the rate will be adjusted based on actual losses as a percentage of sales volume on a historical basis. Premium repayment reserves, generated through early loan prepayments related to loans sold to loan purchasers, are recorded based on a rate determined by calculating actual prepayments as a percentage of sales on a historical basis applied to current month sales.

Stock-Based Compensation. The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations, and complies with the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting For Stock-Based Compensation -- Transition And Disclosure -- An Amendment Of SFAS No. 123. Under APB No. 25, compensation expense is based on the excess of the estimated fair value of the Company's stock over the exercise price, if any, on the date of grant. Deferred stock-based compensation is then amortized over the vesting period of the option on an accelerated basis using the multiple option approach as defined in paragraph 24 of FIN 28. The Company accounts for stock issued to non-employees in accordance with the provisions of SFAS No. 123 and the Emerging Issues Task Force Consensus in Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Non-Employees for Acquiring, or in Conjunction with Selling, Goods or Services.

Deferred Tax Asset. The Company accounts for income taxes using the liability method in accordance with SFAS No. 109, Accounting for Income Taxes. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Management evaluates the recoverability of the deferred tax assets and the level of the valuation allowance. At such time as it is determined that it is more likely than not that the deferred tax asset will be realizable, the valuation allowance will be reduced. The Company's deferred tax asset arises principally from net operating loss carryforward (NOLs). There are significant judgments and estimates involved in projecting the recoverability of the deferred tax asset, particularly with respect to the existence of future taxable income sufficient to realize NOLs. The Company reported its first profitable year in 2002 and was again profitable in 2003. However, the sustained low interest rate environment created favorable operating conditions for the Company. During the fourth quarter of 2003 and the first nine months of 2004, the Company reported a loss from operations, largely as a result in declines in mortgage refinance volume. Management will continue to monitor projections of future taxable income and when it believes realization of the tax benefits associated with the NOLs is more likely than not, management will reduce the valuation allowance by recording a benefit through the income tax provision recorded in the statement of operations. Based upon the Company's performance throughout the remainder of the year it is possible that management would reduce the valuation allowance during 2005; however, management can provide no assurances as to the amount of such reduction, the period in which it might occur or if it will occur at all.

Retained interest in auto loans. On June 17, 2002, the Company entered into an arrangement to sell auto loan receivables to a qualified special purpose entity (QSPE), E-LOAN Auto Fund One, LLC ("E-LOAN Auto"), for the purpose of being able to recognize the gain on sale from these loans. These transactions involved the Company surrendering control over these assets to assure that the sold assets had been isolated from the Company and its creditors. In accordance with FAS 140 and FIN 46(R) the assets and liabilities of E-LOAN Auto were appropriately not consolidated in financial statements of the Company. In the event that the entity no longer qualified as a QSPE, it would be required to be consolidated, the Company would no longer be in compliance with certain debt covenants related to its warehouse and other lines of credit, as currently structured. In particular, the Company's debt to tangible net worth covenants would have been exceeded. E-LOAN Auto had obtained a secured borrowing facility from Merrill Lynch Bank USA to finance all purchases of loans from the Company. The Company recognized a gain on the sale of auto loan receivables to E-LOAN Auto in the period in which the sale occurred, which represented the difference between the sale proceeds to the Company and the Company's net carrying value of the receivables. The Company retained an interest in the future cash flows from the loans. Such cash flows were distributed to the Company by the QSPE monthly. The fair value of the retained interest asset was based upon a discounted cash flow model of the estimated future cash flows to be received by the Company over the life of the loans. These retained interest assets were recorded on the balance sheet at fair value as trading assets, and were adjusted to estimated fair value at each subsequent reporting period. Changes in the estimated fair value of the residual interests were recorded through the statement of operations. Estimates of future cash flows to be received by the Company reflected assumptions regarding the cumulative credit losses to be incurred on the pool of auto loan receivables sold, prepayment rates of the auto loans and the rate at which the estimated future excess cash flows were discounted. The assumptions used represented the Company's best estimates, and the use of different assumptions could have produced different financial results. As of March 31, 2005 there was no retained interest balance outstanding.

Sale Agreement with Greenwich Capital. The Company has a loan purchase and sale agreement with Greenwich Capital, for the purpose of controlling the timing associated with loan sales. Under the terms of this agreement, mortgage loans which are allocated to a mandatory sell forward commitment between the Company and a loan purchaser, but have not yet been settled, may be sold to Greenwich Capital with the accompanying trade assignment. Revenues, in the form of a retained interest, from loans sold under this arrangement are included as a receivable on the balance sheet. All loans sold under this arrangement are already committed to another loan purchaser, and as such, hold little risk of being unsaleable. Therefore, in the event that the Company was unable to utilize this arrangement, the Company would experience a one-time impact to revenues in the period this arrangement was discontinued.

The Company's sources of cash include cash from the sale of mortgage, home equity and auto loans, borrowings under warehouse lines of credit and other credit facilities, brokerage fees, interest income, credit card referrals and the sale of debt and equity securities in both private and public transactions. The Company's uses of cash include the funding of mortgage, home equity and auto loans, repayment of amounts borrowed under warehouse lines of credit, operating expenses, payment of interest, and capital expenditures primarily comprised of furniture, fixtures, computer equipment, software and leasehold improvements. Because the Company's loan origination operating activities are funded principally through its warehouse and other lines payable, the Company analyzes trends in operating cash flows by combining cash flows from operating activities with cash flows from certain financing activities (specifically cash flows from warehouse and other lines payable).

Cash provided by operating activities net of cash used by financing activities related to its warehouse and other lines payable was $10.9 million for the three months ended March 31, 2005. Specifically, the Company obtained cash from net income of $2.2 million for the three months ended March 31, 2005 and $14.0 million from the reduction in the retained interest asset. These sources of cash were offset as a result of an increase in accounts receivable, prepaids and other assets in the amount of $8.2 million.

Cash provided by operating and financing activities related to its warehouse and other lines payable was $14.7 million for the three months ended March 31, 2004. Specifically, the Company obtained cash from net income, excluding non-cash related items, of $0.8 million for the three months ended March 31, 2004. In addition, the Company benefited from positive cash flow due to the reduction of other assets in the amount of $8.3 million, specifically prepaid marketing expenses, and the reduction of receivables in connection with loan sales. Further, the Company benefited from positive cash flow as a result of loans held-for-sale net of warehouse payable decreasing which provided $2.8 million in net cash, and the increase of accounts payables and other accrued expenses in the amount of $4.4 million. However, these sources of cash were offset by the continued increase in the retained interest asset which grew another $1.7 million as additional auto loans were sold to the QSPE in the three months ended March 31, 2004.

Net cash used in investing activities was $3.5 million and $1.3 million for the three months ended March 31, 2004 and 2005, respectively. Net cash used during the three months ended March 31, 2005 was primarily due to the addition of infrastructure related to investment in new technology systems. In October 2003, the Company began relocating its corporate headquarters and consolidating its operational facilities to a larger, single facility in Pleasanton, California. Capital expenditures related to the new facility were $2.8 million for the three months ended March 31, 2004.The remaining cash used on investing activities during the three months ended March 31, 2004 was related to capitalized development.

Cash provided by financing activities, net of cash used by its warehouse and other lines payable was $0.4 million and $0.6 million for the three months ended March 31, 2004 and 2005, respectively. The increase for both periods presented was due to the issuance of common stock from the exercise of stock options.

                                       GMAC       Greenwich      Merrill       Merrill       JPMorgan
                                     Mortgage      Capital        Lynch         Lynch         Chase
                                       $75M         $500M         $100M          $10M         $150M
                                   ------------  ------------  ------------  ------------  ------------
Cost of Funds
   Spread over LIBOR               1.25%-2.0%    0.75%-1.15%   0.75%-1.0%    1.0%-2.0%     1.0%-1.125%

Covenants
   Minimum Cash                    $15.0M        $15.0M        $12.5M        $15.0M (1)    $12.5M (1)
   Minimum Tangible Net Worth      $40.0M        $60.0M        $40.0M        $25.0M        $60.0M
   Debt to Tangible Net Worth      10:1          10:1          12:1               --       10:1
   Profitability                        --            --       Net Worth >        --       $1 in 6 mos
                                                               80% prior                   rolling period
                                                                2 qtrs
   Current Ratio                   1.0:1.0            --            --       1.0:1.0       1.0:1.0
   Additional Facility             $100.0M       $75.0M             --            --            --

Advance Rates                      95%-100%      96%-99%       96%-99%       92%-97%       95%-98%