================================================================================


                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

                                   (MARK ONE)
    [X]     QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
            EXCHANGE ACT OF 1934

            FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005



    [_]     TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
            EXCHANGE ACT OF 1934

            FOR THE TRANSITION PERIOD FROM ________ TO ________

                        COMMISSION FILE NUMBER: 000-29927

                                IMPROVENET, INC.
--------------------------------------------------------------------------------
        (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)

                  DELAWARE                               77-0452868
--------------------------------------------------------------------------------
      (STATE OR OTHER JURISDICTION OF                 (I.R.S. EMPLOYER
       INCORPORATION OR ORGANIZATION)                 IDENTIFICATION NO.)

            10799 NORTH 90TH STREET, SUITE 200, SCOTTSDALE, AZ 85260
--------------------------------------------------------------------------------
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                 (480) 346-0000
--------------------------------------------------------------------------------
                           (ISSUER'S TELEPHONE NUMBER)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. Yes [X] No [_]

The number of shares outstanding of the registrant's common stock, $.001 par
value, was 54,552,653 as of April 29, 2005.

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<PAGE>

                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----
                          PART I. FINANCIAL INFORMATION

Item 1.   Financial Statements...............................................  3

          Condensed Consolidated Balance Sheets as of March 31, 2005
             (Unaudited) and December 31, 2004...............................  3

          Unaudited Condensed Consolidated Statements of Operations
             for the three months ended March 31, 2005 and 2004..............  4

          Unaudited Condensed Consolidated Statement of Shareholders'
               Equity for the three months ended March 31, 2005..............  5

          Unaudited Condensed Consolidated Statements of Cash Flows
             for the three months ended March 31, 2005 and 2004..............  6

          Notes to Unaudited Condensed Consolidated Financial Statements.....  7

Item 2.   Management's Discussion and Analysis of Financial Condition
             and Results of Operations....................................... 14

Item 3.   Controls and Procedures............................................ 21

                           PART II. OTHER INFORMATION

Item 1.   Legal Proceedings.................................................. 22

Item 2.   Changes in Securities and Small Business Issuer Purchases
             of Equity Securities............................................ 22

Item 3.   Defaults Upon Senior Securities.................................... 22

Item 4.   Submission of Matters to a Vote of Security Holders................ 22

Item 5.   Other Information.................................................. 22

Item 6.   Exhibits and Reports on Form 8-K................................... 22

Signatures................................................................... 23




                                       2
<PAGE>


                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                                IMPROVENET, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE><CAPTION>
                                                                                        March 31,       December 31,
                                                                                          2005              2004
                                                                                      ------------      ------------
<S>                                                                                   <C>               <C>
                                                                                       (Unaudited)
                                     ASSETS
CURRENT ASSETS:
   Cash and cash equivalents ....................................................     $    251,036      $    555,784
   Restricted cash and cash equivalents .........................................             --             100,000
   Accounts receivable (net of allowance of approximately $269,000 and
       $284,000 as of March 31, 2005 and December 31, 2004, respectively) .......          190,437           170,715
   Prepaid expenses and other current assets ....................................           37,726            27,082
   Assets of discontinued operations ............................................            6,056            35,263
                                                                                      ------------      ------------

       Total current assets .....................................................          485,255           888,844

PROPERTY AND EQUIPMENT, NET .....................................................          243,575           180,581
                                                                                      ------------      ------------

       TOTAL ASSETS .............................................................     $    728,830      $  1,069,425
                                                                                      ============      ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable .............................................................     $    404,783      $    340,115
   Obligations under capital leases - current portion ...........................           16,932              --
   Accrued litigation related costs .............................................           60,302            66,302
   Deferred revenue .............................................................           35,308            25,740
   Line of credit ...............................................................             --              62,300
   Accrued expenses and other current liabilities ...............................           22,942            15,665
   Liabilities of discontinued operations .......................................          291,047           376,099
                                                                                      ------------      ------------

       TOTAL CURRENT LIABILITIES ................................................          831,314           886,221

LONG-TERM LIABILITIES:
   Obligations under capital leases - long-term portion .........................           37,501              --
                                                                                      ------------      ------------

       TOTAL LIABILITIES ........................................................          868,815           886,221
                                                                                      ------------      ------------
COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
   Common stock, $0.001 par value; 100,000,000 shares authorized; 54,552,653
       shares issued and outstanding as of March 31, 2005; 54,430,332 shares
       issued and outstanding as of December 31, 2004 ...........................           54,553            54,431
   Additional paid-in-capital ...................................................        2,619,030         2,604,850
   Accumulated deficit ..........................................................       (2,813,568)       (2,476,077)
                                                                                      ------------      ------------

       TOTAL SHAREHOLDERS' EQUITY ...............................................         (139,985)          183,204
                                                                                      ------------      ------------

       TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...............................     $    728,830      $  1,069,425
                                                                                      ============      ============

               See the accompanying notes to the unaudited condensed consolidated financial statements.
</TABLE>
                                       3
<PAGE>

                                IMPROVENET, INC.
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE><CAPTION>
                                                                       Three Months Ended
                                                                            March 31,
                                                                  -----------------------------
                                                                      2005             2004
                                                                  ------------     ------------
<S>                                                               <C>              <C>
Revenue .....................................................     $    868,853     $    711,382
Cost of revenue .............................................          387,191          276,848
                                                                  ------------     ------------

Gross profit ................................................          481,662          434,534
Selling, general and administrative expense .................          828,319          454,616
                                                                  ------------     ------------

Loss from operations ........................................         (346,657)         (20,082)

Other income (expense)
   Interest income ..........................................            1,623              607
   Interest expense and financing costs .....................           (2,667)          (8,267)
   Miscellaneous income .....................................              501            9,201
                                                                  ------------     ------------

Net loss from continuing operations before income taxes .....         (347,200)         (18,541)
Provision for income taxes ..................................             --               --
                                                                  ------------     ------------

Net loss from continuing operations .........................         (347,200)         (18,541)
Income from discontinued operations, net of income taxes ....            9,709           22,125
                                                                  ------------     ------------

Net income (loss) attributable to Common Shareholders .......         (337,491)           3,584
                                                                  ============     ============

Basic earnings (loss) per share:
   Continuing operations ....................................     $      (0.01)    $       0.00
                                                                  ============     ============
   Discontinued operations ..................................     $       0.00     $       0.00
                                                                  ============     ============
   Net loss .................................................     $      (0.01)    $       0.00
                                                                  ============     ============

   Weighted average Common Shares outstanding - basic .......       54,472,773       39,210,315
                                                                  ============     ============

Diluted earnings (loss) per share:
   Continuing operations ....................................     $      (0.01)    $       0.00
                                                                  ============     ============
   Discontinued operations ..................................     $       0.00     $       0.00
                                                                  ============     ============
   Net loss .................................................     $      (0.01)    $       0.00
                                                                  ============     ============

   Weighted average Common Shares outstanding - diluted .....       54,472,773       40,170,315
                                                                  ============     ============

    See the accompanying notes to the unaudited condensed consolidated financial statements.
</TABLE>
                                       4
<PAGE>

                                IMPROVENET, INC.
       UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                    FOR THE THREE MONTHS ENDED MARCH 31, 2005


<TABLE><CAPTION>
                                             Common Stock               Additional                           Total
                                     ----------------------------        Paid-In        Accumulated       Shareholders'
                                        Shares           Amount          Capital          Deficit        Equity (Deficit)
                                     ------------     ------------     ------------     ------------      ------------
<S>                                  <C>              <C>              <C>              <C>               <C>
Balances, December 31, 2004 ....       54,430,332     $     54,431     $  2,604,850     $ (2,476,077)     $    183,204

Stock-based compensation .......          122,321              122           14,180                             14,302

Net loss .......................             --               --               --           (337,491)         (337,491)

                                     ------------     ------------     ------------     ------------      ------------
Balances, March 31, 2005 .......       54,552,653     $     54,553     $  2,619,030     $ (2,813,568)     $   (139,985)
                                     ============     ============     ============     ============      ============


               See the accompanying notes to the unaudited condensed consolidated financial statements.
</TABLE>

                                       5
<PAGE>

                                IMPROVENET, INC.
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS




<TABLE><CAPTION>
                                                                                       Three Months Ended March 31,
                                                                                      ------------------------------
                                                                                          2005              2004
                                                                                      ------------      ------------
<S>                                                                                   <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss from continuing operations ..........................................     $   (347,200)     $    (18,541)
   Adjustments to reconcile net loss to net cash flows
       from operating activities -
           Depreciation .........................................................           25,287            10,658
           Non-cash stock-based compensation ....................................           14,302              --
           Loss on sale of equipment ............................................            1,135              --
       Changes in operating assets and liabilities
              Accounts receivable ...............................................          (19,722)         (142,170)
              Prepaid expenses and other current assets .........................          (10,644)          (20,802)
              Accounts payable ..................................................           64,668            19,494
              Accrued litigation related costs ..................................           (6,000)          (20,682)
              Deferred revenue ..................................................            9,568              --
              Accrued expenses and other current liabilities ....................            7,277           (23,125)
              Intercompany receivable ...........................................           73,023             6,917
                                                                                      ------------      ------------

    Cash flows from operating activities ........................................         (188,306)         (188,251)
                                                                                      ------------      ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment ...........................................          (10,239)          (11,530)
   Capitalization of software and website development costs .....................          (14,440)             --
                                                                                      ------------      ------------

    Cash flows from investing activities ........................................          (24,679)          (11,530)
                                                                                      ------------      ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sale of equipment ..............................................              400              --
   Borrowings (repayments) on line of credit ....................................          (62,300)             --
   Change in restricted cash and cash equivalents ...............................          100,000              --
   Principal repayments of capital lease obligations ............................             (776)             --
                                                                                      ------------      ------------
    Cash flows from financing activities ........................................           37,324              --
                                                                                      ------------      ------------

CASH FLOWS FROM DISCONTINUED OPERATIONS .........................................         (129,087)          (42,201)
                                                                                      ------------      ------------

DECREASE IN CASH AND CASH EQUIVALENTS ...........................................         (304,748)         (241,982)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ..................................          555,784           378,131
                                                                                      ------------      ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD ........................................     $    251,036      $    136,149
                                                                                      ============      ============

SUPPLEMENTAL CASH FLOW INFORMATION:
       Interest paid ............................................................     $      6,312      $     10,506
                                                                                      ============      ============
       Income taxes paid ........................................................     $       --        $       --
                                                                                      ============      ============

SUPPLEMENTAL DISCLOSUREES FOR NONCASH INVESTING AND FINANCING ACTIVITIES
       Acquisition of property and equipment under capital lease agreements .....     $     55,209      $       --
                                                                                      ============      ============

               See the accompanying notes to the unaudited condensed consolidated financial statements.
</TABLE>
                                       6
<PAGE>

                                IMPROVENET, INC.
                    NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS

1.    ORGANIZATION OF BUSINESS AND BASIS OF PRESENTATION

The consolidated financial statements of ImproveNet, Inc. have been prepared in
accordance with accounting principles generally accepted in the United States.
The consolidated financial statements include the accounts of ImproveNet and its
wholly owned subsidiary, eTechLogix, Inc. ("eTechLogix") (collectively,
"ImproveNet", "we", "us", or "our"). All intercompany transactions and balances
have been eliminated in consolidation. Certain 2004 financial statement amounts
have been reclassified to conform with 2005 presentation.

We are a leading Internet-based home improvement services company that, through
our TrueMatch(TM) platform, connects homeowners to local screened home
improvement service providers throughout the United States. We commenced
operations in January 1996 as a regional contractor matching service. ImproveNet
was initially incorporated in California and was reincorporated in Delaware in
1998. We spent the majority of 1996 and 1997 building our database of home
improvement service providers, developing our services and technology,
recruiting personnel and raising capital. We launched our website,
www.ImproveNet.com, and homeowner / home improvement service provider matching
service on a national scale in August 1997. During 1999 we completed the
acquisition of two regional contractor referral companies: Contractor Referral
Services, LLC and the J.L. Price Corporation, both of which were integrated into
our operations during 2000. On March 15, 2000, we completed our initial public
offering and raised approximately $44.16 million in gross proceeds through the
sale of approximately 2.76 million Common Shares. Shares of our Common Stock
were initially listed on the NASDAQ National Market System. During the first
half of 2000, we spent substantial amounts on marketing and marketing related
activities, as well as the development and expansion of our service and
operations infrastructure. During 2002 ImproveNet merged with eTechLogix. The
merger was accounted for as a reverse merger as the previous owners of
eTechLogix received a controlling interest in ImproveNet subsequent to the
merger. During the fourth quarter of 2004, the Board of Directors determined
that our principal focus going forward would be on ImproveNet's core lead
matching service and the products and services that compliment it. This decision
was based on a number of factors, which include, but are not limited to, the
opportunities in the Internet home improvement industry. Based on this decision,
we have actively pursued, during the first quarter of 2005, disposition of
substantially all of the operations of eTechLogix. An agreement has been
executed with 2020 Technologies International, Inc. for the anticipated
disposition and is expected to close in the near future. Accordingly, the
operations of eTechLogix, which had been classified as a separate operating
segment in previous filings, have been classified as discontinued operations for
all periods presented in these financial statements.

These unaudited condensed consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
All significant intercompany transactions and accounts have been eliminated.
Certain information related to our organization, significant accounting policies
and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
has been condensed or omitted. The accounting policies followed in the
preparation of these interim condensed consolidated financial statements are
consistent with those followed in our annual consolidated financial statements
for the year ended December 31, 2004, as filed on Form 10-KSB. In the opinion of
management, these unaudited condensed consolidated financial statements contain
all material adjustments, consisting only of normal recurring adjustments,
necessary to fairly state our financial position, results of operations and cash
flows for the periods presented and the presentations and disclosures herein are
adequate when read in conjunction with our Form 10-KSB for the year ended
December 31, 2004. Certain reclassifications have been made to the prior period
financial statement amounts to conform to the current presentation. Operating
results for interim periods are not necessarily indicative of the results for
full years. These interim financial statements should be read in conjunction
with our audited consolidated financial statements and notes thereto appearing
in our annual report on Form 10-KSB for the year ended December 31, 2004.

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Significant estimates include the allowance for doubtful accounts and credits,
liabilities for potential litigation and deferred taxes.

Our financial statements are presented on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. We have continued to sustain losses for the past
several years. We do not have sufficient revenues to cover operating costs, and
we have a deficit in our shareholders' equity. We anticipate the need to raise
additional capital

                                       7
<PAGE>

through public or private, debt or equity offerings. No assurance can be made
that we can raise additional capital on terms that are acceptable to us. The
financial statements do not include any adjustments to reflect the possible
future effects of the recoverability and classification of assets or the amounts
and classifications of liabilities that may result from the uncertainty of our
ability to continue as a going concern.

Basic earnings (loss) per share is calculated by dividing income (loss)
available to Common Shareholders by the weighted average number of Common Shares
outstanding for the period. Diluted earnings (loss) per share is calculated
based on the weighted average shares of Common Stock outstanding during the
period plus the dilutive effect of Common Stock purchase warrants and stock
options using the treasury stock method and the dilutive effects of convertible
instruments using the if-converted method. Contingently issuable shares are
included in the computation of basic earnings (loss) per share when issuance of
the shares is no longer contingent. Dilutive securities not included in the
diluted loss per share calculation are as follows (unaudited):

                                             Three Months Ended March 31,
                                            -----------------------------
                                                2005             2004
                                            ------------     ------------

Options to purchase Common Shares .....          509,060          516,812
Warrants to purchase Common Shares ....           46,154          449,306
                                            ------------     ------------

Dilutive securities ...................          555,214          966,118
                                            ============     ============

NEW ACCOUNTING PRONOUNCEMENTS

                  Statements of Financial Accounting Standards
                  --------------------------------------------

SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity." SFAS No. 150 establishes standards for how an
issuer classifies, measures and discloses in its financial statements certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that an issuer classify financial instruments that are within
its scope as liabilities, in most circumstances. Such financial instruments
include (i) financial instruments that are issued in the form of shares that are
mandatorily redeemable, (ii) financial instruments that embody an obligation to
repurchase the issuer's equity shares, or are indexed to such an obligation, and
that require the issuer to settle the obligation by transferring assets, (iii)
financial instruments that embody an obligation that the issuer may settle by
issuing a variable number of its equity shares if, at inception, the monetary
value of the obligation is predominantly based on a fixed amount, variations in
something other than the fair value of the issuer's equity shares or variations
inversely related to changes in the fair value of the issuer's equity shares and
(iv) certain freestanding financial instruments. SFAS No. 150 was effective for
contracts entered into or modified after May 31, 2003, and was otherwise
effective at the beginning of the first interim period beginning after June 15,
2003, however, in October 2003, the FASB indefinitely deferred the application
of certain provisions of SFAS No. 150 as they apply to mandatorily redeemable
minority interests. Adoption of SFAS No. 150 did not have a significant impact
on our financial statements.

SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." SFAS No. 149 amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The amendments
(i) reflect decisions of the Derivatives Implementation Group, (ii) reflect
decisions made by the FASB in conjunction with other projects dealing with
financial instruments and (iii) address implementation issues related to the
application of the definition of a derivative. SFAS No. 149 also modifies
various other existing pronouncements to conform with the changes made to SFAS
No. 133. SFAS No. 149 was effective for contracts entered into or modified after
June 30, 2003, and for hedging relationships designated after June 30, 2003,
with all provisions applied prospectively. Adoption of SFAS No. 149 did not have
a significant impact on our financial statements.

SFAS No. 123, "Share-Based Payment (Revised 2004)." SFAS No. 123R establishes
standards for the accounting for transactions in which an entity (i) exchanges
its equity instruments for goods or services, or (ii) incurs liabilities in
exchange for goods or services that are based on the fair value of the entity's
equity instruments or that may be settled by the issuance of the equity
instruments. SFAS No. 123R eliminates the ability to account for stock-based
compensation using APB 25 and requires that such transactions be recognized as
compensation cost in the income statement based on their fair values on the date
of the grant. SFAS No. 123R is effective for ImproveNet on January 1, 2006. We
will transition to fair value based accounting for stock-based compensation
using a

                                       8
<PAGE>

modified version of prospective application ("modified prospective
application"). Under modified prospective application, as it is applicable to
us, SFAS No. 123R applies to new awards and to awards modified, repurchased, or
cancelled after January 1, 2006. Additionally, compensation cost for the portion
of awards for which the requisite service has not been rendered (generally
referring to non-vested awards) that are outstanding as of January 1, 2006 must
be recognized as the remaining requisite service is rendered during the period
of and/or the periods after the adoption of SFAS No. 123R. The attribution of
compensation cost for those earlier awards will be based on the same method and
on the same grant-date fair values previously determined for the pro forma
disclosures required for companies that did not adopt the fair value accounting
method for stock-based employee compensation. The adoption of SFAS No. 123R is
expected to have a significant impact on the Company's financial statements. The
impact of adopting SFAS No. 123R cannot be accurately estimated at this time, as
it will depend on the market value and the amount of share-based awards granted
in future periods. Future levels of compensation cost recognized related to
stock-based compensation awards (including the aforementioned expected costs
during the period of adoption) may be impacted by new awards and/or
modifications, repurchases and cancellations of existing awards before and after
the adoption of this standard.

              Financial Accounting Standards Board Interpretations
              ----------------------------------------------------

FIN No. 46, "Consolidation of Variable Interest Entities, an Interpretation of
Accounting Research Bulletin No. 51 (Revised December 2003)." FIN 46,
establishes accounting guidance for consolidation of variable interest entities
(VIE) that function to support the activities of the primary beneficiary. The
primary beneficiary of a VIE entity is the entity that absorbs a majority of the
VIE's expected losses, receives a majority of the VIE's expected residual
returns, or both, as a result of ownership, controlling interest, contractual
relationship or other business relationship with a VIE. Prior to the
implementation of FIN 46, VIEs were generally consolidated by an enterprise when
the enterprise had a controlling financial interest through ownership of a
majority of voting interest in the entity. The provisions of FIN 46 were
effective immediately for all arrangements entered into after January 31, 2003.
If a VIE existed prior to February 1, 2003, FIN 46 was effective at the
beginning of the first interim period beginning after June 15, 2003. However,
subsequent revisions to the interpretation deferred the implementation date of
FIN 46 until the first period ending after December 15, 2003. The adoption of
this standard did not have a significant impact on our financial statements.

FIN No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others -- an Interpretation of
FASB Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34."
FIN 45 elaborates on the disclosures to be made by a guarantor in its interim
and annual financial statements about its obligations under certain guarantees
that it has issued. It also clarifies that a guarantor is required to recognize,
at the inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial recognition and
measurement provisions of FIN 45 were applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. The disclosure
requirements of FIN 45 were effective for financial statements of interim or
annual periods ending after December 15, 2002, and were adopted in our financial
statements for the year ended December 31, 2002. The adoption of this standard
did not have a significant impact on our financial statements.

2.    STOCK-BASED COMPENSATION

We have stock-based compensation plans accounted for under the recognition and
measurement principles of Accounting Principles Board Opinion ("APB") No. 25
"Accounting for Stock Issued to Employees," and related interpretations. Pro
forma information regarding the impact of stock-based compensation on net income
and earnings per share is required by SFAS No. 123 "Accounting for Stock-Based
Compensation," and SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." Such unaudited pro forma information,
determined as if we had accounted for our employee stock options under the fair
value recognition provisions of SFAS No. 123, is illustrated in the following
table (unaudited):

                                       9
<PAGE>

<TABLE><CAPTION>
                                                                               Three Months Ended March 31,
                                                                              ------------------------------
                                                                                  2005              2004
                                                                              ------------      ------------
<S>                                                                           <C>               <C>
Net income (loss) attributable to Common Shareholders as reported .......     $   (337,491)     $      3,584
Stock-based employee compensation expense
    pursuant to SFAS No. 123, net of tax ................................          (63,649)          (98,000)
                                                                              ------------      ------------
Pro forma net loss attributable to Common Shareholders ..................     $   (401,140)     $    (94,416)
                                                                              ============      ============

Earnings (loss) per share:
    Basic as reported ...................................................     $      (0.01)     $       0.00
                                                                              ============      ============
    Basic Pro forma .....................................................     $      (0.01)     $      (0.00)
                                                                              ============      ============

    Diluted as reported .................................................     $      (0.01)     $       0.00
                                                                              ============      ============
    Diluted Pro forma ...................................................     $      (0.01)     $      (0.00)
                                                                              ============      ============
</TABLE>

The fair value of options granted during the three months ended March 31, 2005
and 2004 were estimated using the Black-Scholes option pricing model using the
following assumptions:

                                                        THREE MONTHS ENDED
                                                             MARCH 31,
                                                     --------------------------
                                                        2005            2004
                                                     ----------      ----------
         Annual dividend yield .....................       --              --
         Weighted-average expected life (years) ....   10 years         2 years
         Risk-free interest rate ...................        3.6%              4%
         Volatility ................................        143%            147%

Details of our 1996 Stock Option Plan and 1999 Equity Incentive Plan are
described in our consolidated financial statements for the year ended December
31, 2004 as filed on Form 10-KSB. During the three months ended March 31, 2005,
122,321 Common Shares and 1,685,800 options to purchase Common Shares were
granted from the 1999 Equity Incentive Plan. As of March 31, 2005, the aggregate
number of options outstanding entitled holders to purchase 4,705,959 Common
Shares at prices ranging from $.05 to $6.25. The weighted average exercise price
for vested options as of March 31, 2005 was $0.28 per share.

3.    PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

                                                  March 31,       December 31,
                                                    2005              2004
                                                ------------      ------------
                                                 (Unaudited)

Furniture and fixtures ....................     $      2,138      $      2,138
Equipment .................................          106,857            54,067
Software and website development costs ....          159,633           134,955
Leasehold improvements ....................           12,171            12,171
                                                ------------      ------------

                                                     280,799           203,331
Less:  Accumulated depreciation ...........          (37,224)          (22,750)
                                                ------------      ------------

Property and equipment, net ...............     $    243,575      $    180,581
                                                ============      ============



                                       10
<PAGE>

ImproveNet capitalizes internally developed software and website development
costs in accordance with Statement of Position 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use" and Emerging Issues
Task Force 00-2, "Accounting for Web Site Development Costs." Capitalized costs
are amortized on a straight-line basis over the estimated useful life of the
software once it is available for use. The ongoing assessment of recoverability
of capitalized software development costs requires considerable judgment by
management with respect to estimated economic life and changes in software and
hardware technologies. During the three months ended March 31, 2005, we
capitalized a total of approximately $14,000 of internally developed software
and website development costs.

4.    ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

<TABLE><CAPTION>
                                                               March 31,    December 31,
                                                                 2005           2004
                                                              ----------     ----------
                                                              (Unaudited)
<S>                                                           <C>            <C>
Accrued compensation ....................................     $   13,729     $   15,665
Other current liabilities ...............................          9,213           --
                                                              ----------     ----------

Total accrued expenses and other current liabilities ....     $   22,942     $   15,665
                                                              ==========     ==========
</TABLE>

5.    LINE OF CREDIT

During September 2004 we entered into a line of credit for $100,000 with a
national banking association. Interest accrues on all funds advanced on the line
of credit at 1/4 point over the bank's prime lending rate. The maturity of the
line of credit facility is September 14, 2005, at which time the payment of all
outstanding principal and accrued interest is due. There is no penalty for
prepayment of outstanding amounts prior to maturity. We had secured our
obligation under the line of credit with the pledge of a certificate of deposit,
accordingly, $100,000 is classified as restricted cash on the accompanying
financial statements as of December 31, 2004. As of December 31, 2004, there was
approximately $62,000 outstanding on this line of credit. During the first
quarter of 2005, this line of credit was paid off and closed.

6.    FINANCING TRANSACTION

During June 2004, ImproveNet raised $1,050,000, from the sale of 10,500,000
Common Shares and three-year warrants to purchase 8,000,000 Common Shares at a
strike price of $0.15 per share in a private placement transaction to several
accredited investors (collectively, the "Investors"). The issuance was made
under applicable registration exemptions from both state and federal securities
laws including section 4(2) of the Securities Act of 1933, as amended. The
proceeds were allocated to the Common Shares and warrants based on the relative
fair value of each security at the time of issuance with $621,500 allocated to
the Common Shares and $428,500 allocated to the warrants. Due to the nature of
certain potential financial penalties related to registration rights granted to
the Investors, the most substantive of which would require ImproveNet to rescind
the transaction at the option of the Investors should the applicable
registration statement not be declared effective and remain effective by March
1, 2005, the shares of Common Stock were initially classified outside of equity
as mezzanine financing and the warrants to purchase Common Stock were initially
classified as a liability. During October 2004, the Common Shares and warrants
became fully registered, at which time the amounts were reclassified to equity.
Prior to the registration statement being declared effective, changes in the
fair value of the warrants were recognized as other income in our statement of
operations. Changes in the fair value of the warrants resulted in other income
of approximately $162,000 recognized during 2004. In connection with the private
placement transaction, we granted the right to designate a nominee to our Board
of Directors to one of the Investors.

As part of the financing transaction described above, the Investors also
purchased 1,500,000 Common Shares from affiliates of three of our officers and
directors for an aggregate purchase price of $150,000. Each of these three
selling parties entered into a lock-up agreement restricting future sales of
their common stock for a specified period, as well as a voting agreement
regarding the accredited investor's designated nominee to our Board of
Directors.

Separately, during June 2004 holders of $370,000 of principal of our 8.0%
convertible promissory notes (the "Converting Investors") elected to convert the
then outstanding principal and interest to Common Shares and warrants on similar
terms to the private placement offering described above. The conversion resulted
in the issuance of 3,707,400 Common Shares and three-year warrants to

                                       11
<PAGE>

purchase 2,466,666 Common Shares at a strike price of $0.15 per share. Due to
the modified conversion terms associated with this conversion, we recognized a
charge in the amount of approximately $695,000. The remaining $30,000 of the
then outstanding principal of the 8.0% convertible promissory notes, which was
with affiliates of ImproveNet, was repaid in the second quarter of 2004.

7.    COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

From time to time, we may be involved in litigation relating to claims arising
out of, or incidental to, our operations. We are currently engaged in various
legal proceedings that are incidental to our business that could materially
affect our business should an adverse judgment be entered against us. We intend
to vigorously defend these claims and expect to prevail in all cases. In
connection with the defense of these claims and the settlement of previous
claims, we have accrued approximately $60,000 and $66,000 as of March 31, 2005
and December 31, 2004, respectively, which represents our best estimate of
future costs associated with these claims.

One arbitration matter in Phoenix, Arizona involved First Systech International,
Inc., a predecessor to eTechLogix, our wholly-owned subsidiary. This proceeding
concerns the 1998 sale of an Enterprise Resource Planning software product to a
former client who demanded a refund of the purchase price. The matter was before
an arbitrator who entered an award against First Systech for $116,886 plus
simple interest at 10% per year. First Systech International reached agreement
with Friedman Corporation ("Friedman") pursuant to terms and conditions of a
Repayment and Security Agreement effective May 25, 2004 (the "Agreement") which
finalizes a payment plan for First Systech International's obligations for the
arbitration award that Friedman has paid. The final amount owed under the
Agreement is approximately $182,000 with interest accruing at 8% per annum from
April 2, 2004 and attorney's fees incurred by Friedman in the minimum amount of
$4,500 and not to exceed $10,000 as set forth therein. Payments of $5,000 per
month commenced June 20, 2004, increased to $10,000 per month on November 20,
2004 and are scheduled to increase to $12,500 per month during June 2005.
Following the June 2005 increase, payments will remain at $12,500 per month
until the balance is paid in full. Pursuant to provisions of the Agreement,
First Systech International has granted a security interest and lien on all of
its assets to secure performance of its obligations under the Agreement. First
Systech International continues to maintain ownership of all of the assets that
it has pledged. As of March 31, 2005, a total of approximately $118,000 was due
under the terms of this agreement and is included in "Liabilities of
discontinued operations" on the accompanying balance sheets.

OTHER CONTRACTUAL ARRANGEMENTS

During September 2004 we entered into an exclusive licensing agreement for the
use of the phone number and website domain name related to "1-800-Contractor"
(the "Licensed Property"). The licensor receives a percentage of the gross
revenue collected from our use of the Licensed Property, payable on a monthly
basis during the term of the licensing agreement, which is subject to annual
minimum payments to the licensor. Improvenet also has an option to purchase the
Licensed Property. The term of the licensing agreement is for 100 years subject
to the following early termination provisions: ImproveNet may terminate the
licensing agreement at our election or upon exercise of our option to purchase
the Licensed Property. The licensor may terminate the licensing agreement for
(i) ImproveNet's failure to make required payments timely, (ii) ImproveNet's
failure to comply with its obligations under the licensing agreement after
written notice of such failure or (iii) the proper revocation or suspension of
ImproveNet's authority to do business in its state of incorporation or the state
where our principal office is located.

8.    CUSTOMER CARE CENTER SERVICE AGREEMENT

ImproveNet entered into an agreement with a third party service provider to
operate and manage our customer care center including the home improvement
service provider matching operation of our Home Improvement Information Services
Segment. The agreement was effective on December 23, 2002, had a term of two
years and was cancelable by ImproveNet with 90 days written notice or by the
service provider with 180 days written notice. The agreement called for us to
remit, on a weekly basis, 25% of collected revenues related to the home
improvement service provider matching function that the service provider managed
and operated. On a monthly basis, we were required to reconcile total revenue
related to the service agreement. We were required to pay the service provider
an additional 2.5% of monthly revenues in excess of $400,000 but less than
$500,000 and an additional 5% of revenues greater than $500,000. In January
2004, the service provider provided written notice to us of termination of the
services agreement. We staffed our Scottsdale, Arizona offices for the customer
care call center operations, and in March 2004 we transitioned our customer
service operations in-house.

                                       12
<PAGE>

In March 2004, we initiated litigation in Nova Scotia, Canada against the
Canadian corporation that had been operating our customer care center and
operations for the home improvement service provider matching service to enforce
and protect our rights under the services agreement regarding our proprietary
material. During March 2004, the Canadian court entered an order prohibiting the
Canadian corporation from utilizing, in any way, ImproveNet's proprietary
materials and from soliciting or contacting any ImproveNet home improvement
service provider for a specified period of time, which expired in June 2004.

9.    DISCONTINUED OPERATIONS

During the fourth quarter of 2004, the Board of Directors determined that our
principal focus going forward would be on ImproveNet's core lead matching
service and the products and services that compliment it. This decision was
based on a number of factors, which include, but are not limited to, the
opportunities in the Internet home improvement industry. Based on this decision,
we have entered into an agreement during the first quarter of 2005 to dispose of
substantially all of the operations of eTechLogix. An agreement has been
executed with a third party for the anticipated disposition and is expected to
close in the near future. Accordingly, the operations of eTechLogix, which had
been classified as a separate operating segment in previous filings, have been
classified as discontinued operations for all periods presented in these
financial statements. The assets and liabilities of eTechLogix are presented in
the Balance Sheets under the captions "Assets of discontinued operation" and
"Liabilities of discontinued operations." The carrying amounts of the major
classes of these assets and liabilities as of March 31, 2005 and December 31,
2004 are summarized as follows:

                                                         2005           2004
                                                      ----------     ----------
Assets:
      Cash and cash equivalents .................     $       72     $     --
      Accounts receivable, net ..................          4,000         21,156
      Property and equipment, net ...............          1,984         14,107
                                                      ----------     ----------

      Assets of discontinued operations .........     $    6,056     $   35,263
                                                      ==========     ==========

Liabilities:
      Accounts payable ..........................     $     --       $   28,222
      Accrued litigation related costs ..........        187,446        214,724
      Line of credit ............................         57,984         60,081
      Deferred revenue ..........................         33,342         49,992
      Obligations under capital leases ..........          6,275         18,401
      Other accrued expenses ....................          6,000          4,679
                                                      ----------     ----------

      Liabilities of discontinued operations ....     $  291,047     $  376,099
                                                      ==========     ==========

Summarized statement of operations data for eTechLogix for the three months
ended March 31, 2005 and 2004 is as follows:

                                                         2005           2004
                                                      ----------     ----------

Revenue .........................................     $   62,478     $  168,625
Operating income ................................         12,867         26,632
Net income ......................................          9,709         22,125

eTechLogix recognizes revenue in accordance with SOP 97-2, "Software Revenue
Recognition." This SOP provides guidance on revenue recognition of software
transactions. eTechLogix recognizes revenue principally from the development and
licensing of its software and from consulting and maintenance services rendered
in connection with such development and licensing activities. Maintenance
contract revenue is recognized on a straight-line basis over the life of the
respective contract. eTechLogix also derives revenue from the sale of third
party hardware and software which is recognized based on the terms of each
contract. Consulting revenue is recognized when the services are rendered. No
revenue is recognized prior to obtaining a binding commitment from the customer.
Revenue from fixed price software development contracts, which require
significant modification to meet the customer's specifications, is recognized on
the percentage-of-completion method using the units-of-work-performed method to
measure progress towards completion. Revisions in cost estimates and recognition
of losses on these contracts are reflected in the accounting period in which the
facts become known. Revenue from software package license agreements without
significant vendor obligations is recognized upon delivery of the software.
Contract terms may provide for billing schedules that differ from revenue
recognition and

                                       13
<PAGE>

give rise to costs and estimated earnings in excess of billings on uncompleted
software contracts, and billings in excess of costs and estimated earnings on
uncompleted software contracts.

10.   RELATED PARTY TRANSACTIONS

Research and development
------------------------
We subcontract a portion of our research and development to companies wholly
owned by two of our officers. We incurred costs of approximately $21,000 and
$29,000 relative to these subcontracted services during the three months ended
March 31, 2005 and 2004, respectively. $12,000 and $27,000 have been included in
discontinued operations for the three months ended March 31, 2005 and 2004,
respectively.

Credit card use
---------------
To facilitate payments to certain vendors, we utilize credit cards held
personally by certain of our executive officers. ImproveNet has agreed to
indemnify these officers from any obligations arising from the use of these
credit cards for ImproveNet's business.

11.   CAPITAL LEASE OBLIGATIONS

Capital lease obligations
-------------------------
During the first quarter of 2005, we entered into various capital and operating
lease agreements for computers and computer equipment. A summary of future
minimum lease payments under these leases is as follows:

<TABLE><CAPTION>
                                                       CAPITAL      OPERATING
FOR THE YEAR ENDED MARCH 31,                           LEASES         LEASES         TOTAL
---------------------------------------------------------------------------------------------
<S>                                                  <C>            <C>            <C>
2006 ...........................................     $   16,932     $    6,983     $   23,915
2007 ...........................................         16,932          6,983         23,915
2008 ...........................................         16,932          5,238         22,170
2009 ...........................................         14,062           --           14,062
2010 ...........................................         12,600           --           12,600
                                                     ----------     ----------     ----------

Total future minimum lease payments ............         77,458     $   19,204     $   96,662
                                                                    ==========     ==========
Less:  amounts representing interest ...........         23,025
                                                     ----------

Present value of net minimum lease payments ....     $   54,433
                                                     ==========
</TABLE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

The following discussion should be read in conjunction with the Unaudited
Condensed Consolidated Financial Statements and Notes thereto included elsewhere
herein as well as our annual report on Form 10-KSB for the year ended December
31, 2004, as filed with the Securities and Exchange Commission, including the
factors set forth in the section titled "Factors That Might Affect Future
Results" under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

                                    OVERVIEW

HOME IMPROVEMENT INFORMATION SERVICES SEGMENT

We are a leading web-based home improvement services company that provides
matching services to homeowners and local screened home improvement service
providers throughout the United States. We were recognized by Money Magazine as
"Best of the Web" in 2003 under the Home Improvement Category and have been
featured nationally on the Today Show, MSNBC, CNNfn, CBS Marketwatch and locally
on many news networks and in newspapers. ImproveNet has been connecting
homeowners with local screened home improvement service providers since 1996.
Our website, www.improvenet.com, includes over 50,000 pages of content

                                       14
<PAGE>

and serves both homeowner and home improvement service providers including
architects, designers, builders and contractors to assist with the completion of
home improvement projects from start to finish. Our website also features
management tools, product showcases, visualizers, advice from experts and active
message boards targeting home improvement content.

                               SOURCES OF REVENUE

HOME IMPROVEMENT INFORMATION SERVICES SEGMENT

During the third quarter of 2004, we implemented a new subscription-based
pricing model for new home improvement service providers joining our service
provider membership network. The model currently offers three different levels
that home improvement service providers can choose from to accommodate their
financial and professional needs. Benefits of some levels include email (for
example, name@improvenetpro.com), a website, online advertisements with
ImproveNet affiliates, a personal toll free number with immediate access to a
dedicated customer care representative, screened and verified home improvement
leads, an online console to manage the user's profile and home improvement
project lead management.

These three levels currently consist of: (i) Standard membership - no monthly
fee; (ii) Professional membership - $29.99 monthly fee and (iii) Master
membership - $199.00 monthly fee. We charge our home improvement service
providers a fee for each lead that is provided through our service. Lead fees
currently charged to our home improvement service providers for each level of
membership are summarized as follows:

        Project Lead
        Budget Range              Standard        Professional     Master
        ------------              --------        ------------     ------
        $0 - $999                 $  10.00        $   7.00        $   5.00
        $1,000 - $4,999              15.00           10.00            8.00
        $5,000 - $9,999              32.00           25.00           16.00
        $10,000 - $24,999            65.00           50.00           32.00
        $24,000 - $50,000           100.00           75.00           50.00
        Over $50,000                120.00          100.00           60.00

Home improvement service providers who were part of our network prior to our
implementation of the subscription based pricing model and who have elected to
remain on our previous plan continue to utilize our service with no monthly fee,
however, these service providers are subject to "win" fees on all home
improvement projects obtained through the use of our services. These win fees
are based on a percentage of the total home improvement project value. Lead fees
and win fees currently charged for these service providers are summarized as
follows:

          Project Lead                            Lead           Win
          Budget Range                             Fee           Fee
        -----------------                       ---------     ---------
        $0 - $999                               $    --          7.0%
        $1,000 - $4,999                             10.00        5.0%
        $5,000 - $9,999                             25.00        2.0%
        $10,000 - $24,999                           50.00        2.0%
        $25,000 - $50,000                           75.00        2.0%
        Over $50,000                               100.00        2.0%

We believe that the subscription based pricing structure will result in a more
consistent cash flow stream as we will generate a flat monthly fee from many of
the home improvement service providers using our service while continuing to
generate revenue based on the quantity of leads sold. Additionally, we are
collecting payments from service providers participating in the subscription
based pricing model via credit card or ACH charges, which differs from the
previous model whereby we billed service providers for leads sold and win fees
earned and collected these charges at a later date. We believe charging our
customers at the time of sale will have a positive impact on collections and
will decrease the number of days our sales are outstanding. We plan to convert
all home improvement service providers that are part of our network to the
subscription model over the next two quarters.

SOFTWARE DEVELOPMENT AND SALES SEGMENT

During the fourth quarter of 2004, the Board of Directors determined that our
principal focus going forward would be on ImproveNet's core lead matching
service and the products and services that compliment it. This decision was
based on a number of factors, which include, but are not limited to, the
opportunities in the Internet home improvement industry discussed elsewhere in
this document. Based on this decision, we have actively pursued, during the
first quarter of 2005, disposition of substantially all of the operations of
eTechLogix. An agreement has been executed with 2020 Technologies International,
Inc. for the anticipated disposition and is expected to close in the near
future. Accordingly, the operations of eTechLogix, which had been classified as
a separate operating segment in previous filings, have been classified as
discontinued operations for all periods presented in the financial

                                       15
<PAGE>

statements included in this filing and in any financial data presented elsewhere
herein.

                      ADDITIONAL PLANNED SOURCES OF REVENUE

During the third quarter of 2004, we commenced development of two new
initiatives that are aimed at augmenting our home improvement information
services segment. These initiatives include a project known as "AdServe" and the
development of the 1-800-Contractor telephone number and corresponding
1800Contractor.com website. We currently plan to go live with both AdServe and
1-800-Contractor over the next two to three quarters. Information on these
initiatives is summarized as follows:

ADSERVE

During the first half of 2005, we intend to offer a highly targeted advertising
program known as "AdServePRO" to businesses searching to promote their products
and services to consumers and service providers in the home improvement
industry. Advertisers will have the ability to feature their products and
services as paid listings in their choice of ImproveNet's marketing channels,
such as emails, newsletters and the web pages of ImproveNet.com,
ImproveNetPro.com and 1800Contractor.com. Each month ImproveNet reaches hundreds
of thousands of homeowners and home improvement service providers. Through our
touch points, businesses can strategically position their products and services
in front of their target buying groups during the time the consumer or service
provider is searching for, or ready to purchase, home improvement products and
services. AdServePRO's technology is intended to be a user-friendly web-based
application that will allow advertisers to manage their accounts online, from
setting up their campaign, creating the message, choosing their target audience
and setting the amount they wish to invest in their advertising program.

1-800-CONTRACTOR

During September 2004 we entered into an exclusive licensing agreement for the
use of the phone number and website domain name related to "1-800-Contractor"
(the "Licensed Property"). The licensor receives a percentage of the gross
revenue collected from our use of the Licensed Property, payable on a monthly
basis during the term of the licensing agreement, which is subject to annual
minimum payments to the licensor. Improvenet also has an option to purchase the
Licensed Property. The term of the licensing agreement is for 100 years subject
to the following early termination provisions: ImproveNet may terminate the
licensing agreement at our election or upon exercise of our option to purchase
the Licensed Property. The licensor may terminate the licensing agreement for
(i) ImproveNet's failure to make required payments timely, (ii) ImproveNet's
failure to comply with its obligations under the licensing agreement after
written notice of such failure or (iii) the proper revocation or suspension of
ImproveNet's authority to do business in its state of incorporation or the state
where our principal office is located.

Through the licensing of the 1800Contractor.com web property (domain names), the
1-800-Contractor (1-800-266-8722) telephone number and associated service marks,
we intend to launch a new division of ImproveNet that will compliment the
existing ImproveNet home improvement information services segment by
supplementing the online home improvement service provider lead generation
service with an online and offline resource for homeowners to find and research
local repair and installation contractors via the internet or telephone.

During December 2004, we launched a new division of ImproveNet through the
licensing of the 1-800-Contractor (1-800-266-8722) telephone number, the
1800Contractor.com web property (domain names) and associated service marks.
This division will compliment our existing ImproveNet home improvement
information services by supplementing the online home improvement lead
generation service with an online and offline resource for homeowners to find
and research local contractors via the Internet or telephone.

Following the launch of 1-800-Contractor, service providers joining the
ImproveNet network in 2005 pay an additional flat monthly fee to be listed in
the 1-800-Contractor directory in addition to the monthly subscription fees
discussed above in the "Home Improvement Information Services" segment. ProPLUS
and Pro 1-800-Contractor members are able to purchase leads at the ImproveNet
Professional rates shown above, while Standard 1-800-Contractor members are
offered leads at the Standard rates shown above in the "Home Improvement
Information Services" segment. New service providers joining the ImproveNet
network and 1-800-Contractor directory in 2005 pay monthly subscription fees as
follows:

                                       16
<PAGE>

      Standard ....................................................     $   9.99
      Pro .........................................................        39.99
      ProPlus .....................................................        79.99
      Master (ProPlus status in the 1-800-Contractor directory ....       199.99

                            COST OF REVENUE STRUCTURE

HOME IMPROVEMENT INFORMATION SERVICES

Our cost of revenue primarily includes the cost of procuring leads and costs
associated with lead qualification. We procure home improvement leads by use of
the following methods: (i) Homeowners visiting our ImproveNet.com website and
submitting a home improvement project lead; (ii) Search engines including Google
and Overture; (iii) Lead generator service providers; (iv) Utilization of
affiliate programs with other home improvement related websites and (v) Search
engine optimization ("SEO") partners. We do not incur any costs related to
homeowner submissions made directly to our ImproveNet.com website. We pay fees
to search engines based on the number of times internet users click on a paid
advertising link to the ImproveNet.com website. Fees paid to lead generator
service providers, affiliates and SEO partners are based on the quantity and
quality of leads provided.

The lead qualification process includes an analysis of the information provided
from the homeowner to ensure that the information is correct. For larger home
improvement project submissions, this process includes verbally confirming the
information relative to the project directly with the homeowner.

              SELLING, GENERAL AND ADMINISTRATIVE EXPENSE STRUCTURE

Our selling, general and administrative expense primarily consists of payroll
and related costs and, prior to bringing our customer care center in-house
during March 2004, included the cost of outsourcing our sales, collections and
new member recruiting functions. Selling, general and administrative expense
also includes bad debt charges, rent, travel, recruiting, professional and
advisory services, marketing and advertising, depreciation and other general
overhead expenses.

                    FACTORS THAT MIGHT AFFECT FUTURE RESULTS

As discussed above, we are in the process of developing AdServe and the
1-800-Contractor telephone number and corresponding website. We intend to make a
significant investment in both of these initiatives. If these initiatives are
not positively accepted by the marketplace or if we are unable to support both
or either of these initiatives, it would have a material adverse impact on our
operations and available cash flow.

    RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

Our consolidated results of operations for the three months ended March 31, 2005
and 2004 is as follows:

<TABLE><CAPTION>
                                              Three months ended March 31,
                                    ---------------------------------------------------                     Percentage
                                             2005                        2004                   Change        Change
                                    ----------------------       ----------------------       ----------      ------
<S>                                 <C>              <C>         <C>              <C>         <C>               <C>
Revenue .......................     $  868,853       100.0%      $  711,382       100.0%      $  157,471        22.1%
Cost of revenue ...............        387,191        44.6%         276,848        38.9%         110,343        39.9%
                                    ----------      ------       ----------      ------       ----------      ------

Gross profit ..................        481,662        55.4%         434,534        61.1%          47,128        10.8%
Selling, general and
    administrative expense ....        828,319        95.3%         454,616        63.9%         373,703        82.2%
                                    ----------      ------       ----------      ------       ----------      ------

Loss from operations ..........     $ (346,657)      (40.0%)     $  (20,082)       (2.8%)     $ (326,575)     1626.2%
                                    ==========      ======       ==========      ======       ==========      ======
</TABLE>
                                       17
<PAGE>

REVENUE

A summary of our revenue for the three months ended March 31, 2005 and 2004 is
as follows:

<TABLE><CAPTION>
                                                   Year ended March 31,
                                    ---------------------------------------------------                     Percentage
                                             2005                        2004                   Change        Change
                                    ----------------------       ----------------------       ----------      ------
<S>                                 <C>              <C>         <C>              <C>         <C>               <C>
Lead fees ......................    $  664,845        76.6%      $  528,112        74.2%      $  136,733        25.9%
Subscription fees ..............       121,610        14.0%            --                        121,610         N/A
Win fees .......................        62,016         7.1%         172,670        24.3%        (110,654)     -64.1%
Marketing and other revenue ....        20,382         2.3%          10,600         1.5%           9,782        92.3%
                                    ----------      ------       ----------      ------       ----------      ------

                                    $  868,853       100.0%      $  711,382       100.0%      $  157,471        22.1%
                                    ==========      ======       ==========      ======       ==========      ======
</TABLE>

Revenue was approximately $869,000 and $711,000 for the three months ended March
31, 2005 and 2004, respectively, an increase of $158,000 or 22.1%. The increase
in revenue for the three months ended March 31, 2005, as compared to the same
period in the prior year, is due to increased lead sales and subscription fees
from the subscription based pricing model, offset by a decline in win fees. We
anticipate win fees to continue to decline as a percentage of revenue and
subscription fees to increase as a percentage of revenue in the future as more
new contractors are established, and existing contractors are converted to the
subscription based pricing model.

Overall, there was little impact on lead revenue as a result of lead pricing
changes associated with our adoption of the subscription based pricing model in
the third quarter of 2004. Fluctuations in lead revenue on a period over period
basis are primarily the result of net lead revenue sales volume increases.

COST OF REVENUE

Cost of revenue was approximately $387,000 and $277,000 for the three months
ended March 31, 2005 and 2004, respectively, an increase of $110,000 or 39.9%.
As a percentage of revenue, cost of revenue was 44.6% and 38.9% for the three
months ended March 31, 2005 and 2004, respectively. The increase in cost of
revenue as a percentage of revenue is due to higher costs associated with
procuring leads from lead generators. The overall increase in cost of revenue
for the three months ended March 31, 2005, as compared to the same period in the
prior year was due to increased costs related to lead generators and affiliates
of 45.7% and increased costs of qualifying leads internally of 9.8%, offset by
decreased costs associated with leads procured from search engines of 6.8% and a
decrease in costs from our previous customer care service provider of 8.8%.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

Consolidated selling, general and administrative expense was approximately
$828,000 and $455,000 for the three months ended March 31, 2005 and 2004,
respectively, an increase of $373,000 or 82.2%. Since the time of the move of
our customer care center operations to our office in Scottsdale, Arizona in late
March 2004, we have increased personnel, made enhancements to our infrastructure
and expended other resources to support those operations. Much of this increase
is reflected in our selling, general and administrative expenses in the areas of
payroll expense, office overhead, professional services, IT facilities
maintenance, and programming expense from personnel employed with our wholly
owned subsidiary, eTechLogix. In addition our bad debt expense has increased.
The increase in payroll expense and bad debt expense was approximately $321,000
during the three months ended March 31, 2005 versus the same period in the
previous year. Increases in payroll expense and bad debt expense increased
selling, general and administrative expense 60.8% and 9.7%, respectively.

During March 2004, we staffed our Scottsdale, Arizona office to operate all
customer care call center functions including lead qualification, service
provider support and collections. Prior to this, these functions had been
performed by a third party service provider.

OTHER INCOME (EXPENSE)

Other income (expense) is summarized as follows:

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<PAGE>

                                                  Three Months Ended
                                                       March 31,
                                              --------------------------
                                                 2005            2004
                                              ----------      ----------

Interest income .........................     $    1,623      $      607
Interest expense and financing costs ....         (2,667)         (8,267)
Miscellaneous income ....................            501           9,201
                                              ----------      ----------

                                              $     (543)     $    1,541
                                              ==========      ==========

Interest income
---------------
Interest income increased for the three months ended March 31, 2005 versus the
same period in the prior-year due to higher amounts of interest bearing
investments during the current period.

Interest expense and financing costs
------------------------------------
Interest expense and financing costs decreased during the three months ended
March 31, 2005 versus the same period in the prior year as a result of higher
interest expense associated with the 8% convertible promissory notes in the
first quarter 2004.

Miscellaneous income
--------------------
Miscellaneous income decreased for the three months ended March 31, 2005 versus
the same period in the prior-year as the result of fewer non-operating
activities.

LIQUIDITY AND CAPITAL RESOURCES

Our principal capital requirements are to fund capital expenditures, which
includes expenditures related to the development and implementation of AdServe
and 1-800-Contractor, which were discussed previously herein. The significant
source of liquidity is cash on hand. Net working capital was approximately
negative $346,000 versus approximately $3,000, including restricted cash, as of
March 31, 2005 and December 31, 2004, respectively. The decrease in working
capital was primarily attributable to a decrease in cash and cash equivalents.

Due to the significant level of current liabilities and the history of operating
losses, there is no assurance that our available cash resources will be
sufficient to meet our anticipated needs for operations and capital expenditures
during the next 12 months. We will strive to make ongoing realignments, if
required, to achieve positive cash flow with our existing cash resources. If
results of operations for 2005 do not meet our expectations we may need to raise
additional funds, to develop new or enhance existing services, to respond to
competitive pressures, or to acquire complementary businesses, services or
technologies. If we raise additional funds by selling equity securities, the
percentage ownership of our stockholders will be reduced. We cannot be sure that
additional financing will be available on terms favorable to us, or at all. If
adequate funds were not available on acceptable terms, our ability to fund
expansion, react to competitive pressures, or take advantage of unanticipated
opportunities would be substantially limited. If this occurred, our business
would be significantly harmed. We will continue to evaluate our needs for funds
based on our assessment of access to public or private capital markets and the
timing of our need for funds. We may seek to raise these additional funds
through private or public debt or equity financings.

FINANCING TRANSACTION

During June 2004, ImproveNet raised $1,050,000, from the sale of 10,500,000
Common Shares and three-year warrants to purchase 8,000,000 Common Shares at a
strike price of $0.15 per share in a private placement transaction to several
accredited investors (collectively, the "Investors"). The proceeds were
allocated to the Common Shares and warrants based on the relative fair value of
each security at the time of issuance with $621,500 allocated to the Common
Shares and $428,500 allocated to the warrants. Due to the nature of certain
potential financial penalties related to registration rights granted to the
Investors, the most substantive of which would require ImproveNet to rescind the
transaction at the option of the Investors should the applicable registration
statement not be declared effective and remain effective by March 1, 2005.
Initially, the shares of Common Stock were classified outside of equity as
mezzanine financing and the warrants to purchase Common Stock were classified as
a liability. The Common Shares and warrants continued to be classified in such
manner until such registration statement was declared effective on October 26,
2004, at which time the amounts were reclassified to equity. Prior to the
registration statement being declared effective, changes in the fair value of
the warrants were recognized as other income or expense in our statement of
operations. We recognized additional other income during

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<PAGE>

the fourth quarter of 2004 of approximately $75,000 as a result of changes in
the fair value of the warrants during the fourth quarter of 2004 prior to the
registration statement being declared effective. In connection with the sale, we
granted the right to designate a nominee to our Board of Directors to one of the
Investors.

As part of the financing transaction described above, the Investors also
purchased 1,500,000 Common Shares from affiliates of three of our officers and
directors for an aggregate purchase price of $150,000. Each of these three
selling parties entered into a lock-up agreement restricting future sales of
their common stock for a specified period as well as a voting agreement
regarding the accredited investor's designated nominee to our Board of
Directors.

Separately, during June 2004 holders of $370,000 of principal of our 8.0%
convertible promissory notes (the "Converting Investors") elected to convert the
then outstanding principal and interest to Common Shares and warrants on similar
terms to the private placement offering described above. The conversion resulted
in the issuance of 3,707,400 Common Shares and three-year warrants to purchase
2,466,666 Common Shares at a strike price of $0.15 per share. Due to the
modified conversion terms associated with this conversion, we recognized a
charge in the amount of approximately $695,000. The remaining $30,000 of the
then outstanding principal of the 8.0% convertible promissory notes, which was
with affiliates of ImproveNet, was repaid in the second quarter of 2004.

LINE OF CREDIT

During September 2004 we entered into a line of credit for $100,000 with a
national banking association. Interest accrues on all funds advanced on the line
of credit at 1/4 point over the bank's prime lending rate. The maturity of the
line of credit facility is September 14, 2005, at which time the payment of all
outstanding principal and accrued interest is due. There is no penalty for
prepayment of outstanding amounts prior to maturity. We have secured our
obligations under the line of credit with the pledge of a certificate of
deposit. As of December 31, 2004, there was approximately $62,000 outstanding on
this line of credit. During the first quarter of 2005, this line of credit was
paid off and closed.

EQUITY ISSUANCE

The following table summarizes ImproveNet's Common Share issuances during the
three months ended March 31, 2005:

<TABLE><CAPTION>
                                                                             Number of
                                                                           Common Shares
                                                                           -------------
<S>                                                                              <C>
Stock based compensation of consultants, employees and directors .....           122,321
                                                                           -------------

Common Shares issued during the three months ended March 31, 2005 ....           122,321
                                                                           =============
</TABLE>

CASH FLOWS

The following discussion relates to the major components of the changes in cash
flows for the three months ended March 31, 2005 and 2004.

CASH FLOW USED IN OPERATING ACTIVITIES

Cash flow used in operating activities was approximately $188,000 for the three
months ended March 31, 2005 and 2004, respectively. The cash used in operating
activities in the current quarter reflects the changes in the operating assets
and liabilities.

CASH FLOW USED IN INVESTING ACTIVITIES

Cash flow used in investing activities was approximately $25,000 and $12,000 for
the three months ended March 31, 2005 and 2004, respectively. The increase in
cash used in investing activities is primarily due to the development and
enhancement of our existing software systems and the purchase of equipment and
development of software to implement AdServe. We intend to finance expenditures
related to the AdServe and 1-800-Contractor initiatives through currently
available cash on hand and the issuance of additional debt and / or equity
securities if necessary.

                                       20
<PAGE>

CASH FLOW FROM FINANCING ACTIVITIES

Cash flow provided by financing activities was approximately $37,000 and $0 for
the three months ended March 31, 2005 and 2004, respectively. The increase in
cash flow from financing activities is due to the change in restricted cash and
cash equivalents, offset by payments to the line on credit.

OFF-BALANCE SHEET FINANCING

We have no off-balance sheet debt or similar obligations nor do we have any
transactions or obligations with related parties that are not disclosed,
consolidated into or reflected in our reported results of operations or
financial position. We do not guarantee any third party debt.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q contains certain "forward-looking statements" within the meaning
of Section 21E of the Securities Exchange Act of 1934. Some of these
forward-looking statements include forward-looking phrases such as
"anticipates," "believes," "could," "estimates," "expects," "foresees,"
"intends," "may," "should" or "will continue," or similar expressions or the
negatives thereof or other variations on these expressions, or similar
terminology, or discussions of strategy, plans or intentions. These statements
also include descriptions in connection with, among other things our anticipated
implementation of the AdServe and 1-800-Contractor initiatives, as well as the
conversion of all home improvement service providers to the subscription based
pricing model.

Such statements reflect our current views regarding future events and are
subject to certain risks, uncertainties and assumptions. Many factors could
cause the actual results, performance or achievements to be materially different
from any future results, performance or achievements that forward-looking
statements may express or imply, including, among others:

o changes in inflation;

o changes in regulations affecting our business and costs of compliance;

o the outcome of pending legal claims against us;

o our ability to implement our corporate strategy;

o changes in the economic conditions and competition in the markets that we
  conduct business in;

o changes in general business and economic conditions and in the financial
  markets; and

o changes in accounting standards or pronouncements.

Some of these factors are discussed in more detail in our annual report on Form
10-KSB, as filed with the Securities and Exchange Commission for the year ended
December 31, 2004, including those under Item 1. of the annual report,
"Description of Business -- Factors Affecting Future Performance, Results of
Operation and Financial Condition," as well as those factors discussed in our
Form SB-2 filed on October 26, 2004 with the Securities and Exchange Commission
under the heading "Risk Factors." If one or more of these risks or uncertainties
affects future events and circumstances, or if underlying assumptions do not
materialize, actual results may vary materially from those described in this
Form 10-QSB and our annual report as anticipated, believed, estimated or
expected, and this could have a material adverse effect on our business,
financial condition and the results of our operations. Further, any
forward-looking statement speaks only as of the date on which it is made, and
except as required by law we undertake no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which it is made or to reflect the occurrence of anticipated or unanticipated
events or circumstances.

ITEM 3.  CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES/EVALUATION OF DISCLOSURE CONTROLS AND
PROCEDURES

As of the end of the period covered by this report, we carried out an evaluation
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 this evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were adequate and

                                       21
<PAGE>

effective and designed to ensure that material information relating to us
(including our consolidated subsidiary) required to be disclosed by us in the
reports we file under the Exchange Act is recorded, processed, summarized and
reported within the required time periods.

CHANGES IN INTERNAL CONTROLS

During the period covered by this filing, there have been no changes in our
internal control over financial reporting 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

From time to time, we may be involved in litigation relating to claims arising
out of, or incidental to, our operations. We are currently engaged in various
legal proceedings that are incidental to our business that could materially
affect our business should an adverse judgment be entered against us. We intend
to vigorously defend these claims and expect to prevail in all cases.

One arbitration matter in Phoenix, Arizona involved First Systech International,
Inc., a predecessor to eTechLogix, our wholly-owned subsidiary. This proceeding
concerns the 1998 sale of an Enterprise Resource Planning software product to a
former client who demanded a refund of the purchase price. The matter was before
an arbitrator who entered an award against First Systech for $116,886 plus
simple interest at 10% per year. First Systech International reached agreement
with Friedman Corporation ("Friedman") pursuant to terms and conditions of a
Repayment and Security Agreement effective May 25, 2004 (the "Agreement") which
finalizes a payment plan for First Systech International's obligations for the
arbitration award that Friedman has paid. The final amount owed under the
Agreement is approximately $182,000 with interest accruing at 8% per annum from
April 2, 2004 and attorney's fees incurred by Friedman in the minimum amount of
$4,500 and not to exceed $10,000 as set forth therein. Payments of $5,000 per
month commenced June 20, 2004, increased to $10,000 per month on November 20,
2004 and are scheduled to increase to $12,500 per month during June 2005.
Following the June 2005 increase, payments will remain at $12,500 per month
until the balance is paid in full. Pursuant to provisions of the Agreement,
First Systech International has granted a security interest and lien on all of
its assets to secure performance of its obligations under the Agreement. First
Systech International continues to maintain ownership of all of the assets that
it has pledged.

ITEM 2.  CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
         SECURITIES

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.  OTHER INFORMATION

None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS --

Exhibit 31.1 --    Section 302 Certification of Jeffrey I. Rassas, Chief
                   Executive Officer

Exhibit 31.2 --    Section 302 Certification of Homayoon J. Farsi, Acting Chief
                   Financial Officer

Exhibit 32.1 --    Section 1350 Certification of Jeffrey I. Rassas, Chief
                   Executive Officer

                                       22
<PAGE>

Exhibit 32.2 --    Section 1350 Certification of Homayoon J. Farsi, Acting Chief
                   Financial Officer

(b) REPORTS ON FORM 8-K DURING THE QUARTER ENDED MARCH 31, 2005:

On January 25, 2005, we filed a current report on Form 8-K to announce the
resignation of Ronald B. Cooper from ImproveNet's Board of Directors. No
appointment or election of a replacement for Mr. Cooper has been made.

On March 25, 2005, we filed a current report on Form 8-K to announce the
resignation of James R. Schroepfer as ImproveNet's Chief Financial Officer.
Homayoon J. Farsi, ImproveNet's President and a director, assumed the duties of
Acting Chief Financial Officer while the Company actively seeks a permanent
Chief Financial Officer.

On April 8, 2005, we filed a current report on Form 8-K to announce execution of
a sales agreement between eTechLogix, Inc., our wholly owned subsidiary, and
2020 Technologies International, Inc. for the intangible assets and certain
property and assets of Etech, including its SmartFusion software line and
contracts and service and support agreements relative thereto which are held by
Etech along with the obligation to provide some limited knowledge transfer
services to 2020 for the software.

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, ImproveNet,
Inc. has duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.

Date: May 20, 2005
                            By: /s/ JEFFREY I RASSAS
                  _____________________________________________
                                Jeffrey I Rassas
                             CHIEF EXECUTIVE OFFICER

                            By: /s/ HOMAYOON J. FARSI
                  _____________________________________________
                                Homayoon J. Farsi
                         ACTING CHIEF FINANCIAL OFFICER











                                       23
<PAGE>

                                  EXHIBIT INDEX

      EXHIBIT NO.                                        DESCRIPTION

      Exhibit 31.1   --   Section 302 Certification of Jeffrey I. Rassas, Chief
                          Executive Officer

      Exhibit 31.2   --   Section 302 Certification of Homayoon J. Farsi, Acting
                          Chief Financial Officer

      Exhibit 32.1   --   Section 1350 Certification of Jeffrey I. Rassas, Chief
                          Executive Officer

      Exhibit 32.2   --   Section 1350 Certification of Homayoon J. Farsi,
                          Acting Chief Financial Officer


































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