While goodwill is not amortized, it is subject to periodic reviews for impairment (at least annually, or more frequently if impairment indicators arise). We review goodwill for impairment periodically and whenever events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. Such impairment reviews are performed at the entity level with respect to goodwill, as we have one reporting unit. Under those circumstances, if the fair value were less than the carrying amount of the entity, further analysis would be required to determine whether or not a loss would need to be charged against current period earnings. During the fourth quarter of 2005, the Company experienced declining revenues from life insurance sales and a drop in the market price of its common stock. Our annual impairment review was conducted as of December 31, 2005, and it was determined that an impairment existed. The determination of fair value and the impairment are based on a combination of the market price of our common stock and a discounted cash flow analysis based on estimates and assumptions including the amount and timing of future cash flows and future interest rates. The use of different estimates or assumptions could produce different results. As a result of this impairment determination, the Company recorded an impairment charge against earnings in the fourth quarter of 2005 amounting to $3.75 million.
The insurance industry has come under a significant level of scrutiny by various regulatory bodies with respect to contingent commission arrangements and other matters. The New York Attorney General has issued subpoenas to numerous insurance brokers related to an inquiry into market service agreements and other similar agreements, which compensate brokers for distribution and other services provided to insurance carriers. Additionally, some state regulators are also investigating these types of agreements, and we have received a subpoena from the Illinois Department of Financial and Professional Regulation, Division of Insurance, seeking information regarding these types of arrangements. It appears that these investigations could have far-reaching consequences in the insurance industry. For example, Marsh & McLennan Companies, Inc., Willis Group Holdings Ltd., Aon Corporation and Arthur J. Gallagher, four of the largest insurance brokerage firms in the industry, have each announced that they will no longer accept contingent commissions. Certain of these brokerage firms have entered into agreements with various regulators and attorneys general to resolve issues related to investigations of those firms. In addition, the departments of insurance for various states have proposed new regulations, and other state insurance departments have indicated that they will propose new regulations, that address contingent commission arrangements, including prohibitions involving the payment of money by insurance carriers in return for steering business and enhanced disclosure of contingent commission arrangements to insureds. On December 29, 2004, the National Association of Insurance Commissioners announced that it has proposed model legislation to implement new disclosure requirements related to broker compensation arrangements.
On February 1, 2006, we announced that we were consolidating our call center operations by closing our Colorado call center. Approximately 35 sales and service jobs at the Colorado facility were eliminated and all telephone sales and service activities have been consolidated into the Company’s Darien, IL home office call center effective February 1, 2006. First quarter 2006 expenses related to the closing are estimated to be approximately $200,000. The office building owned by the Company in Colorado is currently being offered for sale and for lease.
Revenues increased $1.2 million, or 7%, to $17.1 million in 2005 from $15.9 million in 2004. The components of revenue are as follows:
Life insurance commissions increased $1.2 million, or 9%. Sales of life insurance by telephone increased $3.2 million, primarily due to the May 2004 acquisition of Life Quotes, Inc., which provided us with a phone sales capability. Sales of life insurance at our website declined $2.2 million, as we directed a significant portion of our advertising in 2005 toward supporting the phone sales center. An increase in renewal commission of $200,000 accounted for the remainder of the increase in life insurance commissions. This increase in revenue was achieved despite a drop in the number of life insurance policies sold to 16,845 in 2005 from 17,485 in 2004, a decrease of 4%, as our average total commission per policy sold increased. Commission from health insurance decreased 41% in 2005, as we discontinued brokerage sales for health insurance during the first quarter of 2005, and are now outsourcing this business to third parties. As a result, total health insurance policies sold decreased 90% to 315 in 2005 from 3,236 in 2004. Fees from the sale of internet leads for lines of insurance other than life increased 24% to $2 million in 2005, resulting from higher revenue from the sale of auto insurance traffic as well as new revenue from the sale of health insurance traffic.
We recorded goodwill in the amount of $6.9 million in connection with our May 2004 acquisition of certain assets of Life Quotes, Inc. While goodwill is not amortized, it is subject to periodic reviews for impairment (at least annually, or more frequently if impairment indicators arise). As discussed earlier, the Company recorded an impairment charge against earnings in the fourth quarter of 2005 amounting to $3.75 million.
Life insurance commissions increased $6.3 million, or 90%, with $5.4 million of the increase resulting from the operations of our new Life Quotes division. Commissions from health insurance increased 1% in 2004. Total life and health insurance policies sold increased 31% to 20,721 in 2004 from 15,856 in 2003. The Life Quotes operation accounted for approximately 6,900 paid policies in 2004. Revenue from the sale of internet leads for lines of insurance other than life decreased 6% to $1.6 million in 2004, resulting from less traffic being directed to partners’ web sites.
Selling and Marketing. Selling and marketing expenses increased $2.1 million, or 45%, in 2004 when compared with 2003, to a total of $6.9 million. We have increased our advertising spending since the acquisition of Life Quotes in May 2004, in order to maintain lead flow to our telephone sales staff. However, selling and marketing expenses have dropped to 43% of revenue in 2004, compared with 49% of revenue in 2003.
Interest income, net was $138,000 in 2004 compared to $368,000 in 2003. The components of interest income are as follows:
Interest income declined due to a smaller portfolio of invested assets in 2004, resulting from the use of assets to acquire Life Quotes. Interest expense increased in 2004 due to a short term loan that was used to assist in the acquisition of Life Quotes.
There were also net realized losses on the sale of securities of $45,000 in 2004. These securities were sold to raise funds for the Life Quotes acquisition. There were net realized gains on the sale of securities of $92,000 in 2003.
Cash provided by operating activities was approximately $171,000 in 2005 and $503,000 in 2004, while cash used in operating activities was approximately $770,000 in 2003, as shown in our statements of cash flows included in this report. The increase in cash flow in 2005 and 2004, compared to the amount used in 2003, was primarily a result of the collection of higher revenues.
Cash used for financing activities in 2005 totaled $21,000 and consisted of the repurchase of shares of our common stock. Cash provided by financing activities in 2004 totaled $12.7 million, consisting primarily of the sale of common stock to fund the Life Quotes acquisition. The Company also borrowed and later repaid $6.5 million in connection with the acquisition. Cash provided by financing activities in 2003 resulted from the exercise of employee stock options totaling $103,000, partially offset by payments of a capital lease obligation of $49,000. We did not buy back any shares of our common stock in 2004 or 2003.