**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 
| **ý** | **QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|------------|----------------------------------------------------------------------------------------|

 

**Forthe quarterly period ended June 30, 2003**

 

**OR**

 
| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------|

 

**Commissionfile number 0-15946**

 

**ebix.com,Inc.**

(Exact name of registrant as specified in itscharter)

 
| **DELAWARE**                                                     |   | **77-0021975**                       |
|------------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of  incorporation or  organization) |   | (I.R.S. Employer Identification No.) |
|                                                             |   |                                 |
| **1900 E. GOLF ROAD  SCHAUMBURG, IL**                            |   | **60173**                            |
| (Address of principal executive offices)                         |   | (Zip Code)                           |
|                                                             |   |                                 |
| Registrant’s telephone number, including  area code:        |   | **847-789-3047**                     |

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes ý No o

 

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

 

As of August 8, 2003, the number ofshares of Common Stock outstanding was 2,291,143.

 

 

----

 

**ebix.com,Inc. and Subsidiaries**

 

FORM 10-Q

 

FOR THE QUARTER ENDED JUNE 30, 2003

 

INDEX

 

 
| Part I — FINANCIAL INFORMATION                                                                               |   |
|-------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                              |   |   |
| Item 1.   Consolidated Financial Statements                                                                  |   |
|                                                                                                              |
| Consolidated Balance Sheets at June 30, 2003 (unaudited) and  December 31, 2002                         | 3      |
|                                                                                                              |
| Consolidated Statements of Operations for  the Three and Six Months ended June 30, 2003 and 2002 (unaudited) | 4      |
|                                                                                                              |
| Consolidated Statements of Cash Flows for  the Six Months ended June 30, 2003 and 2002 (unaudited)           | 5      |
|                                                                                                              |
| Notes to Consolidated Financial Statements  (unaudited)                                                           | 6      |
|                                                                                                              |
| Item 2.  Management’s  Discussion and Analysis of Financial Condition and Results of Operations         | 10     |
|                                                                                                              |
| Item 3.  Quantitative and  Qualitative Disclosures About  Market  Risk                                  | 19     |
|                                                                                                              |   |   |   |
| Item 4.  Controls and  Procedures                                                                            |   | 19 |
|                                                                                                              |   |   |   |
| PART II  — OTHER INFORMATION                                                                            |   | 19 |
|                                                                                                              |   |   |   |
| Item 6.  Exhibits and Reports  on Form 8-K                                                                   |   | 19 |
|                                                                                                              |   |   |   |
| SIGNATURES                                                                                                        |   | 20 |
|                                                                                                              |   |   |

 

2

----

 

**ebix.com,Inc. and Subsidiaries**

**Consolidated BalanceSheets**

(In thousands, except for share amounts)

 
|                                                                                                                 |   | **June 30,  2003** |       | **December 31,  2002** |       |
|----------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|-----------------------------|------------|
|                                                                                                                 |   | **(Unaudited****)**     | ** ** |                        | ** ** |
| **ASSETS**                                                                                                           |   |                    |       |                        |       |
| **Current assets:**                                                                                                  |   |                    |       |                        |       |
| Cash and cash equivalents                                                                                            |   | $                       | 6,779      |                        | $          | 4,993 |   |
| Accounts receivable, less allowance of $674  and $634                                                                |   | 2,015                   |       | 2,863                       |       |
| Other current assets                                                                                                 |   | 619                     |       | 340                         |       |
| **Total  current assets**                                                                                            |   | 9,413                   |       | 8,196                       |       |
| Property and equipment, net                                                                                          |   | 1,371                   |       | 1,131                       |       |
| Capitalized software, net                                                                                            |   | 164                     |       | 218                         |       |
| Other assets                                                                                                         |   | 422                     |       | 421                         |       |
| **Total assets**                                                                                                     |   | $                       | 11,370     |                        | $          | 9,966 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                        |   |                    |       |                        |       |
| **Current liabilities:**                                                                                             |   |                    |       |                        |       |
| Accounts payable and accrued expenses                                                                                |   | $                       | 2,068      |                        | $          | 1,727 |   |
| Accrued payroll and related benefits                                                                                 |   | 538                     |       | 342                         |       |
| Current portion of long-term debt                                                                                    |   | 106                     |       | 106                         |       |
| Current portion of capital lease  obligations                                                                        |   | 132                     |       | 114                         |       |
| Deposit liabilities                                                                                                  |   | 5                       |       | 10                          |       |
| Deferred revenue                                                                                                     |   | 3,239                   |       | 2,869                       |       |
| **Total  current liabilities**                                                                                       |   | 6,088                   |       | 5,168                       |       |
| Capital lease obligation, less current  portion                                                                      |   | —                  |       | 73                          |       |
| **Total liabilities**                                                                                                |   | 6,088                   |       | 5,241                       |       |
| **Stockholders’ equity:**                                                                                       |   |                    |       |                        |       |
| Convertible Series D Preferred stock, $.10  par value, 2,000,000 shares authorized, no shares issued and outstanding |   | —                  |       | —                      |       |
| Common stock, $.10 par value, 40,000,000 shares  authorized, 2,291,143 shares issued and outstanding                 |   | 229                     |       | 229                         |       |
| Additional paid-in capital                                                                                           |   | 88,446                  |       | 88,441                      |       |
| Deferred compensation                                                                                                |   | (348                    | )          | (366                        | )          |
| Accumulated deficit                                                                                                  |   | (83,314                 | )          | (83,920                     | )          |
| Accumulated other comprehensive income                                                                               |   | 269                     |       | 341                         |       |
| **Total stockholders’ equity**                                                                                  |   | 5,282                   |       | 4,725                       |       |
| **Total liabilities and stockholders’ equity**                                                                  |   | $                       | 11,370     |                        | $          | 9,966 |   |

 

See accompanying notes to consolidated financial statements.

 

3

----

 

**ebix.com,Inc. and Subsidiaries**

**ConsolidatedStatements of Operations**

(In thousands, except per share data)

(Unaudited)

 
|                                        |   | **Three  Months Ended June 30,** |   | **Six Months  Ended June 30,** |   |
|---------------------------------------------|--------|---------------------------------------|--------|-------------------------------------|--------|
|                                        |   | **2003**                              |   | **2002**                            |   | **2003** |   | **2002** | ** ** |
|                                        |   |                                  |   |                                |   |   |   |   |   |
| **Revenue:**                                |   |                                  |   |                                |   |   |   |   |   |
| Software                                    |   | $                                     | 558    |                                | $      | 559 |   | $ | 768 |   | $ | 984 |   |
| Services and other                          |   | 2,737                                 |   | 2,166                               |   | 6,139 |   | 5,086 |   |
| **Total  revenue**                          |   | 3,295                                 |   | 2,725                               |   | 6,907 |   | 6,070 |   |
| **Operating expenses:**                     |   |                                  |   |                                |   |   |   |   |   |
| Services and other costs                    |   | 773                                   |   | 765                                 |   | 1,778 |   | 1,726 |   |
| Product development                         |   | 430                                   |   | 397                                 |   | 790 |   | 1,047 |   |
| Sales and marketing                         |   | 499                                   |   | 268                                 |   | 960 |   | 783 |   |
| General and administrative                  |   | 1,375                                 |   | 1,291                               |   | 2,539 |   | 2,205 |   |
| **Total  operating expenses**               |   | 3,077                                 |   | 2,721                               |   | 6,067 |   | 5,761 |   |
| **Operating  income**                       |   | 218                                   |   | 4                                   |   | 840 |   | 309 |   |
| Interest income                             |   | 20                                    |   | 21                                  |   | 35 |   | 40 |   |
| Interest expense                            |   | (5                                    | )      | (10                                 | )      | (10 | ) | (24 | ) |
| Foreign exchange (loss) gain                |   | (8                                    | )      | 2                                   |   | (57 | ) | (2 | ) |
| Income before income taxes                  |   | 225                                   |   | 17                                  |   | 808 |   | 323 |   |
| Income tax expense                          |   | (136                                  | )      | —                              |   | (202 | ) | (108 | ) |
| **Net income**                              |   | $                                     | 89     |                                | $      | 17 |   | $ | 606 |   | $ | 215 |   |
|                                        |   |                                  |   |                                |   |   |   |   |   |
| Basic net income per common share           |   | $                                     | 0.04   |                                | $      | 0.01 |   | $ | 0.26 |   | $ | 0.09 |   |
| Diluted net income per common share         |   | $                                     | 0.04   |                                | $      | 0.01 |   | $ | 0.26 |   | $ | 0.09 |   |
| Basic weighted average shares outstanding   |   | 2,291                                 |   | 2,291                               |   | 2,291 |   | 2,291 |   |
| Diluted weighted average shares outstanding |   | 2,298                                 |   | 2,291                               |   | 2,293 |   | 2,291 |   |

 

See accompanying notes to consolidated financial statements.

 

4

----

 

**ebix.com,Inc.**

**ConsolidatedStatements of Cash Flows**

(In thousands)

(Unaudited)

 
|                                                                                                |   | **Six Months  Ended June 30,** |   |
|-----------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|
|                                                                                                |   | **2003**                            |   | **2002** | ** ** |
|                                                                                                |   |                                |   |   |   |
| **Cash flows from operating activities:**                                                           |   |                                |   |   |   |
| Net income                                                                                          |   | $                                   | 606    |   | $ | 215 |   |
| **Adjustments to reconcile net income to net****cash provided by (used in)  operating activities:** |   |                                |   |   |   |
| Depreciation and amortization                                                                       |   | 202                                 |   | 180 |   |
| Stock-based compensation                                                                            |   | 23                                  |   | — |   |
| Provision for doubtful accounts                                                                     |   | 40                                  |   | 193 |   |
| **Changes in assets and liabilities:**                                                              |   |                                |   |   |   |
| Accounts receivable                                                                                 |   | 808                                 |   | 101 |   |
| Other assets                                                                                        |   | (280                                | )      | (221 | ) |
| Accounts payable and accrued expenses                                                               |   | 341                                 |   | (761 | ) |
| Accrued payroll and related benefits                                                                |   | 196                                 |   | (49 | ) |
| Deposit liabilities and deferred revenue                                                            |   | 365                                 |   | 523 |   |
| Net cash provided by operating activities                                                           |   | 2,301                               |   | 181 |   |
| **Cash flows from investing activities:**                                                           |   |                                |   |   |   |
| Capital expenditures                                                                                |   | (388                                | )      | (151 | ) |
| Net cash used in investing activities                                                               |   | (388                                | )      | (151 | ) |
| **Cash flows from financing activities:**                                                           |   |                                |   |   |   |
| Repayments of debt                                                                                  |   | —                              |   | (9 | ) |
| Principal payments under capital lease  obligations                                                 |   | (55                                 | )      | (73 | ) |
| Net cash used in financing activities                                                               |   | (55                                 | )      | (82 | ) |
| Effect of foreign exchange rates on cash                                                            |   | (72                                 | )      | 139 |   |
| Net change in cash and cash equivalents                                                             |   | 1,786                               |   | 87 |   |
| Cash and cash equivalents at the beginning of the period                                            |   | 4,993                               |   | 6,167 |   |
| Cash and cash equivalents at the end of the period                                                  |   | $                                   | 6,779  |   | $ | 6,254 |   |
|                                                                                                |   |                                |   |   |   |
| **Supplemental disclosures of cash flow  information:**                                             |   |                                |   |   |   |
| Interest paid                                                                                       |   | $                                   | 10     |   | $ | 21 |   |
| Income taxes paid                                                                                   |   | $                                   | 154    |   | $ | 20 |   |

 

See accompanying notes to consolidated financial statements.

 

5

----

 

ebix.com, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 1.  BASIS OF PRESENTATIONAND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

**Basis of presentation**– These consolidated financial statements are unaudited and reflect alladjustments (consisting only of normal recurring adjustments) which are, in theopinion of management, necessary for a fair presentation of the results of theinterim periods.

 

These consolidated financial statements should be read in conjunctionwith the consolidated financial statements, and accompanying notes thereto,included in the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2002.

 

The results of operations for the current interim period are notnecessarily indicative of results to be expected for the entire current year.

 

Certain prior period amounts have been reclassified to conform to thecurrent presentation.

 

**Summaryof significant accounting policies—**

 

**Revenuerecognition** -Weapply the provisions of Statement of Position ("SOP") 97-2,"Software Revenue Recognition," as amended by Statement of Position98-99, "Modification of SOP 97-2, Software Revenue Recognition, WithRespect to Certain Transactions," to all transactions involving the saleof software.

 

The Company recognizes revenue for licensefees from its software products upon delivery, provided that the fee is fixedand determinable, acceptance has occurred, collectibility is reasonably assuredand persuasive evidence of an arrangement exists.  Revenue from third party software is derived from the licensingof third party software products in connection with sales of the Company'ssoftware licenses, and is generally recognized upon delivery together with theCompany's license revenue.  Training,data conversion, installation, and consulting services are generally recognizedas revenue when the services are performed and collectibility is reasonablyassured.  Revenue for maintenance andsupport service is recognized ratably over the term of the support agreement.

 

For arrangements containing multipleelements, revenue is recognized on delivered elements when vendor-specificobjective evidence (VSOE) of fair value has been established on the undeliveredelements, applying the residual method of SOP 98-9.  Fair value is determined for each undelivered element based onthe price charged for the sale of each element separately.  In contracts that contain first yearmaintenance bundled with software fees, unbundling of maintenance is based onthe price charged for renewal maintenance.

 

For certain contracts where services aredeemed essential to the functionality of the software and the software has notbeen accepted by the customer, the software and related service revenue havebeen deferred until acceptance has taken place.  In addition all costs incurred in connection with these contractshave been expensed, as the Company has been unable to estimate the total coststo achieve customer acceptance.

 

Revenues related to hosting arrangements,including ebixASP, are recognized ratably over the term of the agreement,including monthly fees as well as any initial registration fees and relatedcustom programing.  ebix.mall referral,acceptance and transaction fees are recognized as revenue as the transactionsoccur and revenue is earned.  Revenue isonly recognized when collectiblity is reasonably assured.

 

Deferred revenue includes maintenance andsupport payments or billings that have been received or recorded prior toperformance, amounts received under multi-element arrangements in which VSOE ofundelivered elements does not exist and initial registration fees and relatedservice fees under hosting agreements. Revenue is recognized when VSOE of the undelivered elements is established,the elements are delivered, or the obligation to deliver the elements isextinguished.  Deposit liabilitiesinclude cash that has been received related to software products for whichcustomer acceptance has not occurred.

 

Software arrangements involving significantcustomization, modification or production are accounted for in accordance withAmerican Institute of Certified Public Accountants Statement of Position 81-1,“Accounting for Performance on Construction-Type and Certain Production-Type Contracts,”using the percentage-of-completion method. The Company recognizes revenue using actual hours worked as a percentageof total expected hours required by the arrangement provided that the fee isfixed and determinable and collection of the receivable is considered probable.

 

6

----

 

**Stockoptions-**At June 30, 2003, the Company had threestock-based employee compensation plans. The Company accounts for stock optionsissued to employees in accordance with Accounting Principles Board (“APB”)Opinion No. 25, “Accounting for Stock Issued to Employees.” The Companyhas adopted the disclosure only provisions of Statement of Financial AccountingStandards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” foroptions and warrants issued to employees, as well as the requirement of SFASNo. 148, “Accounting for Stock Based Compensation — Transition and Disclosure.”Under APB Opinion No. 25, compensation expense is based on the difference,if any, on the measurement date, between the estimated fair value of theCompany’s stock and the exercise price of options to purchase that stock. Anyresulting compensation expense is amortized on a straight-line basis over thevesting period of the options.

 

The Company applies APB Opinion No. 25 and related Interpretations inaccounting for its employee stock-based compensation plans. Had compensationcost for these stock-based compensation plans been determined based on the fairvalue method prescribed by SFAS No. 123, the Company’s net income (loss)and net income (loss) per share would have been the pro forma amounts indicatedbelow:

 
|                                                                                                                                          |   | **Three  Months Ended** |   | **Six Months  Ended**   |       |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|-------------------------|------------|
|                                                                                                                                          |   | **June 30,  2003** |   | **June 30,  2002** | ** ** | **June 30,  2003** | ** ** | **June 30,  2002** | ** ** |
|                                                                                                                                          |   |                    |   |                    |       |   |   |   |   |
| Net income as reported                                                                                                                        |   | $                       | 89,000 |                    | $          | 17,000 |   | $ | 606,000 |   | $ | 215,000 |   |
| Add: Stock-based employee compensation  expense included in reported net income, net of related tax effects                                   |   | —                  |   | —                  |       | — |   | — |   |
| Deduct: Total stock-based employee  compensation expense determined under fair value based method for all awards,  net of related tax effects |   | (93,000                 | )      | (186,000                | )          | (321,000 | ) | (372,000 | ) |
| Pro forma net income (loss)                                                                                                                   |   | $                       | (4,000 | )                  | $          | (169,000 | ) | $ | 285,000 |   | $ | (157,000 | ) |
|                                                                                                                                          |   |                    |   |                    |       |   |   |   |   |
| Basic and diluted earnings per share, as  reported                                                                                            |   | $                       | 0.04   |                    | $          | 0.01 |   | $ | 0.26 |   | $ | 0.09 |   |
| Basic and diluted earnings (loss) per  share, pro forma                                                                                       |   | $                       | (0.01  | )                  | $          | (0.07 | ) | $ | 0.12 |   | $ | (0.07 | ) |

 

**RecentlyIssued Accounting Pronouncements**-In November 2002, theEmerging Issues Task Force (“EITF”) reached a consensus on Issue 00-21,addressing how to account for arrangements that involve the delivery orperformance of multiple products, services, and/or rights to use assets.Revenue arrangements with multiple deliverables are divided into separate unitsof accounting if the deliverables in the arrangement meet the followingcriteria: (1) the delivered item has value to the customer on a standalonebasis; (2) there is objective and reliable evidence of the fair value ofundelivered items; and (3) delivery of any undelivered item is probable.Arrangement consideration should be allocated among the separate units ofaccounting based on their relative fair values, with the amount allocated tothe delivered item being limited to the amount that is not contingent on thedelivery of additional items or meeting other specified performance conditions.The final consensus is applicable to agreements entered into in fiscal periodsbeginning after June 15, 2003. The provisions of this consensus are notexpected to have a significant effect on the Company’s results of operations orfinancial position.

 

In April 2003, the FinancialAccounting Standards Board (“FASB”) issued SFAS No. 149, *Amendment of Statement 133 onDerivative Instruments and Hedging Activities*. SFAS No. 149 amendsand clarifies accounting for derivative instruments, including certainderivative instruments embedded in other contracts, and for hedging activitiesunder SFAS No. 133. In particular, SFAS No. 149 clarifies under whatcircumstances a contract with an initial net investment meets thecharacteristics of a derivative and when a derivative contains a financingcomponent that warrants special reporting in the statement of cash flows. SFASNo. 149 is generally effective for contracts entered into or modified after June30, 2003 and is not expected to have a significant effect on the Company’sfinancial position or results of operations.

 

In May 2003, the FASB issuedSFAS No. 150, *Accounting for Certain Financial Instruments with Characteristics ofboth Liabilities and Equity*. SFAS No. 150 establishes standards forhow an issuer classifies and measures in its statement of financial positioncertain financial instruments with characteristics of both liabilities andequity. It requires that an issuer classify a financial instrument that iswithin the scope as a liability (or an asset in some circumstances) becausethat financial instrument embodies an obligation of the issuer. SFAS No. 150 iseffective for financial instruments entered into or modified after May 31, 2003,and otherwise is effective at the beginning of the first interim periodbeginning after June 15, 2003. This statement is not expected to have asignificant effect on the Company’s financial position or results ofoperations.

 

7

----

 

Note 2.  STOCK OPTIONS

 

During the first and second quarters of 2003, the Company did not grantany stock options.

 

The Company has granted nonstatutory and incentive options outside theCompany’s stock option plans to purchase up to an aggregate of 32,000 shares,of which options to purchase 16,875 shares were outstanding at June 30,2003.  These options were granted atprices determined by the Board of Directors (at no less than 100 percent of themarket price on the date of grant).  Theoptions have a four-year vesting period and must be exercised within ten yearsof the date of the grant. These non-employee options were valued using the fairvalue method as prescribed by SFAS No. 123, using the following assumptions:volatility of 146%, risk free interest rate of 3.54% and a 10 year term.Options issued prior to 2001 are performance-based awards, with no servicecommitment and subject to vesting only if the Company’s stock price reaches aspecified level. Options issued in 2001 vest over 4 years, but vestingaccelerates if a performance target is achieved.  At June 30, 2003, non-employee options to purchase 11,920shares were vested. The Company recognized compensation expense of approximately$17,000 related to these options during the three-month period endedJune 30, 2003. The Company recognized a credit to compensation expense ofapproximately $2,000 related to these options during the three-month periodended June 30, 2002. The Company recognized compensation expense ofapproximately $23,000 and $0 related to these options during the six-monthperiods ended June 30, 2003 and June 30, 2002, respectively.

 

Note 3.  EARNINGS PER SHARE

 

Basic earnings per share (“EPS”) is equal to net income divided by theweighted average number of shares of common stock outstanding for the period.Diluted EPS is calculated as if the Company had additional common stockoutstanding from the beginning of the year or the date of grant for all commonstock equivalents, net of assumed repurchased shares using the treasury stockmethod.  Diluted EPS recognizes thedilutive effect of common stock equivalents and is equal to net income dividedby the weighted average of the sum of the number of shares outstanding and commonstock equivalents. For the three and six months ended June 30, 2003, theCompany’s common stock equivalents consisted of stock options.  For the three and six months endedJune 30, 2002, the Company’s common stock equivalents consisted of stockoptions and warrants. For the three and six months ended June 30, 2003,the effect of the calculation resulted in an increase in the weighted averagenumber of shares outstanding of 7,088 and 1,814, respectively.  At June 30, 2003, there were 582,854 sharespotentially issuable with respect to stock options which could dilute Basic EPSin the future.

 

Note 4.  COMPREHENSIVE  INCOME

 
|                                                                       |   | **Three  Months Ended June 30,** |   | **Six Months  Ended June 30,** |   |
|----------------------------------------------------------------------------|--------|---------------------------------------|--------|-------------------------------------|--------|
|                                                                       |   | **2003**                              |   | **2002**                            |   | **2003** |   | **2002** | ** ** |
|                                                                       |   |                                  |   |                                |   |   |   |   |   |
| Net income                                                                 |   | $                                     | 89,000 |                                | $      | 17,000 |   | $ | 606,000 |   | $ | 215,000 |   |
| Other comprehensive income – foreign  currency translation adjustment |   | (36,000                               | )      | 123,000                             |   | (72,000 | ) | 139,000 |   |
| Comprehensive income                                                       |   | $                                     | 53,000 |                                | $      | 140,000 |   | $ | 534,000 |   | $ | 354,000 |   |

 

Note 5.  RELATED PARTYTRANSACTIONS

 

On April 27, 2001, the Company consummated the first closingcontemplated by an agreement with BRiT Insurance Holdings PLC (“BRiT”).  Pursuant to the agreement, ebix issued280,000 shares of its common stock to BRiT for $2,800,000.  As a result of the first closing, BRiTacquired an approximate 16.4 percent equity ownership interest in the Company,becoming its largest stockholder. On June 29, 2001, the Companyconsummated a second and final closing with BRiT.  Pursuant to this closing, ebix issued 588,000 shares of ebixcommon stock to BRiT in return for cash consideration of $4,200,000 and BRiT’stransfer to ebix of approximately half of its common stock investment inInsurance Broadcast Systems Inc. (“IBS”), representing a 28 percent equityownership interest in IBS. This final closing brought BRiT’s total cashinvestment in ebix to $7,000,000 and increased its equity ownership toapproximately 38 percent. The total shares held by BRiT at June 30, 2003was 930,163, representing an equity ownership of 40.6 percent.

 

During 2002, the Company entered into various software and serviceagreements with BRiT. During the first quarter of 2003, approximately $805,000was recognized as revenue from BRiT and its affiliates. During the secondquarter of 2003,

 

8

----

 

approximately $179,000 was recognized as revenue from BRiT and itsaffiliates. Total accounts receivable from BRiT and its affiliates atJune 30, 2003 were $109,000. During the first quarter of 2002,approximately $607,000 was recognized as revenue from BRiT and its affiliates.During the second quarter of 2002, approximately $36,000 was recognized asrevenue from BRiT and its affiliates.

 

Note 6.  REVERSE STOCK SPLIT

 

On October 1, 2002, the Company’s common stock began trading on a1-for-8 reverse split basis. The Company’s stockholders approved the reversesplit at a special meeting of stockholders held on September 30,2002.  The reverse split was intended toreturn the Company to compliance with the continued listing standards of theNASDAQ SmallCap Market, in particular the minimum bid price requirement.  All 2002 share information in theseconsolidated financial statements and footnotes has been retroactively adjustedto reflect the reverse stock split.

 

9

----

 

Item 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following information should be read in conjunction with theunaudited consolidated financial statements and the related notes  included in Part 1, Item 1 of this QuarterlyReport, and the audited consolidated financial statements and the related notesthereto and Management’s Discussion and Analysis of Financial Condition andResults of Operations contained in the Company’s Annual Report on Form 10-K forthe year ended December 31, 2002.

 

**Critical AccountingPolicies**

 

The Company’s  “criticalaccounting policies” are those that require application of management’s mostdifficult, subjective or complex judgements, often as a result of the need tomake estimates about matters that are inherently uncertain and may change infuture periods. We have identified the following as our critical accountingpolicies: revenue recognition and estimating the allowance for doubtfulaccounts receivable. For a discussion of these policies, see “Management’sDiscussion and Analysis of Financial Condition and Results of Operations –Critical Accounting Policies” in the Company’s annual report on Form 10-K forthe year ended December 31, 2002.

 

**Liquidity and CapitalResources**

 

The Company had cash and cash equivalents of $6,779,000 atJune 30, 2003, compared to $4,993,000 at December 31, 2002.

 

During the six months ended June 30, 2003, the Company experiencedpositive operating cash flow of $2,301,000. This increase in cash flow fromoperations resulted primarily from net income for the period of $606,000,receivables collected of $808,000, an increase in payables of $341,000, anincrease in deferred revenue of $370,000 and an increase in accrued payroll andrelated benefits of $196,000, partially offset by an increase in other currentassets of $280,000.

 

Cash used in investing activities of $388,000 in the first six monthsof 2003 represented capital expenditures made primarily as a result of theCompany’s investment in operations in India and the related purchase of assetsfor that location.  Cash used infinancing activities of $55,000 in the first six months of 2003 resulted fromthe Company’s repayment of capital lease obligations.

 

The Company believes that future revenue growth will come from servicesassociated with development projects, ebixASP, ebixExchange and call centeroperations. The Company believes its cash balances and funds from operationswill be sufficient to meet all of its anticipated cash requirements for at leastthe next 12 months.

 

# **The following summarizes our contractual obligations at June 30,2003, and the effect such obligations are expected to have on the Company’sliquidity and cash in future periods (in thousands):**

# ** **

|                               |   |      |       | **Payments  Due by Period** |       |
|------------------------------------|--------|-----------|------------|-----------------------------|------------|
| **Contractual Obligations:**       |   | **Total** | ** ** | **Less Than  1 Year**       | ** ** | **1 - 3  Years** | ** ** | **After  3 Years** | ** ** |
|                               |   |      |       |                        |       |   |   |   |   |
| Non-compete note payable           |   | $         | 106        |                        | $          | 106 |   | $ | — |   | $ | — |   |
|                               |   |      |       |                        |       |   |   |   |   |
| Non-cancelable operating leases    |   | 2,516     |       | 600                         |       | 1,014 |   | 902 |   |
|                               |   |      |       |                        |       |   |   |   |   |
| Non-cancelable capital leases      |   | 132       |       | 132                         |       | — |   | — |   |
|                               |   |      |       |                        |       |   |   |   |   |
| Total contractual cash obligations |   | $         | 2,754      |                        | $          | 838 |   | $ | 1,014 |   | $ | 902 |   |

 

**Results of Operations**

 

**Three Month PeriodEnded June 30, 2003 Compared to the Three Month Period Ended June 30,2002**

 

**Total Revenue**- The Company’s revenue is derived from the licensing and sale of proprietarysoftware and third party software (“Software”) and from the sale of  professional services and support services(“Services”). Professional services include consulting, implementation,training and project management provided to the Company’s customers withinstalled systems and those in the process of installing systems. Also includedin Services are fees for software license maintenance,

 

10

----

 

initial registration and ongoing monthly subscription fees for theebixASP product, and transaction fees generated from the ebix.mall website, aswell as software development and call center revenue. Total revenue for thequarter ended June 30, 2003 increased $570,000, or 21.0%, to $3,295,000from $2,725,000 for the comparable quarter of the prior year.

 

**Software Revenue**- Software revenue is comprised of revenue from the sale of ebix (formerly“cd”) products,  legacy products, andother third party software.  Totalsoftware revenue for the second quarter of 2003 was approximately equal to thatfor the second quarter of the prior year. As the Company has changed its focusto e-commerce products and services, the Company expects the substantial majorityof future revenue to consist of revenue from Services.

 

**Services Revenue**— Total services revenue for the second quarter of 2003 increased $571,000, or26.4%, from $2,166,000 for the comparable quarter of the prior year.  This increase was due to increases in callcenter revenue of $278,000, hosted ebixASP revenue of $169,000, consultingrevenues of $319,000, self hosted ebixASP revenue of $46,000, and ebix.mallrevenues of $30,000 partially offset by a decrease in INS-Site revenue of$163,000 and decrease in support revenue associated with legacy products of$108,000.

 

Support revenue associated with the Company’s legacy products isdecreasing due to a trend of declining renewals for these older productofferings. The Company expects that future services revenue will be derivedfrom this support, as well as ebixASP registration and monthly fees, softwaredevelopment, conversion, training, call center and all transaction revenuesfrom ebix.mall and ebixExchange (INS-Site).

 

During the second quarters of 2003 and 2002, approximately $179,000 and$36,000, respectively, was recognized as services revenue from BRiT InsuranceHoldings PLC (“BRiT”) and its affiliates related to call center and developmentprojects.  BRiT owns approximately 41%of the Company’s common stock as of June 30, 2003.

 

**Services and othercosts**- Cost of servicesrevenue includes costs associated with support, consulting, implementation andtraining services.  Total services andother costs for the quarter increased $8,000 or 1.0%, from $765,000 for thecomparable quarter of the prior year. This increase was due to the increase in services revenue.  Due to a change in the product mixcomprising Services, products with higher costs represent a lower percentage ofthe total, resulting in approximately the same total costs on higher revenues.

 

**Product DevelopmentExpenses**- Total productdevelopment expenses for the second quarter of 2003 increased $33,000, or 8.3%,from $397,000 for the comparable quarter of the prior year.  This increase was due to an increase infacility costs.

 

**Sales and MarketingExpenses**- Total sales andmarketing expenses for the second quarter of 2003 increased $231,000, or 86.2%,from $268,000 for the comparable quarter of the prior year.  This increase was attributable to increasesin facility costs, salary and travel and entertainment costs as a result of anincrease in headcount.

 

**General andAdministrative Expenses** —Total general andadministrative expenses for the quarter increased $84,000, or 6.5%, from $1,291,000for the comparable quarter of the prior year. This increase was due to an increase in executive management bonusaccruals partially offset by an increase in the allocation of facility costs toother cost centers.

 

**Six Month PeriodEnded June 30, 2003 Compared to the Six Month Period Ended June 30,2002**

 

**Total Revenue**- Total revenue for the six-month period ended June 30, 2003 increased$837,000, or 13.8%, to $6,907,000 from $6,070,000 for the comparable period.

 

**Software Revenue**-  Total software revenue for thesix-month period ended June 30, 2003 decreased $216,000, or 22.0%, from$984,000 for the comparable period of the prior year. As the Company haschanged its focus to e-commerce products and services, the Company expects thesubstantial majority of future revenue to consist of services revenue.

 

**Services Revenue**— Total services revenue for six-month period ended June 30, 2003increased $1,053,000, or 20.7%, from $5,086,000 for the comparable period ofthe prior year.  This increase was dueto increases in call center revenue of $492,000, self hosted ebixASP revenue of$339,000, hosted ebixASP revenue of $361,000, consulting revenues of $449,000,and ebix.mall revenues of $30,000 partially offset by a decrease in INS-Siterevenue of $389,000 and decrease in support revenue associated with legacyproducts of $229,000.

 

During the six-month periods ended June 30, 2003 and 2002,approximately $984,000 and $643,000, respectively, was recognized as servicesrevenue from BRiT Insurance Holdings PLC (“BRiT”) and its affiliates related tocall center and development projects. BRiT owns approximately 41% of the Company’s common stock as of June 30,2003.

 

**Services and othercosts**- Cost of servicesincludes costs associated with support, consulting, implementation and trainingservices.  Total services and othercosts for the six-month period ended June 30, 2003 increased $52,000 or3.0%, from $1,726,000 for the comparable period of the prior year.  This increase was due to an increase inservices revenue.  Due to a

 

11

----

 

change in the product mix comprising Services, products with highercosts represent a lower percentage of the total, resulting in approximately thesame total costs on higher revenues.

 

**Product DevelopmentExpenses**- Total productdevelopment expenses for the six-month period ended June 30, 2003decreased $257,000, or 24.5%, from $1,047,000 for the comparable period of theprior year. The Company has established a wholly owned subsidiary located inDelhi, India.  In May 2002, theCompany began to redirect product development activities to this subsidiarythat were previously outsourced, resulting in lower development costs.

 

**Sales and MarketingExpenses**- Total sales andmarketing expenses for the six-month period ended June 30, 2003 increased$177,000, or 22.6%, from $783,000 for the comparable period of the prior year.This increase was attributable to increases in facility costs, salary andtravel and entertainment costs as a result of an increase in headcount

 

**General andAdministrative Expenses** —Total general andadministrative expenses for the six-month period ended June 30, 2003increased $334,000, or 15.1%, from $2,205,000 for the comparable period of theprior year.  This increase was due to anincrease in executive management bonus accruals, a benefit recorded in firstquarter 2002 related to the reversal of a royalty expense and an increase incosts related to the Company's operations in India, which were established inMay 2002.

 

**Safe Harbor forForward-Looking Statements under the Securities Litigation Reform Act of 1995**- This Quarterly Report on Form 10-Q contains various forward-lookingstatements and information that are based on management’s beliefs, as well asassumptions made by, and information currently available to, management,including statements regarding future economic performance and financialcondition, liquidity and capital resources, acceptance of the Company’sproducts by the market and management’s plans and objectives. The Company hastried to identify such forward-looking statements by use of words such as“expects,” “intends,” “anticipates,” “plans,” and “believes” and similarexpressions, but these words are not the exclusive means of identifying suchstatements. The forward-looking statements included in this Quarterly Reportare subject to various risks, uncertainties and other factors which could causeactual results to vary materially from those expressed in, or implied by, theforward-looking statements.  Such risks,uncertainties and other factors include those discussed in “Risk Factors”below. Except as expressly required by the federal securities laws, the Companyundertakes no obligation to update or revise any such factors or any of theforward-looking statements contained herein to reflect changed circumstances orfuture events or developments or for any other reason.

 

12

----

 

**Risk Factors**

 

You should carefully consider the risks,uncertainties and other factors described below because they could materiallyand adversely affect our business, financial condition, operating results andprospectus, and/or the market price of our common stock. This risk factorssection is written in response to the Securities and Exchange Commission’s“plain English” guidelines. In this section, the words “we,” “us,’ “our” and“ours” refer only to the Company and its subsidiaries and not any other person.

 

***Risks Related To Our Business and OurIndustry***

 

**Youmay have difficulty evaluating our business because of our limited history ofoperating Internet and call center businesses.**

 

Although our predecessor began operations in1976, we did not begin any Internet operations until September 1999 anddid not begin generating revenues from these operations until the fourthquarter of 2000. We did not begin any call center operations or begingenerating revenues from these operations until the first quarter of 2003.  Accordingly, we have a limited history inoperating our Internet and call center businesses on which you can evaluate ourcompany and prospects. We cannot be certain that our Internet and call centerbusiness strategies will be successful, because these strategies are new. Ourearly-stage Internet and call center operations will be particularlysusceptible to the risks and uncertainties described in these risk factors andlikely to incur the expenses associated with addressing them. Our prospectsmust be considered in light of the risks, uncertainties, expenses anddifficulties frequently encountered by companies in a transitional stage ofdevelopment, particularly companies in new and rapidly evolving markets, suchas electronic commerce, and using new and unproven business models.

 

**Becausethe support revenue that we have traditionally relied upon has been steadilydeclining, it is important that new sources of revenue continue to bedeveloped.**

 

Our revenue from the support services weoffer in connection with our legacy software products has been decreasingsignificantly over the course of the past few years. This decline can beattributed to the fact that many of our support clients are not renewing theirsupport agreements with us, in many cases because they are no longer using ourlegacy software. Even if they are continuing to use our legacy software, oursupport clients may choose not to renew their support agreements if theirlegacy software products no longer require support or they use third partysupport. In addition, some of the clients who use our support services have reducedthe level of support that we provide them, which in turn reduces our supportrevenue. This downward trend in our support revenue makes us particularlydependent upon our other sources of revenue. The new product lines and serviceofferings of our business are producing revenue but at a slower growth rate dueto current economic conditions.

 

**Onecustomer currently provides a significant percentage of our total revenue.**

 

Revenues from one customer, BRiT Insurance Holdings PLC, which ownsapproximately 41% of our common stock, represented approximately 15% of ourtotal revenue in 2002 and approximately 14% in the six months endedJune 30, 2003. If revenues from this customer were to discontinue, ouroperating results could be adversely affected.

 

**Adverseinsurance industry economics could adversely effect our revenues.**

 

We are dependent on the insurance industry,which may be adversely effected by current economic and world conditions.

 

**Ouroperating results may fluctuate dramatically.**

 

Our quarterly operating results may fluctuatesignificantly in the future due to a variety of factors that could affect ourrevenues or our expenses in any particular quarter. You should not rely on ourresults of operations during any particular quarter as an indication of ourresults for a full year or any other quarter. Factors that may affect ourquarterly results include:

 

•                                          Changesin insurance agents’ and carriers’ consumer acceptance of Internet commerce.

 

•                                          Lossof a significant insurance agent, carrier or broker relationship or the mergerof any of our participating insurance carriers with one another.

 

•                                          Technicaldifficulties for our e-commerce services that hamper an agent’s ability to runits agency system hosted by us.

 

13

----

 

Our operating expenses are based in part onour expectations of our future revenues and are relatively fixed in the shortterm. We may be unable to adjust spending quickly enough to offset anyunexpected revenue shortfall.

 

**Wecould be subject to civil fines and penalties as a result of the SEC’sinvestigation of our financial reporting.**

 

On August 11, 2000, we were advised thatthe SEC had issued a formal Order of Investigation and subpoenaed documentsrelating to our financial reporting since April 1, 1997, including, inparticular, revenue recognition, software development cost capitalization,royalty costs and classification of cash receipts. We have submitted documentsto the SEC upon the SEC’s request as part of the investigation. It is possiblethat the SEC could impose civil fines and penalties against us. An adversefinding against us by the SEC could negatively impact our stock price. Inaddition, we expect to continue to incur expenses associated with responding tothis investigation, regardless of its outcome, and this investigation maydivert the efforts and attention of our management team from normal businessoperations.

 

**Wecannot predict our future capital needs and we may not be able to secureadditional financing when we need it.**

 

We may need to raise additional funds in thefuture to fund more aggressive brand promotion or more rapid expansion, todevelop new or enhanced services, to respond to competitive pressures or tomake acquisitions. Any required additional financing may not be available onterms favorable to us, or at all. If adequate funds are not available onacceptable terms, we may be unable to meet our business or strategic objectivesor compete effectively. If additional funds are raised by our issuing equity orequity-linked securities, stockholders may experience dilution of theirownership interests, and the newly issued securities may have rights superiorto those of our common stock. If additional funds are raised by our issuingdebt, we may be subject to limitations on our activities.

 

**Anyacquisitions that we undertake could be difficult to integrate, disrupt ourbusiness, dilute stockholder value and harm our operating results.**

 

We may acquire or make investments incomplementary businesses, technologies, services or products if appropriateopportunities arise. The process of integrating any acquired business,technology, service or product into our business and operations may result inunforeseen operating difficulties and expenditures. Integration of an acquiredcompany also may consume much of our management’s time and attention that couldotherwise be available for ongoing development of our business. Moreover, theanticipated benefits of any acquisition may not be realized. Furthermore, wemay be unable to identify, negotiate or finance future acquisitionssuccessfully. Future acquisitions could result in potentially dilutiveissuances of equity securities or the incurrence of debt, contingentliabilities or amortization expenses related to intangible assets.

 

**Wemay not be able to continue to develop new products to effectively adjust forrapid technological changes.**

 

To be successful, we must adapt to rapidlychanging technological and market needs, by continually enhancing our websiteand introducing new products and services to address our users’ changingdemands.

 

Our segment in the internet market place ischaracterized by:

 

•                                          rapidlychanging technology;

 

•                                          evolvingindustry standards;

 

•                                          frequentnew product and service introductions;

 

•                                          shiftingdistribution channels; and

 

•                                          changingcustomer demands.

 

Our future success will depend on our abilityto adapt to this rapidly evolving marketplace. We could incur substantial costsif we need to modify our services or infrastructure in order to adapt to changesaffecting our market, and we may be unable to adapt to these changes.

 

14

----

 

**Themarkets for our products are highly competitive and are likely to become morecompetitive, and our competitors may be able to respond more quickly to new oremerging technology and changes in customer requirements.**

 

We operate in highly competitive markets. Inparticular, the online insurance distribution market, like the broaderelectronic commerce market, is rapidly evolving and highly competitive. Oursoftware business also experiences some competition from certain large hardwaresuppliers that sell systems and systems’ components to independent agencies andfrom small, independent or freelance developers and suppliers of software, whosometimes work in concert with hardware vendors to supply systems toindependent agencies. Our Internet business may also face indirect competitionfrom insurance carriers that have subsidiaries which perform in-house agencyand brokerage functions.

 

Some of our current competitors have longeroperating histories, larger customer bases, greater brand recognition andsignificantly greater financial, marketing and other resources than we do. Inaddition, we believe we will face increasing competition as the onlinefinancial services industry develops and evolves. Our current and futurecompetitors may be able to:

 

•                                          undertakemore extensive marketing campaigns for their brands and services;

 

•                                          devotemore resources to website and systems development;

 

•                                          adoptmore aggressive pricing policies; and

 

•                                          makemore attractive offers to potential employees, online companies and third-partyservice providers.

 

**Ifwe are unable to protect our intellectual property, our reputation andcompetitiveness in the marketplace may be materially damaged.**

 

We regard our intellectual property ingeneral and our software in particular as critical to our success. It may bepossible for third parties to copy aspects of our products or, withoutauthorization, to obtain and use information which we regard as trade secrets.Existing copyright law affords only limited practical protections, and oursoftware is unpatented.

 

**Ifwe infringe on the proprietary rights of others, we may be at a competitivedisadvantage,  and any relatedlitigation could be time consuming and costly.**

 

Third parties may claim that we have violatedtheir intellectual property rights. To the extent that we violate a patent orother intellectual property right of a third party, we may be prevented fromoperating our business as planned, and we may be required to pay damages, toobtain a license, if available, or to use a non-infringing method, if possible,to accomplish our objectives. Any of these claims, with or without merit, couldsubject us to costly litigation and divert the attention of key personnel.

 

**Wedepend on the continued service of our senior management and our ability toattract and retain other key personnel**.

 

Our future success is substantially dependenton the continued service and continuing contributions of our senior managementand other key personnel, particularly Robin Raina, our President and ChiefExecutive Officer, and Richard J. Baum, our Executive VicePresident—Finance & Administration, Chief Financial Officer andSecretary. The loss of the service of any of our executive officers or otherkey employees could harm our business. We have no long-term employmentagreements with any of our key personnel, nor do we maintain key man lifeinsurance policies on any of our key employees.

 

Our future success depends on our continuingto attract, retain and motivate highly skilled employees. If we are not able toattract and retain new personnel, our business will be harmed. Competition forpersonnel in our industry is intense. We may be unable to retain our keyemployees or attract, assimilate or retain other highly qualified employees inthe future.

 

**Ourinternational operations are subject to a number of risks that could affect ourincome and growth.**

 

We market our software internationally andplan to expand our Internet services to locations outside of the United States.In addition, commencing in 2002 we began development activities, call centerservices, and other operations in India. Our international operations may notproduce enough revenue to justify our investments in establishing them and aresubject to other inherent risks, including:

 

15

----

 

•                                          theimpact of recessions in foreign economies on the level of consumers’ insuranceshopping and purchasing behavior;

 

•                                          greaterdifficulty in collecting accounts receivable;

 

•                                          difficultiesand costs of staffing and managing foreign operations;

 

•                                          reducedprotection for intellectual property rights in some countries;

 

•                                          seasonalreductions in business activity during the summer months in Europe and otherparts of the world;

 

•                                          burdensomeregulatory requirements, other trade barriers and differing business practices;

 

•                                          fluctuationsin exchange rates;

 

•                                          potentiallyadverse tax consequences; and

 

•                                          politicaland economic instability.

 

Furthermore, our entry into additionalinternational markets could require significant management attention andfinancial resources, which could lessen our ability to manage our existingbusiness effectively.

 

**Lawsand regulations that govern the insurance industry could expose us or theagents, brokers and carriers who participate in our online marketplace to legalpenalties.**

 

We perform functions for licensed insuranceagents, brokers and carriers and are, therefore, required to comply with acomplex set of rules and regulations that often vary from state to state. Theserules and regulations can be difficult to comply with and are ambiguous andopen to interpretation. If we fail to properly interpret and/or comply with theserules and regulations, we, the insurance agents, brokers or carriers doingbusiness with us, our officers, or agents with whom we contract could besubject to various sanctions, including censure, fines, cease-and-desistorders, loss of license or other penalties. This risk, as well as other lawsand regulations affecting our business and changes in the regulatory climate orthe enforcement or interpretation of existing law, could expose us toadditional costs, including indemnification of participating insurance agents,brokers or carriers for their costs, and could require changes to our businessor otherwise harm our business. Furthermore, because the application of onlinecommerce to the consumer insurance market is relatively new, the impact of currentor future regulations on our business is difficult to anticipate. To the extentthat there are changes in the rules and regulations regarding the manner inwhich insurance is sold, our business could be adversely affected.

 

16

----

 

***Risks Related to Our Conduct of Business onThe Internet***

 

**Anydisruption of our internet connections could affect the success of our internetbased products**.

 

Any system failure, including network,software or hardware failure, that causes an interruption in our network or adecrease in responsiveness of our website could result in reduced user trafficand reduced revenue. Continued growth in Internet usage could cause a decreasein the quality of Internet connection service. Websites have experiencedservice interruptions as a result of outages and other delays occurringthroughout the Internet network infrastructure. In addition, there have beenseveral incidents in which individuals have intentionally caused servicedisruptions of major e-commerce websites. If these outages, delays or servicedisruptions occur frequently in the future, usage of our website could growmore slowly than anticipated or decline, and we may lose revenues andcustomers.

 

If the computer hardware operations that hostour website were to experience a system failure, the performance of our websitewould be harmed. These systems are also vulnerable to damage from fire, floods,earthquakes, acts of terrorism, power loss, telecommunications failures,break-ins and similar events. Our property and business interruption insurancecoverage may not be adequate to compensate us for all losses that may occur. Inaddition, our users depend on Internet service providers, online serviceproviders and other website operators for access to our website. Each of theseproviders has experienced significant outages in the past, and could experienceoutages, delays and other difficulties due to system failures unrelated to oursystems.

 

**Concernsregarding security of transactions or the transmission of confidentialinformation over the Internet or security problems we experience may prevent usfrom expanding our business or subject us to legal exposure.**

 

If we do not offer sufficient securityfeatures in our online product and service offerings, our products and servicesmay not gain market acceptance, and we could be exposed to legal liability.Despite the measures that we may take, our infrastructure will be potentiallyvulnerable to physical or electronic break-ins, computer viruses or similarproblems. If a person circumvents our security measures, that person couldmisappropriate proprietary information or disrupt or damage our operations.Security breaches that result in access to confidential information coulddamage our reputation and subject us to a risk of loss or liability. We may berequired to make significant expenditure, to protect against or remedy securitybreaches. Additionally, if we are unable to adequately address our customers’concerns about security, we may have difficulty selling our goods and services.

 

**Uncertaintyin the marketplace regarding the use of Internet users’ personal information,or proposed legislation limiting such use, could reduce demand for our servicesand result in increased expenses.**

 

Concern among consumers and legislatorsregarding the use of personal information gathered from Internet users couldcreate uncertainty in the marketplace. This could reduce demand for ourservices, increase the cost of doing business as a result of litigation costsor increased service delivery costs, or otherwise harm our business.Legislation has been proposed that would limit the users of personallyidentifiable information of Internet users gathered online or require onlineservices to establish privacy policies. Many state insurance codes limit thecollection and use of personal information by insurance agencies, brokers andcarriers or insurance service organizations. Moreover, the Federal TradeCommission has settled a proceeding against one online service that agreed inthe settlement to limit the manner in which personal information could becollected from users and provided to third parties.

 

**Futuregovernment regulation of the Internet could place financial burdens on ourbusinesses.**

 

Because of the Internet’s popularity andincreasing use, new laws and regulations directed specifically at e-commercemay be adopted. These laws and regulations may cover issues such as thecollection and use of data from website visitors, including the placing ofsmall information files, or “cookies,” on a user’s hard drive to gatherinformation, and related privacy issues; pricing; taxation; telecommunicationsover the Internet; content; copyrights; distribution; domain name piracy; andquality of products and services. The enactment of any additional laws orregulations, including international laws and regulations, could impede thegrowth of our revenue from our Internet operations and place additionalfinancial burdens on our business.

 

17

----

 

***Risks Related To Our Common Stock***

 

**Theprice of our common stock may be extremely volatile.**

 

In some future periods, our results ofoperations may be below the expectations of public market investors, whichcould negatively affect the market price of our common stock. Furthermore, thestock market in general has recently experienced extreme price and volumefluctuations. We believe that, in the future, the market price of our commonstock could fluctuate widely due to variations in our performance and operatingresults or because of any of the following factors which are, in large part,beyond our control:

 

•                                          announcementsof new services, products, technological innovations, acquisitions or strategicrelationships by us or our competitors;

 

•                                          trendsor conditions in the insurance, software and Internet markets;

 

•                                          changesin market valuations of our competitors; and

 

•                                          generalpolitical, economic and market conditions.

 

In addition, the market prices of securitiesof technology companies, including our own, have been volatile and haveexperienced fluctuations that have often been unrelated or disproportionate tooperating performance. As a result, you may not be able to sell shares of ourcommon stock at or above the price at which you purchase them. In the past,following periods of volatility in the market price of a company’s securities,securities class action litigation has often been instituted against thatcompany. If any securities litigation is initiated against us, we could incur substantialcosts and our management’s attention and resources could be diverted from ourbusiness.

 

**Thesignificant concentration of ownership of our common stock will limit yourability to influence corporate actions.**

 

The concentration of ownershipof our common stock may have the effect of delaying, preventing or deterring achange in control of ebix.com, could deprive our stockholders of an opportunityto receive a premium for their common stock as part of a sale of ebix.com andmay affect the market price of our common stock. At June 30, 2003, BRiTInsurance Holdings plc held approximately 41% of our outstanding common stockand, together with our executive officers and directors, beneficially owned inexcess of 50% of our outstanding common stock. As a result, those stockholders,if they act together are able to control all matters requiring stockholderapproval, including the election of all directors and approval of significantcorporate transactions and amendments to our certificate of incorporation.These stockholders may use their ownership position to approve or take actionsthat are adverse to your interests or prevent the taking of actions that areconsistent with your interests.

 

**Wemay issue equity securities in the future whose terms and rights are superiorto those of our common stock.**

 

Our certificate of incorporation authorizesthe issuance of up to 2,000,000 shares of preferred stock. No shares ofpreferred stock are currently outstanding. However, shares of preferred stockmay be issued by our board of directors from time to time in one or more seriesfor the consideration, and with the rights and preferences, as our board ofdirectors decides. Any shares of preferred stock that we may issue in thefuture could be given voting and conversion rights that could dilute the votingpower and equity of holders of shares of our common stock and have preferencesover the common stock with respect to dividends and in liquidation.

 

**Provisionsin our charter and Delaware law may discourage takeover attempts which couldpreclude our stockholders from receiving a change of control premium.**

 

Our certificate of incorporation could makeit more difficult for a third party to acquire control of us because it givesour Board of Directors the ability to issue shares of preferred stock withrights as they deem appropriate without stockholder approval. In addition,Delaware law contains an anti-takeover provision that could have the effect ofdelaying or preventing a change in control that stockholders may considerfavorable. This provision prohibits us from engaging in a business combinationwith any significant stockholder for a period of three years from the date theperson became a significant stockholder unless specific conditions are met.

 

18

----

 

Item 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK

 

There have been no material changes in the Company’s market risk duringthe six months ended June 30, 2003.  Foradditional information on market risk, refer to the “Quantitative andQualitative Disclosures About Market Risk” section of the Company’s AnnualReport on Form 10-K for the year ended December 31, 2002.

 

Item 4.    CONTROLS AND PROCEDURES

 

The Company carried out an evaluation, under the supervision and withthe participation of the Company’s management, including our Chief ExecutiveOfficer and Chief Financial Officer, of the design and operation of theCompany’s disclosure controls and procedures. Based on this evaluation, the Company’s Chief Executive Officer andChief Financial Officer concluded that, as of June 30, 2003, the Company’sdisclosure controls and procedures were effective to provide reasonableassurance that the information required to be disclosed by the Company in thereports filed or submitted under the Securities Exchange Act of 1934 isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms.

 

Any control system, no matter how well designed and operated, canprovide only reasonable (not absolute) assurance that its objectives will bemet.  Furthermore, no evaluation of controls can provide absoluteassurance that all control issues and instances of fraud, if any, have beendetected.

 

Part II — OTHERINFORMATION

 

Item 6.    EXHIBITS AND REPORTS ON FORM 8-K

 

(a)                          Exhibits

 

10.1                   Second Amendment to the LeaseAgreement dated June 3, 2003 between the Company and 485 Properties, LLC,relating to the premises at Five Concourse Parkway, Atlanta, Georgia.

 

31.1                   Certification of Chief ExecutiveOfficer Pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of2002).

 

32.2                   Certification of Chief FinancialOfficer Pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of2002).

 

32.1                   Certification of Chief ExecutiveOfficer Pursuant to Section 906 of the Sabanes-Oxley Act of 2002 (furnishedherewith).

 

32.2                   Certification of Chief FinancialOfficer Pursuant to Section 906 of the Sabanes-Oxley Act of 2002 (furnishedherewith).

 

(b)                         Reports on Form 8-K

 

The Company filed a current report on Form 8-K dated April 3, 2003(pursuant to Sections 7, 9 and 12 thereof) to report year end results issued bythe Company.

 

19

----

 

SIGNATURES

 

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

 
|                       |   | ebix.com, Inc. |
|----------------------------|--------|----------------|
|                       |   |           |   |
|                       |   |           |   |
| Date: August 13, 2003 |   | By             |   |
|                       |   |           | /s/ RICHARD J. BAUM |
|                       |   |           | Richard J. Baum |
|                       |   |           | Executive Vice President — Finance & Administration, Chief  Financial Officer (principal financial and accounting officer), and Secretary |

 

20

----

 

EXHIBIT INDEX

 

 
| **EXHIBIT NO.** |   | **DESCRIPTION**                                                                                                                                                                      |
|-----------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1            |   | Second Amendment to the Lease Agreement dated June 3, 2003  between the Company and 485 Properties, LLC, relating to the premises at Five  Concourse Parkway, Atlanta, Georgia. |
|            |   |                                                                                                                                                                                 |
| 31.1            |   | Certification of Chief Executive Officer Pursuant to Rule 13(a)-14(a)  (Section 302 of the Sarbanes-Oxley Act of 2002).                                                              |
|            |   |                                                                                                                                                                                 |
| 31.2            |   | Certification of Chief Financial Officer Pursuant to Rule 13(a)-14(a)  (Section 302 of the Sarbanes-Oxley Act of 2002).                                                              |
|            |   |                                                                                                                                                                                 |
| 32.1            |   | Certification of Chief Executive Officer Pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002                                                                                  |
|            |   |                                                                                                                                                                                 |
| 32.2            |   | Certification of Chief Financial Officer Pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002                                                                                  |

 

21

----