**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**

 

**FORM 10-Q**

 
| **ý**                                            | **QUARTERLY REPORT UNDER SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**        |
|-------------------------------------------------------|-----------------------------------------------------------------------------------------------|
|                                                  |                                                                                          |
| **For the quarterly period ended September 30, 2002** |
|                                                  |
| **OR**                                                |
|                                                  |
| **o**                                                 | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                  |                                                                                          |
| **Commission file number 0-15946**                    |

 

**ebix.com, Inc.**

(Exact name of registrant as specified in its charter)

 
| **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 bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes ýNo o

 

Indicate the number of sharesoutstanding of each of the issuer’s classes of common stock as of the latestpracticable date. 2,290,773 Shares as of November 12, 2002, which reflects the1-for-8 reverse stock split that occurred on October 1, 2002.

 

 

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**ebix.com, Inc. andSubsidiaries**

 

FORM 10-Q

 

FOR THE QUARTER ENDED SEPTEMBER 30, 2002

 

INDEX

 
| Part I —  FINANCIAL INFORMATION                                                                               |   |
|--------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                               |   |   |
| Item 1.   Consolidated Financial Statements                                                                   |
|                                                                                                               |   |   |
| Consolidated Balance Sheets at September 30, 2002 (unaudited) and  December 31, 2001                               |
|                                                                                                               |   |   |
| Consolidated Statements of Operations for  the Three and Nine Months ended September 30, 2002 and 2001 (unaudited) |
|                                                                                                               |   |   |
| Consolidated Statements of Cash Flows for  the Nine Months ended September 30, 2002 and 2001 (unaudited)           |
|                                                                                                               |   |   |
| Notes to Consolidated Financial Statements  (unaudited)                                                            |
|                                                                                                               |   |   |
| Item 2.  Management’s Discussion and Analysis of Financial Condition and  Results of Operations          |
|                                                                                                               |   |   |
| Item 3.   Quantitative and Qualitative Disclosures About  Market Risk                                    |
|                                                                                                               |   |   |
| Item 4.   Controls and Procedures                                                                             |   |
|                                                                                                               |   |   |
| PART II — OTHER INFORMATION                                                                              |   |
|                                                                                                               |   |   |
| Item 4.   Submission of Matters to a Vote of Security Holders                                                 |
|                                                                                                               |   |   |
| Item 6.   Exhibits and Reports on Form 8-K                                                                    |
|                                                                                                               |   |   |
| SIGNATURES                                                                                                         |   |
|                                                                                                               |   |
| CERTIFICATIONS                                                                                                     |   |
|                                                                                                                    |        |  |  |

 

2

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**ebix.com, Inc. andSubsidiaries**

**Consolidated Balance Sheets**

(In thousands, except for share amounts)

 
|                                                                                                 |   | **September  30,  2002** |   | **December  31,  2001** |   |
|------------------------------------------------------------------------------------------------------|--------|--------------------------|--------|-------------------------|--------|
|                                                                                                 |   | **(Unaudited****)**      |   |                    |   |
| **ASSETS**                                                                                           |   |                     |   |                    |   |
| **Current assets:**                                                                                  |   |                     |   |                    |   |
| Cash and cash equivalents                                                                            |   | $                        | 5,501  |                    | $      | 6,167 |   |
| Accounts receivable, less allowance of $440  and  $985                                          |   | 2,135                    |   | 2,447                   |   |
| Other current assets                                                                                 |   | 586                      |   | 253                     |   |
| **Total current  assets**                                                                            |   | 8,222                    |   | 8,867                   |   |
| Property and equipment, net                                                                          |   | 909                      |   | 869                     |   |
| Capitalized software, net                                                                            |   | 246                      |   | 327                     |   |
| Other assets                                                                                         |   | 457                      |   | 363                     |   |
| **Total assets**                                                                                     |   | $                        | 9,834  |                    | $      | 10,426 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                        |   |                     |   |                    |   |
| **Current liabilities:**                                                                             |   |                     |   |                    |   |
| Accounts payable and accrued expenses                                                                |   | $                        | 1,893  |                    | $      | 2,776 |   |
| Accrued payroll and related benefits                                                                 |   | 126                      |   | 374                     |   |
| Current portion of long-term debt                                                                    |   | 106                      |   | 123                     |   |
| Current portion of capital lease  obligations                                                        |   | 112                      |   | 137                     |   |
| Deposit liabilities                                                                                  |   | 23                       |   | 199                     |   |
| Deferred revenue                                                                                     |   | 2,708                    |   | 2,573                   |   |
| **Total current  liabilities**                                                                       |   | 4,968                    |   | 6,182                   |   |
| Long-term debt, less current portion                                                                 |   | —                   |   | 70                      |   |
| Capital lease obligation, less current  portion                                                      |   | 98                       |   | 184                     |   |
| Other liabilities                                                                                    |   | 10                       |   | 95                      |   |
| **Total liabilities**                                                                                |   | 5,076                    |   | 6,531                   |   |
| **Stockholders’ equity:**                                                                       |   |                     |   |                    |   |
| Common stock, $.10 par value, 40,000,000 shares  authorized, 2,290,773 shares issued and outstanding |   | 229                      |   | 229                     |   |
| Additional paid-in capital                                                                           |   | 88,474                   |   | 88,514                  |   |
| Deferred compensation                                                                                |   | (390                     | )      | (440                    | )      |
| Accumulated deficit                                                                                  |   | (83,706                  | )      | (84,422                 | )      |
| Accumulated other comprehensive income                                                               |   | 151                      |   | 14                      |   |
| **Total stockholders’ equity**                                                                  |   | 4,758                    |   | 3,895                   |   |
| **Total liabilities and stockholders’ equity**                                                  |   | $                        | 9,834  |                    | $      | 10,426 |   |

 

See accompanying notes toconsolidated financial statements.

 

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**ebix.com, Inc. andSubsidiaries**

**Consolidated Statements of Operations**

(In thousands, except per share data)

(Unaudited)

 
|                                        |   | **Three  Months Ended September 30,** |   | **Nine  Months Ended September 30,** |   |
|---------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
|                                        |   | **2002**                              |   | **2001**                             |   | **2002** |   | **2001** |   |
|                                        |   |                                  |   |                                 |   |   |   |   |   |
| **Revenue:**                                |   |                                  |   |                                 |   |   |   |   |   |
| Software                                    |   | $                                     | 583    |                                 | $      | 457 |   | $ | 1,567 |   | $ | 1,926 |   |
| Services and other                          |   | 3,093                                 |   | 2,352                                |   | 8,179 |   | 7,387 |   |
| **Total revenue**                           |   | 3,676                                 |   | 2,809                                |   | 9,746 |   | 9,313 |   |
| **Operating expenses:**                     |   |                                  |   |                                 |   |   |   |   |   |
| Services and other costs                    |   | 1,120                                 |   | 1,179                                |   | 2,791 |   | 3,175 |   |
| Product development                         |   | 374                                   |   | 457                                  |   | 1,477 |   | 1,497 |   |
| Sales and marketing                         |   | 431                                   |   | 880                                  |   | 1,214 |   | 2,336 |   |
| General and administrative                  |   | 1,284                                 |   | 1,119                                |   | 3,490 |   | 2,825 |   |
| **Total operating  expenses**               |   | 3,209                                 |   | 3,635                                |   | 8,972 |   | 9,833 |   |
| **Operating income  (loss)**                |   | 467                                   |   | (826                                 | )      | 774 |   | (520 | ) |
| Interest income                             |   | 27                                    |   | 51                                   |   | 66 |   | 103 |   |
| Interest expense                            |   | (9                                    | )      | (13                                  | )      | (32 | ) | (56 | ) |
| Income (loss) before income taxes           |   | 485                                   |   | (788                                 | )      | 808 |   | (473 | ) |
| Income tax expense (benefit)                |   | (17                                   | )      | (2)                                  |   | 92 |   | (2 | )  |
| **Net income (loss)**                       |   | $                                     | 502    |                                 | $      | (786 | ) | $ | 716 |   | $ | (471 | ) |
|                                        |   |                                  |   |                                 |   |   |   |   |   |
| Basic income (loss) per common share        |   | $                                     | 0.22   |                                 | $      | (0.34 | ) | $ | 0.31 |   | $ | (0.26 | ) |
|                                        |   |                                  |   |                                 |   |   |   |   |   |
| Diluted income (loss) per common share      |   | $                                     | 0.22   |                                 | $      | (0.34 | ) | $ | 0.31 |   | $ | (0.26 | ) |
|                                        |   |                                  |   |                                 |   |   |   |   |   |
| Basic weighted average shares outstanding   |   | 2,291                                 |   | 2,291                                |   | 2,291 |   | 1,795 |   |
|                                        |   |                                  |   |                                 |   |   |   |   |   |
| Diluted weighted average shares outstanding |   | 2,291                                 |   | 2,291                                |   | 2,291 |   | 1,795 |   |

 

See accompanying notes toconsolidated financial statements.

 

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**ebix.com, Inc.**

**ConsolidatedStatements of Cash Flows**

(In thousands)

(Unaudited)

 
|                                                                                    |   | **Nine  Months Ended September 30,** |   |
|-----------------------------------------------------------------------------------------|--------|--------------------------------------|--------|
|                                                                                    |   | **2002**                             |   | **2001** |   |
|                                                                                    |   |                                 |   |   |   |
| **Cash flows from operating activities:**                                               |   |                                 |   |   |   |
| Net income (loss)                                                                       |   | $                                    | 716    |   | $ | (471 | ) |
| **Adjustments to reconcile net income to net****cash (used in) operating  activities:** |   |                                 |   |   |   |
| Depreciation and amortization                                                           |   | 278                                  |   | 309 |   |
| Stock-based compensation                                                                |   | 10                                   |   | 117 |   |
| Provision for doubtful accounts                                                         |   | 261                                  |   | 100 |   |
| **Changes in assets and liabilities:**                                                  |   |                                 |   |   |   |
| Accounts receivable                                                                     |   | 51                                   |   | (401 | ) |
| Other assets                                                                            |   | (427                                 | )      | (156 | ) |
| Accounts payable and accrued expenses                                                   |   | (883                                 | )      | (1,193 | ) |
| Accrued payroll and related benefits                                                    |   | (248                                 | )      | (285 | ) |
| Deposit liabilities, deferred revenue and  other liabilities                            |   | (126                                 | )      | (1,025 | ) |
| Net cash (used  in) operating activities                                                |   | (368                                 | )      | (3,005 | ) |
| **Cash flows from investing activities:**                                               |   |                                 |   |   |   |
| Software development costs                                                              |   | —                               |   | (228 | ) |
| Capital expenditures                                                                    |   | (237                                 | )      | (166 | ) |
| Net cash (used  in) investing activities                                                |   | (237                                 | )      | (394 | ) |
| **Cash flows from financing activities:**                                               |   |                                 |   |   |   |
| Proceeds from the issuance of common stock,  net of issuance costs                      |   | —                               |   | 6,871 |   |
| Proceeds from borrowings                                                                |   | —                               |   | 93 |   |
| Repayments of debt                                                                      |   | (87                                  | )      | — |   |
| Principal payments under capital lease  obligations                                     |   | (111                                 | )      | (98 | ) |
| Net cash (used  in) provided by financing activities                                    |   | (198                                 | )      | 6,866 |   |
| Effect of foreign exchange rates on cash                                                |   | 137                                  |   | 10 |   |
| Net change in  cash and cash equivalents                                                |   | (666                                 | )      | 3,477 |   |
| Cash and cash  equivalents at the beginning of the period                               |   | 6,167                                |   | 3,060 |   |
| Cash and cash  equivalents at the end of the period                                     |   | $                                    | 5,501  |   | $ | 6,537 |   |
|                                                                                    |   |                                 |   |   |   |
| **Supplemental disclosures of cash flow information:**                                  |   |                                 |   |   |   |
| Interest paid                                                                           |   | $                                    | 29     |   | $ | 56 |   |

 

See accompanying notes toconsolidated financial statements.

 

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ebix.com, Inc. and Subsidiaries

NOTES TOCONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 1.   BASIS OF PRESENTATION AND SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES

 

**Basis of presentation**- These financial statements are unaudited and reflect all adjustments(consisting only of normal recurring adjustments) which are, in the opinion ofmanagement, necessary for a fair presentation of the results of the interimperiods.

 

These financial statementsshould be read in conjunction with the consolidated financial statements, andaccompanying notes thereto, included in the Company’s Annual Report on Form10-K for the year ended December 31, 2001.

 

The results of operations forthe current interim period are not necessarily indicative of results to beexpected for the entire current year.

 

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

** **

**Summary ofsignificant accounting policies—** Service revenuerelated to ebixASP is recognized over the term of the agreement.  ebix.mall referral, acceptance andtransaction fees are recognized as revenue as the transactions occur and revenueis earned.  Revenue is only recognizedwhen collectibility is reasonably assured.

 

In July 2001, the FinancialAccounting Standards Board (“FASB”) issued Statement of Financial AccountingStandard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”),which supercedes APB Opinion No. 17, “Intangible Assets.”  SFAS 142 addresses how intangible assetsacquired individually or with a group of other assets (but not those acquiredin a business combination) should be accounted for in financial statements upontheir acquisition.  SFAS 142 alsoaddresses how goodwill and other intangible assets should be accounted forafter they have been initially recognized in the financial statements.  The provisions of SFAS 142 are required tobe applied starting with fiscal years beginning after December 15, 2001.  SFAS 142 is required to be applied at thebeginning of the entity’s fiscal year and to be applied to goodwill and otherintangible assets recognized in its financial statements at that date. As ofJanuary 1, 2002, the Company adopted SFAS 142 which eliminated the requirementto amortize goodwill.  As of January 1,2002, the date of adoption, the Company had unamortized goodwill in the amountof approximately $123,000, which has been subjected to the transitionprovisions, including the phase-in impairment test, of SFAS 142 and will not beamortized going forward.  The followingtable is a reconciliation of reported net loss and basic and diluted loss pershare to adjusted net income (loss) and basic and diluted income (loss) pershare reflecting the impact of SFAS 142 as if it had been effective for thethree months and nine months ended September 30, 2001:

 
|                                    |   | **Three  Months Ended September 30,** |       | **Nine  Months Ended September 30,** |       |
|-----------------------------------------|--------|---------------------------------------|------------|--------------------------------------|------------|
|                                    |   | **2002**                              |       | **2001**                             |       | **2002** |   | **2001** |   |
|                                    |   |                                  | ** ** |                                 | ** ** |   | ** ** |   | ** ** |
| Reported net income (loss)              |   | $                                     | 502,000    |                                 | $          | (786,000 | ) | $ | 716,000 |   | $ | (471,000 | ) |
| Goodwill amortization                   |   | —                                |       | 47,000                               |       | — |   | 143,000 |   |
| Adjusted net income (loss)              |   | $                                     | 502,000    |                                 | $          | (739,000 | ) | $ | 716,000 |   | $ | (328,000 | ) |
|                                    |   |                                  |       |                                 |       |   |   |   |   |
| Per share data — basic and diluted |   |                                  |       |                                 |       |   |   |   |   |
| Reported net income (loss)              |   | $                                     | 0.22       |                                 | $          | (0.34 | ) | $ | 0.31 |   | $ | (0.26 | ) |
| Goodwill amortization                   |   | —                                |       | 0.02                                 |       | — |   | 0.08 |   |
| Adjusted net income (loss)              |   | $                                     | 0.22       |                                 | $          | (0.32 | ) | $ | 0.31 |   | $ | (0.18 | ) |

 

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In October 2001, the FASBissued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets” ("SFAS 144").  SFAS144 addresses financial accounting and reporting for the impairment or disposalof long-lived assets.  While SFAS 144supersedes SFAS No. 121,  “Accountingfor the Impairment of Long-Lived Assets and for Long-Lived Assets to BeDisposed Of,” it retains many of the fundamental provisions of that statement.  SFAS 144 also supersedes the accounting andreporting provisions of Accounting Principles Board (“APB”) Opinion No. 30,“Reporting the Results of Operations-Reporting the Effects of Disposal of aSegment of a Business, and Extraordinary, Unusual and Infrequently OccurringEvents and Transactions” (“Opinion No. 30”), for the disposal of a segment of abusiness.  However, it retains therequirement of Opinion 30 to report separately discontinued operations andextends that reporting to a component of an entity that either has beendisposed of (by sale, abandonment, or in a distribution to owners) or isclassified as held for sale.  SFAS 144is effective for fiscal years beginning after December 15, 2001 and interimperiods within those fiscal years.  TheCompany has adopted SFAS 144 and it has had no impact on its consolidatedfinancial statements.

 

Note 2.   STOCK OPTIONS AND WARRANTS

 

During the third quarter of2002, the Company granted options to purchase a total of 203,413 shares of theCompany’s common stock to employees and directors at the market price of the Company’scommon stock at the date of grant. During the second quarter of 2002, theCompany granted options to purchase a total of 2,250 shares to directors at themarket price of the Company’s common stock at the date of grant.  During the first quarter of 2002, theCompany did not grant any stock options.

 

The Company has granted topersons who were not directors, officers or employees nonstatutory andincentive options outside the Company’s stock option plan to purchase up to anaggregate of 31,584 shares of common stock that were outstanding at September30, 2002.  These options were granted atprices determined by the Board of Directors (no less than 100 percent of themarket price on the date of grant).  Theoptions are exercisable within ten years of the date of the grant. Thesenon-employee options were valued using the fair value method as prescribed bySFAS No. 123 using the following assumptions: volatility of 175%, risk freeinterest rate of 4.8% and a 10 year term. Options issued prior to 2001 areperformance-based awards, with no service commitment and subject to vestingonly if the Company’s stock price reaches a certain level. Options issued in2001 vest over 4 years, but vesting accelerates if a performance target isachieved.  At September 30, 2002,non-employee options to purchase 19,767 shares were vested. The Companyrecognized compensation expense of approximately $10,000 and $34,000 related tothese options during the nine-month periods ended September 30, 2002 andSeptember 30, 2001, respectively. The Company recognized compensation expenseof approximately $10,000 related to these options during the three-month periodended September 30, 2002. The Company recognized a credit to compensationexpense of approximately $2,000 related to these options during the three-monthperiod ended September 30, 2001.

 

During 1999, the Companygranted warrants to Hewlett-Packard in connection with a promotion agreement.Expense of $73,000 was recognized during the nine-month period ended September30, 2001 as a result of these warrants. In May 2001, the Hewlett-Packardwarrants terminated when the Promotion Agreement was terminated. 

 

Note 3.   EARNINGS PER SHARE

 

Basic earnings per share(“EPS”) is equal to net income divided by the weighted average number of sharesof common stock outstanding for the period. Diluted EPS is calculated as if theCompany had additional common stock outstanding from the beginning of the yearor the date of grant (if later) for all common stock equivalents, net ofassumed repurchased shares using the treasury stock method.  Diluted EPS recognizes the dilutive effectof common stock equivalents and is equal to net income divided by the sum ofthe weighted average number of shares outstanding and common stock equivalents.SFAS No. 128 prohibits inclusion of the impact of common

 

7

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stock equivalents in thecalculation of EPS when inclusion results in antidilution. Dilutive securitieshave not been included in the weighted average shares used for the calculationof EPS in periods of net loss because the effect of such securities would beantidilutive. For the three and nine months ended September 30, 2002 and 2001,the Company’s common stock equivalents consisted of stock options and warrants.  For the nine months ended September 30,2002, the effect of the calculation resulted in an increase in the weightedaverage number of shares outstanding of 36. For the three months ended September 30, 2002 there was no effect on theweighted average number of shares outstanding. At September 30, 2002, there were 571,978 shares potentially issuablewith respect to stock options which could dilute Basic EPS in the future.

 

Note 4.   COMPREHENSIVE  INCOME

 
|                                                                       |   | **Three  Months Ended September 30,** |       | **Nine Months  Ended September 30,** |       |
|----------------------------------------------------------------------------|--------|---------------------------------------|------------|--------------------------------------|------------|
|                                                                       |   | **2002**                              |       | **2001**                             |       | **2002** |   | **2001** |   |
|                                                                       |   |                                  | ** ** |                                 | ** ** |   | ** ** |   | ** ** |
| Net income (loss)                                                          |   | $                                     | 502,000    |                                 | $          | (786,000 | ) | $ | 716,000 |   | $ | (471,000 | ) |
| Other comprehensive income – foreign  currency translation adjustment |   | (3,000                                | )          | 58,000                               |       | 137,000 |   | 10,000 |   |
| Comprehensive income (loss)                                                |   | $                                     | 499,000    |                                 | $          | (728,000 | ) | $ | 853,000 |   | $ | (461,000 | ) |

 

Note 5.   RELATED PARTY TRANSACTIONS

 

On April 27, 2001, the Companyconsummated the first closing contemplated by an agreement with BRiT InsuranceHoldings PLC (“BRiT”).  Pursuant to theagreement, ebix issued 280,000 shares of its common stock to BRiT for$2,800,000.  As a result of the firstclosing, BRiT acquired an approximate 16.4 percent equity ownership interest inthe 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. During 2001, the Company entered into varioussoftware and service agreements with BRiT and recognized revenues which totaledapproximately $639,000. During the first quarter of 2002, the Company enteredinto an addendum to the agreements and recognized revenues of $587,000 relatedto the provision of software services to BRiT. During the second quarter of2002, the Company recognized revenues of $36,000 related to the provision ofsoftware services to BRiT. During the third quarter of 2002, the Companyrecognized revenues of $588,000 related to the provision of software servicesto BRiT. Accordingly, services and other revenue for the nine months endedSeptember 30, 2002 includes $1,211,000 relating to this agreement.

 

Note 6.   INDIA SUBSIDIARY

 

In May 2002, the Companyestablished ebix Software India, Private Limited.  The purpose of this subsidiary, which is located in Delhi, India,is to move product development in-house as opposed to being outsourced, toprovide custom development and call center services.

 

Note 7.   REVERSE STOCK SPLIT

 

On October 1, 2002, theCompany’s common stock began trading on a 1-for-8 reverse split basis. TheCompany’s stockholders approved the reverse split at a special meeting ofstockholders held on September 30, 2002. The reverse split was intended to return the Company to compliance withthe continued listing standards of the NASDAQ SmallCap Market, in particularthe minimum bid price requirement.  Allshare information in these financial statements and footnotes have beenretroactively adjusted to reflect the reverse stock split.

 

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Note 8.   NASDAQ CONTINUED LISTING

 

On October 16, 2002, theCompany received notice that the NASDAQ Listing Qualifications Panel (Panel)has determined to continue listing ebix’s common stock on the NASDAQ SmallCapMarket.  The decision follows ebix’sOctober 3, 2002 appeal before the Panel of a NASDAQ Staff Determination onAugust 20, 2002 that its common stock was subject to delisting from the NASDAQSmallCap Market for failure to comply with the $1 per share minimum bid pricerequirement for continued listing set forth in Marketplace Rule 4310(c)(4).

 

In reaching its decision, thePanel determined that ebix has evidenced compliance with the minimum bid pricerequirement by demonstrating a closing bid price for its common stock of atleast $1 per share for the 10 consecutive trading days ended October 14,2002.  The Panel also noted that ebix appearsto satisfy all other requirements for continued listing on the NASDAQ SmallCapMarket and has demonstrated an ability to sustain compliance with thoserequirements over the long term.

 

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

 

The following informationshould be read in conjunction with the unaudited consolidated financialstatements and the notes thereto included in Part 1. Item 1 of this QuarterlyReport, and the audited consolidated financial statements and notes thereto andManagement’s Discussion and Analysis of Financial Condition and Results ofOperations contained in the Company’s Annual Report on Form 10-K for the yearended December 31, 2001.

 

**Liquidity and Capital Resources**

 

The Company had cash and cashequivalents of $5,501,000 compared to $6,167,000 at December 31, 2001.

 

During the nine months endedSeptember 30, 2002, the Company experienced negative operating cash flow of$368,000. The Company funded cash used in operating activities, financingactivities and investing activities primarily though cash balances.  The Company believes that existing cashresources and funds from operations will be sufficient to fund the liquidityneeds of the Company for at least the next twelve months.

 

# **The following summarizes our contractual obligations at September 30,2002, and the effect such obligations are expected to have on our liquidity andcash 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    |   | 1,360     |   | 635                         |   | 530 |   | 195 |   |
|                               |   |      |   |                        |   |   |   |   |   |
| Non-cancelable capital leases      |   | 210       |   | 112                         |   | 98 |   | — |   |
|                               |   |      |   |                        |   |   |   |   |   |
| Total contractual cash obligations |   | $         | 1,676  |                        | $      | 853 |   | $ | 628 |   | $ | 195 |   |

 

# **Non-competeNote Payable —** TheCompany entered into a non-compete agreement in connection with a January 1991acquisition.  The final installment of$400,000 was due on January 31, 1997, but was subsequently converted to an11.75% interest bearing unsecured note. The remaining installment of $106,000was due in the first quarter of 2001 and to date has not been paid.

 

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**Three Month Period Ended September 30, 2002Compared to the Three Month Period Ended September 30, 2001**

 

**Total Revenue** - TheCompany’s revenue is derived from the licensing and sale of proprietarysoftware and third party software (“Software”) and from professional servicesand support services (“Services”). Professional services include consulting,implementation, training and project management provided to the Company’scustomers with installed systems and those in the process of installing systems.Included in Services are fees for policy acceptance and transaction feesgenerated from the ebix.mall website. Total revenue for the quarter endedSeptember 30, 2002 increased $867,000 or 30.9% to $3,676,000 from $2,809,000for the comparable quarter of the prior year.

 

The Company expects to continueto generate increased traffic to its website reflecting increased familiarityand recognition by consumers.  However,there can be no assurance of the volume of traffic or amount of revenue thatthe ebix.com website will generate.

 

In January 2001, the Companybegan marketing the ebixASP product, and it became available in January2002.  ebixASP is a web-enabled systemfor insurance agencies to manage their business.  This product is expected to generate revenues through initialregistration, custom programming and ongoing monthly subscription fees based onthe number of personnel accessing the software on a concurrent basis.  The Company intends to enter into severaljoint ventures to expand the sale of ebixASP worldwide.  ebixASP began generating revenue from customprogramming in the first quarter of 2002, however, there can be no assurancesof the amount of revenue that the ebixASP product will generate in the future.

 

**Software Revenue** -Software revenue is comprised of revenue from the sale of ebix (formerly “cd”)products, current legacy products, and other third party software.  Total software revenue for the third quarterof 2002 increased $126,000 or 27.6% from the comparable quarter of the prior year.  This increase was due to sales of theebixASP product for use on a self hosted basis in addition to revenue generatedfrom the sale of enhancements to existing legacy customers.   As the Company has changed its focus toe-commerce products and services, the Company expects future revenue to becomprised primarily of Services revenue.

 

**Services Revenue** —Total services revenue for the third quarter of 2002 increased $741,000 or 31.5****%from the comparable quarter of the prior year. This increase was due to an increase in consulting revenue partiallyoffset by the expected decrease in support revenue associated with legacyproducts due to a trend of declining renewals for these older productofferings. Although a majority of services revenues for the third quarter of2002 were derived from legacy product support, the Company expects that futureservices revenue will be derived from this support as well as ebixASPregistration and monthly fees, custom programming, conversion, training and alltransaction revenues from ebix.mall and ebix exchange (Ins-Site).

 

**Services and other costs**-Cost of services revenue includes costs associated with support, consulting,implementation and training services. Total services and other costs for the quarter decreased $59,000 or 5.0%from the comparable quarter of the prior year. This decrease was related to the reduction in staffing levels forconsultants, trainers and support staff.

 

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**Product Development Expenses**-Total product development expenses for the third quarter of 2002 decreased$83,000 or 18.2% from the comparable quarter of the prior year. The Company hasestablished a subsidiary located in Delhi, India.  The Company has begun to redirect product development activitiesto this subsidiary that were previously being outsourced, resulting in lowerdevelopment expenses.

 

**Sales and Marketing Expenses**-Total sales and marketing expenses for the third quarter of 2002 decreased$449,000 or 51.0% from the comparable quarter of the prior year.   This decrease was attributable to reducedspending on website related marketing.

 

**General and Administrative Expenses**—Total general and administrative expenses for the quarter increased $165,000or 14.7% from the comparable quarter of the prior year.  This increase was due to an increase inprofessional fees and the allocation to general and administrative expenses ofa greater portion of facility expenses.

 

**Nine Month Period Ended September 30, 2002Compared to the Nine Month Period Ended 2001**

 

**Total Revenue** -Total revenue for the nine-month period ended September 30, 2002 increased$433,000 or 4.6% to $9,746,000 from $9,313,000 the comparable period of theprior year.

 

**Software Revenue** -Total software revenue for the nine-month period ended September 30, 2002decreased $359,000 or 18.6% from the comparable period of the prior year.  This decrease was primarily due to therecognition in the nine-month period ended September 30, 2001 of non-recurringrevenue that had been deferred from a prior period of $445,000 partially offsetby an increase in software sales in the nine-month period ended September 30,2002.

 

**Services Revenue** —Total services revenue for the nine-month period ended September 30, 2002increased $792,000 or 10.7****% from the comparable period of the prioryear.  This increase was due to anincrease in consulting revenue, partially offset by the recognition in the nine month period endedSeptember 30, 2001 of non-recurring revenue that had been deferred in priorperiods of $316,000, in addition to a decrease in support revenue associatedwith legacy products in the nine-month period ended September 30, 2002 due to atrend of declining renewals for these older product offerings.

 

**Services and other costs**-Total services and other costs for the nine-month period ended September 30,2002 decreased $384,000 or 12.1% from the comparable period of the prioryear.  This decrease was related to thereduction in staffing levels for consultants, trainers and support staff.

 

**Product Development Expenses**-Total product development expenses for the nine-month period ended June 30,2002 decreased $20,000 or 1.3% from the comparable period of the prior year.The Company has established a subsidiary located in Delhi, India.  The Company has begun to redirect productdevelopment activities to this subsidiary that were previously beingoutsourced, resulting in lower development expenses.

 

**Sales and Marketing Expenses**-Total sales and marketing expenses for the period decreased $1,122,000 or 48.0%from the comparable period of the prior year.  This decrease was attributable to reduced spending on website relatedmarketing.

 

**General and Administrative Expenses**—Total general and administrative expenses for the period increased

 

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$665,000 or 23.5% from thecomparable period of the prior year. This increase was due to an increase in bad debt expense, office expenseand the allocation to general and administrative expenses of a greater portionof facility expenses.

 

**Safe Harbor for Forward-Looking Statementsunder the Securities Litigation Reform Act of 1995** -This Quarterly Report on Form 10-Q contains various forward-looking statementsand information that are based on management’s beliefs, as well as assumptionsmade by, and information currently available to management, includingstatements regarding future economic performance and financial condition,liquidity and capital resources, acceptance of the Company’s products by the marketand management’s plans and objectives. We have tried to identify such forwardlooking statements by use of words such as “expects,” “intends,” “anticipates,”“plans,” “believes” and similar expressions, but these words are not theexclusive means of identifying such statements. Such statements are subject tovarious risks, uncertainties and other factors which could cause actual resultsto vary materially from those expressed in, or implied by, the forward lookingstatements.  Such risks, uncertainties andother factors include the extent to which the Company’s ebix.com website andother new products can be successfully developed and marketed, the possibleeffects of the Securities and Exchange Commission’s investigation of theCompany’s financial reporting, the risks associated with any futureacquisitions, the willingness of independent insurance agencies to outsourcetheir computer and other processing needs to third parties, the Company’sability to continue to develop new products to effectively address market needsin an industry characterized by rapid technological change, the Company’sdependence on the insurance industry (and in particular independent agents),the highly competitive and rapidly changing automation systems market, theCompany’s ability to effectively protect its applications software and otherproprietary information, the Company’s ability to attract and retain qualitymanagement, and software, technical sales and other personnel, the risks ofdisruption of the Company’s Internet connections or internal service problems,the possibly adverse effects of a substantial increase in volume of traffic onthe Company’s website, mainframe and other servers,  possible security breaches on the Company’s website, the possibleeffects of insurance regulation on the Company’s business and possible futureterrorist attacks or acts of war. Certain of these, as well as other risks, uncertainties and otherfactors, are described in more detail in the Company’s Annual Report on Form10-K for the year ended December 31, 2001 in Part I Item 1.  The Company undertakes no obligation toupdate publicly any such factors or any of the forward-looking statementscontained herein to reflect changed circumstances or future events ordevelopments or for any other reason.

 

Item 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK

 

There have been no materialchanges in the Company’s market risk during the nine months ended September 30,2002.  For additional information onmarket risk, refer to the “Quantitative and Qualitative Disclosures AboutMarket Risk” section of the Company’s Annual Report on Form 10-K for the yearended December 31, 2001.

 

Item 4.    CONTROLS AND PROCEDURES

 

a.    Evaluation of Disclosure Controls and Procedures

 

Based ontheir evaluation of our disclosure controls and procedures conducted within 90days of the date of filing this report on Form 10-Q, our Chief ExecutiveOfficer and the Chief Financial Officer have concluded that our disclosurecontrols and procedures (as defined in Rules 13a-14(c) and 15d-14(c)promulgated under the Securities Exchange Act of 1934) are effective.

 

b.     Changes in Internal Controls

 

Therewere no significant changes in our internal controls or in other factors thatcould significantly affect these

 

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controlssubsequent to the date of their evaluation.

 

Part II — OTHER INFORMATION

 

Item 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS.

 

On September 30, 2002, theCompany filed a Certificate of Amendment to the Company’s Certificate ofIncorporation with the Secretary of State of Delaware to effect a 1-for-8reverse split of all the issued and outstanding shares of the Company’s CommonStock (the “Reverse Split”).  TheReverse Split became effective on October 1, 2002 (the “Split Date”).  On the Split Date, every eight shares ofCommon Stock of the Company owned by a stockholder was automatically changedinto and became one new share of Common Stock, and the total number of sharesof Common Stock issued and outstanding was reduced proportionally.  Any fractional share that resulted from theReverse Split was rounded up to the next whole share of Common Stock.

 

The number of shares of capitalstock authorized by the Company’s Certificate of Incorporation and the parvalue of such shares did not change as a result of the Reverse Split.  With the exception of the number of sharesissued and outstanding, the rights and preferences of the Common Stock beforeand after the Reverse Split remained the same.

 

Item 4.    SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS

 

At the Company’s SpecialMeeting of Stockholders, held on September 30, 2002, the following proposalswere approved by the respective votes indicated:

 
| **Proposal**                                                                                                                                                                                                                                                 |   | **For**    |   | **Against** |   | **Abstentions** |   | **Broker  Non-  Votes** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|--------|-------------|--------|-----------------|--------|------------------------------|--------|
|                                                                                                                                                                                                                                                         |   |       |   |        |   |            |   |                         |   |
| 1. Approval  of an amendment to Article IV of the Company’s Certificate of Incorporation  to effect a 1-for-8 reverse stock split.                                                                                                                      |   | 15,855,371 |   | 138,623     |   | 1,057           |   | 0                            |   |
|                                                                                                                                                                                                                                                         |   |       |   |        |   |            |   |                         |   |
| 2. Approval  of an amendment to the Company’s 1996 Stock Incentive Plan to increase the  number of shares reserved for issuance thereunder and adding a provision  limiting the number of shares that may be covered by grants to any one  participant. |   | 8,500,859  |   | 987,928     |   | 1,137           |   | 6,505,127                    |   |

 

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Item 6.    EXHIBITS AND REPORTS ON FORM 8-K

 

(a)                          Exhibits

 

3.1                         Certificateof Incorporation of ebix.com, Inc., as amended (not including Certificates ofDesignations).

 

3.2                         Certificateof Amendment to Certificate of Incorporation dated September 30, 2002.

 

10.1      1996 Stock Incentive Plan,as amended.

 

99.1      Certification of ChiefExecutive Officer Pursuant to Section 906 of the Sabanes-Oxley Act of 2002.

 

99.2      Certification of ChiefFinancial Officer Pursuant to Section 906 of the Sabanes-Oxley Act of 2002.

 

(b)                         Reportson Form 8-K

 

The Company filed a currentreport on Form 8-K on August 27, 2002 (pursuant to Item 5 of Form 8-K) toannounce approval by the Company’s Board of Directors of the 1-for-8 reversestock split.

 

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SIGNATURES

 

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

 

 
|                     |   | ebix.com,  Inc. |
|--------------------------|--------|-----------------|
|                     |   |            |   |
|                     |   |            |   |
| Date:  November 13, 2002 |   | By              |   |
|                     |   |            | /s/ Richard  J. Baum |   |
|                     |   |            | Richard J.  Baum |
|                     |   |            | Executive  Vice President — Finance &  Administration, Chief Financial Officer (principal  financial and accounting officer), and Secretary |

 

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**Certification**

 

I, Robin Raina, certify that:

 

1. I have reviewed thisquarterly report on Form 10-Q of ebix.com, Inc.;

 

2. Based on my knowledge, thisquarterly report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3. Based on my knowledge, thefinancial statements, and other financial information included in thisquarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4. The registrant’s othercertifying officer and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and15d-14) for the registrant and we have:

 

a) designed such disclosurecontrols and procedures to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which thisquarterly report is being prepared;

 

b) evaluated the effectivenessof the registrant’s disclosure controls and procedures as of a date within 90days prior to the filing date of this quarterly report (the “Evaluation Date”);and

 

c) presented in this quarterlyreport our conclusions about the effectiveness of the disclosure controls andprocedures based on our evaluation as of the Evaluation Date;

 

5. The registrant’s othercertifying officer and I have disclosed, based on our most recent evaluation,to the registrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent function):

 

a) all significant deficienciesin the design or operation of internal controls which could adversely affectthe registrant’s ability to record, process, summarize and report financialdata and have identified for the registrant’s auditors any material weaknessesin internal controls; and

 

b) any fraud, whether or notmaterial, that involves management or other employees who have a significantrole in the registrant’s internal controls; and

 

6. The registrant’s othercertifying officer and I have indicated in this quarterly report whether or notthere were significant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date:  | November 13,  2002 |   | /s/ Robin  Raina                                              |   |
|--------|--------------------|--------|---------------------------------------------------------------|--------|
|   |               |   | Robin Raina                                                   |
|   |               |   |                                                          |
|   |               |   | Chairman of the  Board, Chief Executive Officer and President |

 

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**Certification**

 

I, Richard J. Baum, certifythat:

 

1. I have reviewed thisquarterly report on Form 10-Q of ebix.com, Inc.;

 

2. Based on my knowledge, thisquarterly report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3. Based on my knowledge, thefinancial statements, and other financial information included in thisquarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4. The registrant’s othercertifying officer and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and15d-14) for the registrant and we have:

 

a) designed such disclosurecontrols and procedures to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which thisquarterly report is being prepared;

 

b) evaluated the effectivenessof the registrant’s disclosure controls and procedures as of a date within 90days prior to the filing date of this quarterly report (the “Evaluation Date”);and

 

c) presented in this quarterlyreport our conclusions about the effectiveness of the disclosure controls andprocedures based on our evaluation as of the Evaluation Date;

 

5. The registrant’s othercertifying officer and I have disclosed, based on our most recent evaluation,to the registrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent function):

 

a) all significant deficienciesin the design or operation of internal controls which could adversely affectthe registrant’s ability to record, process, summarize and report financialdata and have identified for the registrant’s auditors any material weaknessesin internal controls; and

 

b) any fraud, whether or notmaterial, that involves management or other employees who have a significantrole in the registrant’s internal controls; and

 

6. The registrant’s othercertifying officer and I have indicated in this quarterly report whether or notthere were significant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

 
| Date: November  13, 2002 | /s/ Richard  J. Baum                                                                                  |   |
|--------------------------|-------------------------------------------------------------------------------------------------------|--------|
|                     | Richard J.  Baum                                                                                      |
|                     |                                                                                                  |
|                     | Executive  Vice President – Finance & Administration, Chief  Financial Officer and Secretary |

 

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EXHIBIT INDEX

 
| **EXHIBIT  NO.** |   | **DESCRIPTION**                                                                                            |
|------------------|--------|------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                       |
| 3.1              |   | Certificate  of Incorporation of ebix.com, Inc., as amended (not including Certificates of  Designations). |
| 3.2              |   | Certificate  of Amendment to Certificate of Incorporation dated September 30, 2002                         |
| 10.1             |   | 1996 Stock  Incentive Plan, as amended                                                                     |
| 99.1             |   | Certification  of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002       |
| 99.2             |   | Certification  of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002       |

 

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