**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM10-Q/A**

**AmendmentNo. 1**

 

**to**

 

| **ý** | ** ** | **QUARTERLY REPORT UNDER  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**        |
|------------|------------|----------------------------------------------------------------------------------------------------|
|       |       |                                                                                               |
|       |       | **For the quarterly period ended  March 31, 2004**                                            |
|       |       | ** **                                                                                         |
|       |       | **OR**                                                                                             |
|       |       |                                                                                               |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**Commission file number 0-15946**

 

**Ebix,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 duringthe preceding 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 bycheck mark whether the registrant is an accelerated filer (as defined in Rule12b-2 of the Exchange Act). Yes  o  No  ý

 

As of May 10,2004, the number of shares of Common Stock outstanding was 2,738,990.

 

 

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**Ebix, Inc. and Subsidiaries**

 

FORM 10-Q

 

FOR THE QUARTER ENDED MARCH 31, 2004

 

INDEX

 

**EXPLANATORY NOTE**

 

**In connection with a review by the Securities and Exchange Commission(the “SEC”) of the Company’s Registration Statement on Form S-3 (File No.333-112616), the SEC has reviewed the Company’s Quarterly Report on Form 10-Qfor the quarter ended March 31, 2004 (the “Form 10-Q”) and other reports filedby the Company with the SEC. The SEC’s review of the Form 10-Q has focusedprimarily on financial-related disclosure. This Amendment No. 1 to the Form10-Q (this “10-Q/A”) has been filed in connection with the Company’s responseto comments on the Form 10-Q and other filings raised by the SEC during itsreview process.**

** **

**Please note that the information contained in this 10-Q/A has not beenupdated to reflect events or developments occurring after May 17, 2004, thedate the Form 10-Q was originally filed with the SEC and, accordingly, suchinformation continues to speak as of such earlier date.**

 
| Part I —  FINANCIAL INFORMATION |                                                                                                                   |
|--------------------------------------|------------------------------------------------------------------------------------------------------------------------|
|                                 |                                                                                                                   |
|                                 | Item 1.  Consolidated Financial Statements                                                                        |   |
|                                 |                                                                                                                   |
|                                 | Condensed  Consolidated Balance Sheets at March 31, 2004 (unaudited) and  December 31, 2003                  | 3 |
|                                 |                                                                                                                   |
|                                 | Condensed  Consolidated Statements of Operations for the Three Months ended  March 31, 2004 and 2003  (unaudited) | 4 |
|                                 |                                                                                                                   |
|                                 | Condensed  Consolidated Statements of Cash Flows for the Three Months ended  March 31, 2004 and 2003  (unaudited) | 5 |
|                                 |                                                                                                                   |
|                                 | Notes to  Condensed Consolidated Financial Statements (unaudited)                                                      | 6 |
|                                 |                                                                                                                   |
|                                 | Item  2.  Management’s Discussion and  Analysis of Financial Condition and Results of Operations             | 11 |
|                                 |                                                                                                                   |
|                                 | Item  3.  Quantitative and Qualitative  Disclosures About Market Risk                                             | 21 |
|                                 |                                                                                                                   |
|                                 | Item 4.  Controls and  Procedures                                                                                 | 21 |
|                                 |                                                                                                                   |
| PART II — OTHER  INFORMATION    |                                                                                                                   |
|                                 |                                                                                                                   |
|                                 | Item  2.  Changes in Securities, Use of  Proceeds and Issuer Purchases of Equity Securities                       | 22 |
|                                 |                                                                                                                   |
|                                 | Item 5.  Other Information                                                                                        | 22 |
|                                 |                                                                                                                   |
|                                 | Item 6.  Exhibits and Reports on Form 8-K                                                                         | 22 |
|                                 |                                                                                                                   |
| SIGNATURES                           | 23                                                                                                                     |

 

2

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**Ebix, Inc. and Subsidiaries**

**Condensed Consolidated Balance Sheets**

(In thousands, except for share and per share amounts)

 
| ** **                                                                                                                                                         | ** ** | **March 31,  2004** | ** ** | **December 31,  2003** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                         | ** ** | **(Unaudited****)**      | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                                         |       |                     |       |                        |       |
| **Current assets:**                                                                                                                                                |       |                     |       |                        |       |
| Cash and cash equivalents                                                                                                                                          |       | $                        | 5,961      |                        | $          | 7,915 |   |
| Accounts receivable, less allowance of $260  and $356                                                                                                              |       | 3,534                    |       | 1,787                       |       |
| Other current assets                                                                                                                                               |       | 485                      |       | 364                         |       |
| **Total  current assets**                                                                                                                                          |       | 9,980                    |       | 10,066                      |       |
| Property and equipment, net                                                                                                                                        |       | 1,469                    |       | 1,353                       |       |
| Capitalized software, net                                                                                                                                          |       | 82                       |       | 109                         |       |
| Intangible assets, net                                                                                                                                             |       | 3,450                    |       | —                      |       |
| Goodwill                                                                                                                                                           |       | 6,055                    |       | 123                         |       |
| Other assets                                                                                                                                                       |       | 371                      |       | 320                         |       |
| **Total assets**                                                                                                                                                   |       | $                        | 21,407     |                        | $          | 11,971 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                      |       |                     |       |                        |       |
| **Current liabilities:**                                                                                                                                           |       |                     |       |                        |       |
| Accounts payable and accrued expenses                                                                                                                              |       | $                        | 1,934      |                        | $          | 1,778 |   |
| Accrued payroll and related benefits                                                                                                                               |       | 1,292                    |       | 1,287                       |       |
| Current portion of long term debt                                                                                                                                  |       | 500                      |       | —                      |       |
| Current portion of capital lease  obligations                                                                                                                      |       | 43                       |       | 73                          |       |
| Deferred revenue                                                                                                                                                   |       | 2,689                    |       | 2,141                       |       |
| **Total  current liabilities**                                                                                                                                     |       | 6,458                    |       | 5,279                       |       |
| Long term debt, less current portion                                                                                                                               |       | 1,726                    |       | —                      |       |
| Redeemable common stock (200,000 and 0  shares issued and outstanding at March 31, 2004 and December 31,  2003, respectively) stated at redemption price |       | 2,700                    |       | —                      |       |
|                                                                                                                                                               |       |                     |       |                        |       |
| **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, 2,738,990 and 2,316,767 shares issued and outstanding,  respectively                                  |       | 274                      |       | 232                         |       |
| Additional paid-in capital                                                                                                                                         |       | 91,951                   |       | 88,706                      |       |
| Deferred compensation                                                                                                                                              |       | (406                     | )          | (436                        | )          |
| Accumulated deficit                                                                                                                                                |       | (81,805                  | )          | (82,251                     | )          |
| Accumulated other comprehensive income                                                                                                                             |       | 509                      |       | 441                         |       |
| **Total stockholders’ equity**                                                                                                                                |       | 10,523                   |       | 6,692                       |       |
| **Total liabilities and stockholders’ equity**                                                                                                                |       | $                        | 21,407     |                        | $          | 11,971 |   |

 

See accompanying notes tocondensed consolidated financial statements.

 

3

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**Ebix, Inc. and Subsidiaries**

**Condensed Consolidated Statements of Operations**

(In thousands, except per share data)

(Unaudited)

 
| ** **                                                                                                | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                                | ** ** | **2004**                              | ** ** | **2003** | ** ** |
| ** **                                                                                                | ** ** | ** **                            | ** ** | ** ** | ** ** |
| **Revenue:**                                                                                              |       |                                  |       |   |   |
| Software                                                                                                  |       | $                                     | 227        |   | $ | 210 |   |
| Services and other (Including revenues from  related parties of $953 and $805, respectively- See Note 5.) |       | 3,707                                 |       | 3,402 |   |
| **Total  revenue**                                                                                        |       | 3,934                                 |       | 3,612 |   |
| **Operating expenses:**                                                                                   |       |                                  |       |   |   |
| Services and other costs                                                                                  |       | 1,163                                 |       | 1,005 |   |
| Product development                                                                                       |       | 560                                   |       | 360 |   |
| Sales and marketing                                                                                       |       | 273                                   |       | 461 |   |
| General and administrative                                                                                |       | 1,387                                 |       | 1,164 |   |
| **Total  operating expenses**                                                                             |       | 3,383                                 |       | 2,990 |   |
| **Operating  income**                                                                                     |       | 551                                   |       | 622 |   |
| Interest income                                                                                           |       | 27                                    |       | 15 |   |
| Interest expense                                                                                          |       | (2                                    | )          | (5 | ) |
| Foreign exchange gain (loss)                                                                              |       | 10                                    |       | (49 | ) |
| **Income before income taxes**                                                                            |       | 586                                   |       | 583 |   |
| Income tax expense                                                                                        |       | (140                                  | )          | (67 | ) |
| **Net income**                                                                                            |       | $                                     | 446        |   | $ | 516 |   |
|                                                                                                      |       |                                  |       |   |   |
| **Basic earnings per common share**                                                                       |       | $                                     | 0.17       |   | $ | 0.23 |   |
| ** **                                                                                                |       |                                  |       |   |   |
| **Diluted earnings per common share**                                                                     |       | $                                     | 0.15       |   | $ | 0.23 |   |
|                                                                                                      |       |                                  |       |   |   |
| Basic weighted average shares outstanding                                                                 |       | 2,586                                 |       | 2,291 |   |
|                                                                                                      |       |                                  |       |   |   |
| Diluted weighted average shares outstanding                                                               |       | 2,917                                 |       | 2,291 |   |

 

See accompanying notes tocondensed consolidated financial statements.

 

4

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**Ebix, Inc. and Subsidiaries**

**Condensed Consolidated Statements of Cash Flows**

(In thousands)

(Unaudited)

 
| ** **                                                                                                                                                                                                                                              | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                                                                                                                                                                              | ** ** | **2004**                              | ** ** | **2003** | ** ** |
|                                                                                                                                                                                                                                                    |       |                                  |       |   |   |
| **Cash flows from operating activities:**                                                                                                                                                                                                               |       |                                  |       |   |   |
| Net income                                                                                                                                                                                                                                              |       | $                                     | 446        |   | $ | 516 |   |
| **Adjustments to reconcile net income to net**** cash  (used in) provided by operating activities:**                                                                                                                                               |       |                                  |       |   |   |
| Depreciation and amortization                                                                                                                                                                                                                           |       | 201                                   |       | 97 |   |
| Stock-based compensation                                                                                                                                                                                                                                |       | 40                                    |       | 6 |   |
| Provision for doubtful accounts                                                                                                                                                                                                                         |       | 23                                    |       | 35 |   |
| **Changes in assets and liabilities, net of  effect of acquisition:**                                                                                                                                                                                   |       |                                  |       |   |   |
| Accounts receivable                                                                                                                                                                                                                                     |       | (1,035                                | )          | (495 | ) |
| Other assets                                                                                                                                                                                                                                            |       | (72                                   | )          | 126 |   |
| Accounts payable and accrued expenses                                                                                                                                                                                                                   |       | 72                                    |       | 111 |   |
| Accrued payroll and related benefits                                                                                                                                                                                                                    |       | (205                                  | )          | 38 |   |
| Deferred revenue                                                                                                                                                                                                                                        |       | 298                                   |       | 459 |   |
| Net cash (used  in) provided by operating activities                                                                                                                                                                                                    |       | (232                                  | )          | 893 |   |
| **Cash flows from investing activities:**                                                                                                                                                                                                               |       |                                  |       |   |   |
| Acquisition of LifeLink, net of cash  acquired                                                                                                                                                                                                          |       | (4,634                                | )          | — |   |
| Capital expenditures                                                                                                                                                                                                                                    |       | (103                                  | )          | (120 | ) |
| Net cash used in  investing activities                                                                                                                                                                                                                  |       | (4,737                                | )          | (120 | ) |
| **Cash flows from financing activities:**                                                                                                                                                                                                               |       |                                  |       |   |   |
| Proceeds from the issuance of common stock,  net of issuance costs                                                                                                                                                                                      |       | 2,977                                 |       | — |   |
| Principal payments under capital lease  obligations                                                                                                                                                                                                     |       | (30                                   | )          | (27 | ) |
| Net cash provided  by (used in) financing activities                                                                                                                                                                                                    |       | 2,947                                 |       | (27 | ) |
| Effect of foreign exchange rates on cash                                                                                                                                                                                                                |       | 68                                    |       | (36 | ) |
| Net change in  cash and cash equivalents                                                                                                                                                                                                                |       | (1,954                                | )          | 710 |   |
| Cash and cash  equivalents at the beginning of the period                                                                                                                                                                                               |       | 7,915                                 |       | 4,993 |   |
| Cash and cash  equivalents at the end of the period                                                                                                                                                                                                     |       | $                                     | 5,961      |   | $ | 5,703 |   |
|                                                                                                                                                                                                                                                    |       |                                  |       |   |   |
| **Supplemental disclosures of cash flow  information:**                                                                                                                                                                                                 |       |                                  |       |   |   |
| Interest paid                                                                                                                                                                                                                                           |       | $                                     | 2          |   | $ | 5 |   |
| Income taxes paid                                                                                                                                                                                                                                       |       | $                                     | 84         |   | $ | — |   |
|                                                                                                                                                                                                                                                    |       |                                  |       |   |   |
| **Supplemental schedule of noncash  investing activities:**                                                                                                                                                                                        |       |                                  |       |   |   |
| During the first quarter of 2004, the  Company purchased all of the capital stock of LifeLink Corporation for  consideration which included 200,000 shares of common stock valued at  $3,000,000, cash of $5,000,000, and a note payable of $2,226,000. |       |                                  |       |   |   |

 

See accompanying notes tocondensed consolidated financial statements.

 

5

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Ebix, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 1.  BASIS OF PRESENTATION AND SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES

 

**Basis ofpresentation** – These condensed consolidated financialstatements are unaudited, include the accounts of Ebix, Inc. and itswholly-owned subsidiaries (Ebix or “the Company”), 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.

 

On February 23, 2004, theCompany acquired LifeLink Corporation (“LifeLink”). Under terms of theagreement, the Company acquired all of the outstanding capital stock ofLifeLink from its shareholders in exchange for an aggregate purchase price of$10,226,000 (see note 7). The acquisition was accounted for as a purchasebusiness combination.

 

These condensed consolidatedfinancial statements should be read in conjunction with the consolidatedfinancial statements, and accompanying notes thereto, included in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2003.

 

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

 

Certain prior period amountshave been reclassified to conform to the current period presentation.

 

**Summary ofsignificant accounting policies—**

 

**RevenueRecognition**— Weapply the provisions of Statement of Position (“SOP”) 97-2, “Software RevenueRecognition,” as amended by Statement of Position 98-9, “Modification of SOP97-2, Software Revenue Recognition, With Respect to Certain Transactions,” toall transactions involving the sale of software.

 

In May 2003, the FinancialAccounting Standards Board (“FASB”) finalized the terms of Emerging Issues TaskForce Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables,”(EITF 00-21), which provides criteria governing how to identify whethergoods or services that are to be delivered separately in a bundled salesarrangement should be accounted for separately. Deliverables are accounted forseparately if they meet all of the following: a) the delivered items havestand-alone value to the customer; b) the fair value of any undelivereditems can be reliably determined; and c) if the arrangement includes ageneral right of return, delivery of the undelivered items is probable andsubstantially controlled by the seller. The Company adopted EITF 00-21 onJuly 1, 2003 for all new revenue arrangements executed subsequent toJune 30, 2003 (or significant modification to arrangements existing priorto July 1, 2003). The Company’s current policy is to analyze all newrevenue arrangements.

 

To the extent arrangementscontain multiple deliverables, the Company performs an analysis of the natureof the deliverables to determine to what extent the deliverables of thearrangement are governed by any higher level literature (as defined in EITF 00-21).EITF 00-21 recognizes arrangements that qualify for treatment under SOP 97-2and certain arrangements that qualify for contract accounting (i.e. SOP 81-1)as falling under the definition of “higher level literature”. The Companyapplies the provisions of SOP 97-2, as amended by Statement of Position 98-9, “Modificationsof SOP 97-2, Software Revenue Recognition, With Respect to CertainTransactions,” to all arrangements which include software deliverables that areconsidered more than inconsequential to the other elements in the arrangements.For 2004, all of the Company’s contracts with multiple deliverables have fallenunder higher level accounting literature under the provisions of SOP 97-2and/or SOP 81-1.

 

Although the Company has notbeen impacted in the current year by the adoption of EITF 00-21, it is possiblethat EITF 00-21 may affect future periods given the additional revenue streamsthe Company has initiated, as well as through the acquisition activities of theCompany.

 

The Company recognizes revenuefor license fees from its software products upon delivery, provided that thefee is fixed and determinable, acceptance has occurred, collectibility isprobable and persuasive evidence of an arrangement exists. Revenue from thirdparty software is derived from the licensing of third party software productsin connection with sales of the Company’s software licenses, and is generallyrecognized upon delivery together with the Company’s license revenue. Training,data conversion, installation, and consulting services are generally recognizedas revenue when the services are performed and collectibility is probable.Revenue for maintenance and support service is recognized ratably over the termof the support agreement.

 

For arrangements containingmultiple elements, revenue is recognized on delivered elements when vendor-specificobjective evidence (“VSOE”) of fair value has been established on theundelivered elements, applying the residual method of SOP 98-9. Fair value is

 

6

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determined for each undeliveredelement based on the price charged for the sale of each element separately. Incontracts that contain first year maintenance bundled with software fees,unbundling of maintenance is based on the price charged for renewalmaintenance. Revenue for maintenance and support service is recognized ratablyover the term of the support agreement.

 

For certain contracts whereservices are deemed essential to the functionality of the software and thesoftware has not been accepted by the customer, the software and relatedservice revenue have been deferred until acceptance has taken place. Inaddition, all costs incurred in connection with these contracts have beenexpensed, as the Company has been unable to estimate the total costs to achievecustomer acceptance.

 

Revenues related to EbixASP andother hosting arrangements, including monthly fees as well as any initialregistration fees and related custom programming, are recognized ratably overthe term of the agreement in accordance with Staff Accounting Bulletin (“SAB”)No. 104 “Revenue Recognition”. Ebix.mall transaction fees are recognizedas revenue as the transactions occur and revenue is earned. Revenue is onlyrecognized when collectiblity is probable.

 

Deferred revenue includesmaintenance and support payments that have been received or billings recordedprior to performance and in certain cases, cash collections, amounts receivedunder multi-element arrangements in which VSOE of undelivered elements does notexist; and initial registration fees and related service fees under hostingagreements. Revenue is recognized when VSOE of the undelivered elements isestablished, the elements are delivered, or the obligation to deliver theelements is extinguished.

 

Software arrangements involvingsignificant customization, modification or production are accounted for inaccordance with American Institute of Certified Public Accountants Statement ofPosition 81-1, “Accounting for Performance on Construction-Type and CertainProduction-Type Contracts,” using the percentage-of-completion method. TheCompany recognizes revenue using actual hours worked as a percentage of totalexpected hours required by the arrangement, provided that the fee is fixed anddeterminable, there is evidence of an arrangement and recovery of any relatedrecorded asset is considered probable.

 

For business processoutsourcing agreements, which include call center services, services areprimarily performed on a time and material basis. Revenue is recognized whenthe service is performed.

 

**StockOptions -**At March 31, 2004, the Company hadthree stock-based employee compensation plans. The Company accounts for stockoptions issued 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 issued to employees, as well as the requirements of SFAS No. 148, “Accountingfor Stock Based Compensation — Transition and Disclosure.” Under APB OpinionNo. 25, compensation expense is recorded based on the difference, if any,on the measurement date, between the estimated fair value of the Company’sstock and the exercise price of options to purchase that stock. Any resultingcompensation expense is amortized on a straight-line basis over the vestingperiod of the options.

 

The Company applies APB OpinionNo. 25 and related interpretations in accounting for its employee stock-basedcompensation plans. Had compensation cost for these stock-based compensationplans been determined based on the fair-value method prescribed by SFASNo. 123, using the Black-Scholes option-pricing model, the Company’s netearnings and net earnings per share would have been the pro forma amountsindicated below:

 
| ** **                                                                                                                                    | ** ** | **Three Months Ended**  | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                    | ** ** | **March 31, 2004** | ** ** | **March 31, 2003** | ** ** |
|                                                                                                                                          |       |                    |       |   |   |
| Net income, as reported                                                                                                                       |       | $                       | 446,000    |   | $ | 516,000 |   |
| Add: Stock-based employee compensation  expense included in reported net income, net of related tax effects                                   |       | 5,000                   |       | — |   |
| Deduct: Total stock-based employee  compensation expense determined under fair-value based method for all awards,  net of related tax effects |       | (394,000                | )          | (228,000 | ) |
| Pro forma net income                                                                                                                          |       | $                       | 57,000     |   | $ | 288,000 |   |
|                                                                                                                                          |       |                    |       |   |   |
| Basic earnings per share, as reported                                                                                                         |       | $                       | 0.17       |   | $ | 0.23 |   |
| Diluted earnings per share, as reported                                                                                                       |       | $                       | 0.15       |   | $ | 0.23 |   |
| Basic earnings per share, pro forma                                                                                                           |       | $                       | 0.02       |   | $ | 0.13 |   |
| Diluted earnings per share, pro forma                                                                                                         |       | $                       | 0.02       |   | $ | 0.13 |   |

 

**Non-employeeStock Compensation**—The Company accounts forstock-based compensation issued to non-employees in accordance with SFASNo. 123 and EITF Issue No. 96-18, “Accounting for Equity InstrumentsThat Are Issued to Other Than Employees for Acquiring, or in conjunction withSelling Goods or Services.” SFAS No. 123 establishes a fair value-basedmethod of accounting for stock-based compensation plans. Under the fair-valuebased method, compensation cost is measured at

 

7

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the grant date based on thevalue of the award, which is calculated using an option pricing model, and isrecognized over the service period, which is usually the vesting period.

 

Note 2.  STOCK OPTIONS

 

During the first quarter of2004, the Company did not grant any stock options.

 

The Company has granted stockoptions outside the Company’s stock option plans to non-employee consultants topurchase up to an aggregate of 57,000 shares, of which options to purchase34,500 shares were outstanding at March 31, 2004.  These options were granted at pricesdetermined by the Board of Directors (at no less than 100 percent of the marketprice on the date of grant).  The optionshave a four-year vesting period and must be exercised within ten years of thedate of the grant. These non-employee options were valued using the fair valuemethod as prescribed by SFAS No. 123 using the following assumptions:volatility of 88%, risk free interest rate of 3.76% and a 10-year term. Optionsissued prior to 2001 are performance-based awards, with no service commitmentand subject to vesting only if the Company’s stock price reaches a certainlevel. Options issued in 2001 vest over four years, but vesting accelerates ifa performance target is achieved.  AtMarch 31, 2004, non-employee options to purchase 7,461 shares were vested.The Company recognized compensation expense of approximately $34,000 and $6,000related to these options during the three-month periods ended March 31,2004 and March 31, 2003, respectively.

 

 On August 11, 2003, the Company grantedoptions to purchase the Company’s common stock to an employee who is thebrother of the Chief Executive Officer, in connection with his joining theCompany as an employee.  The optiongrantee was an employee when he received the grant.   The options vest over four years from thedate of grant, expire ten years from the date of grant, and were issued with anexercise price below the fair market value of the stock on the date ofgrant.  This grant was not subject to anyof the Company’s stock option plans.  Thetotal intrinsic value associated with the granting of options was $96,250,which will be recognized ratably as compensation expense over the four-yearvesting period in accordance with APB Opinion No. 25.The Company recognizedcompensation expense of approximately $6,000 related to these options duringthe three-month period ended March 31, 2004.

 

Note 3.  EARNINGS PER SHARE

 

Basic earnings per share (“EPS”)is equal to net income divided by the weighted average number of shares ofcommon stock outstanding for the period. The weighted average number of sharesoutstanding for the three months ended March 31, 2004 and March 31,2003 was 2,586,000 and 2,291,000, respectively. Diluted EPS is calculated as ifthe Company had additional common stock outstanding from the beginning of theyear or the date of grant for all common stock equivalents, net of assumedrepurchased shares using the treasury stock method.  Diluted EPS recognizes the dilutive effect ofcommon stock equivalents and is equal to net income divided by the sum of theweighted average number of shares outstanding and common stock equivalents. Forthe three months ended March 31, 2004 and March 31, 2003, the Company’scommon stock equivalents consisted of stock options.  For the three months ended March 31,2004, the effect of this calculation resulted in an increase in the weightedaverage number of shares outstanding of 331,000. At March 31, 2004, thefully diluted weighted average number of shares outstanding was 2,917,000.  For the three months ended March 31,2003, there was no effect on the weighted average number of sharesoutstanding.  At March 31, 2004,there were 328,000 shares potentially issuable with respect to stock options,which could dilute EPS in the future which were excluded from the diluted EPScalculation because their effect was antidilutive. At March 31, 2003,there were 600,000 shares potentially issuable with respect to stock options,which could dilute EPS in the future which were excluded from the diluted EPScalculation because their effect was antidilutive.

 

Note 4.  COMPREHENSIVE INCOME

 
| ** **                                                                 | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                 | ** ** | **2004**                              | ** ** | **2003** | ** ** |
|                                                                       |       |                                  |       |   |   |
| Net income                                                                 |       | $                                     | 446,000    |   | $ | 516,000 |   |
| Other comprehensive income – foreign  currency translation adjustment |       | 68,000                                |       | (36,000 | ) |
| Comprehensive income                                                       |       | $                                     | 514,000    |   | $ | 480,000 |   |

 

Note 5.  RELATED PARTY AND SIGNIFICANT CUSTOMER TRANSACTIONS

 

In 2001, the Company issued868,000 shares of its common stock to BRiT Insurance Holdings PLC (“BRiT”), for$7,000,000. The total shares held by BRiT at March 31, 2004 was 930,163, representingan equity ownership of approximately 34 percent.  At March 31, 2004 BRiT ownedapproximately 45% of CF Epic Insurance and General Fund, which ownedapproximately 8% of our common stock.

 

8

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The Company has entered intovarious software and service agreements with BRiT. During the first quarter of2004, approximately $953,000 was recognized as revenue from BRiT and itsaffiliates. Total accounts receivable from BRiT and its affiliates at March 31,2004 were $900,000. During the first quarter of 2003, approximately $805,000was recognized as revenue from BRiT and its affiliates. Total accountsreceivable from BRiT and its affiliates at March 31, 2003 were $852,000.  Total accounts receivables from Brit and itsaffiliates at December 31, 2003 were $369,000.

 

During the first quarter of2004 and 2003, approximately $557,000 and $441,000, respectively was recognizedfrom another significant customer, AON. Total accounts receivable from AON at March 31, 2004 were $273,000.  Total accounts receivable from AON atDecember 31, 2003 were $192,000.

 

Note 6.  SALE OF UNREGISTEREDCOMMON STOCK

 

On January 16, 2004 the Company sold 222,223 shares of itsunregistered common stock to CF Epic Insurance and General Fund, an investmentfund located in London of which BriT, at March 31, 2004, owned approximately45% of the equity interests, for a total price of $3,000,010, or $13.50 pershare.

 

Note7.  ACQUISITION OF LIFELINK

 

On February 23, 2004, theCompany acquired LifeLink Corporation (“LifeLink”), and the operations ofLifeLink have been included in the Company’s financial statements since thatdate. Under terms of the agreement, the Company acquired all of the outstandingcapital stock of LifeLink from its shareholders in exchange for an aggregatepurchase price of $10,226,000, payable as follows: $5,000,000 paid in cash atclosing, $2,500,000 non-interest bearing note payable in cash in annualinstallments of $500,000 over five years (present value computed as $2,226,000),and $3,000,000 payable in 200,000 shares of the common stock of the Companyissued at the time of closing.  TheCompany also incurred approximately $71,000 of transaction costs in conjunctionwith the LifeLink acquisition.  Inconnection with the 200,000 shares of common stock issued subject to Rule 144,the former shareholder received from Ebix the option to sell his stock back toEbix subject to specified time frames and prices. The Company has classified$2,700,000 of the value of the common stock issued as a liability, “redeemablecommon stock,” in the condensed consolidated balance sheet due to existence ofthe holder’s embedded put option. At any time during the one month periodcommencing on the date which is eighteen months after February 23, 2004and ending nineteen months after February 23, 2004, the holder of theredeemable common stock has a one-time right to require the Company to purchaseall of the holder’s 200,000 shares originally issued at a price of $2,700,000minus the aggregate purchase price received by the holder from any sales ofthese shares of common stock prior to the exercise of the put option. As ofMarch 31, 2004, the holder has not sold any shares of common stockreceived from this transaction.

 

The following table summarizesthe estimated fair value of the LifeLink assets acquired and liabilitiesassumed at the date of acquisition. These amounts are based upon thepreliminary purchase price allocation which is subject to modification uponfurther analysis by the Company.

 
| ** **                | ** ** | **February 23,  2004** | ** ** |
|---------------------------|------------|-----------------------------|------------|
|                      |       |                        |       |
| Current assets            |       | $                           | 1,199,000  |   |
| Property and equipment    |       | 119,000                     |       |
| Intangible assets         |       | 3,518,000                   |       |
| Goodwill                  |       | 5,932,000                   |       |
| Total assets acquired     |       | 10,768,000                  |       |
| Current liabilities       |       | 471,000                     |       |
| Total liabilities assumed |       | 471,000                     |       |
| Net assets acquired       |       | $                           | 10,297,000 |   |

 

Of the $3,518,000 of intangibleassets acquired, $977,000 was assigned to developed technology with a remainingestimated useful life of five years, $299,000 was assigned to trademarks with aremaining estimated useful life of five years and $2,242,000 was assigned tocustomer relationships with a remaining estimated useful life of sevenyears.  The Company recorded $68,000 ofamortization expense related to these intangible assets for the period endedMarch 31, 2004.

 

9

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**EstimatedAmortization Expenses:**

 
| For the year ended December 31, 2004 |   | $ | 491,000 |   |
|-------------------------------------------|--------|---|---------|--------|
| For the year ended December 31, 2005 |   | $ | 575,000 |   |
| For the year ended December 31, 2006 |   | $ | 575,000 |   |
| For the year ended December 31, 2007 |   | $ | 575,000 |   |
| For the year ended December 31, 2008 |   | $ | 575,000 |   |

 

The following unaudited proforma financial information for the three months ended March 31, 2004 andMarch 31, 2003 presents the consolidated operations of the Company as ifthe acquisition had been made on January 1, 2003, after giving effect tocertain adjustments for the pro forma acquisition as of the acquisitiondate.  The unaudited pro forma financialinformation is provided for informational purposes only and does not projectthe Company’s results of operations for any future period:

 
| ** **                | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------|------------|----------------------------------------|------------|
| ** **                | ** ** | **2004**                               | ** ** | **2003** | ** ** |
|                      |       |                                   |       |   |   |
| Revenue                   |       | $                                      | 4,855,000  |   | $ | 4,945,000 |   |
| Net income                |       | 406,000                                |       | 433,000 |   |
|                      |       |                                   |       |   |   |
| Basic earnings per share  |       | $                                      | 0.16       |   | $ | 0.19 |   |
| Diuted earnings per share |       | $                                      | 0.14       |   | $ | 0.19 |   |

 

**Note 8—Lineof Credit:**

 

The existing revolving line ofcredit with LaSalle National Bank Association was increased to $5,000,000during February 2004 and the agreement was amended inApril 2004.  There were noborrowings on this line as of March 31, 2004.  The major features of the line, as amended,include an interest rate stated at prime, security at 60% of the amount of theline in a restricted interest bearing account and timely financial reportingrequirements.  The line of credit willexpire on October 31, 2005.

 

10

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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 condensed consolidatedfinancial statements and the notes thereto included in Part 1. Item 1 of thisQuarterly Report, and the audited consolidated financial statements and 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, 2003.

 

**Overview**

 

The Company’s future focus willbe on developing consistent and recurring revenue sources with a concentrationin (1) software development for insurance carriers, agents and brokers, (2)expansion of connectivity between consumers, agents, carriers and third partyproviders, (3) business process outsourcing services, which include softwaredevelopment, call center and back office, either off site or at companyfacilities, and (4) worldwide sales and support of the agency managementsystems.

 

Support revenue from legacyproducts is expected to decline in the future as current customers switch toother more technologically advanced systems (including Ebix ASP). The Company’sfocus for the future will be expanding revenues in the international market,software development for carriers, agents and brokers and business processoutsourcing services.

 

**CriticalAccounting Policies**

 

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. The Company has identified the following as its criticalaccounting policies: revenue recognition, estimating the allowance for doubtfulaccounts receivable and accounting for income taxes. For a discussion of thesepolicies, see “Management’s Discussion and Analysis of Financial Condition andResults of Operations – Critical Accounting Policies” in the Company’s AnnualReport on Form 10-K for the year ended December 31, 2003.

 

**Results ofOperations**

 

**Three-MonthPeriod Ended March 31, 2004 Compared to the Three-Month Period EndedMarch 31, 2003**

 

**TotalRevenue** - The Company’s revenue has been derived fromthe licensing and sale of proprietary software and third party software (“Software”)and from professional services and support services (“Services”). Servicesinclude consulting, implementation, training and project management provided tothe Company’s customers with installed systems and those in the process ofinstalling systems. Also included in Services are fees for software licensemaintenance, LifeLink service revenue (for the period February 23, 2004 toMarch 31, 2004), initial registration and ongoing monthly subscriptionfees for the EbixASP product and transaction fees generated from the Ebix.mallwebsite, as well as software development and call center revenue. Total revenuefor the quarter ended March 31, 2004 increased $322,000, or 8.9%, to$3,934,000 from $3,612,000 for the comparable quarter of the prior year.

 

**SoftwareRevenue** - Software revenue is comprised of revenuefrom the sale of Ebix (formerly “cd”) products, current legacy products, andother third party software.  Totalsoftware revenue for the first quarter of 2004 increased $17,000 or 8.1%, from$210,000 for the comparable quarter of the prior year. As the Company haschanged its focus to e-commerce products and services, the Company expectsfuture revenue to be comprised primarily of services revenue.

 

**ServicesRevenue** — Total services revenue for the first quarterof 2004 increased $305,000, or 9.0%, from $3,402,000 for the comparable quarterof the prior year.  This increase was dueto LifeLink revenue of approximately $518,000 and an increase in internationalservice revenue of $323,000 partially offset by a decrease in support revenueassociated with legacy products of $269,000, a decrease in INS-Site revenue of$110,000 and a decrease in consulting revenue of $157,000.

 

During the first quarter of2004 and 2003, approximately $953,000 and $805,000, respectively was recognizedas services revenue from BRiT Insurance Holdings PLC (“BRiT”) and itsaffiliates.  The amounts represented 24%and 22%, respectively, of the Company’s total revenues for the first quarter of2004 and 2003, respectively, and the increase in such revenues of $148,000,represented 46% of the total increase in the Company’s revenues for the threemonth period ended March 31, 2004 compared to the same period of 2003. BRiTowned approximately 34% of the Company’s common stock as of March 31,2004.  In addition, the Company has beeninformed that as of March 31, 2004, BRiT owned approximately 70% of the equityinterests of CF Epic Insurance and General Fund, which at March 31, 2004 ownedapproximately 8% of the Company’s outstanding common stock.**Increases in revenues from BriT Holdings PLCand its affiliates during each of the periods presented were a result of BRiTInsurance Holdings PLC and its affiliates adding additional developmentprojects and expanding the scope of the current projects.

 

11

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Support revenue associated withthe Company’s legacy products is decreasing due to a trend of decliningrenewals for these older product offerings.

 
| ** **            | ** ** | **Support  Revenue** | ** ** | **Total  Revenue** | ** ** |
|-----------------------|------------|----------------------|------------|--------------------|------------|
|                  |       |                 |       |               |       |
| First quarter of 2004 |       | $                    | 870,000    |               | $          | 3,934,000 |   |
| First quarter of 2003 |       | $                    | 1,140,000  |               | $          | 3,612,000 |   |

 

Support revenue decreased$270,000, or 24%, and as a percentage of total revenue to 22% from 32%, in thefirst quarter of 2004 compared to the first quarter of 2003.

 

Based on historical data, theCompany expects that legacy support revenue will continue to decrease byapproximately 20% each year on a declining balance.  The Company expects the legacy supportrevenue will continue as long as it is economically feasible for the Company tomaintain and support the legacy products. As revenue from the legacy support decreases, costs will be reduced.When income from legacy support falls below break even, operations will bereviewed to determined if costs can be further reduced for the activity to beprofitable and if not, we plan to discontinue supporting the legacy products.The Company cannot predict when this will occur.

 

The Company expects that future services revenue will be derived fromthis support, as well as EbixASP registration and monthly fees, softwaredevelopment and call center and, to a much lesser extent all transactionrevenues from Ebix.mall, EbixExchange (INS-Site), conversion and training.

 

**Servicesand other costs**-Cost of services revenue includes costs associated with support, call center,consulting, implementation and training services.  Total services and other costs for thequarter increased $158,000 or 15.7%, from $1,005,000 for the comparable quarterof the prior year.  This increase was dueto an increase in services revenue and an increase in payroll expenses relatedto the acquisition of LifeLink.

 

**ProductDevelopment Expenses**-Total product development expenses for the first quarter of 2004 increased$200,000, or 55.6%, from $360,000 for the comparable quarter of the prior year.This increase was due to an increase in payroll expenses related to theacquisition of LifeLink and an increase in headcount in India.

 

**Sales andMarketing Expenses**-Total sales and marketing expenses for the first quarter of 2004 decreased$188,000, or 40.8%, from $461,000 for the comparable quarter of the prioryear.  This decrease was attributable toa decrease in payroll expenses of approximately $125,000 and a decrease infacility costs of $63,000 as a result of the lower headcount. 

 

**Generaland Administrative Expenses** —Total general andadministrative expenses for the quarter increased $223,000, or 19.2%, from$1,164,000 for the comparable quarter of the prior year.  This increase was due to an increase ininternational expenses of approximately$174,000 and a charge for amortizationof intangibles of approximately $68,000 related to the LifeLink acquisitionpartially offset by a decrease in bad debt expense of $12,000 and otherexpenses of $7,000

 

# **Income taxexpense**— The effective tax rate for the first quarter of 2004 is higher than therate for the comparable quarter of the prior year due to a different income mixamong the various tax jurisdictions in which the Company does business.

#  

**Liquidityand Capital Resources**

 

The Company had cash and cashequivalents of $5,961,000 at March 31, 2004, compared to $7,915,000 atDecember 31, 2003.

 

During the three months endedMarch 31, 2004, the Company experienced negative operating cash flow of$232,000 as compared to $893,000 of positive operating cash flow for the threemonths ended March 31, 2003. This decrease in cash flow from operations inthe three months ended March 31, 2004 resulted primarily from an increasein accounts receivable of $1,035,000 and an increase in accrued payroll andrelated benefits of $205,000, partially offset by net income for the quarter of$710,000 adjusted for non-cash items and an increase in deferred revenue of$298,000.

 

Cash used in investingactivities of $4,737,000 in the three months ended March 31, 2004represented expenditures made primarily as a result of the Company’sacquisition of LifeLink Corp. Inc. (“LifeLink”).  Cash provided by financing activities of$2,947,000 resulted from the Company’s sale of common stock during the quarter.

 

During early 2004 the Companysold 222,223 shares of its previously unissued common stock to CF EpicInsurance and General Fund, an investment fund located in London of which BriTcurrently owns approximately 70% of the equity interests, for gross proceeds of$3,000,010, or $13.50 per share. On February 23, 2004 the Company acquiredLifeLink Corp Inc. (“LifeLink”). Under

 

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terms of the agreement, theCompany acquired all of the outstanding capital stock of LifeLink from itsshareholders in exchange for an aggregate purchase price of $10,226,000 payableas follows: $5,000,000 paid in cash at closing, $2,226,000 payable in cash overa deferred period of five years, and $3,000,000 payable in 200,000 shares ofthe common stock of the Company issued at the time of closing. See note 7 tothe condensed consolidated financial statements included in this Form 10-Q.

 

The existing revolving line ofcredit with LaSalle National Bank Association was increased to $5,000,000during February 2004 and the agreement was amended inApril 2004.  There were noborrowings on this line as of May 14, 2004. The major features of the line, as amended, include an interest ratestated at prime, security at 60% of the amount of the line in a restrictedinterest bearing account and timely financial reporting requirements.  The line of credit will expire on October 31,2005.

 

For the three-month periodended March 31, 2004, 24% and 14% of the Company’s total revenues were from twocustomers – BRiT (including its affiliates) and AON, respectively.  Neither BRiT and its affiliates nor AON havelong-term agreements with the Company that provide certainty that such revenueswill be recurring.

 

In planning for its capitalneeds, the Company takes into account its sources of cash, which includeoperating cash flow, cash balances and funds from credit facilities, andanticipated future cash needs, which include working capital requirements foroperations, capital expenditures, and expenditures for businessacquisitions.  Based on these considerations, the Company believes it willhave sufficient cash for operations and to satisfy its contractual obligationsfor at least the next several years.

 

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# **The following summarizes the Company’scontractual obligations at March 31, 2004, and the effect such obligationsare expected to have on the Company’s liquidity and cash in future periods (inthousands):**

 
| ** **                     | ** ** | **Payment Due by Period** | ** ** |
|--------------------------------|------------|---------------------------|------------|
| ** **                     | ** ** | **Total**                 | ** ** | **Less Than 1 Year** | ** ** | **1 - 3 Years** | ** ** | **3- 5 Years** | ** ** | **More Than 5 Years** | ** ** |
| ** **                     |       | **(in  thousands)**       |       |
|                           |       |                      |       |   |   |   |   |   |   |   |   |
| Contractual Obligations:       |       |                      |       |   |   |   |   |   |   |   |   |
| Long-Term Debt Obligations (1) |       | $                         | 5,200      |   | $ | 500 |   | $ | 4,200 |   | $ | 500 |   | $ | — |   |
| Operating Leases Obligations   |       | 1,945                     |       | 488 |   | 860 |   | 597 |   | — |   |
| Capital Leases Obligations     |       | 43                        |       | 43 |   | — |   | — |   | — |   |
| Total                          |       | $                         | 7,188      |   | $ | 1,031 |   | $ | 5,060 |   | $ | 1,097 |   | $ | — |   |

 

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(1)          $2,700,000 is contingentupon exercise of the holder’s put option to require the Company to purchase theholder’s redeemable common stock.  Seenote 7 to the condensed consolidated financial statements included in this Form10-Q.

 

**SafeHarbor for Forward-Looking Statements under the Securities Litigation ReformAct of 1995** - This Quarterly Report on Form 10-Qcontains various forward-looking statements and information that are based onmanagement’s beliefs, as well as assumptions made by, and information currentlyavailable to management, including statements regarding future economicperformance and financial condition, liquidity and capital resources,acceptance of the Company’s products by the market and management’s plans andobjectives. The Company has tried to identify such forward looking statementsby use of words such as “expects,” “intends,” “anticipates,” “plans,”  “believes, “will,” “should,” 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 any such factors or to publicly announce theresults of any of the forward-looking statements contained herein to reflectchanged circumstances or future events or developments or for any other reason.

 

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**RiskFactors**

 

Youshould carefully consider the risks, uncertainties and other factors describedbelow, along with all of the other information included in this quarterlyreport on Form 10-Q because they could materially and adversely affect ourbusiness, financial condition, operating results, cash flows and prospectsand/or the market price of our common stock. This risk factors section is written in response to the Securitiesand Exchange Commission’s “plain English” guidelines.  In this section, the words “we,” “us,” “our”and “ours” refer to the Company and not any other person.

 

***Risks Related To Our Business andOur Industry***

 

**Youmay have difficulty evaluating our business because of our limited history ofInternet, call center and other business process outsourcing.**

 

Althoughour predecessor began operations in 1976, we did not begin any Internetoperations until September 1999 and did not begin generating revenues fromthese operations until the fourth quarter of 2000.  We did not begin any call center or otherbusiness process outsourcing operations or begin generating revenues from theseoperations until the first quarter of 2003. Accordingly, there is a limited history of these operations on which youcan evaluate our company and prospects. We cannot be certain that our Internet, call center and other businessprocess outsourcing strategies will be successful, because these strategies arenew.  Our early-stage Internet, callcenter and other business process outsourcing operations will be particularlysusceptible to the risks and uncertainties described in these risk factors andlikely to incur the expenses associated with addressing them.  Our prospects must be considered in light ofthe risks, uncertainties, expenses and difficulties frequently encountered bycompanies in a transitional stage of development, particularly companies in newand rapidly evolving markets, such as electronic commerce, and using new andunproven 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.**

 

Ourrevenue from the support services we offer in connection with our legacysoftware products has been decreasing significantly over the course of the pastfew 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 arecontinuing to use our legacy software, our support clients may choose not torenew their support agreements if their legacy software products no longerrequire support or they use third party support.  In addition, some of the clients who use our supportservices have reduced the level of support that we provide them, which in turnreduces our support revenue.  Thisdownward trend in our support revenue makes us particularly dependent upon ourother sources of revenue.

 

**Twocustomers currently provide a significant percentage of our total revenue.**

 

Revenues from one customer, BRiT InsuranceHoldings PLC and its affiliates, which at March 31, 2004 owned approximately34.0% of our common stock and approximately 45% of CF Epic Insurance andGeneral Fund, which at that date owned approximately 8.1% of our common stock,represented approximately 23% of our total revenue in 2003 and 17% of our totalrevenue in 2002. The revenues from BRIT Insurance Holdings PLC and itsaffiliates represented approximately 24% and 22% of the Company’s total revenuesfor the three -month periods ended March 31, 2004 and 2003, respectively. Ifrevenues from this customer were to discontinue, our operating results could beadversely affected.

 

Revenues from another international customer,AON, represented approximately 11% of our total revenue in 2003. The revenuesfrom AON represented approximately 14% and 12% of the Company’s total revenuesfor the three months ended March 31, 2004 and 2003.  If revenues from this customer were todiscontinue, our operating results could be adversely affected.

 

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

 

Weare dependent on the insurance industry, which may be adversely affected bycurrent economic and world conditions.

 

**Ouroperating results may fluctuate dramatically.**

 

Ourquarterly operating results may fluctuate significantly in the future due to avariety of factors that could affect our revenues or our expenses in anyparticular quarter.  You should not relyon our results of operations during any particular quarter as an indication ofour results for a full year or any other quarter.  Factors that may affect our quarterly resultsinclude:

 

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•                                          Changes ininsurance agents’ and carriers’ consumer acceptance of Internet commerce;

 

•                                          Loss of asignificant insurance agent, carrier or broker relationship or the merger ofany of our participating insurance carriers with one another; and

 

•                                          Technicaldifficulties for our internet focused services that hamper an agent’s abilityto run its agency system hosted by us.

 

Ouroperating expenses are based in part on our expectations of our future revenuesand are relatively fixed in the short term. We may be unable to adjust spending quickly enough to offset any unexpectedrevenue shortfall.

 

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

 

OnAugust 11, 2000, we were advised that the SEC had issued a formal Order ofInvestigation and subpoenaed documents relating to our financial reportingsince April 1, 1997, including, in particular, revenue recognition,software development cost capitalization, royalty costs and classification ofcash receipts.  We have submitteddocuments to the SEC upon the SEC’s request as part of the investigation.  It is possible that the SEC could imposecivil fines and penalties against us.  Anadverse finding against us by the SEC could negatively impact our stockprice.  In addition, we may continue toincur expenses associated with responding to this investigation, regardless ofits outcome, and this investigation may divert the efforts and attention of ourmanagement team from normal business operations.

 

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

 

Wemay need to raise additional funds in the future in order to fund moreaggressive brand promotion or more rapid expansion, to develop new or enhancedservices, to respond to competitive pressures or to make acquisitions.  Any required additional financing may not beavailable on terms favorable to us, or at all. If adequate funds are not available on acceptable terms, we may beunable to meet our business or strategic objectives or competeeffectively.  If additional funds areraised by our issuing equity securities, stockholders may experience dilutionof their ownership interests, and the newly issued securities may have rightssuperior to those of our common stock. If additional funds are raised by our issuing debt, we may be subject tolimitations on our activities.

 

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

 

Werecently acquired LifeLink and may in the future acquire or make investments incomplementary businesses, technologies, services or products if appropriateopportunities arise.  The process ofintegrating LifeLink or any other acquired business, technology, service orproduct into our business and operations may result in unforeseen operatingdifficulties and expenditures. Integration of an acquired company also may consume much of ourmanagement’s time and attention that could otherwise be available for ongoingdevelopment of our business.  Moreover,the anticipated benefits of the LifeLink acquisition or any other acquisitionmay not be realized.  Furthermore, we maybe unable to identify, negotiate or finance future acquisitionssuccessfully.  Future acquisitions couldresult in potentially dilutive issuances of equity securities or the incurrenceof debt, contingent liabilities or amortization expenses related to intangibleassets.

 

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

 

Tobe successful, we must adapt to rapidly changing technological and marketneeds, by continually enhancing our website and introducing new products andservices to address our users’ changing demands.

 

Oursegment in the marketplaces in which we operate is characterized by:

 

•                                          rapidlychanging technology;

•                                          evolvingindustry standards;

•                                          frequent newproduct and service introductions;

•                                          shiftingdistribution channels; and

 

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•                                          changingcustomer demands.

 

Ourfuture success will depend on our ability to adapt to this rapidly evolvingmarketplace.  We could incur substantialcosts if we need to modify our services or infrastructure in order to adapt tochanges affecting our market, and we may be unable to adapt to these changes.

 

**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.**

 

Weoperate in highly competitive markets. In particular, the online insurance distribution market, like thebroader electronic commerce market, is rapidly evolving and highlycompetitive.  Our software business alsoexperiences some competition from certain large hardware suppliers that sellsystems and systems’ components to independent agencies and from small,independent or freelance developers and suppliers of software, who sometimeswork in concert with hardware vendors to supply systems to independent agencies.  Our Internet business may also face indirectcompetition from insurance carriers that have subsidiaries which performin-house agency and brokerage functions.

 

Someof our current competitors have longer operating histories, larger customerbases, greater brand recognition and significantly greater financial, marketingand other resources than we do.  Inaddition, we believe we will face increasing competition as the onlinefinancial services industry develops and evolves.  Our current and future competitors may beable to:

 

•                                          undertake moreextensive marketing campaigns for their brands and services;

 

•                                          devote moreresources to website and systems development;

 

•                                          adopt moreaggressive pricing policies; and

 

•                                          make moreattractive 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.**

 

Weregard our intellectual property in general and our software in particular ascritical to our success.  It may bepossible for third parties to copy aspects of our products or, withoutauthorization, to obtain and use information that we regard as trade secrets.  Existing copyright law affords only limitedpractical protection, and our software is unpatented.

 

**If we infringe on theproprietary rights of others, we may be at a competitive disadvantage, and anyrelated litigation could be time consuming and costly.**

 

Thirdparties may claim that we have violated their intellectual propertyrights.  Any of these claims, with orwithout merit, could subject us to costly litigation and divert the attentionof key personnel.  To the extent that weviolate a patent or other intellectual property right of a third party, we maybe prevented from operating our business as planned, and we may be required topay damages, to obtain a license, if available, to use the right or to use anon-infringing method, if possible, to accomplish our objectives.

 

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

 

Ourfuture success is substantially dependent on the continued services andcontinuing contributions of our senior management and other key personnel,particularly Robin Raina, our President and Chief Executive Officer, andRichard J. Baum, our Executive Vice President – Finance & Administration,Chief Financial Officer and Secretary. The loss of the services of any of our executive officers or other keyemployees could harm our business.  Wehave no long-term employment agreements with any of our key personnel, nor dowe maintain key man life insurance policies on any of our key employees.

 

Ourfuture success depends on our continuing to attract, retain and motivate highlyskilled employees.  If we are not able toattract and retain new personnel,****ourbusiness will be harmed.  Competition forpersonnel in our industry is intense.  Wemay be unable to retain our key employees or attract, assimilate or retainother highly qualified employees in the future.

 

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

 

Wemarket our software internationally and plan to expand our Internet services tolocations outside of the United States. In addition, commencing in 2002, we began development activities, callcenter services and other operations in India. Our international operations may not produce enough revenue to justifyour investments in establishing them and are subject to other inherent risks,including:

 

•                  the impact ofrecessions in foreign economies on the level of consumers’ insurance shoppingand 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;

•                  fluctuations inexchange rates;

•                  potentiallyadverse tax consequences; and

•                  political andeconomic instability.

 

Furthermore, our entry into additional international markets requiressignificant management attention and financial resources, which could lessenour ability to manage our existing business effectively.

 

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

 

Weperform functions for licensed insurance agents, brokers and carriers and are,therefore, required to comply with a complex set of rules and regulations thatoften vary from state to state.  Theserules and regulations can be difficult to comply with and are ambiguous andopen to interpretation.  If we fail toproperly interpret and/or comply with these rules and regulations, we, theinsurance agents, brokers or carriers doing business with us, our officers, oragents with whom we contract could be subject to various sanctions, includingcensure, fines, cease-and-desist orders, loss of license or other penalties.This risk, as well as other laws and regulations affecting our business andchanges in the regulatory climate or the enforcement or interpretation ofexisting law, could expose us to additional costs, including indemnification ofparticipating insurance agents, brokers or carriers for their costs, and couldrequire changes to our business or otherwise harm our business.  Furthermore, because the application ofonline commerce to the consumer insurance market is relatively new, the impactof current or future regulations on our business is difficult toanticipate.  To the extent that there arechanges in the rules and regulations regarding the manner in which insurance issold, our business could be adversely affected.

 

**Ourcall center business could be adversely affected by equipment or systeminterruptions at one or more of our call centers.**

 

Ourcall center business is dependent upon our ability to protect our call centers,including the computer and telecommunications equipment and software systems atthose centers, against damage from fire, power loss, telecommunicationsinterruption or failure, natural disaster and other similar events. In theevent we experience a temporary or permanent interruption at one or more of ourcall centers, through casualty, operating malfunction or otherwise, ourbusiness could be materially adversely affected.

 

**Governmentalregulation of the telemarketing industry may increase our costs and restrictthe operation and growth of our call center business.**

 

Thetelemarketing industry and, therefore, our call center business are subject toan increasing amount of governmental regulation.  In particular, telemarketers are now barredfrom contacting persons who have registered their phone numbers on the NationalDo Not Call Registry maintained by the Federal Trade Commission.  We could be subject to a variety ofenforcement or private actions for our failure or the failure of our clients tocomply with these regulations.

 

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Furthermore, our costs may increase as a result of having to complywith these regulations, and these regulations may limit our call centeractivities or reduce the demand for our call center services.

 

**Theoutsourcing of business processes to foreign countries may be perceivednegatively, which may reduce the demand for our services and lead togovernmental regulation of these activities.**

 

Weenable companies to outsource certain business processes, including softwaredevelopment activities and call center services, to our operations inIndia.  There have been some increasinglynegative perceptions of the outsourcing of such processes from the U.S. toIndia, which may reduce the demand for these services and may lead togovernmental regulation affecting such activities.

 

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

 

**Anydisruption of our Internet connections could affect the success of our Internetbased products.**

 

Anysystem failure, including network, software or hardware failure, that causes aninterruption in our network or a decrease in responsiveness of our websitecould result in reduced user traffic and reduced revenue.  Continued growth in Internet usage couldcause a decrease in the quality of Internet connection service.  Websites have experienced serviceinterruptions as a result of outages and other delays occurring throughout theInternet network infrastructure.  Inaddition, there have been several incidents in which individuals haveintentionally caused service disruptions of major e-commerce websites.  If these outages, delays or servicedisruptions frequently occur in the future, usage of our website could growmore slowly than anticipated or decline, and we may lose revenues andcustomers.

 

Ifthe computer hardware operations that host our website were to experience asystem failure, the performance of our website would be harmed.  These systems are also vulnerable to damagefrom fire, floods, earthquakes, acts of terrorism, power loss,telecommunications failures, break-ins and similar events.  Our property and business interruptioninsurance coverage may not be adequate to compensate us for all losses that mayoccur.  In addition, our users depend onInternet service providers, online service providers and other websiteoperators for access to our website. Each of these providers has experienced significant outages in the past,and could experience outages, delays and other difficulties due to systemfailures unrelated to our systems.

 

**Concerns regarding securityof transactions or the transmission of confidential information over theInternet or security problems we experience may prevent us from expanding ourbusiness or subject us to legal exposure.**

 

Ifwe do not offer sufficient security features in our online product and serviceofferings, our products and services may not gain market acceptance, and wecould be exposed to legal liability. Despite the measures that we may take, our infrastructure will bepotentially vulnerable to physical or electronic break-ins, computer viruses orsimilar problems.  If a personcircumvents our security measures, that person could misappropriate proprietaryinformation or disrupt or damage our operations.  Security breaches that result in access toconfidential information could damage our reputation and subject us to a riskof loss or liability.  We may be requiredto make significant expenditures to protect against or remedy securitybreaches.  Additionally, if we are unableto adequately address our customers’ concerns about security, we may havedifficulty 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.**

 

Concernamong consumers and legislators regarding the use of personal informationgathered from Internet users could create uncertainty in the marketplace.  This could reduce demand for our services,increase the cost of doing business as a result of litigation costs orincreased service delivery costs, or otherwise harm our business.  Legislation has been proposed that wouldlimit the users of personally identifiable information of Internet usersgathered online or require online services 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 Trade Commission has settled a proceeding againstone online service that agreed in the settlement to limit the manner in whichpersonal information could be collected from users and provided to thirdparties.

 

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

 

Becauseof the Internet’s popularity and increasing use, new laws and regulations directedspecifically at e-commerce may be adopted. These laws and regulations may cover issues such as the collection anduse of data from website visitors, including the placing of small informationfiles, or “cookies,” on a user’s hard drive to gather information, and

 

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related privacy issues;pricing; taxation; telecommunications over the Internet; content; copyrights;distribution; domain name piracy; and quality 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.

 

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

 

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

 

In some future periods, our results of operations may be below theexpectations of public market investors, which could negatively affect themarket price of our common stock. Furthermore, the stock market in general has experienced extreme priceand volume fluctuations in recent years. We believe that, in the future, the market price of our common stockcould 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;

 

•                                          trends orconditions in the insurance, software, business process outsourcing andInternet markets;

 

•                                          changes inmarket valuations of our competitors; and

 

•                                          generalpolitical, economic and market conditions.

 

In addition, the market prices of securities of technology companies,including our own, have been volatile and have experienced fluctuations thathave often been unrelated or disproportionate to operating performance.  As a result, you may not be able to sellshares of our common stock at or above the price at which you purchasethem.  In the past, following periods ofvolatility in the market price of a company’s securities, securities classaction litigation has often been instituted against that company.  If any securities litigation is initiatedagainst us, we could incur substantial costs and our management’s attention andresources could be diverted from our business.

 

**The significant concentration of ownership of ourcommon stock will limit your ability to influence corporate actions.**

 

The concentration of ownership of our common stock may have the effectof delaying, preventing or deterring a change in control of our company, coulddeprive our stockholders of an opportunity to receive a premium for theircommon stock as part of a sale of our company, and may affect the market priceof our common stock.  At May 10, 2004,BRiT Insurance Holdings plc beneficially owned approximately 34.0% of ouroutstanding common stock and, together with our executive officers anddirectors, beneficially owned approximately 48% of our outstanding commonstock.  In addition, the Company has beeninformed that BriT owns approximately 70% of the equity interests of CF EpicInsurance and General Fund, which at May 10, 2004, beneficially ownedapproximately 8% of our outstanding common stock.  As a result, those stockholders, if they acttogether, are able to control all matters requiring stockholder approval,including the election of all directors and approval of significant corporatetransactions and amendments to our certificate of incorporation.  These stockholders may use their ownershipposition to approve or take actions that are adverse to your interests orprevent the taking of actions that are consistent with your interests.

 

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

 

Ourcertificate of incorporation authorizes the issuance of up to 2,000,000 sharesof preferred stock.  No shares ofpreferred stock are currently outstanding. However, shares of preferred stock may be issued by our board of directorsfrom time to time in one or more series for the consideration, and with therights and preferences, as our board of directors decides. Any shares ofpreferred stock that we may issue in the future could be given voting andconversion rights that could dilute the voting power and equity of holders ofshares of our common stock and have preferences over the common stock withrespect to dividends and in liquidation.

 

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

 

Ourcertificate of incorporation could make it more difficult for a third party toacquire control of us, because it gives our Board of Directors the ability toissue shares of preferred stock with rights as they deem appropriate withoutstockholder 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 usfrom engaging in a business combination with any significant stockholder for aperiod of three years from the date the person became a significant stockholderunless specific conditions are met.

 

Item 3.             QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK

 

The majorityof our operations are based in the U.S. and, accordingly, the majority of ourtransactions are denominated in U.S. dollars. However, we have foreign-based operations where transactions aredenominated in foreign currencies and are subject to market risk with respectto fluctuations in the relative value of currencies.  Currently, we have operations in Australia,Canada, India, New Zealand and Singapore and conduct transactions in the localcurrencies of each location.  There canbe no assurance that fluctuations in the value of foreign currencies will nothave a material adverse effect on our business, operating results, revenues orfinancial condition.  To date, the impactof fluctuations in these currencies have resulted in net transaction gains of$10,000 for the three months ended March 31, 2004 and losses of $49,000for the three months ended March 31, 2003. We considered the historical trends in currency exchange rate anddetermined that it was reasonably possible that adverse changes in exchangerates of 20% for all currencies could be experienced in the near term.  Such adverse changes would have resulted inan adverse impact on income before taxes of approximately $100,000 and $140,000for the three months ended March 31, 2004 and March 31, 2003,respectively.

 

There havebeen no material changes in the Company’s interest rate risk during the threemonths ended March 31, 2004.  Foradditional information on interest rate risk, refer to the “QuantitativeDisclosures About Market Risk” section of the Company’s Annual Report onForm 10-K for the year ended December 31, 2003.

 

Item 4.    CONTROLS AND PROCEDURES

 

In connectionwith its 2003 year-end audit, the Company’s independent certified publicaccountants at that time, KPMG LLP (“KPMG”), identified details of reportableconditions relating to the Company’s internal control over financialreporting.  According to KPMG, thecommunication of the reportable conditions was based on their professionaljudgment, taking into consideration audit differences that required adjustmentto the Company’s financial statements, as well as the underling causes for suchadjustments, and KPMG’s observations about the Company’s internal controlprocesses, but did not arise from any particular transaction or event.  On March 25, 2004, KPMG presented to theaudit committee the details of the reportable conditions noted during the 2003audit, which included (1) delegation of authority and what KPMG considered tobe inadequate reviews by a person other than the preparer of accountinginformation, (2) the lack of a formalized contract review process to ensureproper revenue recognition, (3) the lack of a complete understanding of theCompany’s income tax provision and related accounts, (4) inadequatedocumentation for certain unusual transactions (including the basis for theCompany’s accounting conclusions), and (5) internal control matters (documentedand testable control environment) under the Sarbanes-Oxley Act, Section 404(together with applicable regulations,“SOX 404”).  

 

In response toKPMG’s identified issues, in the first quarter of 2004 the Company changed itsreporting structure within the financial accounting group and redistributedresponsibilities among the financial accounting group to create improved checksand balances.  The reorganizationincluded appointment of a senior member of the group as corporate controller towhom all the other members report. Further, (a) the responsibility for a formalized contract review processto ensure proper revenue recognition was re-assigned to a financial departmentdirector; (b) the Company established a process for the quarterly review of theprovision for income taxes by the Chief Financial Officer and corporatecontroller; (c) the Chief Financial Officer and corporate controller undertookresponsibility for the analysis and documentation of any unusualtransactions.  

 

In addition,in order to address further the deficiencies described above and to improve theCompany’s internal control over financial reporting for future periods, theCompany plans to: 

 

1.               Performa review of internal control over financial reporting in connection withsatisfying the requirements Section 404 of the Sarbanes-Oxley Act andregulations promulgated thereunder, with the assistance of an outsideconsulting firm to be retained by the Company; 

 

2.               Performmore detailed quarterly reconciliations and analyses of the Company’s revenueaccounts; 

 

3.               Continueto enhance staffing to provide sufficient resources to accomplish the foregoingobjectives, including through the addition of a senior financial accountant inAustralia. 

 

Theenhancements to internal control over financial reporting made in the first threemonths of 2004 constitute, and the planned further improvements willconstitute, significant changes in internal control over financialreporting.  In particular, changing itsreporting structure within the financial accounting group and redistributingresponsibilities among the financial accounting group, as described above,constituted a change in the Company’s internal control over financial reportingduring the quarter ended March 31, 2004 that has materially affected theCompany’s internal control over financial reporting.  The Company continues to evaluate theeffectiveness of its internal control over financial reporting, along with itsdisclosure controls and procedures, on an ongoing basis and will take furtheraction as appropriate. 

 

The Companycarried out an evaluation, under the supervision and with the participation ofthe Company’s management, including its Chief Executive Officer and ChiefFinancial Officer, of the design and operation of the Company’s disclosurecontrols and procedures, which are designed to provide reasonable assurancethat the information required to be disclosed by the Company in the reportsthat it files with or submits to the Securities and Exchange Commission is (1)recorded, processed, summarized and reported within the time periods specifiedin the rules and forms of the Securities and Exchange Commission and (2)accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow timely decisions regarding requireddisclosure.  Based on this evaluation,the Company’s Chief Executive Officer and the Company’s Chief Financial Officerconcluded that, as of March 31, 2004, the Company’s disclosure controls andprocedures were effective to provide such reasonable assurance. They reachedthis conclusion based in large part on their assessment of (i) the financialexpertise of the members of the internal accounting staff, (ii) the regularcommunications among such persons (serving as a de facto disclosure committee), and between them and therest of the relatively small organization, with respect to all materialdevelopments in the Company’s business, and (iii) the review of the Company’sfinancial and other disclosure by the Company’s management, its auditcommittee, its independent public accountants and its outside legal counsel, aswell as (iv) the enhancements made to the Company’s internal control overfinancial reporting in the first three months of 2004.

 

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Part II — OTHER INFORMATION

 

Item 2.  CHANGES IN SECURITIES USE OF PROCEEDSAND ISSUER PURCHASES OF EQUITY SECURITIES

 

On January 16, 2004, theCompany sold an aggregate of 222,223 shares of its common stock to CF Epic Insuranceand General Fund (“CF Epic”), an investment fund located in London, England,for cash in the amount of $3,000,010.50. The Company sold these securities in a transaction exempt fromregistration under the Securities Act of 1933 (the “Act”) in reliance uponSection 4(2) of the Act and Regulation D thereunder, as on a transactionnot involving a public offering.  CF Epicrepresented in writing to the Company that it is an “accredited investor” asdefined in Rule 501(a) of Regulation D under the Act.  The Company did not pay any underwritingcommissions or discounts or placement fees in connection with this transaction.

 

On February 23, 2004, theCompany issued 200,000 shares of its common stock to the shareholder ofLifeLink Corporation (“LifeLink”) in connection with the Company’s acquisitionof all the capital stock of LifeLink. The Company sold these securities in atransaction exempt from registration under the Securities Act of 1933 (the “Act”)in reliance upon Section 4(2) of the Act and Regulation D thereunder, ason a transaction not involving a public offering.  LifeLink represented in writing to theCompany that it is an “accredited investor” as defined in Rule 501(a) ofRegulation D under the Act.  The Companydid not pay any underwriting commissions or discounts or placement fees inconnection with this transaction.

 

Item 5.  OTHER INFORMATION

 

On April 30, 2004, WilliamBaumel, who was chairman of the Audit Committee of the Company’s Board ofDirectors, resigned from the Company’s Board of Directors effectiveimmediately.

 

Item 6.             EXHIBITS AND REPORTS ON FORM 8-K

 

(a)                          Exhibits

 
| 2.1    | Stock  Purchase Agreement, dated February 23, 2004, by and among Ebix, Inc. and  the shareholders of LifeLink Corporation (incorporated by reference to  Exhibit 2.1 to the Company’s Current Report of Form 8-K dated  February 23, 2004 (the “February 2004 8-K”) and incorporated herein  by reference). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                      |
| 2.2    | Secured  Promissory Note, dated February 23, 2004, issued by the Company  (incorporated herein by reference to Exhibit 2.2 of the February 2004  8-K and incorporated herein by reference).                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                      |
| 10.1   | Amended and  Restated Revolving Line of Credit from LaSalle Bank, National Association,  Amended and Restated Loan and Security Agreement and Pledge Agreement dated  April 21, 2004. (incorporated herein by reference to Exhibit 10.1 to the  Company's Form 10-Q dated March 31, 2004 and incorporated herein by  reference).     |
|   |                                                                                                                                                                                                                                                                                                                                      |
| 31.1   | Certification  of Chief Executive Officer Pursuant to Rule 13a-14(a) (Section 302 of  the Sarbanes-Oxley Act of 2002).                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                      |
| 32.2   | Certification  of Chief Financial Officer Pursuant to Rule 13a-14(a) (Section 302 of  the Sarbanes-Oxley Act of 2002).                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                      |
| 32.1   | Certification  of Chief Executive Officer Pursuant to Section 906 of the Sabanes-Oxley  Act of 2002 (furnished herewith).                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                      |
| 32.2   | Certification  of Chief Financial Officer Pursuant to Section 906 of the Sabanes-Oxley  Act of 2002 (furnished herewith).                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                      |
| (b)    | Reports on  Form 8-K                                                                                                                                                                                                                                                                                                                      |

 

The Company filed a currentreport on Form 8-K (pursuant to Items 2 and 7 thereof) on February 23,2004 to report the Company’s acquisition of LifeLink.

 

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SIGNATURES

 

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

 
|                | Ebix, Inc. |
|---------------------|------------|
|                |       |
|                |       |
| Date: May 20,  2005 | 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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EXHIBIT INDEX

 
| **EXHIBIT NO.** | ** ** | **DESCRIPTION**                                                                                                                                                                                                                                                                                                                           |
|-----------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1             |       | Stock  Purchase Agreement, dated February 23, 2004, by and among Ebix, Inc. and  the shareholders of LifeLink Corporation (incorporated by reference to  Exhibit 2.1 to the Company’s Current Report of Form 8-K dated  February 23, 2004 (the “February 2004 8-K”) and incorporated herein  by reference). |
|            |       |                                                                                                                                                                                                                                                                                                                                      |
| 2.2             |       | Secured  Promissory Note, dated February 23, 2004, issued by the Company (incorporated  herein by reference to Exhibit 2.2 of the February 2004 8-K and  incorporated herein by reference).                                                                                                                                     |
|            |       |                                                                                                                                                                                                                                                                                                                                      |
| 10.1**          |       | Amended and  Restated Revolving Line of Credit from LaSalle Bank, National Association,  Amended and Restated Loan and Security Agreement and Pledge Agreement dated  April 21, 2004.                                                                                                                                                |
|            |       |                                                                                                                                                                                                                                                                                                                                      |
| 31.1*           |       | Certification  of Chief Executive Officer Pursuant to 13a-14(a) (Section 302 of the  Sarbanes-Oxley Act of 2002).                                                                                                                                                                                                                    |
| 31.2*           |       | Certification  of Chief Financial Officer Pursuant to 13a-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                                                                                                                                                                                                                                 |

 

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**                                  Previouslyincluded as an exhibit to this quarterly report on Form 10-Q.

*                                         Includedherewith.

 

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