**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 
| **ý**                                                  | ** ** | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**        |
|-------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
|                                                        |
| **For the quarterly period ended September 30,  2005** |
| ** **                                                  |
| **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** |

 

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

 

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

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act)Yes  o No ý

 

Asof November 7, 2005, the number of shares of Common Stock outstanding was2,734,504.

 

 

----

 

FORM 10-Q

 

FOR THE QUARTER ENDED September 30, 2005

 

INDEX

 
| Part I  — FINANCIAL INFORMATION |                                                                                                                           |
|-------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------|
|                                      |                                                                                                                           |
|                                      | Item  1. Consolidated Financial Statements                                                                                     |   |
|                                      |                                                                                                                           |   |
|                                      | Condensed  Consolidated Balance Sheets at September 30, 2005 (unaudited) and December 31,  2004                      |   |
|                                      |                                                                                                                           |   |
|                                      | Condensed  Consolidated Statements of Income for the Three and Nine Months ended September 30,  2005 and 2004 (unaudited) |   |
|                                      |                                                                                                                           |   |
|                                      | Condensed  Consolidated Statements of Cash Flows for the Nine Months ended September 30,  2005 and 2004 (unaudited)       |   |
|                                      |                                                                                                                           |   |
|                                      | Notes  to Condensed Consolidated Financial Statements (unaudited)                                                              |   |
|                                      |                                                                                                                           |   |
|                                      | Item 2. Management’s  Discussion and Analysis of Financial Condition and Results of Operations                            |   |
|                                      |                                                                                                                           |   |
|                                      | Item 3. Quantitative and  Qualitative Disclosures About Market Risk                                                            |   |
|                                      |                                                                                                                           |   |
|                                      | Item 4. Controls and Procedures                                                                                                |   |
|                                      |                                                                                                                           |   |
| PART II — OTHER INFORMATION     |                                                                                                                           |
|                                      |                                                                                                                           |   |
|                                      | Item 2. Unregistered Sales  of Equity Securities and Use of Proceeds                                                           |   |
|                                      |                                                                                                                           |   |
|                                      | Item 6. Exhibits                                                                                                               |   |
|                                      |                                                                                                                           |   |
| SIGNATURES                                |                                                                                                                           |

 

2

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**Ebix, Inc. and Subsidiaries**

**Condensed Consolidated Balance Sheets**

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

 
| ** **                                                                                                                                                                   | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                   | ** ** | **(Unaudited****)**          | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                                                   |       |                         |       |                        |       |
| **Current assets:**                                                                                                                                                          |       |                         |       |                        |       |
| Cash and cash equivalents                                                                                                                                                    |       | $                            | 5,817      |                        | $          | 5,843 |   |
| Restricted cash                                                                                                                                                              |       | 3,000                        |       | 3,000                       |       |
| Accounts receivable, less allowance of $12 and  $13, respectively                                                                                                            |       | 3,241                        |       | 3,256                       |       |
| Other current assets                                                                                                                                                         |       | 569                          |       | 587                         |       |
| **Total current assets**                                                                                                                                                     |       | 12,627                       |       | 12,686                      |       |
| Property and equipment, net                                                                                                                                                  |       | 1,498                        |       | 1,450                       |       |
| Goodwill                                                                                                                                                                     |       | 12,460                       |       | 12,669                      |       |
| Intangibles, net                                                                                                                                                             |       | 3,575                        |       | 4,234                       |       |
| Other assets                                                                                                                                                                 |       | 335                          |       | 296                         |       |
| **Total assets**                                                                                                                                                             |       | $                            | 30,495     |                        | $          | 31,335 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                               |       |                         |       |                        |       |
| **Current liabilities:**                                                                                                                                                     |       |                         |       |                        |       |
| Line of  credit                                                                                                                                                              |       | $                            | 3,409      |                        | $          | 3,500 |   |
| Accounts payable and accrued expenses                                                                                                                                        |       |                         | 1,697      |                        |       | 1,781 |   |
| Accrued payroll and related benefits                                                                                                                                         |       | 1,170                        |       | 1,522                       |       |
| Current portion of long term debt                                                                                                                                            |       | 510                          |       | 977                         |       |
| Deferred revenue                                                                                                                                                             |       | 3,159                        |       | 2,989                       |       |
| **Total current liabilities**                                                                                                                                                |       | 9,945                        |       | 10,769                      |       |
| Long term debt, less current portion                                                                                                                                         |       | 2,314                        |       | 2,796                       |       |
| Redeemable common stock (157,728 and 357,728 shares  issued and outstanding at September 30, 2005 and December 31, 2004,  respectively) stated at redemption price |       | 1,522                        |       | 4,262                       |       |
|                                                                                                                                                                         |       |                         |       |                        |       |
| **Stockholders’ equity:**                                                                                                                                               |       |                         |       |                        |       |
| Convertible Series D Preferred stock, $.10  par value, 500,000 shares authorized, no shares issued and outstanding                                                      |       | —                       |       | —                      |       |
| Common stock, $.10 par value,  10,000,000 shares authorized, 2,734,504 and 2,911,154 shares issued and  outstanding, respectively                                            |       | 273                          |       | 291                         |       |
| Additional paid-in capital                                                                                                                                                   |       | 92,760                       |       | 92,717                      |       |
| Deferred compensation                                                                                                                                                        |       | (300                         | )          | (376                        | )          |
| Accumulated deficit                                                                                                                                                          |       | (76,633                      | )          | (80,011                     | )          |
| Accumulated other comprehensive income                                                                                                                                       |       | 614                          |       | 887                         |       |
| **Total stockholders’ equity**                                                                                                                                          |       | 16,714                       |       | 13,508                      |       |
| **Total liabilities and  stockholders’ equity**                                                                                                                         |       | $                            | 30,495     |                        | $          | 31,335 |   |

 

Seeaccompanying notes to condensed consolidated financial statements.

 

3

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**Ebix, Inc. and Subsidiaries**

**Condensed Consolidated Statements of Income**

(In thousands, except per share data)

(Unaudited)

 
| ** **                                                                                                                              | ** ** | **Three  Months Ended September 30,** | ** ** | **Nine  Months Ended September 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                                                              | ** ** | **2005**                                   | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                                                                    |       |                                       |       |                                      |       |   |   |   |   |
| **Revenue:**                                                                                                                            |       |                                       |       |                                      |       |   |   |   |   |
| Software                                                                                                                                |       | $                                          | 390        |                                      | $          | 174 |   | $ | 1,000 |   | $ | 734 |   |
| Services and other (Including revenues from  related parties of $963, $1,004, $2,720 and $2,681, respectively – See  Note 6.) |       | 5,506                                      |       | 5,482                                     |       | 16,934 |   | 13,532 |   |
| Total  revenue                                                                                                                          |       | 5,896                                      |       | 5,656                                     |       | 17,934 |   | 14,266 |   |
| **Operating expenses:**                                                                                                                 |       |                                       |       |                                      |       |   |   |   |   |
| Services and other costs                                                                                                                |       | 1,594                                      |       | 1,422                                     |       | 4,503 |   | 3,885 |   |
| Product development                                                                                                                     |       | 892                                        |       | 781                                       |       | 2,459 |   | 2,202 |   |
| Sales and marketing                                                                                                                     |       | 547                                        |       | 431                                       |       | 1,547 |   | 1,127 |   |
| General and administrative                                                                                                              |       | 1,413                                      |       | 1,684                                     |       | 4,928 |   | 3,950 |   |
| Amortization  and depreciation                                                                                                          |       | 317                                        |       | 338                                       |       | 965 |   | 810 |   |
| **Total operating expenses**                                                                                                            |       | 4,763                                      |       | 4,656                                     |       | 14,402 |   | 11,974 |   |
| **Operating income**                                                                                                                    |       | 1,133                                      |       | 1,000                                     |       | 3,532 |   | 2,292 |   |
| Interest income                                                                                                                         |       | 125                                        |       | 28                                        |       | 290 |   | 70 |   |
| Interest expense                                                                                                                        |       | (142                                       | )          | (105                                      | )          | (357 | ) | (108 | ) |
| Foreign exchange (loss) gain                                                                                                            |       | (17                                        | )     | (3                                        | )          | 58 |   | 5 |   |
| Income before income taxes                                                                                                              |       | 1,099                                      |       | 920                                       |       | 3,523 |   | 2,259 |   |
| Income tax benefit (expense)                                                                                                            |       | 127                                        |       | 61                                        |       | (145 | ) | (122 | ) |
|                                                                                                                                    |       |                                       |       |                                      |       |   |   |   |   |
| **Net income**                                                                                                                          |       | $                                          | 1,226      |                                      | $          | 981 |   | $ | 3,378 |   | $ | 2,137 |   |
|                                                                                                                                    |       |                                       |       |                                      |       |   |   |   |   |
| **Basic earnings per common share**                                                                                                     |       | $                                          | 0.45       |                                      | $          | 0.34 |   | $ | 1.20 |   | $ | 0.78 |   |
|                                                                                                                                    |       |                                       |       |                                      |       |   |   |   |   |
| **Diluted earnings per common  share**                                                                                                  |       | $                                          | 0.40       |                                      | $          | 0.31 |   | $ | 1.08 |   | $ | 0.70 |   |
|                                                                                                                                    |       |                                       |       |                                      |       |   |   |   |   |
| Basic weighted average shares outstanding                                                                                               |       | 2,734                                      |       | 2,900                                     |       | 2,808 |   | 2,742 |   |
|                                                                                                                                    |       |                                       |       |                                      |       |   |   |   |   |
| Diluted weighted average shares outstanding                                                                                             |       | 3,089                                      |       | 3,208                                     |       | 3,123 |   | 3,064 |   |

 

Seeaccompanying notes to condensed consolidated financial statements.

 

4

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**Ebix, Inc. and Subsidiaries**

**Condensed Consolidated Statements of Cash Flows**

(In thousands)

(Unaudited)

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | ** ** | **Nine  Months Ended September 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | ** ** | **2005**                                  | ** ** | **2004** | ** ** |
| **Cash flows from operating  activities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                      |       |   |   |
| Net income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       | $                                         | 3,378      |   | $ | 2,137 |   |
| **Adjustments to reconcile net  income to net**** ****cash provided by operating  activities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       |                                      |       |   |   |
| Depreciation and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       | 965                                       |       | 814 |   |
| Stock-based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       | (13                                       | )     | 53 |   |
| Restricted stock compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       | 48                                        |       | — |   |
| Provision for doubtful accounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       | 6                                         |       | 123 |   |
| **Changes in assets and  liabilities, net of effect of acquisition:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       |                                      |       |   |   |
| Accounts receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       | 9                                         |       | (628 |  )) |
| Other assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |       | (21                                       | )          | (505 | ) |
| Accounts payable and accrued expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       | (84                                       | )          | (210 | ) |
| Accrued payroll and related benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       | (352                                      | )          | (847 | ) |
| **Deferred revenue**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       | 170                                       |       | 340 |   |
| Net  cash provided by operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       | 4,106                                     |       | 1,277 |   |
| **Cash flows from investing  activities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                      |       |   |   |
| Acquisition of LifeLink, net of cash acquired                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       | —                                    |       | (4,763 | ) |
| Acquisition of Heart, net of cash acquired                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       | —                                    |       | (3,152 | ) |
| **Capital expenditures**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       | (382                                      | )          | (170 | ) |
| Net  cash used in investing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       | (382                                      | )          | (8,085 | ) |
| **Cash flows from financing  activities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                      |       |   |   |
| Proceeds from borrowings related to line of credit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       | —                                    |       | 3,500 |   |
| Payments on line of credit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       | (91                                       | )          | — |   |
| Repurchase of stock guarantee                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       | (2,700                                    | )          | — |   |
| Restricted cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       | —                                    |       | (3,000 | ) |
| Proceeds from the exercise of stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       | 65                                        |       | 45 |   |
| Proceeds from the issuance of common stock, net of  issuance costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       | —                                    |       | 2,977 |   |
| Payments of long term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       | (949                                      | )          | (73 | ) |
| Net  cash (used in) provided by financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       | (3,675                                    | )          | 3,449 |   |
| Effect of foreign exchange rates on cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       | (75                                       | )          | — |   |
| Net  change in cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       | (26                                       | )     | (3,359 | ) |
| Cash  and cash equivalents at the beginning of the period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       | 5,843                                     |       | 7,915 |   |
| Cash  and cash equivalents at the end of the period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       | $                                         | 5,817      |   | $ | 4,556 |   |
| **Supplemental disclosures of  cash flow information:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                      |       |   |   |
| Interest paid                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       | $                                         | 155        |   | $ | 43 |   |
| Income taxes paid                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       | $                                         | 260        |   | $ | 342 |   |
| **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.   The Company also capitalized approximately $128,000 of transaction  costs in conjunction with the acquisition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |                                      |       |   |   |
| During the third quarter of 2004, Ebix Australia  acquired the operating assets of Heart Consulting PTY Ltd. in exchange for an  aggregate purchase price (in Australian dollars) of A$10,175,000 ($7,116,000  USD) (based on the exchange rate as published by the Reserve Bank of  Australia on July 1, 2004 of A$0.6994 per United States Dollar (“USD”))  payable as follows: A$5,175,000 ($3,619,000 USD) in cash at closing,  A$2,000,000 ($1,399,000 USD) payable under stand-by letters of credit issued  by the Company’s lender on the Company’s line of credit in three equal annual  installments on each of the first, second and third anniversaries of the  closing (the “Deferred Payments”), and A$3,000,000 ($2,098,000 USD) payable  in 157,728 shares of common stock of Ebix issued at the closing. The Company  also capitalized approximately $106,000 of transaction costs in conjunction  with the acquisition during the first nine months of 2004. |       |                                      |       |   |   |

 

Seeaccompanying notes to condensed consolidated financial statements.

 

5

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Ebix, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note1.  BASIS OF PRESENTATION AND SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES

 

**Basisof presentation** –These condensed consolidated financial statements are unaudited, include theaccounts of Ebix, Inc. and its wholly-owned subsidiaries (the “Company”),and reflect all adjustments (consisting only of normal recurring adjustments)which are, in the opinion of management, necessary for a fair presentation ofthe results of the interim periods.

 

Thesecondensed consolidated financial statements should be read in conjunction withthe consolidated financial statements, and accompanying notes thereto, includedin the Company’s Annual Report on Form 10-K for the year ended December 31,2004.

 

Theresults of operations for the three and nine months ended September 30,2005 are not necessarily indicative of results to be expected for the entirecurrent year.

 

Certainprior period amounts have been reclassified to conform to the current periodpresentation.

 

**Summaryof significant accounting policies—**

 

Weapply the provisions of Statement of Position (“SOP”) 97-2, “Software RevenueRecognition,” as amended by Statement of Position 98-9, “Modification ofSOP 97-2, Software Revenue Recognition, With Respect to CertainTransactions,” to all transactions involving the sale of software.

 

InMay 2003, the Financial Accounting Standards Board (“FASB”) finalized theterms of Emerging Issues Task Force IssueNo. 00-21, “Revenue Arrangements with Multiple Deliverables” (EITF 00-21),which provides criteria governing how to identify whether goods or servicesthat are to be delivered separately in a bundled sales arrangement should beaccounted for separately. Deliverables are accounted for separately if theymeet all of the following: a) the delivered items have stand-alone valueto the customer; b) the fair value of any undelivered items can bereliably determined; and c) if the arrangement includes a general right ofreturn, delivery of the undelivered items is probable and substantiallycontrolled by the seller. The Company adopted EITF 00-21 on July 1, 2003for all new revenue arrangements executed subsequent to June 30, 2003 (orsignificant modification to arrangements existing prior to July 1, 2003).The Company’s current policy is to analyze all new revenue arrangements.

 

Tothe extent arrangements contain multiple deliverables, the Company performs ananalysis of the nature of the deliverables to determine to what extent thedeliverables of the arrangement are governed by any higher level literature (asdefined in EITF 00-21). EITF 00-21 recognizes arrangements that qualify fortreatment under SOP 97-2 and certain arrangements that qualify for contractaccounting (i.e. SOP 81-1) as falling under the definition of “higher levelliterature.”  The Company applies theprovisions ofSOP 97-2, as amended by Statement of Position 98-9, “Modifications of SOP 97-2,Software Revenue Recognition, With Respect to Certain Transactions,” to allarrangements which include software deliverables that are considered more thaninconsequential to the other elements in the arrangements. For 2005 and 2004,all of the Company’s contracts with multiple deliverables have fallen underhigher level accounting literature under the provisions of SOP 97-2 and/or SOP81-1.

 

Althoughthe Company has not been impacted in the current year by the adoption of EITF 00-21,it is possible that EITF 00-21 may affect future periods given the additionalrevenue streams the Company has initiated, as well as the acquisitionactivities of the Company.

 

TheCompany recognizes revenue for license fees from its software products upondelivery, provided that the fee is fixed and determinable, acceptance hasoccurred, collectibility is probable and persuasive evidence of an arrangementexists. Revenue from third party software is derived from the licensing ofthird party software products in connection with sales of the Company’ssoftware licenses, and is generally recognized upon delivery together with theCompany’s license revenue. Training, data conversion, installation, andconsulting services are generally recognized as revenue when the services areperformed and collectibility is probable. Revenue for maintenance and supportservice is recognized ratably over the term of the support agreement.

 

Forarrangements containing multiple elements, revenue is recognized on delivered elementswhen vendor-specific objective evidence (“VSOE”) of fair value has beenestablished on the undelivered elements, applying the residual method of SOP 98-9.Fair value is determined for each undelivered element based on the pricecharged for the sale of each element separately. In contracts that containfirst year maintenance bundled with software fees, unbundling of maintenance isbased on the price charged for renewal maintenance. Revenue for maintenance andsupport service is recognized ratably over the term of the support agreement.

 

Revenuesrelated to 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

 

6

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“RevenueRecognition.” Transaction fees are recognized as revenue as the transactionsoccur and revenue is earned. Revenue is only recognized when collectiblity isprobable.

 

Deferredrevenue includes maintenance and support payments that have been received orbillings recorded prior to performance and, in certain cases, cash collections;amounts received under multi-element arrangements in which VSOE of undeliveredelements does not exist; and initial registration fees and related service feesunder hosting agreements. Revenue is recognized when VSOE of the undeliveredelements is established, the elements are delivered, or the obligation todeliver the elements is extinguished.

 

Softwarearrangements involving significant customization, modification or productionare accounted for in accordance with American Institute of Certified PublicAccountants Statement of Position 81-1, “Accounting for Performance onConstruction-Type and Certain Production-Type Contracts,” using thepercentage-of-completion method. The Company recognizes revenue using actualhours worked as a percentage of total expected hours required by thearrangement, provided that the fee is fixed and determinable, there is evidenceof an arrangement and recovery of any related recorded asset is consideredprobable.

 

Forbusiness process outsourcing agreements, which include call center services,services are primarily performed on a time and materials basis. Revenue isrecognized when the service is performed.

 

**StockOptions -**At September 30,2005, the Company had two stock-based employee compensation plans. The Companyaccounts for stock options issued to employees in accordance with AccountingPrinciples Board (“APB”) Opinion No. 25, “Accounting for Stock Issued toEmployees.” The Company has adopted the disclosure only provisions of Statementof Financial Accounting Standards (“SFAS”) No. 123, “Accounting forStock-Based Compensation,” and SFAS No. 148, “Accounting for Stock BasedCompensation — Transition and Disclosure – an Amendment to FASB Statement No. 123,”for options and warrants issued to employees. Under APB Opinion No. 25,compensation expense is recorded based on the difference, if any, on the measurementdate, between the estimated fair value of the Company’s stock and the exerciseprice of options to purchase that stock. Any resulting compensation expense isamortized on a straight-line basis over the vesting period of the options.

 

TheCompany applies APB Opinion No. 25 and related interpretations inaccounting for its employee stock-based compensation plans. Had compensationcost for these stock-based compensation plans been determined based on thefair-value method prescribed by SFAS No. 123, using the Black-Scholesoption-pricing model, the Company’s net earnings and net earnings per sharewould have been the pro forma amounts indicated below:

 
| ** **                                                                                                                                    | ** ** | **Three  Months Ended**      | ** ** | **Nine  Months Ended**       | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                    | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** |
|                                                                                                                                          |       |                         |       |                         |       |   |   |   |   |
| Net income, as reported                                                                                                                       |       | $                            | 1,226,000  |                         | $          | 981,000 |   | $ | 3,378,000 |   | $ | 2,137,000 |   |
| Add: Stock-based employee compensation expense  included in reported net income, net of related tax effects                                   |       | 5,000                        |       | 5,000                        |       | 14,000 |   | 14,000 |   |
| Deduct: Total stock-based employee compensation  expense determined under fair-value based method for all awards, net of  related tax effects |       | (55,000                      | )          | (271,000                     | )          | (594,000 | ) | (1,118,000 | ) |
| Pro forma net income                                                                                                                          |       | $                            | 1,176,000  |                         | $          | 715,000 |   | $ | 2,798,000 |   | $ | 1,033,000 |   |
|                                                                                                                                          |       |                         |       |                         |       |   |   |   |   |
| Basic earnings per share, as reported                                                                                                         |       | $                            | 0.45       |                         | $          | 0.34 |   | $ | 1.20 |   | $ | 0.78 |   |
| Diluted earnings per share, as reported                                                                                                       |       | $                            | 0.40       |                         | $          | 0.31 |   | $ | 1.08 |   | $ | 0.70 |   |
| Basic earnings per share, pro forma                                                                                                           |       | $                            | 0.43       |                         | $          | 0.25 |   | $ | 1.00 |   | $ | 0.38 |   |
| Diluted earnings per share, pro forma                                                                                                         |       | $                            | 0.38       |                         | $          | 0.22 |   | $ | 0.90 |   | $ | 0.34 |   |

 

In December 2004,the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“FAS123R”), which revises and replaces SFAS No. 123, “Accounting forStock-Based Payment” and supercedes APB Opinion No. 25, “Accounting forStock Issued to Employees.” FAS 123R requires the measurement of allshare-based payments to employees, including grants of employee stock options,using a fair-value based method and the recording of such expense in theCompany’s consolidated statements of operations. The pro forma disclosurespreviously permitted under SFAS No. 123 will no longer be an alternativeto financial statement recognition. The provisions of FAS 123R were to havebeen effective for reporting periods beginning after June 15, 2005. At theend of March 2005, the SEC staff released Staff Accounting Bulletin No. 107(SAB 107), providing guidance for implementing FASB No. 123R.  Subsequently, the Commission delayed theimplementation dates for FAS 123R to the start of the Company’s fiscalyear.  As a result, the Company will berequired to comply with the provisions of FAS 123R beginning January 1,2006.  The Company is evaluating therequirements of FAS 123R. However, because the Company currently accounts foremployee stock option grants in a footnote disclosure as permitted by SFAS No. 123,the adoption of FAS 123R will have an impact on the Company’s consolidatedresults of operations.  The Companyestimates that the impact will be approximately $222,000 of compensationexpense for the year ended December 31, 2006 and approximately $24,000 ofcompensation expense for the year ended December 31, 2007 based on thecurrent information.

 

7

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**Non-employee Stock Compensation**—The Company accounts for stock-basedcompensation issued to non-employees in accordance with SFAS No. 123 andEITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issuedto Other Than Employees for Acquiring, or in conjunction with Selling Goods orServices.” SFAS No. 123 establishes a fair value-based method ofaccounting for stock-based compensation plans. Under the fair-value basedmethod, compensation cost is measured at the grant date based on the value ofthe award, which is calculated using an option pricing model, and is recognizedover the service period, which is usually the vesting period.

 

Note2.  STOCK OPTIONS

 

Duringthe first nine months of 2005, the Company did not grant any stock options toemployees; however, options to purchase a total of 10,575 shares of the Company’scommon stock were issued to non-employee directors subsequent to the Company’sannual meeting of stockholders held on January 14, 2005. These optionswere granted at an exercise price per share equal to the fair market value of ashare of common stock on the date of the grant. These options becomeexercisable on the last day of each of the four calendar quarters, beginningwith the first calendar quarter ending on or after the date of the grant, andhave a term of ten years beginning on the date of grant.

 

TheCompany has granted stock options outside the Company’s stock option plans tonon-employee consultants to purchase up to an aggregate of 57,000 shares of theCompany’s common stock, of which options to purchase 31,375 shares wereoutstanding at September 30, 2005. These options were granted at prices determined by the Board ofDirectors (at no less than 100 percent of the market price on the date ofgrant).  The options have a four-yearvesting period and must be exercised within ten years of the date of the grant.These non-employee options were valued using the fair value method asprescribed by SFAS No. 123 using the following assumptions: volatility of51%, risk free interest rate of 4% and a 10-year term. Options issued prior to2001 are performance-based awards, with no service commitment and subject tovesting only if the Company’s stock price reaches a certain level. Optionsissued in 2001 become exercisable over four years, but exercisabilityaccelerates if a performance target is achieved.  At September 30, 2005, non-employeeoptions to purchase 5,312 shares were exercisable.  The Company recognized a credit tocompensation expense of approximately $12,000 related to these options duringthe three-month period ended September 30, 2005.  The Company recognized a credit tocompensation expense of approximately $38,000 related to these options duringthe nine-month period ended September 30, 2005. The Company recognizedcompensation expense of approximately $1,000 and $36,000 related to theseoptions during the three-month and nine month periods ended September 30,2004, respectively.

 

OnAugust 11, 2003, the Company granted 25,000 options to purchase theCompany’s common stock to an employee who is the brother of the Company’s ChiefExecutive Officer, in connection with his joining the Company as anemployee.  The option grantee was anemployee when he received the grant.  The options become exercisable over four years from the date of grant,expire ten years from the date of grant, and were issued with an exercise pricebelow the fair market value of the stock on the date of grant.  This grant was not subject to any of theCompany’s stock option plans.  The totalintrinsic value associated with the granting of these 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 Companyrecognized compensation expense of approximately $6,000 and $18,000 related tothese options during each of the three-month periods and nine-month periodsended September 30, 2005 and September 30, 2004, respectively.

 

Note3. RESTRICTED STOCK

 

On June 1, 2005, the Compensation Committee ofthe Board of Directors of the Company gave final approval to awards of 9,758shares of restricted stock to Robin Raina, the Company’s Chairman, ChiefExecutive Officer and President, and 4,382 shares of restricted stock toRichard J. Baum, the Company’s Executive Vice President, Chief FinancialOfficer and Secretary, under the Company’s 1996 Incentive Plan.  The awards were made pursuant to a 2004incentive compensation program (the “2004 Program”) approved by the Company’sBoard of Directors on December 4, 2004 (as described in a Form 8-Kfiled by the Company on December 9, 2004) and were subject to adetermination by the Compensation Committee and the Board, after the Company’s release of its 2004operating results, that such operating results were substantially consistentwith the operating results of the Company for the first nine months of 2004, asthey compared to those for the same period of the prior year (excludingexecutive incentive compensation).  TheCompensation Committee and the Board made such determination in April 2005,at which time the grants of the restricted stock (along with 2004 cash bonuscompensation) were approved, subject to the Compensation Committee’s approvalof certain terms of the restricted stock awards and of the forms of restrictedstock agreements to represent such awards.

 

On June 1, 2005, the Compensation Committeeapproved such terms and forms of restricted stock agreements, and the shares ofrestricted stock were issued to each of Messrs. Raina and Baum on suchdate.  In accordance with the 2004Program, the number of shares of restricted stock issued to each of Messrs. Rainaand Baum represents 10% of the aggregate of the total salary and cash bonuscompensation earned by him for 2004 (such aggregate compensation being$1,012,848 in the case of Mr. Raina and $454,889 in the case of Mr. Baum),divided by the market price of the Company’s stock on April 11, 2005, thedate the Board approved the restricted stock grants.  The Company recognized compensation expenseof approximately $8,000, and $57,000 related to these shares during the threeand nine month periods ended September 30, 2005.

 

8

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Pursuant to the restricted stock agreements, therestricted stock vests in three equal annual installments.  The restricted stock also vests with respectto any unvested shares upon the applicable officer’s death, Disability (asdefined) or Retirement (as defined), the Company’s termination of the officerother than for Cause (as defined) or a Change in Control (as defined) of theCompany. If the officer terminates his employment other than due to death,Disability or Retirement or the Company terminates the officer’s employment forCause, any unvested shares held by the officer will be forfeited.

 

Note4.  EARNINGS PER SHARE

 

Basicearnings per share (“EPS”) is equal to net income divided by the weightedaverage number of shares of common stock outstanding for the period. Theweighted average number of shares outstanding for the three and nine monthsended September 30, 2005 was 2,734,112 and 2,807,518, respectively. Theweighted average number of shares outstanding for the three and nine monthsended September 30, 2004 was 2,900,000 and 2,742,000, respectively.Diluted EPS is calculated as if the Company had additional common stockoutstanding from the beginning of the year or the date of grant for all commonstock equivalents, net of assumed repurchased shares using the treasury stockmethod.  Diluted EPS recognizes the dilutiveeffect of common stock equivalents and is equal to net income divided by thesum of the weighted average number of shares outstanding and common stockequivalents. For the three and nine months ended September 30, 2005 and September 30,2004, the Company’s common stock equivalents consisted of stock options.  For the three and nine months ended September 30,2005, the effect of this calculation resulted in an increase in the weightedaverage number of shares outstanding of 355,020 and 315,519, respectively. At September 30,2005, the fully diluted weighted average number of shares outstanding for thethree and nine months ended was 3,089,132 and 3,123,037, respectively.  For the three and nine months ended September 30,2004, the effect of this calculation resulted in an increase in the weightedaverage number of shares outstanding of 308,000 and 322,000, respectively. At September 30,2004, the fully diluted weighted average number of shares outstanding for thethree and nine months ended was 3,208,000 and 3,064,000, respectively.   At September 30, 2005, there were372,155 shares potentially issuable with respect to stock options, which coulddilute EPS in the future but which were excluded from the diluted EPScalculation because their effect was antidilutive. At September 30, 2004,there were 393,000 shares potentially issuable with respect to stock options,which could dilute EPS in the future but which were excluded from the dilutedEPS calculation because their effect was antidilutive.

 

Note5.  COMPREHENSIVE INCOME

 
| ** **                                                                           | ** ** | **Three  Months Ended September 30,** | ** ** | **Nine  Months Ended September 30,** | ** ** |
|--------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                           | ** ** | **2005**                                   | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                 |       |                                       |       |                                      |       |   |   |   |   |
| Net income                                                                           |       | $                                          | 1,226,000  |                                      | $          | 981,000 |   | $ | 3,378,000 |   | $ | 2,137,000 |   |
| Other comprehensive (expense) income – foreign  currency translation adjustment |       | (45,000)                                   |       | 57,000                                    |       | (272,000 | )  | 84,000 |   |
| Comprehensive income                                                                 |       | $                                          | 1,181,000  |                                      | $          | 1,038,000 |   | $ | 3,106,000 |   | $ | 2,221,000 |   |
|                                                                                      |            |                                            |            |                                           |            |  |  |  |  |  |  |  |  |  |

 

Note6.  RELATED PARTY AND SIGNIFICANTCUSTOMER TRANSACTIONS

 

In2001, the Company issued 868,000 shares of its common stock to BRiT InsuranceHoldings PLC (“BRiT”), for $7,000,000. The total shares held by BRiT at September 30,2005 was 930,163, representing an equity ownership of approximately 34%.  At September 30, 2005, BRiT also ownedapproximately 70% of CF Epic Insurance and General Fund, which owned approximately8% of the Company’s common stock.

 

TheCompany has entered into various software and service agreements withBRiT.  During the three and nine monthsended September 30, 2005, approximately $963,000 and $2,720,000,respectively, was recognized as revenue from BRiT and its affiliates. Duringthe three and nine months ended September 30, 2004, approximately$1,004,000 and $2,681,000, respectively, was recognized as revenue from BRiTand its affiliates. Total accounts receivable from BRiT and its affiliates at September 30,2005 and December 31, 2004 were $196,000 and $718,000, respectively.

 

Duringthe three and nine months ended September 30, 2005, approximately$1,157,000 and $2,435,000, respectively, was recognized as revenue from anothersignificant customer, AON.  During thethree and nine months ended September 30, 2004, approximately $326,000 and$1,395,000, respectively, was recognized as revenue from AON. Total accountsreceivable from AON at September 30, 2005 and December 31, 2004 were$386,000 and $186,000, respectively.

 

Note 7. ACQUISITION OF LIFELINK

 

OnFebruary 23, 2004, the Company acquired LifeLink Corporation (“LifeLink”),and the operations of LifeLink have been included in the Company’s financialstatements since that date. Under terms of the agreement, the Company acquiredall of the outstanding capital stock of LifeLink from its shareholders inexchange for an aggregate purchase price of $10,354,000 payable as follows:

 

9

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$5,000,000paid in cash at closing, $2,500,000 in a non-interest bearing note payable incash in annual installments of $500,000 over five years (present value computedas $2,226,000), and $3,000,000 payable in 200,000 shares of the common stock ofthe Company issued at the time of closing to one of the LifeLink shareholders,who received the right to sell such shares (the “LifeLink Redeemable Shares”)back to the Company as described below. The Company also capitalizedapproximately $128,000 of transaction costs in conjunction with the LifeLinkacquisition.

 

Atany time during the one-month period commencing on August 23, 2005, theholder of the LifeLink Redeemable Shares had a one-time right to require theCompany to purchase all of the LifeLink Redeemable Shares, originally valued at$15.00 per share in the acquisition of LifeLink, for a discounted price of$13.50 per share minus the aggregate purchase price received by the holder fromany sales of these shares of common stock prior to the exercise of such right.The Company classified $2,700,000 of the value of the common stock issued astemporary equity, “redeemable common stock,” in the consolidated balance sheetdue to the existence of the holder’s embedded put option.  The Company and LifeLink’s former shareholderagreed to accelerate the exercisability of the put option and on April 28,2005, the Company repurchased the LifeLink Redeemable Shares at a price of$13.50 per share.

 

Thefollowing table summarizes the estimated fair value of the LifeLink assets acquiredand liabilities assumed at the date of acquisition.

 
| (in thousands)            |
|---------------------------|
|                      |
| Current assets            |   | $ | 1,199 |   |
| Property and equipment    |   | 119 |   |
| Intangible assets         |   | 3,518 |   |
| Goodwill                  |   | 5,989 |   |
| Total assets acquired     |   | 10,825 |   |
| Current liabilities       |   | 471 |   |
| Total liabilities assumed |   | 471 |   |
| Net  assets acquired      |   | $ | 10,354 |   |

 

Of the $3,518,000 ofintangible assets acquired, $977,000 was assigned to developed technology witha remaining estimated useful life of five years, $299,000 was assigned totrademarks with a remaining estimated useful life of five years and $2,242,000was assigned to customer relationships with a remaining estimated useful lifeof seven years. The Company recorded $144,000 and $432,000 of amortizationexpense related to these intangibles for the three and nine months ended September 30,2005, respectively, and $144,000 and $347,000 of amortization expense relatedto these intangibles for the three and nine months ended September 30,2004, respectively.

 

(inthousands)

 

***Estimated Amortization Expenses:***

 
| For the year ending December 31, 2005 |   | $ | 575 |   |
|--------------------------------------------|--------|---|-----|--------|
| For the year ending December 31, 2006 |   | $ | 575 |   |
| For the year ending December 31, 2007 |   | $ | 575 |   |
| For the year ending December 31, 2008 |   | $ | 575 |   |
| For the year ending December 31, 2009 |   | $ | 358 |   |
| Thereafter                                 |   | $ | 367 |   |

 

Theacquisition of LifeLink was consistent with the Company’s overall focus onmarketing software to insurance agents and brokers. This acquisition increasedsales and revenue of the consolidated total while providing significant salesopportunities for the Company’s other existing services.  The Company performed an annual impairmentassessment, as required by SFAS No. 142, “Goodwill and Other IntangibleAssets”, of the LifeLink goodwill and intangible assets as of September 30,2005 and it was determined that the assets were not impaired.

 

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Note 8. ACQUISITION OF HEART

 

OnJuly 1, 2004, Ebix Australia Pty Ltd, which is a wholly-owned subsidiaryof the Company, acquired certain of the operating assets of Heart ConsultingServices Pty Ltd (“Heart”), and the operations of Heart have been included inthe Company’s financial statements since that date. Under terms of theagreement, the Company acquired the operating assets of Heart in exchange foran aggregate purchase price of $7,116,000 payable as follows: $3,619,000 paidin cash at closing (subsequent to closing, the former owner of Heart paid theCompany $467,000 for deferred revenue and a vacation accrual settlement),$1,399,000 payable under stand-by letters of credit issued by the Company’slender on the Company’s line of credit in three equal annual installments oneach of the first, second and third anniversaries of the closing (present valuecomputed as $1,293,000), and $2,098,000 payable in 157,728 shares of the commonstock of the Company issued at the time of closing. The Company alsocapitalized approximately $241,000 of transaction costs in conjunction with theHeart acquisition. In connection with the 157,728 shares of common stockissued, the owners of Heart

receivedfrom the Company the option to sell their stock back to the Company subject tospecified time frames and prices as discussed below.

 

TheCompany classified $1,522,000 of the value of the common stock issued astemporary equity, “redeemable common stock,” in the condensed consolidatedbalance sheet due to the existence of the holder’s embedded put option. At anytime during the one month period commencing January 3, 2006 and ending February 3,2006, the holder of the redeemable common stock has a one-time right to requirethe Company to purchase all of the holder’s 157,728 shares at a price ofAU$2,000,000 minus the aggregate purchase price received by the holder from anysales of these shares of common stock prior to the exercise of the put option.As of September 30, 2005, the holder had not sold any of the shares of theCompany’s common stock received in this transaction.

 

Concurrentwith the acquisition, the Company ascribed a preliminary value to each of theassets and liabilities assumed from the acquisition of Heart. Upon final reviewof the acquisition, the purchase price was reallocated. The following tablesummarizes the estimated fair value of the Heart assets acquired andliabilities assumed at the date of acquisition subsequent to the reallocation.

 

(inthousands)

 
| Current assets            |   | $     | 467    |   |
|---------------------------|--------|-------|--------|--------|
| Property and equipment    |   | 43    |   |
| Intangible assets         |   | 1,229 |   |
| Goodwill                  |   | 5,945 |   |
| Total assets acquired     |   | 7,684 |   |
| Current liabilities       |   | 467   |   |
| Total liabilities assumed |   | 467   |   |
| Net assets acquired       |   | $     | 7,217  |   |

 

Ofthe $1,229,000 of intangible assets acquired, $630,000 was assigned to customerrelationships with a remaining useful life of four years, $410,000 was assignedto developed technology and $189,000 was assigned to trademarks with remainingestimated useful lives of five years. The Company recorded $61,000 and $199,000of amortization expense related to these intangible assets for the three- andnine-month period ended September 30, 2005.  The Company recorded $58,000 of amortizationexpense related to these intangible assets for both the three and nine-monthperiods ended September 30, 2004.

 

(inthousands)

 

***Estimated Amortization Expenses:***

 
| For the year ended December 31, 2005 |   | $ | 307 |   |
|-------------------------------------------|--------|---|-----|--------|
| For the year ended December 31, 2006 |   | $ | 307 |   |
| For the year ended December 31, 2007 |   | $ | 307 |   |
| For the year ended December 31, 2008 |   | $ | 220 |   |
| For the year ended December 31, 2009 |   | $ | 66  |   |

 

Theacquisition of Heart was consistent with the Company’s overall focus onmarketing software to insurance agents and brokers. This acquisition increasedsales and revenue of the consolidated total while providing significant salesopportunities for the Company’s other existing services. The Company performedan annual impairment assessment, as required by SFAS No. 142, “Goodwilland Other Intangible Assets”, of the Heart goodwill and intangible assets as ofSeptember 30, 2005 and it was determined that the assets were notimpaired.

 

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Note 9. PRO FORMA FINANCIALS

 

Thefollowing unaudited pro forma financial information for the nine months ended September 30,2004 presents the consolidated operations of the Company as if the LifeLink andHeart acquisitions had been made on January 1, 2004, after giving effectto certain adjustments for the pro forma acquisition as of the acquisitiondate. The Company made adjustments primarily for the amortization of intangibleassets and interest expense related to the acquisitions. The unaudited proforma financial information is provided for informational purposes only anddoes not project the Company’s results of operations for any future period:

 
| ** **                 | ** ** | **Nine  Months  Ended  September 30, 2004** | ** ** |
|----------------------------|------------|--------------------------------------------------|------------|
| ** **                 | ** ** | ** **                                       | ** ** |
| Revenue                    |       | $                                                | 16,370,000 |   |
| Net income                 |       | $                                                | 2,307,000  |   |
| Basic earnings per share   |       | $                                                | 0.80       |   |
| Diluted earnings per share |       | $                                                | 0.72       |   |

 

Note 10. LINE OF CREDIT AND OTHER COMMITMENTS

 

BankLine of Credit

 

InOctober 2002, the Company obtained from LaSalle Bank National Associationa $1,000,000 revolving line of credit, secured by a perfected first securityinterest in substantially all of the Company’s assets. The line of credit wasincreased to $5,000,000 during February 2004.  On February 23, 2005, the Companyentered into an amendment to the credit agreement amending certain financialcovenants.  Major features of the line,as amended, include an interest rate equal to the prime rate, security at 60%of the amount of the line in a restricted interest-bearing account and timelyfinancial reporting requirements. The line of credit will expire on October 31,2005. As of September 30, 2005, total borrowings on this line were$3,409,000, of which $3,000,000 was classified as restricted cash because itwas restricted from use in accordance with the line of credit agreement. Theagreement provides that the line is secured by substantially all of the Company’sassets. The Company was in compliance with all debt covenants at September 30,

2005.

 

InOctober 2005, the Company entered into an amendment to the creditagreement which deleted the security at 60% of the amount of the line in arestricted interest-bearing account, which at September 30, 2005 wasrestricted cash of $3,000,000 and extended the expiration date to October 31,2006.

 

Lettersof Credit

 

Underterms of the agreement with Heart Consulting Services Pty Ltd. (see note 8),$1,399,000 is payable by the Company under stand-by letters of credit issued bythe Company’s lender on the Company’s line of credit in three equal annualinstallments on each of the first, second and third anniversaries of theclosing of the Heart asset acquisition (present value computed as $1,293,000).The three letters of credit expire on July 31, 2005, July 31, 2006and July 31, 2007, respectively.  OnJuly 1, 2005 the Company paid the first installment of $508,000.

 

SelfInsurance

 

TheCompany is currently self-insured for its health insurance and has a stop losspolicy that limits the individual liability to $75,000 per person and theaggregate liability to 125% of the expected claims based upon the number ofparticipants and historical claims.  Asof September 30, 2005, the maximum aggregate liability calculated was$662,000 for the annual contract period which ends in September 2006.

 

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Item2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS

 

Thefollowing information should be read in conjunction with the unauditedcondensed consolidated financial statements and the notes thereto included inItem 1 of Part I of this Quarterly Report, and the audited consolidatedfinancial statements and notes thereto and Management’s Discussion and Analysisof Financial Condition and Results of Operations contained in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2004.

 

**Overview**

 

TheCompany’s product and service strategy focuses on the following areas:

 

•      providing software development services toinsurance carriers, brokers and agents;

•      worldwide sale, customization, development,implementation and support of its insurance carrier system product, BRICS;

•      worldwide sales and support of agencymanagement systems, including EbixASP and eglobal;

•      expansion of connectivity between consumers,agents, carriers and third party providers through Ebix.com, LifeLink, INS-Siteand Exchange; and

•      business process outsourcing services, whichinclude call center and back office, either off site or at the Company’sfacilities.

 

Softwaredelivered online through application service provider (“ASP”) models andconnectivity products are recorded as services by the Company. The Companyanticipates that future revenue will be provided principally by developmentservices, the sale and licensing of BRICS, international operations, LifeLink,call center services and support.

 

OnFebruary 23, 2004, the Company acquired LifeLink Corporation (which isreferred to in this 10-Q as “LifeLink” but was renamed to EbixLife on May 2,2005), and the operations of LifeLink have been included in the Company’sfinancial statements since that date. On July 1, 2004, Ebix Australia PtyLtd (VIC), which is a wholly-owned subsidiary of the Company, acquired certainoperating assets of Heart Consulting Services Pty Ltd (“Heart”), and theoperations of Heart have been included in the Company’s financial statementssince that date. 

 

**CriticalAccounting Policies**

 

TheCompany’s “critical accounting policies” are those that require application ofmanagement’s most difficult, subjective or complex judgments, often as a resultof the need to make estimates about matters that are inherently uncertain andmay change in future periods. The Company has identified the following as itscritical accounting policies: revenue recognition, estimating the allowance fordoubtful accounts receivable and accounting for income taxes. For a discussion ofthese policies, see “Management’s Discussion and Analysis of FinancialCondition and Results of Operations – Critical Accounting Policies” in theCompany’s Annual Report on Form 10-K for the year ended December 31,2004.

 

**Resultsof Operations**

 

**Three-MonthPeriod Ended September 30, 2005 Compared to the Three-Month Period Ended September 30,2004**

 

**TotalRevenue** - The Company’srevenue has been derived from the licensing and sale of proprietary softwareand third party software and from professional services and supportservices.  Total revenue for the quarterended September 30, 2005 increased $240,000, or 4.2%, to $5,896,000 from$5,656,000 for the comparable quarter of the prior year.

 

**SoftwareRevenue** - Softwarerevenue is comprised of revenue from the sale of Ebix products (formerlyreferred to as “cd products”), current legacy products, and other third partysoftware.  Total software revenue for thethird quarter of 2005 increased $216,000, or 124.1%, to $390,000 from $174,000for the comparable quarter of the prior year. This increase was primarily due to the BRICS software sale of $98,000and an increase in international software license revenue of $80,000 in thethird quarter of 2005 compared to the third quarter of 2004.

 

**ServicesRevenue** — Servicesrevenue includes revenue derived from consulting, implementation, training andproject management provided to the Company’s customers with installed systemsand those in the process of installing systems. Also included in servicesrevenue are fees for software license maintenance, LifeLink services (February 23,2004 to September 30, 2004 for the year to date period ended September 30,2004, the entire quarter ended September 30, 2004 and the entire three andnine month periods ended September 30, 2005), Heart services (July 1,2004 to September 30, 2004 for the year to date period ended September 30,2004, the entire quarter ended September 30, 2004 and the entire three andnine month periods ended September 30, 2005), initial registration andongoing monthly subscription fees for the EbixASP product, and transaction feesgenerated from the Ebix.mall website, as well as software development and callcenter revenue.

 

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Totalservices revenue for the third quarter of 2005 increased $24,000, or 0.4%, to$5,506,000 from $5,482,000 for the comparable quarter of the prior year.  This increase was primarily due to anincrease in consulting service revenue of $255,000, an increase in LifeLinkrevenue of $215,000, partially offset by a decrease in international servicerevenue of $91,000, a decrease in hosting revenue of $24,000, a decrease insupport revenue associated with legacy products of $180,000, a decrease inEbixASP revenue of $6,000, a decrease in INS-Site revenue of $17,000, adecrease in Ebix.mall revenue of $111,000 and a decrease in call center revenueof $17,000.

 

Duringthe third quarter of 2005 and 2004, approximately $963,000 and $1,004,000,respectively, was recognized as services revenue from BRiT Insurance HoldingsPLC (“BRiT”) and its affiliates.  Theamounts represented 16% and 18%, respectively, of the Company’s total revenuesfor the third quarter of 2005 and 2004, respectively. BRiT owned approximately34% of the Company’s common stock as of September 30, 2005.  In addition, the Company has been informedthat as of September 30, 2005, BRiT owned approximately 70% of the equityinterests of CF Epic Insurance and General Fund, which at September 30,2005 owned approximately 8% of the Company’s outstanding common stock. For thethree-month periods ended September 30, 2005 and September 30, 2004,19% and 6%, respectively, of the Company’s total revenues were from AON.  Neither BRiT and its affiliates nor AON havelong-term agreements with the Company that provide certainty that such revenueswill be recurring.

 

Supportrevenue associated with the Company’s legacy products is decreasing due to atrend of declining renewals for these older product offerings.

 
| ** **            | ** ** | **Support  Revenue** | ** ** | **Total  Revenue** | ** ** |
|-----------------------|------------|----------------------|------------|--------------------|------------|
|                  |       |                 |       |               |       |
| Third quarter of 2005 |       | $                    | 641,000    |               | $          | 5,896,000 |   |
| Third quarter of 2004 |       | $                    | 821,000    |               | $          | 5,656,000 |   |

 

Supportrevenue decreased $180,000, or 22%, and as a percentage of total revenue to 11%from 15%, in the third quarter of 2005 compared to the third quarter of 2004.

 

Basedon historical data, the Company expects that legacy support revenue willcontinue to decrease by approximately 20% each year on a decliningbalance.  The Company expects the legacysupport revenue will continue as long as it is economically feasible for theCompany to maintain 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 be reviewed to determined if costs can be further reduced forthe activity to be profitable and if not, the Company plans to discontinuesupporting the legacy products. The Company cannot predict when this willoccur.

 

The Company expects that future services revenue will be derived fromthis support, the sale of BRICS, as well as EbixASP registration and monthlyfees, LifeLink Services, Heart Services, software development and call centerand, to a much lesser extent, all transaction revenues from Ebix.mall,EbixExchange (INS-Site), conversion and training.

** **

**Servicesand other costs**- Cost of services includes costs associatedwith support, call center, consulting, implementation and trainingservices.  Total services and other costsfor the quarter increased $172,000, or 12.1%, to $1,594,000 from $1,422,000 forthe comparable quarter of the prior year. This increase was primarily due to an increase in payroll expensesrelated to the hiring of support employees and the related increase in facilitycosts (which are allocated to each department based on headcount) allocated toservices and other costs. 

** **

**ProductDevelopment Expenses**- Total product development expenses for thethird quarter of 2005 increased $111,000, or 14.2%, to $892,000 from $781,000for the comparable quarter of the prior year. This increase was due to anincrease in payroll expenses of $42,000 due to an increase in headcount inIndia and an increase in facility costs of $69,000 as a result of an increasein headcount.

** **

**Salesand Marketing Expenses**- Total sales and marketing expenses for thethird quarter of 2005 increased $116,000, or 26.9%, to $547,000 from $431,000for the comparable quarter of the prior year. This increase was attributable to an increase in marketing spending of$14,000, an increase in travel expenses of $15,000 related to varioustradeshows during the quarter, an increase in international sales and marketingexpenses of $36,000, an increase in facility costs allocated to sales andmarketing of $40,000, an increase in office supplies of $9,000 and an increasein payroll expense of $2,000.

** **

**Generaland Administrative Expenses** —Total general and administrative expenses for the quarter decreased$271,000, or 16.1%, to $1,413,000 from $1,684,000 for the comparable quarter ofthe prior year.  This decrease was due toan increase in the amount of facility costs allocated to other departments of$141,000, a decrease in audit and legal expenses of $126,000, a decrease in baddebt expense of $66,000, a decrease in travel and entertainment expenses of$35,000 and a decrease in insurance expense of $4,000 partially offset by anincrease in international expenses of $95,000 and an increase in office andrent expense of $6,000.

 

14

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**Amortization and Depreciation Expenses** – Total amortization and depreciationexpenses for the quarter decreased $21,000, or 6.2%, to $317,000 from $338,000for the comparable quarter of the prior year.  This decrease was primarily due to the amortization of capitalizedsoftware, which decreased $27,000 for the quarter as capitalized software wasfully amortized partially offset by an increase in depreciation expense of$6,000.

 

# **IncomeTax Expense**— TheCompany incurred a tax benefit for the third quarter of 2005 as a result of aforeign tax refund and the implementation of a new tax structure which wascompleted during the quarter.

 

**Nine-MonthPeriod Ended September 30, 2005 Compared to the Nine-Month Period Ended September 30,2004**

 

**TotalRevenue** - Totalrevenue for the nine-month period ended September 30, 2005 increased$3,668,000, or 25.7%, to $17,934,000 from $14,266,000 for the comparable periodof the prior year.

** **

**SoftwareRevenue** - Totalsoftware revenue for the nine-month period ended September 30, 2005increased $266,000, or 36.2%, to $1,000,000 from $734,000 for the comparableperiod of the prior year. This increase was primarily due to the BRICS softwaresale of $306,000 partially offset by a decrease in international softwarelicense revenue of $34,000 in the nine-month period ended September 30,2005 compared to the nine-month period ended September 30, 2004.

** **

**ServicesRevenue** — Totalservices revenue for the nine-month period ended September 30, 2005increased $3,402,000, or 25.1%, to $16,934,000 from $13,532,000 for thecomparable period of the prior year. This increase was due to an increase in Heart service revenue of$2,123,000, an increase in consulting service revenue of $567,000, an increasein LifeLink revenue of $1,454,000 and an increase in call center revenue of$17,000 partially offset by a decrease in international service revenue of$122,000, a decrease in Ebix.mall revenue of $80,000, a decrease in hostingrevenue of $21,000, a decrease in support revenue associated with legacyproducts of $465,000, a decrease in EbixASP revenue of $21,000 and a decreasein INS-Site revenue of $50,000.

 

Duringthe nine-month periods ended September 30, 2005 and 2004, approximately$2,720,000 and $2,681,000, respectively, was recognized as services revenuefrom BRiT and its affiliates.  The amountsrepresented 15% and 19% of the Company’s total revenues for the nine-monthperiods ended September 30, 2005 and 2004, respectively, and the increasein such revenues of $39,000 represented 1.0% of the total increase in theCompany’s revenues for the nine month period ended September 30, 2005compared to the same period of 2004. For the nine-month periods ended September 30,2005 and September 30, 2004, 14% and 10% of the Company’s total revenueswere from AON.  Neither BRiT and itsaffiliates nor AON have long-term agreements with the Company that providecertainty that such revenues will be recurring.

 

Supportrevenue associated with the Company’s legacy products is decreasing asdiscussed above due to a trend of declining renewals for these older productofferings.

 
| ** **                                | ** ** | **Support  Revenue** | ** ** | **Total  Revenue** | ** ** |
|-------------------------------------------|------------|----------------------|------------|--------------------|------------|
|                                      |       |                 |       |               |       |
| Nine months ended September 30, 2005 |       | $                    | 2,095,000  |               | $          | 17,934,000 |   |
| Nine months ended September 30, 2004 |       | $                    | 2,560,000  |               | $          | 14,266,000 |   |

 

Supportrevenue decreased $465,000, or 18%, and as a percentage of total revenue to 12%from 18%, for the nine-month period ended September 30, 2005 compared tothe same period in 2004.

** **

**Servicesand other costs**- Total services and other costs for thenine-month period ended September 30, 2005 increased $618,000, or 15.9%,to $4,503,000 from $3,885,000 for the comparable period of the prior year.  This increase was primarily due to anincrease in payroll expenses related to the acquisition of Heart, the hiring ofsupport employees and the related increase in facility costs (which areallocated to each department based on headcount) allocated to services andother costs. 

** **

**ProductDevelopment Expenses**-**Total product development expenses for thenine-month period ended September 30, 2005 increased $257,000, or 11.7%, to$2,459,000 from $2,202,000 for the comparable period of the prior year. Thisincrease was due to an increase in payroll expenses related to an increase inheadcount related to the acquisition of LifeLink of $88,000, an increase inheadcount in India resulting in an increase in payroll expense of $59,000 andan increase in facility costs of $110,000 as a result of increases inheadcount. 

** **

**Salesand Marketing Expenses**- Total sales and marketing expenses for thenine-month period ended September 30, 2005 increased $420,000, or 37.3%,to $1,547,000 from $1,127,000 for the comparable period of the prior year.  This increase was attributable to an increasein payroll expenses related to the hiring of employees of $120,000, an increasein****marketing spending of $65,000and travel expenses of $55,000 related to various tradeshows during the period,an increase in facilities allocation of $75,000, an increase in internationalmarketing expenses of $66,000 and an increase in telephone and office suppliesof $42,000 partially offset by a decrease in consulting expenses of $3,000.

 

15

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**Generaland Administrative Expenses** —Total general and administrative expenses for the nine-month periodended September 30, 2005 increased $978,000, or 24.8%, to $4,928,000 from$3,950,000 for the comparable period of the prior year.  This increase was due to an increase inaccrued bonus of $500,000 primarily as a result of the 2005 supplemental bonusbeing accrued compared to no such accrual in 2004, an increase in insuranceexpense of $11,000, an increase in operating expenses related to Heart of$341,000, an increase in international operating expenses of $79,000, anincrease in payroll of $194,000, an increase in office expense and rent of$63,000, and an increase in consulting expenses of $65,000, partially offset byan increase in the amount of facility costs allocated to other departments of$72,000, a decrease in bad debt expense of $84,000, a decrease in marketingexpenses of $76,000, and a decrease in audit and legal expenses of $31,000 anda decrease in travel and entertainment of $12,000.

 

**Amortization and Depreciation Expenses** – Total amortization and depreciationexpenses for the nine-month period ended September 30, 2005 increased$155,000, or 19.1%, to $965,000 from $810,000 for the comparable period of theprior year.  This increase was due to theaddition of LifeLink intangible assets in February 2004 and Heartintangible assets in July 2004.  Total Heart intangible amortization for the period was $200,000 comparedto $58,000 in the comparable period of the prior year, as Heart was acquired inJuly 2004.  Total LifeLinkintangible amortization increased $85,000 for the period to $432,000 from$347,000 in the comparable period of the prior year.  This increase reflects a partial period ofamortization in 2004, as LifeLink was acquired February 23, 2004, comparedto a full period of amortization in 2005. In addition, depreciation expense increased $10,000 as a result of anincrease in assets acquired as part of the LifeLink acquisition, andamortization of capitalized software decreased $82,000 for the period ascapitalized software was fully amortized.

 

# **IncomeTax Expense**— Theeffective tax rate for thenine-monthperiod ended September 30, 2005 of 4% was lower than the rate for thecomparable period of the prior year of 5% due to a different income mix amongthe various tax jurisdictions in which the Company does business,aforeign tax refund and the implementation of a new tax structure which wascompleted during the third quarter of 2005.

 

**Liquidityand Capital Resources**

 

TheCompany had cash and cash equivalents of $5,817,000 and restricted cash of$3,000,000 at September 30, 2005, compared to cash and cash equivalents of$5,843,000 and restricted cash of $3,000,000 at December 31, 2004.

 

Duringthe nine months ended September 30, 2005, the Company generated operatingcash flow of $4,106,000 as compared to $1,277,000 of operating cash flow forthe nine months ended September 30, 2004. This increase resulted primarilyfrom $3,378,000 of net income, an increase in deferred revenue of $170,000primarily related to the acquisition of LifeLink and Heart, $965,000 inamortization and depreciation and an increase in accounts receivable of $9,000,partially offset by a decrease in other assets of $21,000, a decrease inaccrued payroll and related benefits of $352,000 and a decrease in accountspayable and accrued expenses of $84,000. These balance sheet fluctuations arenormal consequences of timing differences between accruals and their cashsettlement.

 

Cashused in investing activities of $382,000 in the nine months ended September 30,2005 primarily represented capital expenditures primarily related to therelocation of the Sydney, Australia office. Cash used in financing activities of $3,675,000 resulted from theCompany’s repurchase of a redeemable stock guarantee of $2,700,000, the paymentof a long-term debt obligation of $949,000 and payments on the line of creditof $91,000 partially offset by the proceeds from the exercise of stock optionsof $65,000.

 

InOctober 2002, the Company obtained from LaSalle Bank National Associationa $1,000,000 revolving line of credit, secured by a perfected first securityinterest in substantially all of the Company’s assets. The line of credit wasincreased to $5,000,000 during February 2004.  On February 23, 2005, the Companyentered into an amendment to the credit agreement amending certain financialcovenants.  Major features of the line,as amended, include an interest rate equal to the prime rate, security at 60%of the amount of the line in a restricted interest-bearing account and timelyfinancial reporting requirements. The line of credit will expire on October 31,2005. As of September 30, 2005, total borrowings on this line were$3,409,000, of which $3,000,000 was classified as restricted cash because itwas restricted from use in accordance with the line of credit agreement. Theagreement provides that the line is secured by substantially all of the Company’sassets. The Company was in compliance with all debt covenants at September 30,2005. In October 2005, the Company entered into an amendment to the creditagreement, which deleted the security at 60% of the amount of the line in a restrictedinterest-bearing account, which at September 30, 2005 was restricted cashof $3,000,000 and extended the expiration date to October 31, 2006.

 

OnFebruary 23, 2004, the Company acquired 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 $10,354,000, payable as follows: $5,000,000 paid in cash atclosing, $2,500,000 in a 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 ofthe Company issued at the time of closing.  On February 23, 2005, the Company paidthe first installment of $500,000 in accordance with the note agreement. On April 28,2005, the Company repurchased the 200,000 shares issued in the acquisition at aprice of $13.50 per share.  See note 7 tothe condensed consolidated financial statements included in this Form 10-Qfor a discussion of the redeemable common stock.

 

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OnJuly 1, 2004, Ebix Australia Pty Ltd (VIC), which is a wholly-ownedsubsidiary of the Company, acquired certain operating assets of HeartConsulting Services Pty Ltd (“Heart”), and the operations of Heart have beenincluded in the Company’s financial statements since that date. Under terms ofthe agreement, the Company acquired the operating assets of Heart in exchangefor an aggregate purchase price of $7,116,000 payable as follows: $3,619,000paid in cash at closing (subsequent to closing, the former owner paid theCompany $467,000 for deferred revenue and a vacation accrual settlement),$1,399,000 payable under stand-by letters of credit issued by the Company’slender on the Company’s line of credit in three equal annual installments oneach of the first, second and third anniversaries of the closing (present valuecomputed as $1,293,000), and $2,098,000 payable in 157,728 shares of the commonstock of the Company issued at the time of closing.  See note 8 to the condensed consolidatedfinancial statements included in this Form 10-Q for a discussion of theright of the holders of the shares of common stock issued in the acquisition tocause the Company to repurchase those shares.

 

Inplanning for its capital needs, the Company takes into account its sources ofcash, which include operating cash flow, cash balances and funds from creditfacilities, and anticipated future cash needs, which include working capitalrequirements for operations, capital expenditures, and expenditures forbusiness acquisitions.  Based on these considerations, the Company believesit will have sufficient cash from operations to satisfy its contractualobligations for at least the next several years.

 

**Contractual Obligations**

 

# **Thefollowing summarizes the Company’s contractual obligations at September 30,2005, and the effect such obligations are expected to have on the Company’sliquidity and cash in future periods (in thousands):**

 
| ** **                     | ** ** | **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) |       | $                          | 7,955      |   | $ | 5,989 |   | $ | 1,966 |   | $ | — |   | $ | — |   |
| Operating Leases Obligations   |       | 2,278                      |       | 763 |   | 1,236 |   | 279 |   | — |   |
| Capital Leases Obligations     |       | —                     |       | — |   | — |   | — |   | — |   |
| Total                          |       | $                          | 10,233     |   | $ | 6,752 |   | $ | 3,202 |   | $ | 279 |   | $ | — |   |

 

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(1)  $1,522,000 is contingent upon exercise of theholder’s put option to require the Company to purchase the holder’s redeemablecommon stock in connection with the Heart acquisition. See note 8 to thecondensed consolidated financial statements included in this Form 10-Q.

 

**SafeHarbor for Forward-Looking Statements under the Securities Litigation ReformAct of 1995** - ThisQuarterly Report on Form 10-Q contains various forward-looking statementsand information that are based on management’s beliefs, as well as assumptionsmade by, and information currently available to management, includingstatements regarding future economic performance and financial condition,liquidity and capital resources, acceptance of the Company’s products by themarket and management’s plans and objectives. The Company has tried to identifysuch forward looking statements by use of words such as “expects,” “intends,” “anticipates,”“plans,”  “believes, “will,” “should,”and similar expressions, but these words are not the exclusive means ofidentifying such statements. The forward looking statements included in thisQuarterly Report are subject to various risks, uncertainties and other factorswhich could cause actual results to vary materially from those expressed in, orimplied by, the forward looking statements. Such risks, uncertainties and other factors include those discussed in “RiskFactors” below. Except as expressly required by the federal securities laws,the Company undertakes no obligation to update any such factors or to publiclyannounce the results of any of the forward-looking statements contained hereinto reflect changed circumstances or future events or developments or for anyother reason.

 

**Risk Factors**

 

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 affectour business, financial condition, operating results, cash flows and prospectsand/or the market price of our common stock. In this section, the words “we,” “us,” “our” and “ours” refer to theCompany.

 

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

 

**You may have difficulty evaluating our business because ofour limited history of Internet, call center and other business processoutsourcing.**

 

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 callcenter or other business process outsourcing operations or begin generatingrevenues from these operations until the first quarter of 2003. Accordingly,there is a limited history of these operations on which you can evaluate ourcompany and prospects. We cannot be certain that our Internet, call center andother business process outsourcing strategies will be successful, because thesestrategies are new. Our early-stage Internet, call center and other businessprocess outsourcing operations will be particularly susceptible to the risksand uncertainties described in these risk factors and more likely to incur theexpenses associated with addressing them. Our prospects must be considered inlight of the risks, uncertainties, expenses and difficulties frequentlyencountered by companies in a transitional stage of development, particularlycompanies in new and rapidly evolving markets, such as electronic commerce, andusing new and unproven business models.

 

**Because the support revenue that we have traditionally reliedupon has been steadily declining, it is important that new sources of revenuecontinue to be developed.**

 

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 be attributed to the fact that many of our supportclients are not renewing their support agreements with us, in many casesbecause they are no longer using our legacy 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 theclients who use our support services have reduced the level of support that weprovide them, which in turn reduces our support revenue. This downward trend inour support revenue makes us particularly dependent upon our other sources ofrevenue.

 

**Two customers currently provide a significant percentage ofour total revenue.**

 

Revenuesfrom one customer, BRiT Insurance Holdings PLC and its affiliates, which at September 30,2005 owned approximately 34.0% of our common stock and approximately 70% of CFEpic Insurance and General Fund, which at that date owned approximately 8% ofour common stock, represented approximately 15% and 19% of our total revenuefor the nine-month periods ended September 30, 2005 and 2004, respectively.If revenues from this customer were to discontinue, our operating results wouldlikely be adversely affected.

 

Revenuesfrom another customer, AON, represented approximately 14% and 10% of our totalrevenue for the nine-month periods ended September 30, 2005 and 2004,respectively. If revenues from this customer were to discontinue, our operatingresults would likely be adversely affected.

 

**Adverse insurance industry economics could adversely affectour revenues**.

 

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

 

**Our operating 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 rely on our results of operations during anyparticular quarter as an indication of our results for a full year or any otherquarter. Factors that may affect our quarterly results may include the loss ofa significant insurance agent, carrier or broker relationship or the merger ofany of our participating insurance carriers with one another. Our operatingexpenses are based in part on our expectations of our future revenues and arerelatively fixed in the short term. We may be unable to adjust spending quicklyenough to offset any unexpected revenue shortfall.

 

**We cannot predict our future capital needs with certainty andwe may not be able to secure additional 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. Anyrequired additional financing may not be available on terms favorable to us, orat all. If adequate funds are not available on acceptable terms, we may beunable to meet our business or strategic objectives or compete effectively. Ifadditional funds are raised by our issuing equity securities, stockholders

 

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mayexperience dilution of their ownership interests, and the newly issuedsecurities may have rights superior to those of our common stock. If additionalfunds are raised by our issuing debt, we may be subject to limitations on ouractivities.

 

**Any acquisitions that we undertake could be difficult tointegrate, disrupt our business, dilute stockholder value and harm ouroperating results**.

 

In2004 we acquired LifeLink and certain assets of Heart and may in the futureacquire or make investments in complementary businesses, technologies, servicesor products if appropriate opportunities arise. The process of integratingLifeLink, Heart or any other acquired business, technology, service or productinto our business and operations may result in unforeseen operatingdifficulties and expenditures. Integration of an acquired company also mayconsume much of our management’s time and attention that could otherwise be availablefor ongoing development of our business. Moreover, the anticipated benefits ofthe LifeLink and Heart acquisitions or any other acquisition may not berealized. Furthermore, we may be unable to identify, negotiate or financefuture acquisitions successfully. Future acquisitions could result inpotentially dilutive issuances of equity securities or the incurrence of debt,contingent liabilities or amortization expenses related to intangible assets.

 

**We may not be able to continue to develop new products toadjust effectively for rapid 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.

 

Themarketplaces in which we operate are characterized by:

 

•              rapidly changing technology;

•              evolving industry standards;

•              frequent new product and serviceintroductions;

•              shifting distribution channels; and

•              changing customer demands.

 

Ourfuture success will depend on our ability to adapt to this rapidly evolvingmarketplace. We could incur substantial costs if we need to modify our servicesor infrastructure in order to adapt to changes affecting our market, and we maybe unable to adapt to these changes.

 

**The markets for our products are highly competitive and arelikely to become more competitive, and our competitors may be able to respondmore quickly to new or emerging technology and changes in customerrequirements.**

 

Weoperate in highly competitive markets. In particular, the online insurancedistribution market, like the broader electronic commerce market, is rapidlyevolving and highly competitive. Our software business also experiences somecompetition from certain large hardware suppliers that sell systems and systemscomponents to independent agencies and from small, independent or freelancedevelopers and suppliers of software, who sometimes work in concert withhardware vendors to supply systems to independent agencies. Our Internet businessmay also face indirect competition from insurance carriers that havesubsidiaries which perform in-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. In addition, we believe we will face increasingcompetition as the online financial services industry develops and evolves. Ourcurrent and future competitors may be able to:

 

•              undertake more extensive marketing campaignsfor their brands and services;

•              devote more resources to website and systemsdevelopment;

•              adopt more aggressive pricing policies; and

•              make more attractive offers to potentialemployees, online companies and third-party service providers.

 

**If we are unable to protect our intellectual property, ourreputation and competitiveness in the marketplace may be materially damaged.**

 

Weregard our intellectual property in general and our software in particular as criticalto our success. It may be possible for third parties to copy aspects of ourproducts or, without authorization, to obtain and use information that weregard as trade secrets. Existing copyright law affords only limited practicalprotection, and our software is unpatented.

 

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**If we infringe on the proprietary rights of others, we may beat a competitive disadvantage, and any related litigation could be timeconsuming and costly.**

 

Thirdparties may claim that we have violated their intellectual property rights. Anyof these claims, with or without merit, could subject us to costly litigationand divert the attention of key personnel. To the extent that we violate apatent or other intellectual property right of a third party, we may beprevented from operating our business as planned, and we may be required to paydamages, to obtain a license, if available, to use the right or to use anon-infringing method, if possible, to accomplish our objectives.

 

**We depend on the continued services of our senior managementand our ability to attract 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 servicesof any of our executive officers or other key employees could harm ourbusiness. We have no long-term employment agreements with any of our keypersonnel, nor do we maintain key man life insurance policies on any of our keyemployees.

 

**Our international operations are subject to a number of risksthat could affect our income and growth.**

 

Wemarket our software internationally and plan to expand our Internet services tolocations outside of the United States. In 2004, we acquired certain assetsfrom Heart Consulting Services Pty. Ltd. in Australia. In addition, commencingin 2002, we began development activities, call center services and otheroperations in India. Our international operations may not produce enoughrevenue to justify our investments in establishing them and are subject to otherinherent risks, including:

 

•              the impact of recessions in foreign economieson the level of consumers’ insurance shopping and purchasing behavior;

•              greater difficulty in collecting accountsreceivable;

•              difficulties and costs of staffing andmanaging foreign operations;

•              reduced protection for intellectual propertyrights in some countries;

•              seasonal reductions in business activityduring the summer months in Europe and other parts of the world;

•              burdensome regulatory requirements, othertrade barriers and differing business practices;

•              fluctuations in exchange rates;

•              potentially adverse tax consequences; and

•              political and economic instability.

 

**Laws and regulations that govern the insurance industry couldexpose us or the agents, brokers and carriers who participate in our onlinemarketplace to legal penalties.**

 

Weperform functions for licensed insurance agents, brokers and carriers and are,therefore, required to comply with a complex set of rules and regulationsthat often vary from state to state. These rules and regulations can bedifficult to comply with and are ambiguous and open to interpretation. If wefail to interpret properly and/or comply with these rules and regulations,we, the insurance agents, brokers or carriers doing business with us, ourofficers, or agents with whom we contract could be subject to varioussanctions, including censure, fines, cease-and-desist orders, loss of licenseor other penalties. This risk, as well as other laws and regulations affectingour business and changes in the regulatory climate or the enforcement orinterpretation of existing law, could expose us to additional costs, includingindemnification of participating insurance agents, brokers or carriers fortheir costs, and could require changes to our business or otherwise harm ourbusiness. Furthermore, because the application of online commerce to theconsumer insurance market is relatively new, the impact of current or futureregulations on our business is difficult to anticipate. To the extent thatthere are changes in the rules and regulations regarding the manner inwhich insurance is sold, our business could be adversely affected.

 

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

 

**Any disruption of our Internet connections could affect thesuccess of our Internet-based 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 inInternet usage could cause a decrease in the quality of Internet connectionservice. Websites have experienced service interruptions as a result of outagesand other delays occurring throughout the Internet network infrastructure. Inaddition, there have been several incidents in which individuals haveintentionally caused service disruptions of major e-commerce websites. If theseoutages, delays or service disruptions frequently occur in the future, usage ofour website could grow more slowly than anticipated or decline, and we may loserevenues and

 

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customers.

 

Ifthe computer hardware operations that host our website were to experience asystem failure, the performance of our website would be harmed. These systemsare also vulnerable to damage from fire, floods, earthquakes, acts ofterrorism, power loss, telecommunications failures, break-ins and similarevents. Our property and business interruption insurance coverage may not beadequate to compensate us for all losses that may occur. In addition, our usersdepend on Internet service providers, online service providers and otherwebsite operators for access to our website. Each of these providers hasexperienced significant outages in the past, and could experience outages,delays and other difficulties due to system failures unrelated to our systems.

 

**Concerns regarding security of transactions or thetransmission of confidential information over the Internet or security problemswe experience may prevent us from expanding our business or subject us to legalexposure.**

 

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, ourinfrastructure will be potentially vulnerable to physical or electronicbreak-ins, computer viruses or similar problems. If a person circumvents oursecurity measures, that person could misappropriate proprietary information ordisrupt 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 required to make significant expenditures toprotect against or remedy security breaches. Additionally, if we are unable toadequately address our customers’ concerns about security, we may havedifficulty selling our goods and services.

 

**Uncertainty in the marketplace regarding the use of Internetusers’ personal information, or proposed legislation limiting such use, couldreduce demand for our services and result in increased expenses.**

 

Concernamong consumers and legislators regarding the use of personal informationgathered from Internet users could create uncertainty in the marketplace. Thiscould reduce demand for our services, increase the cost of doing business as aresult of litigation costs or increased service delivery costs, or otherwiseharm our business. Legislation has been proposed that would limit the users ofpersonally identifiable information of Internet users gathered online orrequire online services to establish privacy policies. Many state insurancecodes limit the collection and use of personal information by insuranceagencies, brokers and carriers or insurance service organizations. Moreover,the Federal Trade Commission has settled a proceeding against one onlineservice that agreed in the settlement to limit the manner in which personalinformation could be collected from users and provided to third parties.

 

**Future government regulation of the Internet could placefinancial burdens on our businesses.**

 

Becauseof the Internet’s popularity and increasing use, new laws and regulationsdirected specifically at e-commerce may be adopted. These laws and regulationsmay cover issues such as the collection and use of data from website visitors,including the placing of small information files, or “cookies,” on a user’shard drive to gather information, and related privacy issues; pricing;taxation; telecommunications over the Internet; content; copyrights;distribution; domain name piracy; and quality of products and services. Theenactment of any additional laws or regulations, including international lawsand regulations, could impede the growth of our revenue from our Internetoperations and place additional financial burdens on our business.

 

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

 

**The price of our common stock may be extremely volatile.**

 

Insome future periods, our results of operations may be below the expectations ofpublic market investors, which could negatively affect the market price of ourcommon stock. Furthermore, the stock market in general has experienced extremeprice and volume fluctuations in recent years. We believe that, in the future,the market price of our common stock could fluctuate widely due to variationsin our performance and operating results or because of any of the followingfactors which are, in large part, beyond our control:

 

•              announcements of new services, products,technological innovations, acquisitions or strategic relationships by us or ourcompetitors;

•              trends or conditions in the insurance,software, business process outsourcing and Internet markets;

•              changes in market valuations of ourcompetitors; and

•              general political, economic and marketconditions.

 

Inaddition, the market prices of securities of technology companies, includingour own, have been volatile and have experienced fluctuations that have oftenbeen unrelated or disproportionate to operating performance. As a result, youmay not be able to sell shares of our common stock at or above the price atwhich you purchase them. In the past, following periods of volatility in themarket price of a company’s securities, securities class action litigation hasoften been instituted against that company. If any securities

 

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litigationis initiated against us, we could incur substantial costs and our management’sattention and resources could be diverted from our business.

 

**The significant concentration of ownership of our commonstock will limit your ability to influence corporate actions.**

 

Theconcentration of ownership of our common stock may have the effect of delaying,preventing or deterring a change in control of our company, could deprive ourstockholders of an opportunity to receive a premium for their common stock aspart of a sale of our company, and may affect the market price of our commonstock. At September 30, 2005, BRiT Insurance Holdings PLC beneficiallyowned approximately 34.0% of our outstanding common stock and, together withour executive officers and directors, beneficially owned approximately 54.0% ofour outstanding common stock. In addition, at September 30, 2005, CF EpicInsurance and General Fund, of which BriT owns approximately 70% of the equityinterests, beneficially owned 8% of our outstanding common stock. As a result,those stockholders, if they act together, are able to control all matters requiringstockholder approval, including the election of all directors and approval ofsignificant corporate transactions and amendments to our certificate ofincorporation. These stockholders may use their ownership position to approveor take actions that are adverse to your interests or prevent the taking ofactions that are consistent with your interests.

 

Item3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Asignificant portion of the Company’s operations are based in the U.S. and,accordingly, the majority of our transactions are denominated in U.S.dollars.  However, the Company hasforeign-based operations where transactions are denominated in foreigncurrencies and are subject to market risk with respect to fluctuations in therelative value of currencies.  Currently,the Company and its subsidiaries have operations in Australia, Canada, India,New Zealand and Singapore and conduct transactions in the local currencies ofeach location.  There can be no assurancethat fluctuations in the value of foreign currencies will not have a materialadverse effect on the Company’s business, operating results, revenues orfinancial condition. The impact of fluctuations in these currencies resulted innet transaction losses of $17,000 and $3,000 for the three months ended September 30,2005 and September 30, 2004, respectively. The impact of fluctuations inthese currencies resulted in net transaction gains for the nine months ended September 30,2005 and September 30, 2004 of $58,000 and $5,000, respectively.  The Company considered the historical trendsin currency exchange rate and determined that it was reasonably possible thatadverse changes in exchange rates of 20% for all currencies could beexperienced in the near term.  Suchadverse changes would have resulted in an adverse impact on income before taxesof approximately $30,000 and $112,000 for the three months ended September 30,2005 and September 30, 2004, respectively. Such adverse changes would haveresulted in an adverse impact on income before taxes of approximately $265,000and $246,000 for the nine months ended September 30, 2005 and September 30,2004, respectively.

 

Therehave been no material changes in the Company’s interest rate risk during thethree and nine months ended September 30, 2005.  For additional information on interest raterisk, refer to the “Quantitative Disclosures About Market Risk” section ofthe Company’s Annual Report on Form 10-K for the year ended December 31,2004.

 

Item4.    CONTROLS AND PROCEDURES

 

Duringthe 2004 year-end audit, the Company’s independent registered public accountingfirm, BDO Seidman, LLP (“BDO”) identified certain significant deficienciesrelating to the Company’s internal control over financial reporting. Asignificant deficiency is a control deficiency, or combination of controldeficiencies, that adversely affects the Company’s ability to initiate,authorize, record, process or report external financial data reliably inaccordance with generally accepted accounting principles such that there ismore than a remote likelihood that a misstatement of the Company’s annual orinterim financial statements that is more than inconsequential will not beprevented or detected. BDO’s determination that there were significantdeficiencies took into consideration audit differences, both requiredadjustments to the Company’s financial statements and unrecorded adjustments,as well as underlying causes for such adjustments, and observations of theCompany’s processes, but did not arise from any particular transaction orevent. The details of the significant deficiencies relate to the lack ofaccounting knowledge and leadership at foreign locations, inadequatedocumentation of certain accounting transactions, insufficient analysis andreview of domestic account reconciliations, lack of documentation ofdevelopment costs and related agreements, and lack of documentation to supportthe Company’s income tax provisions and related accounts**.**On July 4, 2005 the Company hired aninternational controller to supervise the international locations.  ** **The Company is continuing to takesteps necessary to address the other significant deficiencies.

 

Therewas no change in the Company’s internal control over financial reporting duringthe quarter ended September 30, 2005 that has materially affected, or isreasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

TheCompany carried out an evaluation, under the supervision and with theparticipation of the Company’s management, including its Chief ExecutiveOfficer and Chief Financial Officer, of the design and operation of the Company’sdisclosure controls and procedures, which are designed to provide reasonableassurance that the information required to be disclosed by the Company in thereports that it files with or submits to the Securities and Exchange Commissionis (1) recorded, processed, summarized and reported within the timeperiods specified in the rules and forms of the Securities and ExchangeCommission and (2) accumulated and

 

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communicatedto the Company’s management, including the Company’s Chief Executive Officerand Chief Financial Officer, as appropriate, to allow timely decisionsregarding required disclosure. Based on this evaluation, the Company’s ChiefExecutive Officer and the Company’s Chief Financial Officer concluded that, asof September 30, 2005, the Company’s disclosure controls and procedureswere effective to provide such reasonable assurance.

 

Part II — OTHER INFORMATION

 

**Item 2.****Unregistered Sales of Equity Securities and Use ofProceeds**

 

The following table providesinformation regarding the Company’s repurchases of shares of its common stockduring the nine months ended September 30, 2005.

 
| **Period**     | ** ** | **Shares  Purchased** | ** ** | **Average  Price  Paid  Per  Share** | ** ** | **Shares  Purchased  as Part  of Publicly  Announced  Programs** | ** ** | **Maximum  Shares that  May  Yet be  Purchased  Under  Publicly  Announced  Program** | ** ** |
|----------------|------------|-----------------------|------------|--------------------------------------|------------|------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|
| April (1) |       | 200,000               |       | $                                    | 13.50      |                                                             | —     |                                                                                  | —     |   |
| May            |       | —                |       | —                               |       | —                                                           |       | —                                                                                |       |
| June           |       | —                |       | —                               |       | —                                                           |       | —                                                                                |       |
| July           |       | —                |       | —                               |       | —                                                           |       | —                                                                                |       |
| August         |       | —                |       | —                               |       | —                                                           |       | —                                                                                |       |
| September      |       | —                |       | —                               |       | —                                                           |       | —                                                                                |       |
|                |            |                       |            |                                      |            |                                                                  |            |                                                                                       |            |  |

 

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(1) SeeNote 7 to the financial statements included in this Quarterly Report.

 

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Item 6.    EXHIBITS

 

Thefollowing exhibits are filed with this report:

 
| **Exhibit  No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                   |
|------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **       | ** ** | ** **                                                                                                                                                                                                                                                                                                                                        |
| 2.1              |       | Stock  Purchase Agreement dated February 23, 2004 by and among the Company 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 by reference to Exhibit 2.2 of the February 2004 8-K)  and incorporated herein by reference.                                                                                                                                               |
|             |       |                                                                                                                                                                                                                                                                                                                                              |
| 2.3              |       | Purchase  Agreement, dated June 28, 2004, by and between Heart Consulting Pty Ltd.  And Ebix Australia Pty Ltd. (incorporated by reference to Exhibit 2.1 to  the Company’s Current Report of Form 8-K dated July 14, 2004 (the “July 14,  2004 8-K”)) and incorporated herein by reference.              |
|             |       |                                                                                                                                                                                                                                                                                                                                              |
| 2.4              |       | Agreement,  dated July 1, 2004, by and between Heart Consulting Pty Ltd. and Ebix, Inc.  (incorporated by reference to Exhibit 2.2 to the Company’s Current  Report of Form 8-K dated July 14, 2004 (the “July 14, 2004 8-K”))  and incorporated herein by reference.                                |
|             |       |                                                                                                                                                                                                                                                                                                                                              |
| 3.1              |       | Certificate  of Incorporation of the Company, as amended (including Certificates of  Designations) (incorporated by reference to Exhibit 3.1 to the Company’s  Annual Report on Form 10-K for the year ended December 31, 2002)  and incorporated herein by reference.                                                        |
|             |       |                                                                                                                                                                                                                                                                                                                                              |
| 3.2              |       | Bylaws  of the Company (filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K  for the fiscal year ended December 31, 2000) and incorporated herein by  reference.                                                                                                                                                 |
|             |       |                                                                                                                                                                                                                                                                                                                                              |
| 10.1             |       | Third  Amendment to Loan and Security Agreement dated October 2005, between  Ebix, Inc. and LaSalle Bank National Association.                                                                                                                                                                                                          |
|             |       |                                                                                                                                                                                                                                                                                                                                              |
| 31.1             |       | Certification  of Chief Executive Officer Pursuant to Rule 13a-14(a) (Section 302  of the Sarbanes-Oxley Act of 2002).                                                                                                                                                                                                             |
|             |       |                                                                                                                                                                                                                                                                                                                                              |
| 31.2             |       | 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).                                                                                                                                                                                                                    |

 

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SIGNATURES

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|                          | Ebix, Inc. |
|-------------------------------|-----------------|
|                          |            |   |
|                          |            |   |
| Date:  November 11, 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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