** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

 
| **x**                                                   | ** ** | **QUARTERLY REPORT UNDER SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**        |
|---------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
| ** **                                              | ** ** | ** **                                                                                              |
| **For the quarterly period ended March 31,  2008** |
| ** **                                              | ** ** | ** **                                                                                              |
| **OR**                                                  |
| ** **                                              | ** ** | ** **                                                                                              |
| **o**                                                   | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

** **

**Commission file number0-15946**

** **

**Ebix, Inc.**

**(Exact name of registrant as specified in its charter)**

 
| **DELAWARE**                                     |   | **77-0021975**                       |
|--------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of incorporation or |   | (I.R.S. Employer Identification No.) |
| organization)                                    |   |                                 |
|                                             |   |                                 |
| **5 CONCOURSE PARKWAY, SUITE 3200**              |   | ** **                           |
| **ATLANTA, GEORGIA**                             |   | **30328**                            |
| (Address of principal executive offices)         |   | (Zip Code)                           |

 

Registrant’stelephone number, including area code: **678-281-2020**

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past90 days.   Yes  x    No  o

 

Indicateby check mark whether the Registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 
| Large  accelerated filer o                                                                                 |   | Accelerated  filer o                  |
|-----------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|
| Non-accelerated  filer o

(Do not check if a smaller reporting company) |   | Smaller reporting company x |
|                                                                                                            |   |                                       |

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o    No  x

 

As of May 6, 2008,the number of shares of Common Stock outstanding was 3,163,838.

 

 

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**Ebix, Inc.and Subsidiaries**

 

FORM 10-Q

 

FOR THE QUARTERENDED MARCH 31, 2008

 

INDEX

 
| PART I — FINANCIAL  INFORMATION                                                            |   |   |
|------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                 |   |   |
| Item  1. Consolidated Financial Statements                                                           |   |   |
|                                                                                                 |   |   |
| Consolidated  Statements of Income for the Three Months ended March 31, 2008 and 2007           |   | 2      |
|                                                                                                 |   |   |
| Consolidated  Balance Sheets at March 31, 2008 and December 31, 2007                       |   | 3      |
|                                                                                                 |   |   |
| Consolidated  Statements of Cash Flows for the Three Months ended March 31, 2008 and 2007       |   | 4      |
|                                                                                                 |   |   |
| Notes  to Consolidated Financial Statements                                                          |   | 5      |
|                                                                                                 |   |   |
| Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operations |   | 18     |
|                                                                                                 |   |   |
| Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                  |   | 24     |
|                                                                                                 |   |   |
| Item 4(T).  Controls and Procedures                                                                  |   | 24     |
|                                                                                                 |   |   |
| PART II — OTHER  INFORMATION                                                               |   |   |
|                                                                                                 |   |   |
| Item  1A. Risk Factors                                                                               |   | 25     |
|                                                                                                 |   |   |
| Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                                 |   | 25     |
|                                                                                                 |   |   |
| Item  6. Exhibits                                                                                    |   | 26     |
|                                                                                                 |   |   |
| SIGNATURES                                                                                           |   | 27     |
|                                                                                                 |   |   |
| INDEX to EXHIBITS                                                                                    |   | 28     |

 

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**PART I– FINANCIAL INFORMATION**

**ITEM 1 –CONSOLIDATED FINANCIAL STATEMENTS**

 

**Ebix, Inc. and Subsidiaries**

**Consolidated Statements of Income**

(In thousands,except per share data)

(Unaudited)

 
| ** **                                  | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                  | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| ** **                                  | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| **Operating Revenue:**                      |       | $                                                    | 16,639     |   | $ | 9,018 |   |
| ** **                                  | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| **Operating expenses:**                     | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Costs of services provided                  |       | 2,843                                                |       | 1,566 |   |
| Product development                         |       | 2,171                                                |       | 1,850 |   |
| Sales and marketing                         |       | 847                                                  |       | 952 |   |
| General and administrative                  |       | 3,816                                                |       | 1,787 |   |
| Amortization and depreciation               |       | 819                                                  |       | 625 |   |
| **Total operating expenses**                |       | 10,496                                               |       | 6,780 |   |
| **Operating income**                        |       | 6,143                                                |       | 2,238 |   |
| Interest income                             |       | 122                                                  |       | 71 |   |
| Interest expense                            |       | (342                                                 | )          | (228 | ) |
| Foreign exchange gain                       |       | 59                                                   |       | 5 |   |
| **Income before income taxes**              |       | 5,982                                                |       | 2,086 |   |
| Income tax provision                        |       | (312                                                 | )          | (124 | ) |
| **Net income**                              |       | $                                                    | 5,670      |   | $ | 1,962 |   |
|                                        |       |                                                 |       |   |   |
| **Basic earnings per common share**         |       | $                                                    | 1.66       |   | $ | 0.69 |   |
|                                        |       |                                                 |       |   |   |
| **Diluted earnings per common share**       |       | $                                                    | 1.40       |   | $ | 0.61 |   |
|                                        |       |                                                 |       |   |   |
| Basic weighted average shares outstanding   |       | 3,406                                                |       | 2,848 |   |
|                                        |       |                                                 |       |   |   |
| Diluted weighted average shares outstanding |       | 4,154                                                |       | 3,216 |   |

 

See accompanying notes tocondensed consolidated financial statements.

 

2

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**Ebix, Inc. and Subsidiaries**

**Consolidated Balance Sheets**

(In thousands,except share amounts)

 
| ** **                                                                                                                                                                                                | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                | ** ** | **(Unaudited****)**      | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                                                                                | ** ** | ** **               | ** ** | ** **                  | ** ** |
| **Current  assets:**                                                                                                                                                                                      | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Cash and cash  equivalents                                                                                                                                                                                |       | $                        | 13,565     |                        | $          | 49,466 |   |
| Accounts receivable,  less allowance of $176 and $146, respectively                                                                                                                                       |       | 15,043                   |       | 8,809                       |       |
| Other current assets                                                                                                                                                                                      |       | 1,220                    |       | 1,130                       |       |
| ** **                                                                                                                                                                                                |       |                     |       |                        |       |
| **Total  current assets**                                                                                                                                                                                 |       | 29,828                   |       | 59,405                      |       |
| ** **                                                                                                                                                                                                |       |                     |       |                        |       |
| Property and equipment,  net                                                                                                                                                                              |       | 3,470                    |       | 3,356                       |       |
| Goodwill                                                                                                                                                                                                  |       | 81,312                   |       | 36,408                      |       |
| Intangible assets, net                                                                                                                                                                                    |       | 10,263                   |       | 7,318                       |       |
| Other assets                                                                                                                                                                                              |       | 2,022                    |       | 2,023                       |       |
|                                                                                                                                                                                                      |       |                     |       |                        |       |
| **Total assets**                                                                                                                                                                                          |       | $                        | 126,895    |                        | $          | 108,510 |   |
| ** **                                                                                                                                                                                                |       |                     |       |                        |       |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                            | ** ** | ** **               | ** ** | ** **                  | ** ** |
| **Current  liabilities:**                                                                                                                                                                                 | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Accounts payable and  accrued expenses                                                                                                                                                                    |       | 5,234                    |       | 2,231                       |       |
| Accrued payroll and  related benefits                                                                                                                                                                     |       | 2,982                    |       | 1,517                       |       |
| Short term debt                                                                                                                                                                                           |       | 19,945                   |       | 15,650                      |       |
| Current portion of long  term debt and capital lease obligations                                                                                                                                          |       | 498                      |       | 510                         |       |
| Deferred revenue                                                                                                                                                                                          |       | 6,802                    |       | 5,645                       |       |
| Other current  liabilities                                                                                                                                                                                |       | 165                      |       | 149                         |       |
|                                                                                                                                                                                                      |       |                     |       |                        |       |
| **Total  current liabilities**                                                                                                                                                                            |       | 35,626                   |       | 25,702                      |       |
| ** **                                                                                                                                                                                                |       |                     |       |                        |       |
| Convertible debt                                                                                                                                                                                          |       | 20,000                   |       | 20,000                      |       |
| Long term debt and  capital lease obligation, less current portion                                                                                                                                        |       | 5                        |       | 486                         |       |
| Other liabilities                                                                                                                                                                                         |       | 2,531                    |       | 1,477                       |       |
| Deferred rent                                                                                                                                                                                             |       | 688                      |       | 719                         |       |
| **Total liabilities**                                                                                                                                                                                     |       | 58,850                   |       | 48,384                      |       |
|                                                                                                                                                                                                      |       |                     |       |                        |       |
| **Commitments  and Contingencies, Note 9**                                                                                                                                                                |       |                     |       |                        |       |
| ** **                                                                                                                                                                                                |       |                     |       |                        |       |
| **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, 3,402,370 issued and 3,393,480 outstanding at March 31,  2008 and 3,406,234 issued and 3,397,344 outstanding at December 31, 2007 |       | 339                      |       | 337                         |       |
| Additional paid-in  capital                                                                                                                                                                               |       | 115,145                  |       | 114,771                     |       |
| Treasury stock (8,890  shares repurchased as of March 31, 2008 and December 31, 2007)                                                                                                           |       | (149                     | )          | (149                        | )          |
| Accumulated deficit                                                                                                                                                                                       |       | (51,843                  | )          | (57,513                     | )          |
| Accumulated other  comprehensive income                                                                                                                                                                   |       | 4,553                    |       | 2,680                       |       |
| **Total  stockholders’ equity**                                                                                                                                                                      |       | 68,045                   |       | 60,126                      |       |
| **Total  liabilities and stockholders’ equity**                                                                                                                                                      |       | $                        | 126,895    |                        | $          | 108,510 |   |

 

See accompanying notes tocondensed consolidated financial statements.

 

3

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** Ebix, Inc.and Subsidiaries**

**Consolidated Statements of Cash Flows**

(In thousands)

(Unaudited)

 
| ** **                                                                                  | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                  | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
|                                                                                        |       |                                                 |       |   |   |
| **Cash flows from operating activities:**                                                   | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Net income                                                                                  |       | $                                                    | 5,670      |   | $ | 1,962 |   |
| **Adjustments to reconcile net income to  net cash provided by operating activities:** | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Depreciation and amortization                                                               |       | 819                                                  |       | 627 |   |
| Stock-based compensation                                                                    |       | 13                                                   |       | 62 |   |
| Restricted stock compensation                                                               |       | 87                                                   |       | 22 |   |
| Provision for doubtful accounts                                                             |       | 30                                                   |       | — |   |
| **Changes in assets and liabilities:**                                                      | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Accounts receivable                                                                         |       | (4,559                                               | )          | (718 | ) |
| Other assets                                                                                |       | (64                                                  | )          | 152 |   |
| Accounts payable and accrued expenses                                                       |       | 583                                                  |       | (32 | ) |
| Accrued payroll and related benefits                                                        |       | 572                                                  |       | (496 | ) |
| Deferred revenue                                                                            |       | 494                                                  |       | 447 |   |
| Deferred rent                                                                               |       | (29                                                  | )          | — |   |
| Net cash  provided by operating activities                                                  |       | 3,616                                                |       | 2,026 |   |
| **Cash flows from investing activities:**                                                   | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Investment in Telstra eBusiness Services, net of  cash acquired                             |       | (42,956                                              | )          | — |   |
| Investment in Finetre, net of cash acquired                                                 |       | —                                               |       | (15 | ) |
| Capital expenditures                                                                        |       | (181                                                 | )          | (148 | ) |
| Net cash  used in investing activities                                                      |       | (43,137                                              | )          | (163 | ) |
| **Cash flows from financing activities:**                                                   | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Proceeds from line of credit                                                                |       | 4,295                                                |       | — |   |
| Proceeds from the exercise of the stock options                                             |       | 271                                                  |       | — |   |
| Payments for capital lease obligations                                                      |       | (2                                                   | )          | — |   |
| Principal payments of debt obligations                                                      |       | (493                                                 | )          | (477 | ) |
| Net cash  provided/(used) in financing activities                                           |       | 4,071                                                |       | (477 | ) |
| Effect of foreign exchange rates on cash                                                    |       | (451                                                 | )          | 122 |   |
| Net  change in cash and cash equivalents                                                    |       | (35,901                                              | )          | 1,508 |   |
| Cash and  cash equivalents at the beginning of the period                                   |       | 49,466                                               |       | 5,013 |   |
| Cash and  cash equivalents at the end of the period                                         |       | $                                                    | 13,565     |   | $ | 6,521 |   |
|                                                                                        |       |                                                 |       |   |   |
| **Supplemental disclosures of cash flow  information:**                                     | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Interest paid                                                                               |       | $                                                    | 221        |   | $ | 172 |   |
| Income taxes paid                                                                           |       | $                                                    | 410        |   | $ | 242 |   |
|                                                                                             |            |                                                      |            |  |  |  |  |  |

 

See accompanying notes tocondensed consolidated financial statements.

 

4

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**Ebix, Inc. and Subsidiaries**

 

**Notes to Consolidated Financial Statements**

 

**Note 1.  Description of Business and Summary ofSignificant Accounting Policies**

 

**Descriptionof Business**—Ebix provides a broad spectrum of Internet-basedapplication service provider (“ASP”) and custom software development servicesto the insurance companies and to insurance agencies/brokers across sixcontinents. Products include carrier systems, agency systems, and dataexchanges and feature fully customizable and scalable software designed toimprove the way insurance professionals manage all aspects of distribution,including: marketing, sales, service, accounting and management. The Companyhas its headquarters in Atlanta, Georgia and also has offices in five countrieswhich include Australia, New Zealand, Singapore, UK and India, servicingcustomers across fifty countries.

 

***Summary of Significant Accounting Policies***

 

**Basis of Presentation**—Theseunaudited consolidated financial statements reflect all adjustments (consistingonly of normal recurring adjustments) which are, in the opinion of management,necessary for a fair presentation of the results of the interim periods.Certain prior period amounts have been reclassified to conform to the currentperiod presentation.  These consolidatedfinancial statements should be read in conjunction with the consolidatedfinancial statements, and accompanying notes thereto, included in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2007.  The results of operations for the currentinterim period are not necessarily indicative of results to be expected for theentire current year. The consolidated financial statements include the accountsof Ebix, Inc. (Ebix, or “The Company”) and its wholly-owned subsidiarieswhich include:

 

Ebix International, Inc.

Ebix Australia Pty, Ltd.

Ebix Insurance Agency, Inc.

Ebix New Zealand and NewZealand Holdings

Ebix Singapore PTE LTD

Ebix Software IndiaPrivate Limited

EIH Holdings KB and AB

EbixLife, Inc.

Finetre Corporation

Ebix BPO, Inc.

 

The effect ofinter-company balances and transactions has been eliminated.

 

**Use ofEstimates**—The preparation of consolidated financialstatements in conformity with accounting principles generally accepted in theUnited States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the dates of the financial statements and reported amounts ofrevenue and expenses during the reporting periods. Management has made materialestimates with respect to revenue recognition and deferred revenue, accountsreceivable, and income taxes. Actual results may be materially different fromthose estimates.

 

**RevenueRecognition and Deferred Revenue**—We derive our revenueprimarily from two sources: (1) professional and support services, whichincludes revenue derived from software development projects and associated feesfor consulting, implementation, training, and project management provided tothe Company’s customers with installed systems, subscription and transactionfees related to services delivered on an application service provider (“ASP”)basis, fees for hosting software, fees for software license maintenance andregistration, and business process outsourcing revenue, and (2) softwarerevenue, which includes the licensing of proprietary and third-partysoftware.  International revenueaccounted for 30% and 28% of the Company’s total revenue for the three monthsended March 31, 2008 and 2007 respectively.

 

The Company considers revenue earned and realizablewhen (a) persuasive evidence of the sales arrangement exists, providedthat the arrangement fee is fixed or determinable, (b) delivery orperformance has occurred, (c) customer acceptance has been received, ifcontractually required, and, (d) collectability of the arrangement fee isprobable. The Company uses signed contractual agreements as persuasive evidenceof a sales arrangement. Revenue is recorded net of sales tax, as these taxesare recognized as a liability upon billing.

 

We apply the provisions of Statement of Position 97-2,“*Software Revenue Recognition(SOP 97-2)*,” as amended by Statement of Position 98-9, “*Modification of SOP 97-2, Software RevenueRecognition, With Respect to Certain Transactions, (SOP 98-9)*”to all transactions involving the license of software where the softwaredeliverables are considered more than inconsequential to the other elements inthe arrangement. For contracts that contain multiple deliverables, we analyzethe revenue arrangements in accordance with Emerging Issues Task Force Issue No. 00-21,“Revenue Arrangements with Multiple Deliverables” (EITF 00-21), whichprovides criteria governing how to determine whether goods or services that aredelivered separately in a bundled sales arrangement should be considered asseparate units of accounting for the purpose of revenue recognition.Deliverables are accounted for separately if they meet all of the followingcriteria: a) the delivered items has value to the customer on astand-alone basis; b) there is objective and reliable evidence of the fairvalue of the undelivered items; and c) if the arrangement includes ageneral right of return relative to the delivered items, the delivery orperformance of the undelivered items is probable and substantially controlledby the seller. To the extent arrangements contain multiple deliverables, theCompany performs an analysis of the nature of the deliverables to determine towhat extent the deliverables of the arrangement are governed by any “higherlevel literature” (as defined in EITF 00-21). EITF 00-21 recognizesarrangements that qualify for treatment under SOP 97-2 and certainarrangements that qualify for contract accounting (i.e. SOP 81-1) asfalling under the definition of higher level literature.

 

5

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** **

**Ebix, Inc. and Subsidiaries**

 

**Notes to Consolidated Financial Statements**

 

**Note 1.  Description of Business and Summary ofSignificant Accounting Policies (Continued)**

 

In regards to arrangements containing multipleperformance elements, revenue recognition on delivered elements is predicatedupon the establishment of vendor-specific objective evidence (VSOE) of the fairvalue for the undelivered elements and applying the residual method ofSOP 98-9 if necessary. Fair value is determined for each undeliveredelement based on the price the Company charges when the item is soldseparately.

 

The Company begins torecognize revenue from license fees for its software products upon delivery andthe customer’s acceptance of the software implementation and customizations ifapplicable. 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 recognized upon delivery together with the Company’slicensed software products. Training, data conversion, installation, andconsulting services fees are recognized as revenue when the services areperformed. Revenue for maintenance and support services is recognized ratably overthe term of the support agreement.

 

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.Revenues derived from initial setup or registration fees are recognized ratablyover the term of the agreement in accordance with SEC Staff Accounting Bulletin(“SAB”) 104, “Revenue Recognition.”

 

ASP transaction servicesfee revenue is recognized as the transactions occur and generally billed inarrears. Service fees for hosting arrangements are recognized over therequisite service period. Deferred revenue includes maintenance and supportpayments or billings that have been received or recorded prior to performanceand, in certain cases, cash collections; initial setup or registration feesunder hosting agreements; and amounts received under multi-element arrangementsin which the VSOE for the undelivered elements does not exist. In theseinstances revenue is recognized when the VSOE for the undelivered elements isestablished or when all contractual elements have been completed and delivered.

 

Software developmentarrangements involving significant customization, modification or productionare accounted for in accordance with Statement of Position 81-1, “Accountingfor Performance on Construction-Type and Certain Production-Type Contracts,(SOP 81-1)” using the percentage-of-completion method. The Company recognizesrevenue using periodic reported actual hours worked as a percentage of totalexpected hours required to complete the project arrangement and applies thepercentage to the total arrangement fee.

 

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

 

**Allowancefor Doubtful Accounts Receivable**—Management specificallyanalyzes accounts receivable and historical bad debts, write-offs, customerconcentrations, customer credit-worthiness, current economic trends and changesin our customer payment terms when evaluating the adequacy of the allowance fordoubtful accounts. Bad debt expense was $30 thousand and $0 thousandduring the three months ended March 31, 2008 and 2007 respectively.

 

**SegmentReporting**—SFAS No. 131, “Disclosures about Segments ofan Enterprise and Related Information”, established reporting standards forcompanies operating in more than one business segment. Since the Companymanages its business as a single entity that provides software and relatedservices to a single industry on a worldwide basis, the Company reports as asingle segment. The applicable enterprise-wide disclosures required by SFAS No. 131are included in Note 15.

 

**Cash andCash Equivalents**—The Company considers all highly liquidinvestments with an original maturity of three months or less at the time ofpurchase to be cash equivalents. Such investments are stated at cost, whichapproximates fair value. The Company does maintain cash balances in bankinginstitutions in excess of federally insured amounts and therefore is exposed topotential credit risk associated with such cash deposits.

 

**FairValue of Financial Instruments**—The Company believes the carrying amount of cash and cash equivalents,accounts receivable, accounts payable, accrued expenses, accrued payroll andrelated benefits, line of credit and letters of credit is a reasonable estimateof their fair value due to the short maturity of these items and/or theirfluctuating interest rates.

 

6

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**Ebix, Inc. and Subsidiaries**

 

**Notes to Consolidated Financial Statements**

 

**Note 1.  Description of Business and Summary ofSignificant Accounting Policies (Continued)**

 

**Goodwilland Other Acquired Intangible Assets**—The Company applies theprovisions of Financial Accounting Statement No. 142 “Goodwill and OtherIntangible Assets (SFAS 142)” which addresses how goodwill and otheracquired intangible assets should be accounted for in financial statements. Inthis regard we test these intangible assets for impairment annually or morefrequently if indicators of potential impairment are present. The testinginvolves comparing the reporting unit and asset carrying values to theirrespective fair values; we determine fair value by using the present value offuture estimated net cash flows. During the three months ended March 31,2008, $42.7 million of goodwill was recorded in connection with theacquisition Telstra eBusiness Services.

 

Changes in the carryingamount of goodwill for the three months ended March 31, 2008 were asfollows:

 

| **Goodwill**                              | ** ** | **March 31,  2008** | ** ** |
|-------------------------------------------|------------|--------------------------|------------|
|                                      |       | **(In thousands)**       |       |
| Beginning  Balance                        |       | $                        | 36,408     |   |
| Additions                                 |       | 42,736                   |       |
| Foreign  currency translation adjustments |       | 2,168                    |       |
| Ending Balance                            |       | $                        | 81,312     |   |

 

7

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**Ebix, Inc. and Subsidiaries**

 

**Notes to Consolidated Financial Statements**

 

**Note 1.  Description of Business and Summary ofSignificant Accounting** **Policies(Continued)**

 

Intangible assets consists of the following at March31, 2008:

 

| ** **                 | ** ** | **March 31,**  | ** ** |
|----------------------------|------------|---------------------|------------|
| **Intangible Assets**      | ** ** | **2008**            | ** ** |
| ** **                 | ** ** | **(In  thousands)** | ** ** |
| Intangible assets:    |       |                |       |
| Customer relationships     |       | $                   | 10,177     |   |
| Developed technology       |       | 4,664               |       |
| Trademarks                 |       | 717                 |       |
| Backlog                    |       | 140                 |       |
| Total intangibles          |       | 15,698              |       |
| Accumulated  amortization: |       | (5,435              | )          |
| Intangibles net            |       | $                   | 10,263     |   |

 

**IncomeTaxes**—The Company follows the asset and liability method of accountingfor income taxes pursuant to Financial Accounting Statement No. 109,“Accounting for Income Taxes (SFAS 109)”. Deferred income taxes arerecorded to reflect the tax consequences on future years of differences betweenthe tax basis of assets and liabilities, and operating loss and tax creditcarry forwards and their financial reporting amounts at the end of each periodusing enacted tax rates expected to apply to taxable income in the years inwhich those temporary differences are expected to be recovered or settled. Inassessing the realization of the deferred tax assets, management considerswhether it is more likely than not that some portion or all of the deferred taxassets will not be realized. A valuation allowance is recorded for the portionof the deferred tax assets that are not expected to be realized based on thelevels of historical taxable income and projections for future taxable incomeover the periods in which the temporary differences will be deductible.

 

Effective January of2007 the Company adopted the Financial Accounting Interpretation No. 48,“Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48clarifies the accounting for uncertainty in income taxes by prescribing theminimum recognition threshold a tax position is required to meet before beingrecognized in the financial statements. FIN 48 utilizes a two-stepapproach for evaluating tax positions. Recognition (step 1) occurs when anenterprise concludes that a tax position, based solely on its technical meritsis more likely than not to be sustained upon examination. Measurement (Step2) is only addressed if Step 1 has been satisfied. Under Step 2, the taxbenefit is measured at the largest amount of benefit, determined on acumulative probability basis that is more likely than not to be realized uponfinal settlement. As used in FIN 48, the term “more likely than not” ismeans that the likelihood of an occurrence is greater than 50%.

 

**ForeignCurrency Translation**—The functional currency of the Company’sforeign subsidiaries is the local currency of the country in which the subsidiaryoperates. The assets and liabilities of foreign subsidiaries are translatedinto U.S. Dollars at the rates of exchange at the balance sheet dates. Gainsand losses resulting from translation adjustments are included as a componentof other comprehensive income in the accompanying consolidated financialstatements. Income and expense accounts are translated at the average exchangerates in effect during the period. Foreign exchange transaction gains andlosses that are derived from transactions denominated in other than thesubsidiary’s’ functional currency is included in the determination of netincome.

 

8

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**Ebix, Inc. and Subsidiaries**

 

**Notes to Consolidated Financial Statements**

 

**Note 1.  Description of Business and Summary ofSignificant Accounting** **Policies(Continued)**

 

**IntangibleAssets**—Amounts allocated to intangible assets are amortizedon a straight line basis over their estimated useful lives as follow:

 
| **Category**            | ** ** | **Life  (yrs)** | ** ** |
|-------------------------|------------|-----------------|------------|
| Customer  relationships |       | 4-10            |       |
| Developed  technology   |       | 5-7             |       |
| Trademarks              |       | 5-10            |       |

 

**RecentAccounting Pronouncements**—In December 2007, the FASBissued SFAS No. 141R, *BusinessCombinations* (“SFAS 141R”). SFAS 141R replaces SFAS No. 141,“Business Combinations,” and improves the relevance, representationalfaithfulness, and comparability of the information that a reporting entityprovides in its financial reports about a business combination and its effects.SFAS 141R is effective for fiscal years beginning after December 15,2008. The Company will adopt SFAS 141R during the first quarter of 2009and is in the process of assessing the impact that this pronouncement will haveon our financial statements.

 

In February 2007,the FASB issued SFAS No. 159, *The FairValue Option for Financial Assets and Financial Liabilities—Including anAmendment of FASB Statement No. 115* (“SFAS 159”).   SFAS 159 permits entities to choose tomeasure many financial assets and financial liabilities at fair value.   Unrealized gains and losses on items forwhich the fair value option has been elected are reported in earnings.   SFAS 159 is effective for fiscal yearsbeginning after November 15, 2007.  The Company has considered SFAS 159 and determined that it is notapplicable to its operations.

 

**Note 2.  Share Based Compensation**

 

**Non-employeeStock Compensation**—The Company accounts for stock basedcompensation issued to non-employees in accordance with SFAS No. 123R andEmerging Issues Task Force (“EITF”) Issue No. 96-18, “Accounting forEquity Instruments That Are Issued to Other Than Employees for Acquiring, or inconjunction with Selling Goods or Services.” SFAS No. 123R establishes afair value based method of accounting for stock-based compensation plans. Underthe fair value based method, compensation cost is measured at the grant datebased on the value of the award, which is calculated using an option pricingmodel, and is recognized over the service period, which is usually the vestingperiod.

 

**StockOptions—**No stockoptions were granted to employees during the first quarter of 2008 and 15,000stock options were granted to Directors during the first quarter of 2008.  Share-based compensation expense of $13thousand and $62 thousand was recognized during the quarters ended March 31,2008 and 2007 on existing stock options.

 

9

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**Ebix, Inc. and Subsidiaries**

 

**Notes to Consolidated Financial Statements**

 

**Note 2. Share Based Compensation(Continued)**

 

A summary of stock optionactivity for the Company’s active stock option plans for the quarter ended March 31,2008 is as follows:

 
| ** **                             | ** ** | **Within Plans**     | ** ** | ** **             | ** ** | **Weighted  Average** | ** ** | **Weighted  Average  Remaining  Contractual** | ** ** | **Aggregate  Intrinsic** | ** ** |
|----------------------------------------|------------|---------------------------|------------|------------------------|------------|-----------------------|------------|-----------------------------------------------|------------|--------------------------|------------|
| ** **                             | ** ** | **Nonstatutory  Options** | ** ** | **Incentive  Options** | ** ** | **Outside  Plan**     | ** ** | **Exercise  Price**                           | ** ** | **Term  (Years)**        | ** ** | **Value (*)  (thousands)** | ** ** |
| Outstanding  at December 31, 2007 |       | 479,867                   |       | 47,781                 |       | 2,500                 |       | $                                             | 11.92      |                     | 4.46       |   | $ | 32,480 |   |
| Granted                                |       | 15,000                    |       | —                 |       | —                |       | $                                             | —     |                     | —     |   | — |   |
| Exercised                              |       | (10,191                   | )          | —                 |       | —                |       | $                                             | 26.58      |                     | —     |   | — |   |
| Canceled                               |       | —                    |       | —                 |       | —                |       | $                                             | —     |                     | —     |   | — |   |
| Outstanding  at March 31, 2008    |       | 484,676                   |       | 47,781                 |       | 2,500                 |       | $                                             | 11.64      |                     | 4.29       |   | $ | 32,362 |   |
| Exercisable  at March 31, 2008    |       | 469,911                   |       | 33,700                 |       | 1,562                 |       | $                                             | 10.41      |                     | 4.29       |   | $ | 32,125 |   |

 

----

(*) The aggregateintrinsic value for stock options outstanding and exercisable is defined as thedifference between the market value of the Company’s stock as of the end of theperiod and the exercise price of the stock options.

 

**RestrictedStock—** On March 24, 2008 the Compensation Committeeapproved an award of 5,358 shares of restricted stock to Robin Raina, the Company’sChairman, Chief Executive Officer and President. The award was made pursuant tothe 2006 Program.  This number of sharesof restricted stock issued to Mr. Raina, multiplied by the market price ofthe Company’s stock on March 24, 2008, the date the Compensation Committeeof the Board of Directors approved the grant, represents approximately 25% ofthe aggregate of the his total salary and cash bonus compensation earned for2007.  The Company recognized compensationexpense of $3 thousand related to these shares for the quarter ended March 31,2008.

 

OnJanuary 10, 2008 the Compensation Committee of the Board of Directorsapproved and the Company granted an award of 7,130 shares of restrictedstock to certain key employees of the Company. The award was made pursuant tothe 2006 incentive compensation program (the “2006 Program”) as approved by theCompany’s Board of Directors.  Theaggregate value of these awards was $489 thousand, as determined by multiplyingthe number of shares times the market price of the Company’s stock on January 10,2008, the date of the grant award.  TheCompany recognized compensation expense of $28 thousand related to these sharesduring the three months ended March 31, 2008.

 

On November 11, 2007the Compensation Committee approved an award of 2,500 shares of restrictedstock to Robin Raina, the Company’s Chairman, Chief Executive Officer andPresident. The award was made pursuant to the 2006 Program.  This number of shares of restricted stockissued to Mr. Raina,  multiplied bythe market price of the Company’s stock on November 11, 2007, the date theCompensation Committee of the Board of Directors approved the restricted stockgrant, represents approximately 12% of the aggregate of the his total salaryand cash bonus compensation earned for 2007. The Company recognizedcompensation expense of $14 thousand related to these shares during thethree months ended March 31, 2008.

 

On May 9, 2007, theCompensation Committee approved an award of 8,501 shares of restricted stock toRobin Raina, the Company’s Chairman, Chief Executive Officer and President. Theaward was made pursuant to the 2006 Program. This number of shares ofrestricted stock issued to Mr. Raina, multiplied by the market price of the Company’s stock on the date theCompensation Committee of the Board of Directors approved the restricted stockgrant, represents approximately 12% of the aggregate of the his total salaryand cash bonus compensation earned for 2007. The Company recognized compensation expense of $21 thousand related tothese shares during the three months ended March 31, 2008.

 

Total compensationexpense recognized for all outstanding restricted stock awards for the threemonths ended March 31, 2008 and 2007 was $87 thousand and $22 thousandrespectively.

 

10

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**Ebix, Inc. and Subsidiaries**

 

**Notes to Consolidated Financial Statements**

 

**Note 3.  Earnings per Share**

 

 Basic earnings pershare (“EPS”) is equal to net income divided by the weighted average number ofshares of common stock outstanding for the period. The weighted average numberof shares outstanding for the three months ended March 31, 2008 and 2007was 3,406,265 and 2,848,288 respectively. Diluted EPS takes into consideration common stock equivalents which forthe Company consist of stock options, restricted stock, and convertible debt.With respect to stock options, diluted EPS is calculated as if the Company hadadditional common stock outstanding from the beginning of the year or the dateof grant or issuance, net of assumed repurchased shares using the treasurystock method. With respect to convertible debt, diluted EPS is calculated as ifthe debt instrument had been converted at the beginning of the reporting periodor the date of issuance, whichever is later. Diluted EPS is equal to net incomeplus interest expense on convertible debt, divided by the combined sum of theweighted average number of shares outstanding and common stock equivalents. Forthe three months ended March 31, 2008 and 2007 common stock equivalentsincreased weighted average number of shares outstanding of by 747,871 and367,434, respectively, resulting in a total of fully diluted weighted averagenumber of shares outstanding of 4,154,136 and 3,215,722 respectively.  At March 31, 2008 there were 120,464shares potentially issuable with respect to stock options which could diluteEPS in the future but which were excluded from the diluted EPS calculationbecause presently their effect is anti-dilutive.

 

**Note 4.  Comprehensive Income**

 

| ** **                                                                        | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                        | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| ** **                                                                        | ** ** | **(In thousands)**                                   | ** ** |
| Net income                                                                        |       | $                                                    | 5,670      |   | $ | 1,962 |   |
| Other  comprehensive income (loss)— foreign  currency translation adjustment |       | 1,876                                                |       | 207 |   |
| Comprehensive income                                                              |       | $                                                    | 7,546      |   | $ | 2,169 |   |

 

**Note 5.  Related Party Transactions**

 

The Company considersBrit Insurance Holdings PLC and its affiliates (“Brit”) to be a relatedparty.  At March 31, 2008 Brit held730,163 shares of the Company’s common stock, representing an approximateequity ownership of 21.4%. Refer to Note 16 “Subsequent Events” in regards tothe 400,000 shares of common stock that was repurchased by the Company. Brit isalso a customer and has entered into various software and service agreementswith the Company.  During the three months ended March 31, 2008 and2007, $134 thousand and $578 thousand , respectively, was recognized as revenuefrom Brit which represented 1% and 6% respectively of the Company’s totalrevenues for these periods. Total accounts receivable from Brit at March 31,2008 and December 31, 2007 were $762 thousand and $665 thousand,respectively, and represented 5% and 7% of the Company’s total receivables atthese dates.

 

**Note 6.  Business Combinations**

 

***IDS acquisition***—On November 1,2007, the Company announced the merger with Jenquest, Inc. (“IDS”)effective November 1, 2007. The Company paid IDS shareholders$11.25 million for substantially all of IDS’s stock, and IDS shareholdersretain the right to earn up to $1.2 million in additional payments overone year if certain revenue or operating income targets of the IDS division ofEbix are met. Ebix also incurred approximately $70 thousand of direct expensesprimarily consisting of legal, accounting, due diligence, and filing feesrelated to the closing of the IDS acquisition.

 

11

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**Ebix, Inc. and Subsidiaries**

 

**Notes to Consolidated Financial Statements**

 

**Note 6.  Business Combinations(Continued)**

 

Concurrent with this acquisition, the Company ascribeda preliminary value to each of the assets and liabilities assumed from theacquisition of IDS. The following table summarizes the fair value of the IDSassets acquired and liabilities assumed at the date of acquisition.

 
| ** **                 | ** ** | **(In thousands) ** | ** ** |
|----------------------------|------------|-------------------------------|------------|
| Current assets             |       | $                             | 432        |   |
| Property and  equipment    |       | 139                           |       |
| Intangible  assets         |       | 1,283                         |       |
| Goodwill                   |       | 9,646                         |       |
|                       |       |                          |       |
| Total assets  acquired     |       | 11,500                        |       |
| Less:  liabilities assumed |       | (180                          | )          |
|                       |       |                          |       |
| Net assets  acquired       |       | $                             | 11,320     |   |

 

Of the $1.3 million of intangible assetsacquired, $1.1 million was assigned to customer relationships with aremaining useful life of ten years, and $140 thousand was assigned todeveloped technology with a remaining useful life of 5 years. The Companyrecorded $36 thousand of amortization expense related to these intangibleassets for the three months ended March 31, 2008.

 

*EstimatedAmortization Expenses:*

 
| For the year  ended December 31, 2008 |   | $ | 142,000 |   |
|--------------------------------------------|--------|---|---------|--------|
| For the year ended December 31, 2009  |   | $ | 142,000 |   |
| For the year ended December 31, 2010  |   | $ | 142,000 |   |
| For the year ended December 31, 2011  |   | $ | 142,000 |   |
| For the year ended December 31, 2012  |   | $ | 138,000 |   |
| Thereafter                                 |   | $ | 553,000 |   |

 

***Telstra eBusiness Services***—On January 1,2008, the Company announced its acquisition of Telstra eBusiness Services(“Telstra”) a premier insurance exchange, effective January 2, 2008.  The Company paid Australian $50.0 million (US$43.8 million) for Telstra.  Telstra wasa company incorporated in Australia with offices in Melbourne, Australia, andwas a wholly owned subsidiary of Telstra Services Solutions Holding Limited.  Ebix also incurred approximately $368 thousandof direct expenses primarily consisting of legal, accounting, due diligence,and filing fees related to the closing of the Telstra acquisition. Ebixfinanced this acquisition with a combination of $1.6 million of availablecash, $16.5 million from the Company’s line of credit, $20.0 millionof convertible debt, and $5.7 million from sales of the Company’s commonstock. The results of operation for Telstra are included in the Company’sreported net income for the first quarter of 2008.  The acquisition gave rise to the eliminationof certain personnel of Telstra and as a result and in accordance with theFASB’s Emerging Issues Task Force Issue No. 95-3 “Recognition ofLiabilities in Connection with a Purchase Business Combination,” the Companyrecognized a liability of $198 thousand related to this elimination ofpersonnel that was undertaken as part of the final integration plan that wasimplemented immediately after the closing of the acquisition.

 

12

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**Ebix, Inc. and Subsidiaries**

 

**Notes to Consolidated Financial Statements**

 

**Note 6.  Business Combinations(Continued)**

 

        Concurrentwith this acquisition, the Company ascribed a preliminary value to each of the assetsand liabilities assumed from the acquisition of Telstra. The following tablesummarizes the fair value of the Telstra assets acquired and liabilitiesassumed at the date of acquisition.

 
| ** **                 | ** ** | **(In thousands)** | ** **   |
|----------------------------|------------|-------------------------|--------------|
| Current assets             |       | $                       | 3,094        |   |
| Property and equipment     |       | 170                     |         |
| Intangible  assets         |       | 3,367                   |         |
| Goodwill                   |       | 41,314                  |         |
|                       |       |                    |         |
| Total assets  acquired     |       | 47,945                  |         |
| Less:  liabilities assumed |       | (3,997                  | )            |
|                       |       |                    |         |
| Net assets  acquired       |       | $                       |  43,948 |   |

 

Of the $3.4 million of intangible assetsacquired, $2.8 million was assigned to customer relationships with aremaining useful life of nine years, and $523 thousand was assigned todeveloped technology with a remaining useful life of 6 years. The Companyrecorded $106 thousand of amortization expense related to these intangibleassets for the three months ended March 31, 2008.

 

*EstimatedAmortization Expenses:*

 
| For the year  ended December 31, 2008 |   | $ | 403,260   |   |
|--------------------------------------------|--------|---|-----------|--------|
| For the year ended December 31, 2009  |   | $ | 403,260   |   |
| For the year ended December 31, 2010  |   | $ | 403,260   |   |
| For the year ended December 31, 2011  |   | $ | 403,260   |   |
| For the year ended December 31, 2012  |   | $ | 403,260   |   |
| Thereafter                                 |   | $ | 1,351,626 |   |

 

**Note 7.  Pro Forma Financial Information (related torecent acquisitions)**

 

The following unauditedpro forma financial information for the three months ended March 31, 2008and 2007 presents the consolidated operations of the Company as if the IDS andTelstra acquisitions had been made on January 1, 2007, after giving effectto certain adjustments for the pro forma effects of the acquisition as of theacquisition dates. The Company made adjustments primarily for the amortizationof intangible assets and the recognition of income tax expense using localeffective tax rates.  The unaudited proforma financial information is provided for informational purposes only anddoes not project the Company’s results of operations for any future period:

 
| ** **  | ** ** | **As Reported  1****st**** Qtr 2008** | ** ** | **As Reported  1****st**** Qtr 2007** | ** ** | **Pro Forma  1****st**** Qtr 2007** | ** ** |
|-------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **  | ** ** | **(In thousands)**                              | ** ** |
| Revenue     |       | $                                                    | 16,639     |                                                 | $          | 9,018                                              |       | $ | 13,983 |   |
| Net Income  |       | $                                                    | 5,670      |                                                 | $          | 1,962                                              |       | $ | 2,496 |   |
| Basic EPS   |       | $                                                    | 1.66       |                                                 | $          | 0.69                                               |       | $ | 0.88 |   |
| Diluted EPS |       | $                                                    | 1.40       |                                                 | $          | 0.61                                               |       | $ | 0.78 |   |

 

13

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**Ebix, Inc. and Subsidiaries**

 

**Notes to Consolidated Financial Statements**

 

**Note 8.  Line of Credit and Letters of Credit**

 

**BankLine of Credit**—The Company maintains a revolving line ofcredit facility with LaSalle Bank N.A. The line provides for a variable interestrate tied to LIBOR. It is secured by a first security interest in substantiallyall of the Company’s assets, and expires in December 2009. The underlyingloan and security agreement contains certain financial covenants related toprofitability, current assets, and debt coverage to which the Company is incompliance.

 

In December 2007 theCompany entered into an amendment to the credit agreement, which increased theline to $25 million. The interest rate remained unchanged atLIBOR + 1.3%.  During the threemonths ended March 31, 2008 the Company borrowed $4.3 million on therevolving line of credit.  As of March 31,2008 the outstanding balance on the line was $19.9 million and carried aneffective interest rate of 4.60%.

 

**Lettersof Credit**—Under terms of the lease agreement for our officespace in Herndon, Virginia, the Company was required to maintain a stand-byletter credit in the amount of $150 thousand. The amount was automaticallyreduced to $30 thousand upon occupancy in November 2007.

 

**Note 9. Commitments and Contingencies**

** **

The nature of theCompany’s commitments and contingent liabilities have not changed from thedisclosures provided in Note 8 to the consolidated financial statementsincluded in our annual report for the year ended December 31, 2007 on Form 10-K,which is incorporated herein by reference.  These commitments and contingencies involve facility leases, variousclaims and legal actions arising in the normal course of business, and ourself-insurance program for the health insurance for our U.S. employees.

 

**Note 10.  Convertible Debt**

 

On December 18,2007, the Company entered into a Secured Convertible Note Purchase Agreementwith Whitebox VSC, Ltd. in the original principal amount of $20.0 million,which amount is convertible into shares of Common Stock at a price of $63.84per share, subject to certain adjustments as set forth in the note. This noteis being accounted for in accordance with APB Opinion 14 “Accounting forConvertible Debt and Debt Issued with Stock Purchase Warrants”. The note bearsan interest rate of 2.5% per annum and is payable in full at its maturity dateof December 18, 2009. The proceeds of this note were used by the Companyto partially finance the acquisition of Telstra eBusiness Services effective January 2,2008. The Note is convertible, in whole or in part, into shares of Common Stockat the option of Whitebox, at any time and from time to time (subject tocertain conversion limitations set forth in the Note), at the Conversion Price.Further, in the event of a change of control of the Company, as defined in theNote, in addition to any other rights Whitebox may have, Whitebox has the rightto put the then-outstanding principal amount of the Note (including anyaccreted interest) to the Company. Upon the exercise of this put right, theCompany is required to pay to Whitebox an amount in cash equal to 110%multiplied by the greater (i) the then-outstanding principal amount of theNote (including any accreted interest) or (ii) the listed or quotedaverage price of the Common Stock on the trading market on which the CommonStock is then listed for the 20 trading days preceding the change in controlmultiplied by the number of shares into which the Note is then entitled to beconverted. The Company has the option to cause a mandatory conversion and thesubsequent surrender of the Note at a Conversion Price of $63.84 per share, ifthe average price of the Company’s Common Stock on the trading market exceeds$128.00 for any consecutive 30 trading days.

 

14

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**Ebix, Inc. and Subsidiaries**

 

**Notes toConsolidated Financial Statements**

 

**Note 11.  Long-term Debt**

 

Other long-term debt is aresult of the EbixLife acquisition in February 2004 and represents a$2.5 million non-interest bearing note payable. The note is payable inannual installments of $500 thousand over five years. The Company hasimputed interest on this debt at the rate of 4% per annum.  Installment payments on this note were paidin February 2005, February 2006, March 2007, and on February 2008.The final payment of $500 thousand is due in February 2009.

 

**Note 12.  Stock Repurchase**

 

On June 2, 2006, theBoard of Directors of Ebix, Inc. announced a share repurchase plan toacquire up to $1 million of the Company’s current outstanding shares ofcommon stock. Under the terms of the Board’s authorization, the Company retainsthe right to purchase up to $1.0 million in shares but does not have torepurchase this entire amount. The repurchase plan’s terms have been structuredto comply with the SEC’s Rule 10b-18, and are subject to market conditionsand applicable legal requirements. The program does not obligate the Company toacquire any specific number of shares and may be suspended or terminated at anytime. On March 21, 2008, the Board ratified an increase in the Company’sability to repurchase its own current outstanding shares of common stock froman aggregate of $1 million to $5 million. Under the terms of theboard’s authorization, Ebix retains the right to purchase up to $5 millionin shares but does not have to repurchase this entire amount.  All purchases will be on the open market andare expected to be funded from existing cash.

 

**Note 13.  Sale of Unregistered Common Stock**

 

On June 1, 2007, theCompany entered into a share purchase agreement (the “Share PurchaseAgreement”) to sell 400,000 shares (the “Shares”) of unregistered common stockat $33.25 per share to Luxor Capital Partners, LP, a Delaware limitedpartnership, and Luxor Capital Partners Offshore, Ltd., a Cayman Islandsexempted company. The purchase price represented a premium to the 30-dayaverage closing price of Ebix common stock on the date of the sale. Under theterms of the Share Purchase Agreement, Luxor Capital Partners LP acquired163,600 shares of the Company’s common stock in exchange for $5.4 millionin cash and Luxor Capital Partners Offshore, Ltd. acquired 236,400 sharesof the Company’s common stock in exchange for $7.9 million in cash, for anaggregate offering price of $13.3 million. As a result, at June 4,2007, Luxor Capital Partners, LP owned approximately 5% of the Company’soutstanding common stock and Luxor Capital Partners Offshore, Ltd. ownedapproximately 7% of the Company’s outstanding common stock.   The respective Form S-1 registrationstatement was declared effective by the Securities and Exchange Commission on December 10,2007.

 

On December 13, 2007the Company entered into a share purchase agreements (the “Share PurchaseAgreements”) to sell 38,462 shares and 38,461 shares of our unregistered commonstock at $58.50 per share and for an aggregate offering price of$4.5 million to The Lebowitz Family Trust and Daniel M. Gottlieb,respectively, both “accredited investors” within the meaning of Rule 501of Regulation D. The purchase price represented a premium to the 30-dayaverage closing price of Ebix common stock on the date of the sale.

 

On December 20, 2007the Company entered into a share purchase agreement (the “Share PurchaseAgreements”) to sell 20,000 shares of our unregistered common stock at $58.50per share and for an aggregate offering price of $1.17 million to TheMorris M. Ostin 2006 Annuity Trust, an “accredited investor” within the meaningof Rule 501 of Regulation D. The purchase price represented a premiumto the 30-day average closing price of Ebix common stock on the date of thesale.

 

15

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**Ebix, Inc. and Subsidiaries**

 

**Notes to Consolidated Financial Statements**

 

**Note14.  Income Taxes**

 

In July 2006, the FASBissued Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes—An Interpretation of FASB Statement No. 109” (“FIN 48”), whichprovides clarification related to the process associated with accounting foruncertain tax positions recognized in our Consolidated Financial Statements.FIN 48 prescribes a more-likely-than-not threshold for financial statementrecognition and measurement of a tax position taken, or expected to be taken,in a tax return. FIN 48 also provides guidance related to, among otherthings, classification, accounting for interest and penalties associated withtax positions, and disclosure requirements. We adopted FIN 48 on January 1,2007. We adopted FIN 48 in January 2007 and recorded a $455 thousandadjustment to the opening retained earnings balance as of January 1, 2007.We recognize accrued interest and penalties related to unrecognized taxbenefits in the provision for income taxes on our Consolidated Statements ofIncome. Our classification of interest and penalties did not change as a resultof adopting FIN 48.

 

As of March 31, 2008the Company’s consolidated balance sheet includes a liability of $566 thousandfor unrecognized tax benefits, which includes estimated interest and penaltiesin the amount of $147 thousand. During the first quarter there have not beenany material changes in our liability for unrecognized tax benefits, includinginterest and penalties.

 

The Company and itssubsidiaries file income tax returns in the U.S. federal jurisdiction, andvarious states and foreign jurisdictions.  Generally,the federal statute of limitations requirements allow for tax returnexaminations for a period of three years subsequent to the filing date of thereturn. Certain state and foreign jurisdictions have longer periods.   Accordingly, with few exceptions, theCompany is no longer subject to U.S. federal or state tax examinations by taxauthorities for years before 2004.  However, to the extent allowed by law,the taxing authorities may have the right to examine prior periods where netoperating losses (“NOL’s”) were generated and carried forward, and to makeadjustments up to the amount of the NOL carryforward amount.

 

**Effective Tax Rate**—The effectiveincome tax rate was 5.2% and 5.9% for the three months ended March 31, 2008and 2007, respectively.  The primaryreason the decrease in the effective tax rate was the realization of certaindeferred tax assets.

 

**Note 15.  Geographic Information**

 

The Company operates inone reportable segment.  In accordancewith SFAS No. 131 “Disclosures about Segments of an Enterprise and RelatedInformation” the following enterprise wide information relates to thegeographic locations in which the Company conducts business operations.  Information pertaining to IDS, acquired in November 2007is included in Domestic operations.  Information pertaining to Telstra eBusiness Services, acquired in January 2008,is in included in Australia/New Zealand operations.

 

**Threemonths ended March 31, 2008**

 
| **(dollar amounts in thousands)** | ** ** | **Domestic** | ** ** | **Australia/  New Zealand** | ** ** | **India** | ** ** | **Singapore** | ** ** | **Canada** | ** ** | **Total** | ** ** |
|--------------------------------------------------|------------|--------------|------------|----------------------------------|------------|-----------|------------|---------------|------------|------------|------------|-----------|------------|
| Revenue                                          |       | $            | 9,719      |                             | $          | 6,426     |       | $             | 18         |       | $          | 440       |       | $ | 36 |   | $ | 16,639 |   |
| Fixed assets                                     |       | $            | 2,155      |                             | $          | 420       |       | $             | 855        |       | $          | 40        |       | $ | — |   | $ | 3,470 |   |
| Goodwill                                         |       | $            | 29,056     |                             | $          | 52,256    |       | $             | —     |       | $          | —    |       | $ | — |   | $ | 81,312 |   |
| Intangible  assets                               |       | $            | 6,609      |                             | $          | 3,654     |       | $             | —     |       | $          | —    |       | $ | — |   | $ | 10,263 |   |
| Employees                                        |       | 218          |       | 77                               |       | 128       |       | 6             |       | —     |       | 429       |       |

 

16

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**Ebix, Inc. and Subsidiaries**

 

**Notes to Consolidated Financial Statements**

 

**Note 15.  Geographic Information (Continued)**

 

**Threemonths ended March 31, 2007**

 
| **(dollar amounts in thousands)** | ** ** | **Domestic** | ** ** | **Australia/  New Zealand** | ** ** | **India** | ** ** | **Singapore** | ** ** | **Canada** | ** ** | **Total** | ** ** |
|--------------------------------------------------|------------|--------------|------------|----------------------------------|------------|-----------|------------|---------------|------------|------------|------------|-----------|------------|
| Revenue                                          |       | $            | 6,501      |                             | $          | 2,005     |       | $             | 14         |       | $          | 478       |       | $ | 20 |   | $ | 9,018 |   |
| Fixed assets                                     |       | $            | 1,121      |                             | $          | 218       |       | $             | 781        |       | $          | 41        |       | $ | 1 |   | $ | 2,162 |   |
| Goodwill                                         |       | $            | 16,542     |                             | $          | 6,677     |       | $             | —     |       | $          | —    |       | $ | — |   | $ | 23,219 |   |
| Intangible  assets                               |       | $            | 6,885      |                             | $          | 529       |       | $             | —     |       | $          | —    |       | $ | — |   | $ | 7,414 |   |
| Employees                                        |       | 133          |       | 36                               |       | 117       |       | 6             |       | —     |       | 292       |       |

 

**Note16.  Subsequent Events**

 

**Sale ofUnregistered Common Stock**—On April 2, 2008, we enteredinto a share purchase agreement pursuant to which Rennes Foundation, an“accredited investor” within the meaning of Rule 501 of Regulation D,acquired 40,000 shares of our unregistered common stock at $75.70 per share,for an aggregate offering price of approximately $3.0 million.    Pursuant to the share purchase agreements,Ebix is obligated to file with the SEC a registration statement for theunderlying shares of our common stock and use our reasonable best efforts tocause the SEC to declare the registration statement effective.

 

On April 7, 2008, weentered into a share purchase agreement pursuant to which Ashford CapitalManagement, Inc., a registered investment advisor, acquired 110,000 sharesof our unregistered common stock at $72.87 per share, for an aggregate offeringprice of approximately $8.0 million.  Thepurchase was for the account of several “accredited investors.”  The Company relied upon Section 4(2) ofthe Securities Act of 1933 and Regulation D promulgated there under in makingthis sale in a private placement to accredited investors who acquired theshares for investment purposes.  Pursuantto the share purchase agreements, Ebix is obligated to file with the SEC aregistration statement for the underlying shares of our common stock and useour reasonable best efforts to cause the SEC to declare the registrationstatement effective.

 

On April 18, 2008,we entered into a share purchase agreement pursuant to which Fisher FundsManagement, an “accredited investor” within the meaning of Rule 501 ofRegulation D, acquired 20,000 shares of our unregistered common stock at$73.75 per share, for an aggregate offering price of approximately $1.5million.  Pursuant to the share purchaseagreements, Ebix is obligated to file with the SEC a registration statement forthe underlying shares of our common stock and use our reasonable best effortsto cause the SEC to declare the registration statement effective.

 

**Repurchase of common stock from an affiliate**—OnApril 16, 2008, we entered into a Stock Purchase Agreement with BritInsurance Holdings PLC (“Brit”) for the purchase by us of 400,000 shares of ourcommon stock held by Brit, and consummated the transaction on April 17,2008.  The price was $60.00 per share, for an aggregate purchase price of$24.0 million.  As a result of this transaction, Brit now holds 330,163shares of our common stock, representing approximately 10.4% of our outstandingshares after taking into account the 170,000 shares recently sold and issued toother shareholders. The Company utilized the proceeds of its April 2008sales of common stock (approximately $11.0 million), cash on hand(approximately $8.0 million) and additional borrowings under its line of credit(approximately $5.0 million) to finance the share repurchase.

 

**Completion of business acquisition**—OnApril 25, 2008 Ebix acquired Periculum Services Group (“Periculum”).  Periculum has emerged as one of the keyplayers in the insurance certificate tracking industry and has an extensivecustomer base across many different industries. Periculum is immediately being merged into the Company’s existingcertificate tracking division, Ebix BPO—IDS.  The Company acquired all of theassets of Periculum for a payment of $1.1 million in cash and additional futurepayments of up to $300 thousand in one year if certain customer retention andrevenue targets for Periculum are achieved. Ebix funded this transaction through internal sources using availablecash balances.  

 

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** **

**Item 2.****            MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**SafeHarbor for Forward-Looking Statements under the Securities Litigation ReformAct of 1995 —**This Quarterly Report on Form 10-Q containscertain “forward-looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995.  Forward-looking statements may be identified by words such as “may,”“could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,”“intend,” “seek,” “plan,” “project,” “continue,” “predict” or words of similarmeaning and include, but are not limited to, statements regarding the outlookfor our future business and financial performance.   Forward-looking statements are based onmanagement’s current expectations and assumptions, which are subject toinherent uncertainties, risks and changes in circumstances that are difficultto predict.   Actual outcomes and resultsmay differ materially due to global political, economic, business, competitive,market, regulatory and other factors, including the items identified in Part I,Item 1A, “Risk Factors” in our 2007 Form 10-K which is incorporated byreference herein. We undertake no obligation to publicly update anyforward-looking statement, whether as a result of new information, futuredevelopments or otherwise.

 

The important factorsthat could cause actual results to differ materially from those in our specificforward-looking statements included in this Form 10-Q include, but are notlimited to, the following:

 

·                  Regarding Notes 8 and 10 of theNotes to Consolidated Financial Statements, and our future liquidity needsdiscussed under “Liquidity and Financial Condition,” our ability to generatecash from operating activities and any declines in our credit ratings orfinancial condition which could restrict our access to the capital markets ormaterially increase our financing costs;

 

·                  With respect to Note 9 of theNotes to Consolidated Financial Statements, “Commitments and Contingencies”,and “Contractual Obligations and Commercial Commitments”  in MD&A, changes in the market value ofour assets or the actual cost of our commitments or contingencies, including;

 

·                  Regarding Note 6 of the Notes toConsolidated Financial Statements, estimated future amortization expenserelated to definite-lived acquired intangible assets at March 31, 2008,and our ability to accurately estimate the fair value of such assets; and,

 

·                  With respect to revenue trendsdiscussed in the three month in MD&A, the actual level of demand for ourproducts during the remaining quarters of 2008; and,

 

The following informationshould be read in conjunction with the unaudited consolidated financialstatements and the notes thereto included in Part 1. Item 1 of thisQuarterly Report, and the audited consolidated financial statements and notesthereto and Management’s Discussion and Analysis of Financial Condition andResults of Operations contained in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2007.

 

**CompanyOverview**

 

 Ebix is focusedon the convergence of all insurance channels, processes, and entities in orderto facilitate the seamless flow of data. The Company designs products andservices that are pioneering and ahead of our competition. The Company’smarketing efforts are concentrated on the insurance company, broker, dataexchange, and business process outsourcing channels. We offer solutionsincluding an end-to-end insurance portal, exchanges for data transmission,agent management systems, and carrier systems (including end-to-end rating,quoting, policy processing, claims processing, and on-line risk binding).   Our customers include many of the topinsurance and financial sector companies in the world.  Over 70% of our operating revenues are of arecurring nature.

 

On November 1, 2007, Ebix completed theacquisition of Jenquest, Inc. (“Jenquest”), a leader in the certificate ofinsurance tracking industry located in Hemet, California. The purchase pricewas $11.25 million and was primarily financed from internal sources using availablecash balances.

 

Effective January 2, 2008 Ebix completed theacquisition of Telstra eBusiness Services Pty Limited (“Telstra”), a premierinsurance exchange located in Melbourne, Australia. The purchase price was$43.8 million and was financed with a 

 

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combination of availablecash reserves, proceeds from the issuance of convertible debt, proceeds fromthe sales of unregistered shares of the Company’s common stock, and fundingfrom the Company’s revolving line of credit.

 

**Offices and GeographicInformation**

 

The Company has itsheadquarters in Atlanta, Georgia, and it also has domestic operations in WalnutCreek and Hemet, California; Pittsburgh, Pennsylvania; Park City, Utah;Herndon, Virginia; and Dallas, Texas. The Company also has offices inAustralia, New Zealand, Singapore, United Kingdom and India. In these offices,Ebix employs insurance and technology professionals who provide products,services, support and consultancy to our 3,000 customers across sixcontinents.   Ebix also has establishedproduct development unit in India which has been awarded Level 5 status ofthe Carnegie Mellon Software Engineering Institute’s Capability Maturity ModelIntegrated (CMMI) and ISO 9001:2000 certification in India.  Information on the geographic dispersion ofthe Company’s revenues, assets, and employees is provided in Note 15 tothe consolidated financial statements, included Part 1 in this Form 10-Q.

 

**Key Performance Indicators**

 

Management focuses on avariety of key indicators to monitor operating and financial performance. Theseperformance indicators include measurements of revenue growth, operatingincome, operating margin, income from continuing operations, diluted earningsper share, and cash provided by operating activities. We monitor theseindicators, in conjunction with our corporate governance practices, to ensurethat business vitality is maintained and effective control is exercised.

 

The key performanceindicators for the three months ended March 31, 2008 and 2007 were asfollows:

 
| ** **                             | ** ** | **Key Performance Indicators  Three Months Ended March 31, ** | ** ** |
|----------------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|
| ** **                             | ** ** | **2008 **                                                                                   | ** ** | **2007 ** | ** ** |
| ** **                             | ** ** | **(Dollars in thousands,  except per share data)**                      | ** ** |
| ** **                             | ** ** | ** **                                                                                       | ** ** |
| Revenue                                |       | $                                                                                                | 16,639     |   | $ | 9,018 |   |
| Revenue growth                         |       | 84.5                                                                                             | %          | 59.6 | % |
| Operating income                       |       | $                                                                                                | 6,143      |   | $ | 2,238 |   |
| Operating margin                       |       | 36.92                                                                                            | %          | 24.81 | % |
| Net income                             |       | $                                                                                                | 5,670      |   | $ | 1,962 |   |
| Diluted earnings  per share            |       | $                                                                                                | 1.40       |   | $ | 0.61 |   |
| Cash provided by  operating activities |       | $                                                                                                | 3,645      |   | $ | 2,026 |   |

 

**Results of Operations — Three-Months Ended March 31,2008 and 2007**

 

***OperatingRevenue***

 

**Total revenue** -Total revenue is comprised of “Services” revenue and “Software” revenue.  Services revenue is primarily derived fromprofessional and support services and includes consulting, implementation,training and project management provided to the Company’s customers withinstalled systems and those in the process of installing systems.  In addition, Services revenue includes feesfor the maintenance of software licenses, Application Service Provider (ASP)services, hosting and other miscellaneous revenues. Software revenue is derivedfrom the licensing of proprietary and third party software (“Software”).  During the three months ended March 31,2008 our total revenue increased $7.6 million or 85%, to $16.6 million in thefirst quarter of 2008 compared to $9.0 million during the first quarter of2007.   The increase in our first quarter2008 revenue as compared to the first quarter of 2007 is a result of increasesin our exchange division revenues of $5.4 million, BPO division revenues of$1.7 million, and carrier system revenues of $997 thousand, partially offset bya $590 thousand decrease in revenues from our legacy products.

 

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**Services revenue**increased $7.7 million or 89%, from $8.7 million in the first quarter of 2007to $16.4 million in the first quarter of 2008. The Company achieved a $5.4 million revenue increase in our exchangedivisions, a $1.7 million revenue increase in our BPO division, and a $997 thousandrevenue increase in our carrier system division.  These improvements in revenue werefacilitated by a combination of both organic growth and acquisitions.

 

**Software revenue**decreased $101 thousand or 32%, from $316 thousand during the first quarter of2007 to $215 thousand during the first quarter of 2008.  This decrease was due to a decrease indomestic software licensing sales and reflects management’s emphasis onincreasing recurring services revenue.

 

***Costof Services Provided***

 

Costs of servicesprovided, which includes costs associated with support, call center,consulting, implementation and training services, increased $1.3 million or82%, from $1.6 million in the first quarter of 2007 to $2.8 million in thefirst quarter of 2008.  This increase isprimarily attributable to the recent acquisitions of Telstra eBusiness Servicesand IDS which added $394 thousand and $857 thousand respectively in payroll andfacility expenses.

 

***ProductDevelopment Expenses***

 

Product developmentexpenses increased $321 thousand or 17%, from $1.9 million during the firstquarter of 2007 to $2.2 million during the first quarter of 2008.  This increase is due to costs incurred foradditional staff resources needed for the EbixExchange divisions in the U.S.and Australia.

 

***Salesand Marketing Expenses***

 

Sales and marketingexpenses decreased $105 thousand or 11%, from $952 thousand in the firstquarter of 2007 to $847 thousand in the first quarter of 2008.  This decrease is attributable to a reductionof costs in our U.S. divisions partially offset by additional costs incurred inour new EbixExchange division, formerly Telstra eBusiness Services, which wasacquired in January 2008.

 

***Generaland Administrative Expenses***

 

General andadministrative expenses increased $2.0 million or 114%, from $1.8 millionduring the first quarter of 2007 to $3.8 million during the first quarterof 2008.  Approximately $1.8 million ofthis increase is associated with payroll, communications, consulting, andfacility costs incurred in our newly acquired EbixExchange division, formerlyknown as Telstra eBusiness Services.  Wealso experienced modest net increases in general and administrative expenses inour New Zealand, Singapore, and U.S. operations aggregating to $274 thousand,all of which were primarily associated with increases in payroll costs.

 

***Amortization andDepreciation Expenses***

 

Amortization anddepreciation expenses increased $194 thousand or 31%, from $625 thousand in thefirst quarter of 2007 to $819 thousand in the first quarter of 2008.  The increase is primarily due to theamortization of the customer relationship and developed technology intangibleassets that were acquired in connection with our acquisitions of IDS andTelstra eBusiness Services, which increased amortization expenses $35 thousandand $115 thousand respectively.

 

***Income Taxes***

 

Theincome provision for the three months ended March 31, 2008 was $312thousand which is a $188 thousand or 152% increase compared to the $124thousand recognized in the same period in 2007. The Company’s interim period income tax provisions are based on ourestimate of the effective income tax rates applicable to related annual twelvemonth period, after considering items specifically related to the respectiveinterim reporting period.  The effectivetax rate utilized in the first quarter of 2008 was 5.2% which isslightly down from the 5.9% for the same period in 2007 due to the realizationof certain deferred tax assets.

 

**Liquidity and Capital Resources**

 

Our ability to generatesignificant cash flows from operating activities is one of our fundamentalfinancial strengths.   Our principalsources of liquidity are the cash flows provided by our operating activities,our revolving credit facility, and 

 

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cash and cash equivalents on hand. We use and intend to continue usingcash flows from operations in combination with borrowings  and the issuance of equity securities to fundcapital expenditures, make acquisitions, retire outstanding indebtedness, andto purchase outstanding shares of our common stock.

 

We believe thatanticipated cash flows provided by our operating activities, together withcurrent cash and cash equivalent balances and access to our credit facilitiesand the capital markets, if required, will be sufficient to meet our projectedcash requirements for the next twelve months, and the foreseeable futurethereafter, although any projections of future cash needs and cash flows aresubject to substantial uncertainty.   Inthe event additional liquidity needs arise, we may raise funds from acombination of sources, including the potential issuance of debt or equitysecurities.

 

     Our cash and cash equivalents were $13.6 million and $49.5 million at March 31,2008 and December 31, 2007, respectively.  The primary factor causing the substantial decrease in our availablecash balances at March 31, 2008 was funds used to finance the acquisitionof Telstra eBusiness Services on January 2, 2008.

 

***OperatingActivities***

 

For the three monthsended March 31, 2008, the Company generated $3.6 million of net cashflow from operating activities which is $1.6 million or 80% greater than the$2.0 million generated during the three months ended March 31,2007.   The major sources of cashprovided by operating activities during the first quarter was net income of$5.6 million, net of $819 thousand of depreciation and amortization, $3.3million of working capital requirements and a $494 thousand increase indeferred revenue.

 

During the three monthsended March 31, 2007, the Company generated net operating cash flows of$2.0 million.  This operating cash flowwas principally the result of a growth in net income and a decrease in accruedpayroll and related benefits of $496 thousand partially offset by an increasein net accounts receivable of $718 thousand and an increase in deferred revenueof $447 thousand.

 

***InvestingActivities***

 

Net cash used forinvesting activities totaled $43.2 million for the three months ended March 31,2008, of which $44.3 million was used for the January 2008 acquisition ofTelstra eBusiness Services (“Telstra”), less $1.3 million of cash acquired.$181 thousand was used for capital expenditures related to the enhancement ofour technology platforms and purchases of operating equipment.  The Telstra acquisition was financed with acombination of $1.6 million of available cash reserves, $16.5 millionfrom the Company’s line of credit, $20.0 million of convertible debt, and$5.7 million from sales of the Company’s common stock.

 

During the three monthsended March 31, 2007 cash used in investing activities totaled $163thousand and represented expenditures made primarily for operating equipmentexpenditures in India and the U.S.

 

***FinancingActivities***

 

Net cash provided byfinancing activities for the three months ended March 31, 2008 totaled$4.1 million.  During the firstquarter of 2008 the Company borrowed $4.3 million from its revolving lineof credit for operating and working capital needs.  Also during the quarter the Company used $493thousand to service existing long-term debt and capital lease obligations, andreceived $271 thousand from the exercise of outstanding common stock options.

 

During the first quarterof 2007 the cash used for financing activities amounted to $477 thousand andresulted from the Company’s payment of a long-term debt obligations.

 

***RevolvingCredit Facility***

 

The Company hasmaintained a revolving line of credit facility with a major commercial bankinginstitution. In December 2007 the credit facility agreement was amendedand the line was increased from $15.0 million to $25.0 million. Theinterest rate on the credit facility remained unchanged at Libor plus 1.30%. AtMarch 31, 2008 the balance on the line of credit was $19.9 millionwith an effective interest rate was 4.60%, thereby leaving $5.1 millionavailable under the facility. The underlying loan and security agreementcontains certain financial covenants related to profitability, current assets,and debt coverage to which the Company is in compliance. There have been noevents of default.

 

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***Off-BalanceSheet Arrangements***

 

We do not engage in off –balance sheet financing arrangements.

 

***ContractualObligations and Commercial Commitments***

 

The following tablesummarizes our significant contractual purchase obligations and other long-termcommercial commitments as of March 31, 2008.  The table excludes obligations or commitmentsthat are contingent based on events or factors uncertain at this time.

 
| ** **          | ** ** | **Payment Due by Period** | ** ** |
|---------------------|------------|------------------------------------------|------------|
| ** **          | ** ** | **Total**                                | ** ** | **Less Than   1 Year** | ** ** | **1 - 3 Years** | ** ** | **3 - 5 Years** | ** ** | **More than  5 years** | ** ** |
| ** **          | ** ** | **(in thousands)**                  | ** ** |
| ** **          | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Long-term debt  (1) |       | $                                        | 40,445     |   | $ | 500 |   | $ | 39,945 |   | $ | — |   | $ | — |   |
| Operating leases    |       | $                                        | 5,327      |   | $ | 1,524 |   | $ | 1,872 |   | $ | 1,210 |   | $ | 721 |   |
| Capital leases      |       | $                                        | 9          |   | $ | 4 |   | $ | 5 |   | $ | — |   | $ | — |   |
| Total               |       | $                                        | 45,781     |   | $ | 2,028 |   | $ | 41,822 |   | $ | 1,210 |   | $ | 721 |   |

 

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(1)   Includes interest at an imputedinterest rate of 4% for the February 2004 LifeLink acquisition whichrepresents the effective interest rate at the date of acquisition.

 

***Related Party Transactions***

 

As of March 31, 2008, Brit Insurance Holdings PLC(“Brit”) held 730,163 shares of common stock, representing 21.4% percent of ouroutstanding common stock.   During thethree months ended March 31, 2008, $134 thousand was recognized asservices revenue from Brit and its affiliates primarily related to projectconsulting and custom programming services. Total accounts receivable from Britand its affiliates at March 31, 2008 were $762 thousand. We continue toprovide services for Brit and its affiliates and to receive payments for suchservices.

 

**Recent Accounting Pronouncements**

 

For information about new accounting pronouncementsand the potential impact on our Consolidated Financial Statements, seeNote 1 of the Notes to Consolidated Financial Statements in this Form 10-Qand Note 1 of the Notes to Consolidated Financial Statements in our 2007 Form 10-K.

 

**Application of CriticalAccounting Policies**

 

The preparation of ourConsolidated Financial Statements requires management to make estimates andassumptions that affect the reported amounts of assets, liabilities, revenuesand expenses. We believe the most complex and sensitive judgments, because oftheir significance to the Consolidated Financial Statements, result primarilyfrom the need to make estimates and assumptions about the effects of mattersthat are inherently uncertain. The “Summary of Significant Accounting Policies”sections of Note 1 to this Form 10-Q and the Consolidated Financial Statements,in our 2007 Form 10-K describe the pertinent accounting estimates andpolicies used in preparation of the Consolidated Financial Statements. Actualresults in these areas could differ materially from our estimates. We haveconsidered how the acquisition of Telstra eBusniess Services has affected ourcritical accounting policies and concluded that it has not had a significantimpact on our critical accounting policies. We have also expanded ourdiscussion of our accounting for income taxes to include our adoption of FASBInterpretation No. 48, “Accounting for Uncertainty in Income Taxes—AnInterpretation of FASB Statement No. 109” (“FIN 48”) effective January 1,2007.

 

**RevenueRecognition and Deferred Revenue**—We derive our revenueprimarily from two sources: (1) professional and support services, whichincludes revenue derived from software development projects and associated feesfor consulting, implementation, training, and project management provided tothe Company’s customers with installed systems, subscription and transactionfees related to services delivered on an application service provider (“ASP”)basis, fees for hosting software, fees for software license maintenance andregistration, and business process outsourcing revenue, and (2) softwarerevenue, which includes the licensing of proprietary and third-party software.

 

The Company considersrevenue earned and realizable when (a) persuasive evidence of the salesarrangement exists, provided that the arrangement fee is fixed or determinable,(b) delivery or performance has occurred, (c) customer acceptance hasbeen received, if contractually required, and, (d) collectability of thearrangement fee is probable. The Company uses 

 

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signed contractualagreements as persuasive evidence of a sales arrangement. Revenue is recordednet of sales tax, as these taxes are recognized as a liability upon billing.

 

We apply the provisionsof Statement of Position 97-2, “*SoftwareRevenue Recognition (SOP 97-2)*,” as amended by Statement ofPosition 98-9, “*Modification ofSOP 97-2, Software Revenue Recognition, With Respect to CertainTransactions, (SOP 98-9)*” to all transactions involving thelicense of software where the software deliverables are considered more thaninconsequential to the other elements in the arrangement. For contracts thatcontain multiple deliverables, we analyze the revenue arrangements inaccordance with Emerging Issues Task Force Issue No. 00-21, “RevenueArrangements with Multiple Deliverables” (EITF 00-21), which providescriteria governing how to determine whether goods or services that aredelivered separately in a bundled sales arrangement should be considered asseparate units of accounting for the purpose of revenue recognition.  Deliverables are accounted for separately ifthey meet all of the following criteria: a) the delivered items has valueto the customer on a stand-alone basis; b) there is objective and reliableevidence of the fair value of the undelivered items; and c) if thearrangement includes a general right of return relative to the delivered items,the delivery or performance of the undelivered items is probable andsubstantially controlled by the seller.

 

Software developmentarrangements involving significant customization, modification or productionare accounted for in accordance with Statement of Position 81-1, “Accountingfor Performance on Construction-Type and Certain Production-Type Contracts,(SOP 81-1)” using the percentage-of-completion method. The Companyrecognizes revenue using periodic reported actual hours worked as a percentageof total expected hours required to complete the project arrangement andapplies the percentage to the total arrangement fee.

 

Revenue for maintenance and support service isrecognized ratably over the term of the support agreement.  Similarly, revenues derived from initialsetup or registration fees are recognized ratably over the term of theagreement in accordance with SEC Staff Accounting Bulletin (“SAB”) 104,“Revenue Recognition.”  ASP transactionservices fee revenue is recognized as the transactions occur and generallybilled in arrears. Service fees for hosting arrangements are recognized overthe requisite service period.

 

Deferred revenue includesmaintenance and support payments or billings that have been received orrecorded prior to performance and, in certain cases, cash collections; initialsetup or registration fees under hosting agreements; and amounts received undermulti-element arrangements in which the VSOE for the undelivered elements doesnot exist. In these instances revenue is recognized when the VSOE for theundelivered elements is established or when all contractual elements have beencompleted and delivered.

 

**Allowancefor doubtful Accounts Receivable**—Management specificallyanalyzes accounts receivable and historical bad debts, write-offs, customerconcentrations, customer credit-worthiness, current economic trends and changesin our customer payment terms when evaluating the adequacy of the allowance fordoubtful accounts.

 

**IncomeTaxes**—The Company follows the asset and liability method ofaccounting for income taxes pursuant to Financial Accounting Statement No. 109,“Accounting for Income Taxes (SFAS 109)”. Deferred income taxes arerecorded to reflect the tax consequences on future years of differences betweenthe tax basis of assets and liabilities, and operating loss and tax creditcarry forwards and their financial reporting amounts at each period end usingenacted tax rates expected to apply to taxable income in the years in whichthose temporary differences are expected to be recovered or settled. Inassessing the realizability of the deferred tax assets, management considerswhether it is more likely than not that some portion or all of the deferred taxassets will not be realized. A valuation allowance is recorded for the portionof the deferred tax assets that are not expected to be realized based on thelevels of historical taxable income and projections for future taxable incomeover the periods in which the temporary differences will be deductible.

 

Effective January of2007 the Company adopted the Financial Accounting Interpretation No. 48,“Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48clarifies the accounting for uncertainty in income taxes by prescribing theminimum recognition threshold a tax position is required to meet before beingrecognized in the financial statements. As used in FIN 48, the term “morelikely than not” is means that the likelihood of an occurrence is greater than50%.

 

**Goodwilland Other Acquired Intangible Assets**—The Company applies theprovisions of Financial Accounting Statement No. 142 “Goodwill and OtherIntangible Assets (SFAS 142)” which addresses how goodwill and otheracquired intangible assets should be accounted for in financial statements. Inthis regard we test these intangible assets for impairment annually or morefrequently if indicators of potential impairment are present. The testinginvolves comparing the reporting unit and 

 

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asset carrying values totheir respective fair values; we determine fair value by using the presentvalue of future estimated net cash flows.

 

**Item 3.****    QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

TheCompany is subject to certain market risks, including foreign currency exchangerates and interest rates. The Company’s exposure to foreign currency exchangerates risk is related our foreign-based operations where transactions aredenominated in foreign currencies and are subject to market risk with respectto fluctuations in the relative value of currencies.  The majority of the Company’s operations arebased in the U.S. and, accordingly, the majority of our transactions aredenominated in U.S. dollars, however, the Company also has significantoperations in Australia, New Zealand, Singapore, and India, and we conducttransactions in the local currencies of each location.  There can be no assurance that fluctuationsin the value of foreign currencies will not have a material adverse effect onthe Company’s business, operating results, revenues or financialcondition.  For the three months ended March 31, 2008 and 2007 the net changein the cumulative foreign currency translation adjustment were unrealized gainsof $1.9 million thousand and $5 thousand respectively. The foreigncurrency exchange risk is estimated as the potential decrease in pre-tax incomeresulting from a hypothetical 20% adverse change in exchange rates for allcurrencies in foreign countries in which we have business operations.  Such an adverse change would have resulted inan adverse impact on income before income taxes of approximately $445 thousandfor the quarter ended March 31, 2008.

 

The Company’s exposure tointerest rate risk relates to its interest expense on outstanding debtobligations and to its interest income on existing cash balances.  As of March 31, 2008 the Company had$40.4 million of outstanding debt obligations which consisted of a$19.9 million balance on our revolving line of credit, the$20.0 million convertible promissory note with Whitebox VSC, Ltd.,and a $455 thousand balance on the note payable in connection with the 2003acquisition of EbixLife.  The Whiteboxconvertible note’s interest rate is fixed at 2.5% and the EbixLife note isnon-interest bearing, therefore these instruments present no risk as toexposures to financial market fluctuations. The Company’s revolving line of credit bears interest at the rate of LIBOR + 1.3%,and stood at 4.60% at March 31, 2008.  The Company has interest rate risk related to the revolving line ofcredit. This interest rate risk is estimated as the potential decrease inpre-tax income resulting from a hypothetical 10% increase in the one monthLIBOR rate.  Such an adverse change wouldhave resulted in an adverse impact on income before taxes of approximately $20thousand for the three months ending March 31, 2008.

 

The Company’s averagecash balance during the 1st quarter of 2008 was $8.4 millionand its existing cash balances as of March 31, 2008 were$13.6 million. The Company is exposed to market risk in relation to thesecash balances in regards to the potential loss of interest income arising fromadverse changes in interest rates. This interest rate risk is estimated as thepotential decrease in pre-tax income resulting from a hypothetical 10% decreasein effective interest rates earned on the Company’s cash balances. Such anadverse change would have resulted in an adverse impact on income before taxesof approximately $13 thousand for the three months ending March 31, 2008.

 

For additionalinformation regarding our exposure to certain market risks, see “Quantitativeand Qualitative Disclosures about Market Risk,” in Part II, Item 7A of our2007 Form 10-K.

 

**Item 4(T).** CONTROLS AND PROCEDURES

** **

As required by Rule 13a-15(e) and15d-15(e)  under the Securities Exchange Act of 1934, as amended, anevaluation was carried out under the supervision and with the participation ofour management, including the Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of the design and operation of our disclosurecontrols and procedures as of March 31, 2008.  Based upon this evaluation, our ChiefExecutive Officer and Chief Financial Officer have concluded that, as of March 31,2008, our disclosure controls and procedures were effective to providereasonable assurance that information required to be disclosed in the reportsthat we file or submit under the Securities Exchange Act of 1934, as amended,is accurately and properly recorded, processed, summarized and reported withinthe time periods specified in the applicable rules and forms and that itis accumulated and communicated to our management, including our ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow timelydecisions regarding required disclosure.

 

There were no changes toour internal controls over financial reporting during the quarter ending March31, 2008 that materially affected, or are reasonably likely to materiallyaffect the Company’s internal controls over financial reporting.

 

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**Part II — OTHER INFORMATION**

 

**Item 1A.**                RISK FACTORS

** **

Our principal riskfactors include, but are not limited to the following:

 

·                  Changes in U.S. and global economicconditions and significant movements in interest rates;

 

·                  Changes in market demand for ourproducts and services;

 

·                  Our ability to successfully developand market new products and services, incorporate new technology and adapt totechnological change and customer demand;

 

·                  Our inability to protect ourintellectual property;

 

·                  Pricing strategies, new productintroductions and other pressures from existing or emerging competitors whichcould result in a loss of customers or a rate of increase or decrease in pricesfor our services different than past experience;

 

·                  Changes in laws and regulationsgoverning our business and the application of existing laws, includinginternational, federal or state regulations effecting the insurance industry;

 

·                  Disruptions in our business-criticalsystems and operations which could interfere with our ability to deliverproducts and services to our customers;

 

·                  Risks associated with our integrationof IDS and Telstra eBusiness Services and other acquired technologies,businesses and investments;

 

·                  Significant concentration of theownership of our common stock will limit an investor’s ability to influencecorporate actions; and,

 

·                  Risks associated with financingincluding the willingness of credit institutions to provide financing to us.

 

In addition to these riskfactors you should carefully consider the factors discussed in Part I,Item 1A, “Risk Factors” in our 2007 Form 10-K, which could materiallyaffect our business, financial condition or future results. The risks describedin our 2007 Form 10-K are not the only risks facing the Company.Additional risks and uncertainties not currently known to us or that wecurrently deem to be immaterial also may materially adversely affect ourbusiness, financial condition or operating results.

 

**Item2.   UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**

** **

On June 1, 2007, theCompany entered into a share purchase agreement (the “Share PurchaseAgreement”) to sell 400,000 shares (the “Shares”) of unregistered common stockat $33.25 per share to Luxor Capital Partners, LP, a Delaware limitedpartnership, and Luxor Capital Partners Offshore, Ltd., a Cayman Islandsexempted company. The purchase price represented a premium to the 30-dayaverage closing price of Ebix common stock on the date of the sale. Under theterms of the Share Purchase Agreement, Luxor Capital Partners LP acquired163,600 shares of the Company’s common stock in exchange for $5.4 millionin cash and Luxor Capital Partners Offshore, Ltd. acquired 236,400 sharesof the Company’s common stock in exchange for $7.9 million in cash, for anaggregate offering price of $13.3 million. As a result, at June 4,2007, Luxor Capital Partners, LP owned approximately 5% of the Company’soutstanding common stock and Luxor Capital Partners Offshore, Ltd. ownedapproximately 7% of the Company’s outstanding common stock.   The respective Form S-1 registrationstatement was declared effective by the Securities and Exchange Commission on December 10,2007.

 

On December 13, 2007the Company entered into a share purchase agreements (the “Share PurchaseAgreements”) to sell 38,462 shares and 38,461 shares of our unregistered commonstock at $58.50 per share and for an aggregate offering price of$4.5 million to The Lebowitz Family Trust and Daniel M. Gottlieb,respectively, both “accredited investors” within the meaning of Rule 501of Regulation D. The purchase price represented a premium to the 30-dayaverage closing price of Ebix common stock on the date of the sale.

 

On December 20, 2007the Company entered into a share purchase agreements (the “Share PurchaseAgreements”) to sell 20,000 shares of our unregistered common stock at $58.50per share and for an aggregate offering price of $1.17 million 

 

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to The Morris M. Ostin2006 Annuity Trust, an “accredited investors” within the meaning of Rule 501of Regulation D. The purchase price represented a premium to the 30-dayaverage closing price of Ebix common stock on the date of the sale.

 

The Company sold theseunregistered securities in accordance with Rule 506 of Regulation Dunder the Securities Act of 1933, as amended. All purchasers involved in thesesales are “accredited investors,” as such term is defined in Rule 501 ofRegulation D.

 

**Use of Proceeds from the Recent Saleof Unregistered Securities**

 

The proceeds of the abovecited recent sales of unregistered shares of our common stock were used tofinance our acquisition of Jenquest, Inc (“IDS”) in November 2007 and TelstraeBusiness Services in January 2008.

 

**Item6.  EXHIBITS**

 

The exhibits filedherewith or incorporated by reference herein are listed on the Exhibit Indexattached hereto.

 

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SIGNATURES

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                        | Ebix, Inc. |
|------------------------|-----------------|
|                   |            |   |   |
|                   |            |   |   |
| Date: May 6, 2008 | By              |   | /s/ Robin Raina |
|                   |            |   | Robin Raina

Chief  Executive Officer

*(Principal  Executive Officer)* |
|                   |            |   |   |
|                   |            |   |   |
|                   |            |   |   |
| Date: May 6, 2008 | By              |   | /s/ Robert F.  Kerris |
|                   |            |   | Robert F. Kerris

Senior Vice  President and Chief Financial Officer*(Principal Financial and Accounting Officer)* |

 

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EXHIBIT INDEX

 
| **EXHIBIT  NO.** | ** ** | **DESCRIPTION**                                                                                                                                                                                                                                                                                                |
|------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |       |                                                                                                                                                                                                                                                                                                           |
| 2.1              |       | Share Sale  Agreement by and among Ebix, Inc., Ebix Australia (vic) Pty Ltd, and Telstra  Services Solutions Holdings Limited dated December 22, 2007 (incorporated by  reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed  March 18, 2008 and incorporated herein by reference). |
| 3.1              |       | Certificates of  Incorporation of the Company, as amended (including Certificates of  Designations) (incorporated by reference to Exhibit 3.1 to the Company’s  Quarterly Report on Form 10-Q for the period ended March 31, 2005  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)                                                                                                               |
| 10.29            |       | Share Purchase  Agreement made and entered into as of April 2, 2008 by and among Ebix, Inc  and RennesFoundation  (incorporated by reference to Exhibit 10.29 to the Company’s Current Report  on Form 8-K filed April 14, 2008 and incorporated herein by reference).                                    |
| 10.30            |       | Share Purchase  Agreement made and entered into as of April 7, 2008 by and among Ebix, Inc  and Ashford Capital Management, Inc.(incorporated by reference to Exhibit  10.30 to the Company’s Current Report on Form 8-K filed April 14, 2008 and  incorporated herein by reference).                     |
| 10.31            |       | Stock Purchase  Agreement made and entered into as of April 16, 2008 by and among Ebix, Inc  and Brit Insurance, Holdings, Inc. (incorporated by reference to Exhibit  10.31 to the Company’s Current Report on Form 8-K filed April 17, 2008 and  incorporated herein by reference).                     |
| 31.1             |       | Certification of  Chief Executive Officer Pursuant to 13a-14(a) (Section 302 of the  Sarbanes-Oxley Act of 2002).                                                                                                                                                                                    |
| 31.2             |       | Certification of  Chief Financial Officer Pursuant to 13a-14(a) (Section 302 of the  Sarbanes-Oxley Act of 2002).                                                                                                                                                                                    |
| 32.1             |       | Certification of  Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002                                                                                                                                                                                                      |
| 32.2             |       | Certification of  Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002                                                                                                                                                                                                      |

 

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