** **

**UNITED STATESSECURITIES 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, 2007** |       |
|                                               | ** ** | ** **                                                                                         |   |
| **OR**                                             |       |
|                                               |       |                                                                                               |   |
| **o**                                              | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |   |
|                                                    |            |                                                                                                    |        |  |  |  |

 

**Commissionfile number 0-15946**

**Ebix, Inc.**(Exactname 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’s telephone number, including area code: **678-281-2020**

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was requiredto file such reports), and (2) has been subject to such filingrequirements for the past 90 days.   Yes  x    No  o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.

Large acceleratedfiler  o                   Accelerated filer  o             Non-accelerated filer  x

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).   Yes  o   No  x

As of May 15, 2007, thenumber of shares of Common Stock outstanding was 2,848,288.

 

 

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**Ebix, Inc. and Subsidiaries**

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2007

INDEX

 
| PART I — FINANCIAL  INFORMATION                                                                            |   |   |
|-----------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                            |   |   |
| Item 1. Consolidated Financial Statements                                                                       |   |   |
|                                                                                                            |   |   |
| Condensed Consolidated Balance Sheets at March 31,  2007 (unaudited) and December 31, 2006                 |   |   |
|                                                                                                            |   |   |
| Condensed Consolidated Statements of Income for the  Three Months ended March 31, 2007 and 2006 (unaudited)     |   |   |
|                                                                                                            |   |   |
| Condensed Consolidated Statements of Cash Flows for  the Three Months ended March 31, 2007 and 2006 (unaudited) |   |   |
|                                                                                                            |   |   |
| Notes to Condensed Consolidated Financial Statements  (unaudited)                                               |   |   |
|                                                                                                            |   |   |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations             |   |   |
|                                                                                                            |   |   |
| Item 3. Quantitative and Qualitative Disclosures About  Market Risk                                             |   |   |
|                                                                                                            |   |   |
| Item 4T. Controls and Procedures                                                                                |   |   |
|                                                                                                            |   |   |
| PART  II — OTHER INFORMATION                                                                               |   |   |
|                                                                                                            |   |   |
| Item  1A. Risk Factors                                                                                          |   |   |
|                                                                                                            |   |   |
| Item 6.  Exhibits                                                                                               |   |   |
|                                                                                                            |   |   |
| SIGNATURES                                                                                                      |   |   |

 

 

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**PART I — FINANCIAL INFORMATION**

**ITEM 1 —CONSOLIDATED FINANCIAL STATEMENTS**

**Ebix, Inc. and SubsidiariesCondensed Consolidated Balance Sheets**(In thousands, exceptfor share and per share amounts)
| ** **                                                                                                                                        | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                        | ** ** | **(Unaudited**)          | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                        | ** ** | ** **               | ** ** | ** **                  | ** ** |
| **Current assets:**                                                                                                                               | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Cash and cash  equivalents                                                                                                                        |       | $                        | 6,521      |                        | $          | 5,013 |   |
| Accounts receivable,  less allowance of $36 and $36, respectively                                                                                 |       | 8,691                    |       | 7,973                       |       |
| Other current assets                                                                                                                              |       | 761                      |       | 913                         |       |
| **Total current assets**                                                                                                                          |       | 15,973                   |       | 13,899                      |       |
| Property and equipment,  net                                                                                                                      |       | 2,162                    |       | 2,183                       |       |
| Goodwill                                                                                                                                          |       | 23,218                   |       | 23,118                      |       |
| Intangible assets, net                                                                                                                            |       | 7,414                    |       | 7,867                       |       |
| Other assets                                                                                                                                      |       | 285                      |       | 285                         |       |
| **Total  assets**                                                                                                                                 |       | $                        | 49,052     |                        | $          | 47,352 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                    | ** ** | ** **               | ** ** | ** **                  | ** ** |
| **Current liabilities:**                                                                                                                          | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Line of credit                                                                                                                                    |       | $                        | 10,000     |                        | $          | 10,000 |   |
| Accounts payable and  accrued expenses                                                                                                            |       | 1,822                    |       | 1,854                       |       |
| Accrued payroll and  related benefits                                                                                                             |       | 1,053                    |       | 1,549                       |       |
| Current portion of long  term debt                                                                                                                |       | 1,015                    |       | 1,006                       |       |
| Current portion of  capital lease obligations                                                                                                     |       | 3                        |       | 3                           |       |
| Current deferred rent                                                                                                                             |       | 44                       |       | 44                          |       |
| Deferred revenue                                                                                                                                  |       | 5,999                    |       | 5,552                       |       |
| **Total current liabilities**                                                                                                                     |       | 19,936                   |       | 20,008                      |       |
| Long term debt, less  current portion                                                                                                             |       | 448                      |       | 934                         |       |
| Long term capital lease  obligation, less current portion                                                                                         |       | 9                        |       | 9                           |       |
| Long term deferred rent                                                                                                                           |       | 235                      |       | 235                         |       |
|                                                                                                                                              |       |                     |       |                        |       |
| **Stockholders’ equity:**                                                                                                                    | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Convertible Series D  Preferred stock, $.10 par value, 500,000 shares authorized, no shares issued  and outstanding                               |       | —                   |       | —                      |       |
| Common stock, $.10 par  value,  10,000,000 shares authorized, 2,857,178 issued and 2,848,288 outstanding at  March 31, 2007 and December 31, 2006 |       | 286                      |       | 286                         |       |
| Additional paid-in  capital                                                                                                                       |       | 95,003                   |       | 94,914                      |       |
| Treasury stock 8,890  shares repurchased as of March 31, 2007 and December 31, 2006                                                               |       | (149                     | )          | (149                        | )          |
| Accumulated deficit                                                                                                                               |       | (67,762                  | )          | (69,724                     | )          |
| Accumulated other  comprehensive income                                                                                                           |       | 1,046                    |       | 839                         |       |
| **Total stockholders’ equity**                                                                                                               |       | 28,424                   |       | 26,166                      |       |
| **Total liabilities and stockholders’ equity**                                                                                               |       | $                        | 49,052     |                        | $          | 47,352 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

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**Ebix, Inc. and Subsidiaries****Condensed Consolidated Statements of Income**(In thousands, except per share data)(Unaudited)

 
| ** **                                                                                                 | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                                 | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                                                                                                 | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| **Revenue:**                                                                                               | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Services and  other (Including revenues from related  parties of $578 and $713, respectively- See Note 6.) |       | $                                                    | 8,702      |   | $ | 5,153 |   |
| Software                                                                                                   |       | 316                                                  |       | 497 |   |
| **Total  revenue**                                                                                         |       | 9,018                                                |       | 5,650 |   |
| **Operating  expenses:**                                                                                   | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Services and  other costs                                                                                  |       | 1,566                                                |       | 1,331 |   |
| Product  development                                                                                       |       | 1,850                                                |       | 869 |   |
| Sales and  marketing                                                                                       |       | 952                                                  |       | 590 |   |
| General and  administrative                                                                                |       | 1,787                                                |       | 1,364 |   |
| Amortization and  depreciation                                                                             |       | 625                                                  |       | 314 |   |
| **Total operating  expenses**                                                                              |       | 6,780                                                |       | 4,468 |   |
| **Operating  income**                                                                                      |       | 2,238                                                |       | 1,182 |   |
| Interest income                                                                                            |       | 71                                                   |       | 79 |   |
| Interest expense                                                                                           |       | (228                                                 | )          | (32 | ) |
| Foreign exchange  gain                                                                                     |       | 5                                                    |       | 42 |   |
| **Income  before income taxes**                                                                            |       | 2,086                                                |       | 1,271 |   |
| Income tax  expense                                                                                        |       | (124                                                 | )          | (136 | ) |
| **Net  income**                                                                                            |       | $                                                    | 1,962      |   | $ | 1,135 |   |
|                                                                                                       |       |                                                 |       |   |   |
| **Basic  earnings per common share**                                                                       |       | $                                                    | 0.69       |   | $ | 0.41 |   |
|                                                                                                       |       |                                                 |       |   |   |
| **Diluted  earnings per common share**                                                                     |       | $                                                    | 0.61       |   | $ | 0.36 |   |
|                                                                                                       |       |                                                 |       |   |   |
| Basic weighted  average shares outstanding                                                                 |       | 2,848                                                |       | 2,748 |   |
|                                                                                                       |       |                                                 |       |   |   |
| Diluted weighted  average shares outstanding                                                               |       | 3,216                                                |       | 3,137 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

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**Ebix, Inc. and Subsidiaries****Condensed Consolidated Statements of Cash Flows**(In thousands)(Unaudited)

 
| ** **                                                                                  | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                  | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
|                                                                                        |       |                                                 |       |   |   |
| **Cash  flows from operating activities:**                                                  | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Net income                                                                                  |       | $                                                    | 1,962      |   | $ | 1,135 |   |
| **Adjustments  to reconcile net income to net cash provided by operating activities:** | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Depreciation and  amortization                                                              |       | 627                                                  |       | 314 |   |
| Stock-based  compensation                                                                   |       | 62                                                   |       | 21 |   |
| Restricted stock  compensation                                                              |       | 22                                                   |       | 68 |   |
| Provision for  doubtful accounts                                                            |       | —                                               |       | 7 |   |
| **Changes  in assets and liabilities:**                                                     | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Accounts  receivable                                                                        |       | (718                                                 | )          | (390 | ) |
| Other assets                                                                                |       | 152                                                  |       | (44 | ) |
| Accounts payable  and accrued expenses                                                      |       | (32                                                  | )          | (444 | ) |
| Accrued payroll  and related benefits                                                       |       | (496                                                 | )          | (773 | ) |
| Deferred revenue                                                                            |       | 447                                                  |       | 223 |   |
| Net cash  provided by operating activities                                                  |       | 2,026                                                |       | 117 |   |
| **Cash  flows from investing activities:**                                                  | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Investment in  Finetre                                                                      |       | (15                                                  | )          | — |   |
| Capital  expenditures                                                                       |       | (148                                                 | )          | (17 | ) |
| Net cash  used in investing activities                                                      |       | (163                                                 | )          | (17 | ) |
| **Cash  flows from financing activities:**                                                  | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Proceeds from  the exercise of the stock options                                            |       | —                                               |       | 31 |   |
| Principal  payments under debt obligations                                                  |       | (477                                                 | )          | (499 | ) |
| Net cash  used in financing activities                                                      |       | (477                                                 | )          | (468 | ) |
| Effect of  foreign exchange rates on cash                                                   |       | 122                                                  |       | (119 | ) |
| Net  change in cash and cash equivalents                                                    |       | 1,508                                                |       | (487 | ) |
| Cash and  cash equivalents at the beginning of the period                                   |       | 5,013                                                |       | 6,733 |   |
| Cash and  cash equivalents at the end of the period                                         |       | $                                                    | 6,521      |   | $ | 6,246 |   |
|                                                                                        |       |                                                 |       |   |   |
| **Supplemental  disclosures of cash flow information:**                                     | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Interest paid                                                                               |       | $                                                    | 172        |   | $ | — |   |
| Income taxes paid                                                                           |       | $                                                    | 242        |   | $ | 40 |   |

 

See accompanying notes tocondensed consolidated financial statements.

 

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Ebix, Inc. and SubsidiariesNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(In thousands except for share and per share data)(UNAUDITED)

Note 1. BASIS OFPRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

**Basis ofpresentation** — These condensed consolidated financialstatements include the accounts of Ebix, Inc. and its wholly-owned subsidiaries(Ebix or “the Company”) and reflect all adjustments (consisting only of normalrecurring adjustments) which are, in the opinion of management, necessary for afair presentation of the results of the interim periods. These condensedconsolidated financial statements should be read in conjunction with theconsolidated financial statements, and accompanying notes thereto, included inthe Company’s Annual Report on Form 10-K for the year ended December 31,2006.The results of operations for the current interim period are notnecessarily indicative of results to be expected for the entire current year.Certain prior period amounts have been reclassified to conform to the currentperiod presentation.

**Summaryof significant accounting policies—**

**RevenueRecognition**—****We derive our revenue primarilyfrom two sources: (1) software revenue, which includes software licensesand (2) professional and support services, which includes softwaredevelopment projects, subscription and transaction fees related to servicesdelivered on an ASP basis, fees for hosting software, fees for software licensemaintenance, initial registration, and business process outsourcing revenue.Also included in professional and support services are fees for consulting,implementation, training, and project management provided to the Company’scustomers with installed systems and those in the process of installingsystems. As described below, significant management judgments and estimatesmust be made and used in connection with the revenue recognized in anyaccounting period. Material differences may result in the amount and timing ofour revenue for any period if our management made different judgments orutilized different estimates.

We apply theprovisions of Statement of Position (“SOP”) 97-2, “Software RevenueRecognition,” as amended by Statement of Position 98-9, “Modificationof SOP 97-2, Software Revenue Recognition, With Respect to CertainTransactions,” to all transactions involving the license of software where thesoftware deliverables are considered more than inconsequential to the otherelements in the arrangement. For contracts that contain multiple deliverables,we analyze the revenue arrangements in accordance with Emerging Issues TaskForce Issue No. 00-21, “Revenue Arrangements with MultipleDeliverables” (EITF 00-21), which provides criteria governing how toidentify whether goods or services that are to be delivered separately in abundled sales arrangement should be accounted for separately. Deliverables areaccounted for separately if they meet all of the following: a) thedelivered items have stand-alone value to the customer; b) the fairvalue of any undelivered items can be reliably determined; and c) if thearrangement includes a general right of return, delivery of the undelivereditems is probable and substantially controlled by the seller. To the extentarrangements contain multiple deliverables, the Company performs an analysis ofthe nature of the deliverables to determine to what extent the deliverables ofthe arrangement are governed by any higher level literature (as defined in EITF00-21). EITF 00-21 recognizes arrangements that qualify fortreatment under SOP 97-2 and certain arrangements that qualify forcontract accounting (i.e. SOP 81-1) as falling under the definitionof “higher level literature”.

The Companyrecognizes revenue for license fees from its software products upon delivery,provided that the fee is fixed and determinable, acceptance has occurred,collectibility is probable and persuasive evidence of an arrangement exists.Management uses signed contractual agreements as persuasive evidence of anarrangement where fee information is documented. Revenue from third partysoftware is derived from the licensing of third party software products inconnection with sales of the Company’s software licenses and is generallyrecognized upon delivery together with the Company’s license revenue. Training,data conversion, installation, and consulting services are generally recognizedas revenue when the services are performed and collectibility is probable.Revenue for maintenance and support service is recognized ratably over the termof the support agreement.

For arrangementscontaining multiple elements, revenue is recognized on delivered elements whenvendor-specific objective evidence (VSOE) of fair value has beenestablished on the undelivered elements, applying the residual method ofSOP 98-9. Fair value is determined for each undelivered elementbased on the price charged for the sale of each element separately. Incontracts that contain first year maintenance bundled with software fees,unbundling of maintenance is based on the price charged for renewal maintenance.Revenue for maintenance and support service is recognized ratably over the termof the support agreement.

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Revenues relatedto ASP services and hosting arrangements, including monthly fees as well as anyinitial registration or setup fees and related custom programming, arerecognized ratably over the term of the agreement in accordance with StaffAccounting Bulletin (“SAB”) 104, “Revenue Recognition.” Transaction fees arerecognized as revenue as the transactions occur. Transaction fees are generallybilled in arrears each month and the revenue is recognized when thetransactions are processed. Revenue is only recognized when collectiblity isprobable.

Deferred revenueincludes maintenance and support payments or billings that have been receivedor recorded prior to performance and, in certain cases, cash collections;amounts received under multi-element arrangements in which VSOE ofundelivered elements does not exist; and initial registration fees and relatedservice fees under hosting agreements. Revenue is recognized when VSOE of theundelivered elements is established, the elements are delivered, or theobligation to deliver the elements is extinguished.

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

For businessprocess outsourcing agreements, which include call center services, servicesare primarily performed on a time and material basis. Revenue is recognizedwhen the service is performed.

**Newaccounting pronouncements —**In June 2006, the Financial Accounting Standards Board (“FASB”) issuedInterpretation No. 48, *Accounting forUncertainty in Income Taxes* (“FIN 48”).  FIN 48 clarifies theaccounting for uncertainty in income taxes by prescribing the minimumrecognition 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 whenan enterprise concludes that a tax position, based solely on its technicalmerits is more likely than not to be sustained upon examination. Measurement (Step 2) is only addressed if Step 1 has been satisfied. Under Step 2, the tax benefit is measured at the largest amount of benefit,determined on a cumulative probability basis, that is more likely than not tobe realized upon final settlement.  As used in FIN 48, the term “morelikely than not” is means that the likelihood of an occurrence is greater than50%.  The Company adopted FIN 48 as of January 1, 2007 as required. There was no cumulative adjustment to beginning retained earnings related tothe implementation of FIN 48.

In September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements* (“SFAS 157”).This standard clarifies the principle that fair value should be based on the assumptionsthat market participants would use when pricing an asset or liability.Additionally, it establishes a fair value hierarchy that prioritizes theinformation used to develop those assumptions.  SFAS 157 is effective forfinancial statements issued for fiscal years beginning after November 15,2007.  The Company is currently evaluating the impact that theimplementation of SFAS 157 will have on its financial statements.

In February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for Financial Assets andFinancial Liabilities - Including an Amendment of FASB StatementNo. 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 for which the fair value option has beenelected are reported in earnings. SFAS 159 is effective for fiscal yearsbeginning after November 15, 2007. The Company is currently assessing theimpact of SFAS 159 on its financial statements.

**Employee Stock Options****—** At March 31, 2007,the Company has two stock-based employee compensation plans. EffectiveJanuary 1, 2006, the Company adopted Statement of Financial AccountingStandards No. 123 (revised 2004), “Share Based Payment”, applying themodified prospective method. Prior to the adoption of SFAS 123(R), theCompany applied the provisions of APB Opinion No. 25, “Accounting forStock Issued to Employees,” in accounting for its stock-based awards, andaccordingly, recognized no compensation cost for its stock plans other than forits restricted stock awards. Underthe modified prospective method, SFAS 123(R) applies to new awards and toawards that were outstanding as of December 31, 2005 that are subsequentlyvested, modified, repurchased or cancelled. Compensation expense recognizedduring 2007 and 2006 includes the portion vesting during the period for(1) all share-based payments granted prior to, but not yet vested as ofDecember 31, 2005, based on the grant date fair value estimated inaccordance with the original provisions of Statement of Financial AccountingStandards No. 123, “Accounting for Stock-Based Compensation”(SFAS 123) and (2) all share-based payments granted subsequent toDecember 31, 2005, based on the grant-date fair value estimated using theBlack-Scholes option-pricing model. No stock options were granted to employeesduring the first quarter of 2007 or 2006; however, options 

6

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were granted toDirectors during the first quarter of 2006. Stock compensation expense of $62and $16 was recognized during the quarter ended March 31, 2007 and March 31,2006 on existing stock options. As a result of the Company’s decision to adoptthe modified prospective method, prior period results have not been restated.

Note 2. STOCKOPTIONS

There were nostock options granted during the first quarter of 2007.

On August 11,2003, the Company granted 25,000 options to purchase the Company’s common stockto Rahul Raina, the brother of the Chief Executive Officer, in connection withhis joining the Company. The options vest over four years from the date ofgrant, expire ten years from the date of grant, and were issued with anexercise price below the fair market value of the stock on the date of grant.In December 2006 these options were amended and the exercise price was increasedfrom $2.85 per share to $6.70 per share, which is equal to the fair marketvalue of the common stock underlying the stock options at the original grantdate. This option grant was valued using SFAS 123(R), and the Companyrecognized compensation expense of approximately $10 and $6 related to theseoptions during the quarters ended March 31, 2007 and 2006, respectively.

The Company hasgranted nonstatutory and incentive options outside the Company’s stock optionplans to purchase up to an aggregate of 57,000 shares of the Company’s commonstock, of which options to purchase 3,875 shares were outstanding at March31, 2007. These options were granted at prices determined by the Board ofDirectors. The options have a four-year vesting period and must be exercisedwithin ten years of the date of the grant. These options were granted prior to2002, to persons who were not directors, officers or employees. Thesenon-employee options were valued pursuant to SFAS 123. The majority of theseoptions are performance-based awards, with no service commitment andsubject to vesting only if the Company’s stock price reaches a certain target.At March 31, 2007, 2,812 of the shares subject to these non-employeeoptions were vested.  There was nocompensation expense related to these options during the quarters ended March31, 2007 and 2006.

Note 3. STOCK BASEDCOMPENSATION

 A summary of stock option activity within theCompany’s stock-based compensation plans for the quarter ended March 31, 2007is as follows:
| ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|

 
| ** **                             | ** ** | ** **            | ** ** | ** **    | ** ** | ** **  | ** ** | ** **      | ** ** | **Weighted**  | ** ** | ** **    | ** ** |
|----------------------------------------|------------|-----------------------|------------|---------------|------------|-------------|------------|-----------------|------------|---------------|------------|---------------|------------|
| ** **                             | ** ** | ** **            | ** ** | ** **    | ** ** | ** **  | ** ** | ** **      | ** ** | **Average**   | ** ** | ** **    | ** ** |
| ** **                             | ** ** | ** **            | ** ** | ** **    | ** ** | ** **  | ** ** | **Weighted**    | ** ** | **Remaining** | ** ** | ** **    | ** ** |
| ** **                             | ** ** | **Within Plans** | ** ** | ** **    | ** ** | **Average** | ** ** | **Contractual** | ** ** | **Aggregate** | ** ** |
| ** **                             | ** ** | **Nonstatutory**      | ** ** | **Incentive** | ** ** | **Outside** | ** ** | **Exercise**    | ** ** | **Term**      | ** ** | **Intrinsic** | ** ** |
| ** **                             | ** ** | **Options**           | ** ** | **Options**   | ** ** | **Plan**    | ** ** | **Price**       | ** ** | **(Years)**   | ** ** | **Value**     | ** ** |
| Outstanding at  December 31, 2006 |       | 523,073               |       | 47,781        |       | 3,875       |       | $               | 12.41      |          | 5.38       |          | $          | 8,929 |   |
| Granted                                |       | —                |       | —        |       | —      |       | $               | —     |          |       |          |       |   |
| Exercised                              |       | —                |       | —        |       | —      |       | $               | —     |          |       |          |       |   |
| Canceled                               |       | (26                   | )          | —        |       | —      |       | $               | 53.25      |          |       |          |       |   |
| Outstanding at  March 31, 2007         |       | 523,047               |       | 47,781        |       | 3,875       |       | $               | 12.41      |          | 5.14       |          | $          | 9,526 |   |
|                                   |       |                  |       |          |       |        |       |            |       |          |       |          |       |
| Exercisable at March  31, 2007         |       | 509,141               |       | 33,770        |       | 2,812       |       | $               | 11.19      |          | 5.14       |          | $          | 9,792 |   |

 

The aggregate intrinsicvalue 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.

The Company had 15,144 ofstock options that were not vested at March 31, 2007 that were expensed in1999. Additionally, the Company has 3,125 of unvested stock options that hadbeen issued to Rahul Raina. At March 31, 2007, there was $127 of unrecognizedcompensation cost related to total nonvested stock options. This cost will berecognized over the two years ending December 31, 2008.

During 2000, the Companygranted incentive stock options to purchase a total of 1,250 shares for whichvesting is contingent upon increases in the Company’s stock price and otherperformance based measures, such as achieving specified revenues for newproducts. During 1999, the Company granted incentive stock options to purchasea total of 58,250 shares, for which vesting is contingent upon increases in theCompany’s stock price and other performance based measures, such as achieving  

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specified revenues fornew products. For these options, vesting generally occurs when the Company’sstock price equals $72.00, $96.00, $120.00 and $160.00 per share. Since 2000,no incentive options were granted. The exercise price of each option, which hasa ten-year life, is equal to the market price of the Company’s stock on thedate of grant. There was no compensation expense related to these options forthe quarters ended March 31, 2007 and 2006.

The Company also grantsrestricted stock to certain employees. On February 3, 2006, the Compensation Committee of the Board ofDirectors of the Company gave final approval to awards of 8,354 shares ofrestricted stock to Robin Raina, the Company’s Chairman, Chief ExecutiveOfficer and President, and 2,506 shares of restricted stock toRichard J. Baum, the Company’s then Executive Vice President, ChiefFinancial Officer and Secretary, under the Company’s 1996 Incentive Plan. Theawards were made pursuant to a 2005 incentive compensation program (the “2005Program”) approved by the Company’s Board of Directors. In accordance with the2005 Program, the number of shares of restricted stock issued to each ofMessrs. Raina and Baum represents 15% of the aggregate of the total salaryand cash bonus compensation earned by each for 2005 (such aggregatecompensation being $1,100 in the case of Mr. Raina and $330 in the case ofMr. Baum), divided by the market price of the Company’s stock onFebruary 3, 2006, the date the Board approved the restricted stock grants.The Company recognized compensation expense of approximately $8 for each of thequarters ended March 31, 2007 and 2006.

On June 1, 2005, theCompensation Committee of the Board of Directors of the Company gave finalapproval to awards of 9,758 shares of restricted stock to Robin Raina, theCompany’s Chairman, Chief Executive Officer and President, and4,382 shares of restricted stock to Richard J. Baum, the Company’sthen Executive Vice President, Chief Financial Officer and Secretary, under theCompany’s 1996 Incentive Plan. The awards were made pursuant to a 2004incentive compensation program (the “2004 Program”) approved by the Company’sBoard of Directors on December 4, 2004 (as described in a Form 8-Kfiled by the Company on December 9, 2004) and were subject to adetermination by the Compensation Committee and the Board, after the Company’srelease of its 2004 operating results, that such operating results weresubstantially consistent with the operating results of the Company for thefirst nine months of 2004, as they compared to those for the same period of theprior year (excluding executive incentive compensation). The CompensationCommittee and the Board made such determination in April 2005, at whichtime the grants of the restricted stock (along with 2004 cash bonuscompensation) were approved, subject to the Compensation Committee’s approvalof certain terms of the restricted stock awards and of the forms of restrictedstock agreements to represent such awards.

On June 1, 2005, theCompensation Committee approved such terms and forms of restricted stockagreements, and the shares of restricted stock were issued to each ofMessrs. Raina and Baum on such date. In accordance with the 2004 Program,the number of shares of restricted stock issued to each of Messrs. Rainaand Baum represents 10% of the aggregate of the total salary and cash bonuscompensation earned by each for 2004 (such aggregate compensation being $1,013in the case of Mr. Raina and $455 in the case of Mr. Baum), dividedby the market price of the Company’s stock on April 11, 2005, the date theBoard approved the restricted stock grants. The Company recognized compensationexpense of approximately $14 and $59 related to these shares during thequarters ended March 31, 2007 and 2006, respectively.

Pursuant to therestricted stock agreements, the restricted stock vests in three equal annualinstallments. The restricted stock also vests with respect to any unvestedshares upon the applicable officer’s death, Disability (as defined) orRetirement (as defined), the Company’s termination of the officer other thanfor Cause (as defined) or a Change in Control (as defined) of the Company. Ifthe officer terminates his employment other than due to death, Disability orRetirement or the Company terminates the officer’s employment for Cause, anyunvested shares held by the officer will be forfeited. Mr. Baum’srestricted stock fully vested upon his retirement effective December 31,2006.

During May 2007, thecompensation committee of the Board of Directors of the Company gave finalapproval to award 8,501 shares of restricted stock to Robin Raina, theCompany’s Chairman, Chief Executive Officer and President.  The award wasmade pursuant to the 2006 incentive compensation program (the “2006 Program”)approved by the Company’s Board of Directors.  In accordance with the 2006Program, the number of shares of restricted stock issued to Mr. Rainarepresents approximately 23% of the aggregate of the total salary and cashbonus compensation earned for 2006, divided by the market price of theCompany’s stock on May 9, 2007, the date the Compensation Committee of theBoard of Directors approved the restricted stock grant.

Note 4. EARNINGSPER 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, 2007 and 2006 was2,848,288 and 2,747,880, respectively. Diluted EPS is calculated as if theCompany had additional common stock outstanding from the beginning of the yearor the date of grant for all common stock equivalents, net of assumedrepurchased shares using the treasury stock method. Diluted EPS recognizes thedilutive effect of common stock equivalents and is equal to net income dividedby the sum of the weighted average number of shares outstanding and commonstock equivalents. For the three months ended March 31, 2007 and 2006, theCompany’s common stock equivalents consisted of restricted stock and stockoptions. For the three months ended March 31, 2007 and 2006, the effect of thiscalculation resulted in an increase in the weighted average number of sharesoutstanding of 367,434 and 388,939, respectively. At March 31, 2007 and 2006,the fully diluted weighted average number of shares outstanding was 3,215,722 and3,136,819, respectively. At March 31, 2007, there were 207,269 sharespotentially issuable with respect to stock options, which could 

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dilute EPS in thefuture but which were excluded from the diluted EPS calculation because theireffect was antidilutive. At March 31, 2006, there were 295,496 sharespotentially issuable with respect to stock options, which could dilute EPS inthe future but which were excluded from the diluted EPS calculation becausetheir effect was antidilutive.

Note 5.COMPREHENSIVE INCOME

 

|                                                                                    | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
|                                                                               |       |                                                 |       |   |   |
| Net income                                                                         |       | $                                                    | 1,962      |   | $ | 1,135 |   |
| Other  comprehensive income (loss)— foreign   currency translation adjustment |       | 207                                                  |       | (215 | ) |
| Comprehensive income                                                               |       | $                                                    | 2,169      |   | $ | 920 |   |

 

Note 6. RELATEDPARTY TRANSACTIONS AND SIGNIFICANT CUSTOMERS

In 2001, theCompany issued 868,000 shares of its common stock to Brit Insurance HoldingsPLC (“Brit”), for $7,000. The total shares held by Brit at March 31, 2007 was930,163 representing an equity ownership of approximately 33%.

The Company hasentered into various software and service agreements with Brit and itsaffiliates. During the three months ended March 31, 2007 and 2006 approximately$578 (6%) and $713 (13%), respectively, was recognized as revenue from Brit andits affiliates.  Total accountsreceivable from Brit and its affiliates at March 31, 2007 and December 31,2006 were $1,272 (15%) and $1,039 (13%), respectively.

Note 7. ACQUISITIONS

*FinetreAcquisition*

*EffectiveOctober 1, 2006, the Company acquired Finetre Corporation (“Finetre”)through a merger. Ebix paid Finetre shareholders $13,000 for substantially allFinetre stock, and Finetre shareholders retain the right to earn up to $3,000in additional payments over two years if certain revenue and operating incometargets of the Finetre services are met. Finetre operates as an ASP technologyfirm focusing on transaction processing and compliance automation in thefinancial services industry*

*TheCompany incurred approximately $380 of direct expenses related to closing theFinetre acquisition. The Company funded the acquisition using available cash onhand of $2,000 as well as its $11,000 line of credit.*

The acquisition ofFinetre was consistent with the Company’s overall focus on providing softwaresolutions to insurance carriers, agents and brokers. This acquisition increasedsales and revenue of the consolidated total while providing sales opportunitiesfor the Company’s other existing services.

Concurrentwith the acquisition, the Company ascribed a preliminary value to each of theassets and liabilities acquired. The following table summarizes the fair valueof the assets acquired and liabilities assumed at the date of acquisition.

| Current assets             |   | $      | 2,244  |   |
|----------------------------|--------|--------|--------|--------|
| Property and  equipment    |   | 580    |   |
| Intangible  assets         |   | 3,391  |   |
| Goodwill                   |   | 9,726  |   |
| Total assets  acquired     |   | 15,941 |   |
| Current  liabilities       |   | 2,561  |   |
| Total  liabilities assumed |   | 2,561  |   |
| Net assets acquired        |   | $      | 13,380 |   |

 

Of the $3,391 ofintangible assets acquired, $2,346 was assigned to customer relationships witha remaining useful life of nine years, $896 was assigned to developedtechnology with a remaining useful life of 5 years, $140 was assigned tobacklog with a remaining estimated useful life of fourteen months and $9 assignedto IPR&D which was expensed immediately. The Company recorded $139 ofamortization expense related to these intangible assets for the quarter endedMarch 31, 2007.  

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There was no amortizationexpense related to these intangibles for the quarter ended March 31, 2006 asthe acquisition was consummated in October 2006.

*Infinity SystemsAcquisition*

Effective May 1, 2006,The Company acquired substantially all of the operating assets of InfinitySystems Consulting, Inc. (“Infinity”). Ebix acquired these assets for anupfront payment of $2,900 in cash and a potential future payment not exceeding$4,500 in cash if Infinity services meet certain future revenue targets. TheCompany capitalized approximately $149 of transaction costs in conjunction withthe Infinity acquisition.

The acquisition ofInfinity was consistent with the Company’s overall focus on providing softwaresolutions to insurance carriers, agents and brokers. This acquisition increasedsales and revenue of the consolidated total while providing significant salesopportunities for the Company’s other existing services.

Concurrent with theacquisition, the Company ascribed a preliminary value to each of the assets andliabilities assumed from the acquisition of Infinity. The following tablesummarizes the fair value of the Infinity assets acquired and liabilitiesassumed at the date of acquisition.

| Property and equipment     |   | $     | 93     |   |
|----------------------------|--------|-------|--------|--------|
| Intangible  assets         |   | 2,399 |   |
| Goodwill                   |   | 702   |   |
| Total assets  acquired     |   | 3,194 |   |
| Deferred revenue           |   | 91    |   |
| Deferred rent              |   | 54    |   |
| Total  liabilities assumed |   | 145   |   |
| Net assets acquired        |   | $     | 3,049  |   |

 

Of the $2,399 of intangible assets acquired,$656 was assigned to customer relationships with a remaining useful life of tenyears, $1,525 was assigned to developed technology with a remaining useful lifeof 5 years and $218 was assigned to trade name with a remaining estimateduseful life of ten years. The Company recorded $98 of amortization expenserelated to these intangible assets for the quarter ended March 31, 2007. Therewas no amortization expense related to these intangibles for the

Note 8**-**LINE OF CREDIT ANDOTHER COMMITMENTS

**Bank Line of Credit:**

The Company maintains arevolving line of credit facility with LaSalle Bank N.A. The line provides fora variable interest rate and is secured by a first security interest insubstantially all of the Company’s assets. In August 2006, the Companyentered into an amendment to the credit agreement, which increased the line to$12,000 at a variable interest rate of LIBOR +1.5% (effective interest rate of6.82% at March 31, 2007). The line of credit contains certain financialcovenants related to profitability, current assets and debt coverage. OnOctober 2, 2006, $11,000 was borrowed on the line and on December 29,2006, $1,000 was paid on the line. Total borrowings on this line were $10,000as of March 31, 2007. The line of credit agreement matures on August 31,2007.

Letters of Credit:

Under terms of theagreement with Heart Consulting Services Pty. Ltd. (“Heart”), which wasacquired in 2004, $1,399 is payable by the Company under stand-by letters ofcredit issued by the Company’s lender on the Company’s line of credit in threeequal annual installments on each of the first, second and third anniversariesof the closing of the Heart asset acquisition (present value computed as$1,293). The three letters of credit expire on July 31, 2005,July 31, 2006 and July 31, 2007, respectively. In July, 2005 and2006, the Company made installment payments of $508 and $496, respectively.

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Under terms of the leaseagreement for office space in Herndon, Virginia, the Company is required tomaintain a stand-by letter credit in the amount of $225. The amount of theletter of credit was automatically reduced to $150 on March 7, 2007. The requirementfor this letter of credit expires in November 2007.

**Self Insurance:**

**TheCompany is currently self-insured for its health insurance and has a stop losspolicy that limits the individual liability to $75 per person and the aggregateliability to 125% of the expected claims based upon the number of participantsand historical claims. As of March 31, 2007, the maximum aggregate liabilitycalculated was $933 for the annual contract period, which ends inSeptember 2007.**

**Note 9—DEBT MATURITIES**

 
| ** ** | ** ** | **Year Ended December 31,** | ** ** |
|------------|------------|--------------------------------------------|------------|
| ** ** | ** ** | **2007**                                   | ** ** | **2008** | ** ** | **2009** | ** ** | **Total** | ** ** |
| EbixLife   |       | $                                          | —     |   | $ | 500 |   | $ | 500 |   | $ | 1,000 |   |
| Heart      |       | $                                          | 498        |   | $ | — |   | $ | — |   | $ | 498 |   |
|       |       | $                                          | 498        |   | $ | 500 |   | $ | 500 |   | $ | 1,498 |   |

** **

The EbixLife debt is aresult of the EbixLife acquisition on in 2004 and represents a $2,500non-interest bearing note payable. The note is payable in annual installmentsof $500 over five years. The Company has imputed interest on this debt of 4%,and has made installment payments in February 2005, 2006 and 2007.

The Heart debt is aresult of the Heart acquisition in 2004 and represents $1,399 payable understand-by letters of credit issued by the Company’s lender under the Company’sline of credit in three equal annual installments on each of the first, secondand third anniversaries of the closing. The Company has imputed interest onthis debt at 4%, and has made installment payments in July 2005 and 2006.

Note 10 — PROFORMA FINANCIALS

The followingunaudited pro forma financial information for the quarters ended March 31, 2007and 2006 presents the consolidated operations of the Company as if the Finetreand Infinity acquisitions had been made on January 1, 2006, after givingeffect to certain adjustments for the pro forma acquisition as of theacquisition date. The Company made adjustments primarily for the amortizationof intangible assets and interest expense related to the acquisitions. Theunaudited pro forma financial information is provided for informationalpurposes only and does not project the Company’s results of operations for anyfuture period:

 

|                             | ** ** | **Three Months  Ended  March 31, 2007** | ** ** | **Three Months  Ended  March 31, 2006** | ** ** |
|-----------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                  | ** ** | ** **                                             | ** ** | ** **                                             | ** ** |
| Revenue                     |       | $                                                      | 9,018      |                                                   | $          | 8,266 |   |
| Net income                  |       | $                                                      | 1,962      |                                                   | $          | 669 |   |
| Basic earnings  per share   |       | $                                                      | 0.69       |                                                   | $          | 0.24 |   |
| Diluted earnings per  share |       | $                                                      | 0.61       |                                                   | $          | 0.21 |   |

 

Note 11 — STOCKREPURCHASE

On June 2,2006, the Board of Directors announced a share repurchase plan to acquire up to$1 million of the Company’s current outstanding shares of common stock.Under the terms of the Board’s authorization, the Company retains the right topurchase up to $1 million in shares but does not have to repurchase thisentire amount.

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The repurchaseplan’s terms have been structured to comply with the SEC’s Rule 10b-18,and is subject to market conditions and applicable legal requirements. Theprogram does not obligate the Company to acquire any specific number of sharesand may be suspended or terminated at any time. All purchases will be on theopen market and are expected to be funded from existing cash.

For the year endedDecember 31, 2006, the Company repurchased 8,890 shares of commonstock at prices ranging from $15.00 to $18.50. Total expenditures under therepurchase plan were $149. The Company has not repurchased any shares of commonstock since September 30, 2006.

Note 12 — INCOME TAXES

The Company adopted theprovisions of FIN 48 on January 1, 2007.  As a result of theimplementation of FIN 48, there was no adjustment to the January 1, 2007balance of retained earnings.

The Company recordsinterest and penalties related to income tax uncertainties in income taxexpense and income taxes payable.  As ofthe date of adoption, the total amount of accrued interest and penalties wasimmaterial.

Generally, the federal statute oflimitations requirements allow for tax return examinations for a period ofthree years subsequent to the filing date of the return. Certain state andforeign jurisdictions have longer periods. Accordingly, for the Company, the statute of limitations is closed forall returns filed for calendar 2002 and prior. However, to the extent allowed by law, the taxing authorities may havethe right to examine prior periods where NOLs were generated and carriedforward, and make adjustments up to the amount of the NOL carryforward amount.

 

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

The followinginformation should be read in conjunction with the unaudited condensedconsolidated financial statements and the notes thereto included in Part 1. Item1 of this Quarterly Report, and the audited consolidated financial statementsand notes thereto and Management’s Discussion and Analysis of FinancialCondition and Results of Operations contained in the Company’s Annual Report onForm 10-K for the year ended December 31, 2006.

**Overview**

The Company’sproduct and service strategy focuses on the following four areas:(1) worldwide sale, customization, development, implementation and supportof its insurance carrier system products, Infinity Systems and BusinessReinsurance and Insurance Company System (“BRICS”); (2) worldwide salesand support of broker/agency management systems including EbixASP, eGlobal; andWinbeat; (3) expansion of connectivity between consumers, agents,carriers, and third party providers through its exchange family of productsworldwide namely, EbixExchange, WinFlex, VitalSuite, AnnuityNet and LifeSpeed;and (4) Business Process Outsourcing (BPO) services, which include callcenter and back office operations.

**CriticalAccounting Policies**

The Company’s “criticalaccounting policies” are those that require application of management’s mostdifficult, subjective or complex judgments, often as a result of the need tomake estimates about matters that are inherently uncertain and may change infuture periods. The Company has identified the following as its criticalaccounting policies: revenue recognition, estimating the allowance for doubtfulaccounts receivable and accounting for income taxes. For a discussion of thesepolicies, see “Management’s Discussion and Analysis of Financial Condition andResults of Operations — Critical Accounting Policies” in the Company’s AnnualReport on Form 10-K for the year ended December 31, 2006.

**Resultsof Operations**

**Three-MonthPeriod Ended March 31, 2007 Compared to the Three-Month Period Ended March 31,2006**

**TotalRevenue** - The Company’s revenue is primarily derived fromprofessional and support services (“Services”). Services include consulting,implementation, training and project management provided to the Company’scustomers with installed systems and those in the process of installingsystems. In addition, Services include fees for software license maintenance,Application Service Provider (ASP) services, hosting and other miscellaneousrevenues. Software revenue is derived from the licensing of proprietary andthird party software (“Software”). Total revenue is comprised of Softwarerevenue and Services revenue. Total revenue for the quarter ended March 31,2007 increased $3,368,000, or 60%, to $9,018,000 from $5,650,000 for thecomparable quarter of the prior year.

**ServicesRevenue** — Total services revenue for the first quarter of2007 increased $3,549,000, or 69%, from $5,153,000 for the comparable quarterof the prior year. This increase was primarily due to the acquisitions ofFinetre and Infinity, which accounted for $2,107,000 and $1,025,000,respectively.  Additionally weexperienced continued growth in our EbixLife suite of products of $242,000, anincrease in international service revenue of $213,000 and an increase inconsulting revenue of $89,000.  Theseincreases were partially offset by a decrease in support revenue associatedwith legacy products of $114,000.

During the firstquarter of 2007 and 2006, approximately $578,000 and $713,000, respectively wasrecognized as services revenue from Brit Insurance Holdings PLC (“Brit”) andits affiliates. The amounts represented 6% and 13%, of the Company’s totalrevenues for the first quarters of 2007 and 2006, respectively. Brit ownedapproximately 33% of the Company’s common stock as of March 31, 2007. Brit norits affiliates have long-term agreements with the Company that providecertainty that such revenues will be recurring.

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**SoftwareRevenue** - Total software revenue for the first quarter of 2007decreased $181,000, or 36 %, to $316,000 from $497,000 for the comparablequarter of the prior year. This decrease was due to a decrease in bothinternational and domestic software sales and reflects management’s emphasis onincreasing recurring services revenue.

**Services and other costs**-Cost of services revenue includes costs associated with support, call center,consulting, implementation and training services. Total services and othercosts for the quarter increased $235,000, or 18%, from $1,331,000 for thecomparable quarter of the prior year. This increase was due primarily to anincrease in payroll expenses of $173,000 and facility costs of $49,000primarily related to the acquisitions of Finetre and Infinity.

**ProductDevelopment Expenses**-Total product development expenses for the first quarter of 2007 increased$981,000, or 113%, from $869,000 for the comparable quarter of the prior year.This increase was due to an increase in domestic payroll expenses of $726,000and facility costs of $209,000 primarily due to the acquisitions of Finetre andInfinity.

**Sales andMarketing Expenses**- Total sales andmarketing expenses for the first quarter of 2007 increased $362,000, or 61%,from $590,000 for the comparable quarter of the prior year. This increase wasattributable to an increase in payroll expenses of $266,000,  an increase in travel and entertainmentexpenses of $55,000 and an increase in facility costs of $46,000 primarily dueto the acquisitions of Finetre and Infinity. These increases were partially offset by decreases in domesticadvertising expenses of $24,000 and international advertising expenses of$19,000.

**Generaland Administrative Expenses** - Total general andadministrative expenses for the quarter increased $423,000, or 31%, from $1,364,000for the comparable quarter of the prior year. This increase was due to anincrease in payroll and benefits of $320,000 ($109,000 and $10,000 related tothe acquisitions of Finetre and Infinity, respectively and $201,000 related toother domestic payroll expenses), an increase in international general andadministrative expenses of $30,000 and an increase in audit and legal expensesof $139,000.

**Amortizationand Depreciation Expenses** — Total amortization anddepreciation expenses for the quarter increased $311,000, or 99 %, from$314,000 for the comparable quarter of the prior year. This increase isprimarily due to the increase in depreciation and amortization of intangiblesrelated to the acquisitions of Finetre and Infinity.

**Incometax expense**— The effectivetax rate for the first quarter of 2007 was lower than the rate for thecomparable quarter of the prior year due to a different income mix among thevarious tax jurisdictions in which the Company does business.

**Liquidityand Capital Resources**

The Company hadcash and cash equivalents of $6,521,000 at March 31, 2007, compared to cash andcash equivalents of $5,013,000 at December 31, 2006.

During the threemonths ended March 31, 2007, the Company generated operating cash flow of$2,026,000 as compared to $117,000 of operating cash flow for the three monthsended March 31, 2006. The cash flow from operations in the three months endedMarch 31, 2007 is principally due to a growth in net income and a decrease inaccrued payroll and related benefits of $496,000 partially offset by anincrease in net accounts receivable of $718,000, an increase in deferredrevenue of 

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$447,000. Thesebalance sheet fluctuations are normal consequences of timing differencesbetween accruals and their cash settlement.

Cash used ininvesting activities of $163,000 in the three months ended March 31, 2007represented expenditures made primarily related to the Company’s capitalexpenditures in India and the U.S. Cash used in financing activities of$477,000 resulted from the Company’s payment of a long-term debt obligation.

In thethree months ended March 31, 2007, 6% of the Company’s total revenues was fromBrit and its affiliates. Brit does not have long-term agreement with theCompany that provides certainty that such revenues and related cash flows willbe recurring.

TheCompany maintains a revolving line of credit facility with LaSalle Bank N.A.During 2006, the line of credit was increased from $5,000,000 to $12,000,000.The line provides for a variable interest rate equal to LIBOR + 1.50% and issecured by a first security interest in substantially all of the Company’sassets. In connection with the Finetre acquisition, the Company borrowed$11,000,000 on the line of credit, of which $1,000,000 has been repaid. AtMarch 31, 2007, the balance of the line of credit was $10,000,000 and theinterest rate was 6.82%. The line of credit matures on August 31, 2007.  Theline of credit contains certain financial covenants related to profitability,current assets and debt coverage.

In connectionwith the Company’s acquisition of Finetre, Ebix paid Finetre shareholders$13,000,000 for substantially all Finetre stock, and Finetre shareholdersretain the right to earn up to $3,000,000 in additional payments over two yearsif certain revenue and operating income targets earned from Finetre servicesare met. The Company funded theacquisition using available cash on hand of $2,000,000 and $11,000,000 from theCompany’s line of credit.

EffectiveMay 1, 2006, the Company acquired substantially all of the operatingassets of Infinity. The operations of Infinity have been included in theCompany’s financial statements since that date. The Company acquired theseassets for an upfront payment of $2,900,000 in cash and a potential futurepayment not exceeding $4,500,000 in cash if Infinity related services meetcertain future revenue targets. The Company funded the acquisition usingavailable cash on hand.

Inplanning for its capital needs, the Company takes into account its sources ofcash, which include operating cash flow, cash balances and funds from creditfacilities, and anticipated future cash needs, which include working capitalrequirements for operations, capital expenditures, and expenditures forbusiness acquisitions. Presently, the Company expects to renew the line ofcredit when it matures in August 2007 or refinance the amount outstandingwith long term debt. Based on these considerations, the Company believes itwill have sufficient cash from operations and credit facilities to satisfy itscontractual obligations, including contingent payments from prior acquisitions,for at least the next several years. In order for the Company to make futureacquisitions, it may be necessary to raise additional capital, either throughequity or debt transactions.

 
| ** **                                | ** ** | **Payment Due by Period** | ** ** |
|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                                | ** ** | **Total**                                | ** ** | **Less Than  1 Year** | ** ** | **1 - 3 Years** | ** ** | **3 - 5 Years** | ** ** | **More than  5 years** | ** ** |
| ** **                                | ** ** | **(in thousands)**                  | ** ** |
| Contractual  Obligations:                 |       |                                     |       |   |   |   |   |   |   |   |   |
| Short- and Long-Term  Debt Obligations(1) |       | $                                        | 12,151     |   | $ | 11,651 |   | $ | 500 |   | $ | — |   | $ | — |   |
| Operating Leases  Obligations             |       | 3,513                                    |       | 1,236 |   | 1,356 |   | 605 |   | 316 |   |
| Capital Leases  Obligations               |       | 12                                       |       | 4 |   | 7 |   | 1 |   | — |   |
| Total                                     |       | $                                        | 15,676     |   | $ | 12,891 |   | $ | 1,863 |   | $ | 606 |   | $ | 316 |   |

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(1)             Includesinterest at an imputed interest rate of 4% for Heart and LifeLink and at aninterest rate of 6.85% for the line of credit.

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

The Company is subject to certain market risks, includingforeign currency and interest rates. The majority of the Company’soperations are based in the U.S. and, accordingly, the majority of ourtransactions are denominated in U.S. dollars. However, we have foreign-basedoperations where transactions are denominated in foreign currencies and aresubject to market risk with respect to fluctuations in the relative value ofcurrencies. Currently, the Company has operations in Australia, New Zealand,Singapore, Canada and India, and conduct transactions in the local currenciesof each location. There can be no assurance that fluctuations in the value offoreign currencies will not have a material adverse effect on the Company’s 

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business,operating results, revenues or financial condition. For the three months ended March 31, 2007 and 2006 the net change incumulative foreign currency translation adjustment was an unrealized gain of$5,000 and $42,000, respectively. The Company considered the historicaltrends in currency exchange rate and determined that it was reasonably possiblethat adverse changes in exchange rates of 20% for all currencies could beexperienced in the near term. Such adverse changes would have resulted in anadverse impact on income before income taxes of approximately $97,000 and$227,000 for the quarters ended March 31, 2007 and 2006, respectively.

Therehas been no material changes in the Company’s interest rate risk during thethree months ended March 31, 2007. For additional information on interest raterisk, refer to the “Quantitative Disclosures About Market Risk” section ofthe Company’s Annual Report on Form 10-K for the year ended December 31,2006.

**Item 4T.**                  CONTROLSAND PROCEDURES

*Disclosure Controls and Procedures*.*  *The Companymaintains controls and procedures designed to ensure that it is able to collectthe information we are required to disclose in the reports we file with theSecurities and Exchange Commission (“SEC”), and to process, summarize anddisclose this information within the time periods specified in therules of the SEC. Management, with the participation of the ChiefExecutive Officer and Chief Financial Officer, has evaluated our disclosurecontrols and procedures (as such term is defined in Rules 13a-15(e) and15d-15(e) under the Securities and Exchange Act of 1934, as amended(the “Exchange Act”)).

Based on such evaluation, the Chief Executive Officerand Chief Financial Officer have concluded that, as of the end of the fiscalquarter ended March 31, 2007, the Company’s controls and procedures areeffective to ensure that the Company is able to collect, process and disclosethe information it is required to disclose in the report it files with the SECwithin the required time periods.

**Part II — OTHERINFORMATION**

**SafeHarbor for Forward-Looking Statements under the Securities Litigation ReformAct of 1995** — This Quarterly Report on Form 10-Q containsvarious forward-looking statements and information that are based on management’sbeliefs, as well as assumptions made by, and information currently available tomanagement, including statements regarding future economic performance andfinancial condition, liquidity and capital resources, acceptance of the Company’sproducts by the market and management’s plans and objectives. The Company hastried to identify such forward looking statements by use of words such as “expects,”“intends,” “anticipates,” “plans,”  “believes,“will,” “should,” and similar expressions, but these words are not theexclusive means of identifying such statements. The forward looking statementsincluded in this Quarterly Report are subject to various risks, uncertaintiesand other factors which could cause actual results to vary materially fromthose expressed in, or implied by, the forward looking statements. Such risks,uncertainties and other factors include those discussed in “Risk Factors” belowand included in the Company’s Form 10-K for the year ended December 31, 2006.Except as expressly required by the federal securities laws, the Companyundertakes no obligation to update any such factors or to publicly announce theresults of any of the forward-looking statements contained herein to reflectchanged circumstances or future events or developments or for any other reason.

**Item 1A.**                 RISK FACTORS

Therehas been no material changes in the Company’s risk factors during the threemonths ended March 31, 2007. For additional information on risk factors, referto the “Quantitative Disclosures About Market Risk” section of the Company’sAnnual Report on Form 10-K for the year ended December 31, 2006.

**Item 6.          EXHIBITS**

Theexhibits filed herewith or incorporated by reference herein are listed on theExhibit Index attached 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 21,  2007 | By         |  /s/ Carl A.  Serger |
|                |       | Carl A. Serger |
|                |       | Senior Vice President and Chief Financial  Officer (principal financial and accounting officer) |

 

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EXHIBIT INDEX
| EXHIBIT NO. | ** ** | **DESCRIPTION**                                                                                                                                                                                                                                                               |
|-------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                                                                                                                          |
| 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)                                                                                              |
| 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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