** **

**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 September 30, 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 wasrequired to 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 large acceleratedfiler” 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 October 31, 2007,the number of shares of Common Stock outstanding was 3,282,164.

 

 

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**Ebix, Inc. and Subsidiaries**

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2007

INDEX
| PART  I — FINANCIAL INFORMATION |                                                                                                                     |
|--------------------------------------|--------------------------------------------------------------------------------------------------------------------------|
|                                 |                                                                                                                     |   |
|                                 | Item 1. Consolidated Financial Statements                                                                                |   |
|                                 |                                                                                                                     |   |
|                                 | Condensed Consolidated Balance Sheets at September 30,  2007 (unaudited) and December 31, 2006                      |
|                                 |                                                                                                                     |   |
|                                 | Condensed Consolidated Statements of Income for the  Three and Nine Months ended September 30, 2007 and 2006 (unaudited) |
|                                 |                                                                                                                     |   |
|                                 | Condensed Consolidated Statements of Cash Flows for the  Nine Months ended September 30, 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 4. Controls and Procedures                                                                                          |   |
|                                 |                                                                                                                     |   |
| PART  II — OTHER INFORMATION    |                                                                                                                     |
|                                 |                                                                                                                     |   |
|                                 | Item  1. Legal Proceedings                                                                                               |   |
|                                 |                                                                                                                     |   |
|                                 | Item 1A. Risk Factors                                                                                                    |   |
|                                 |                                                                                                                     |   |
|                                 | Item 2. Unregistered Sales of Equity Securities and  Use of Proceeds                                                     |
|                                 |                                                                                                                     |   |
|                                 | Item 3. Defaults Upon Senior Securities                                                                                  |   |
|                                 |                                                                                                                     |   |
|                                 | Item 4. Submission Of Matters To A Vote Of Securities  Holders                                                           |
|                                 |                                                                                                                     |   |
|                                 | Item  5. Other Information                                                                                               |   |
|                                 |                                                                                                                     |   |
|                                 | Item 6. Exhibits                                                                                                         |   |
|                                 |                                                                                                                     |   |
| SIGNATURES                           |                                                                                                                     |   |
|                                      |                                                                                                                          |  |  |  |

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**PART I — FINANCIAL INFORMATION**

**ITEM 1 — CONSOLIDATEDFINANCIAL STATEMENTS**

**Ebix, Inc. and SubsidiariesCondensed Consolidated Balance Sheets**

(In thousands, except for share and per share amounts)
| ** **                                                                                                                               | ** ** | **September 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                               | ** ** | **(Unaudited****)**     | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                               | ** ** | ** **              | ** ** | ** **                  | ** ** |
| **Current  assets:**                                                                                                                     | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Cash and cash  equivalents                                                                                                               |       | $                       | 15,874     |                        | $          | 5,013 |   |
| Accounts  receivable, net of allowance of $505 and $36, respectively                                                                     |       | 9,658                   |       | 7,973                       |       |
| Other current  assets                                                                                                                    |       | 1,028                   |       | 913                         |       |
| **Total current assets**                                                                                                                 |       | 26,560                  |       | 13,899                      |       |
| Property and  equipment, net                                                                                                             |       | 2,201                   |       | 2,183                       |       |
| Goodwill                                                                                                                                 |       | 23,632                  |       | 23,118                      |       |
| Intangible  assets, net                                                                                                                  |       | 6,493                   |       | 7,867                       |       |
| Other assets                                                                                                                             |       | 408                     |       | 285                         |       |
| **Total  assets**                                                                                                                        |       | $                       | 59,294     |                        | $          | 47,352 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                           | ** ** | ** **              | ** ** | ** **                  | ** ** |
| **Current  liabilities:**                                                                                                                | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Accounts payable  and accrued expenses                                                                                                   |       | $                       | 1,792      |                        | $          | 1,854 |   |
| Accrued payroll  and related benefits                                                                                                    |       | 1,286                   |       | 1,549                       |       |
| Short term debt                                                                                                                          |       | —                  |       | 10,000                      |       |
| Current portion  of long term debt and capital lease obligation                                                                          |       | 463                     |       | 1,009                       |       |
| Deferred revenue                                                                                                                         |       | 6,174                   |       | 5,552                       |       |
| Other current  liabilities                                                                                                               |       | 205                     |       | 44                          |       |
| **Total current liabilities**                                                                                                            |       | 9,920                   |       | 20,008                      |       |
| Long term debt  and capital lease obligation, less current portion                                                                       |       | 471                     |       | 943                         |       |
| Deferred rent                                                                                                                            |       | 218                     |       | 235                         |       |
| **Total liabilities**                                                                                                                    |       | 10,609                  |       | 21,186                      |       |
| **Stockholders’  equity:**                                                                                                          | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Convertible  Series D Preferred stock, $.10 par value, 500 shares authorized, no shares  issued and outstanding                          |       | —                  |       | —                      |       |
| Common stock,  $.10 par value, 10,000 shares authorized, 3,291  issued and 2,848 outstanding at September 30, 2007 and December 31, 2006 |       | 325                     |       | 286                         |       |
| Additional  paid-in capital                                                                                                              |       | 108,650                 |       | 94,914                      |       |
| Treasury stock 9  shares repurchased as of September 30, 2007 and December 31, 2006                                                      |       | (149                    | )          | (149                        | )          |
| Accumulated  deficit                                                                                                                     |       | (61,556                 | )          | (69,724                     | )          |
| Accumulated  other comprehensive income                                                                                                  |       | 1,415                   |       | 839                         |       |
| **Total  stockholders’ equity**                                                                                                     |       | 48,685                  |       | 26,166                      |       |
| **Total  liabilities and stockholders’ equity**                                                                                     |       | $                       | 59,294     |                        | $          | 47,352 |   |

See accompanying notes to condensed consolidatedfinancial statements.

 

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**Ebix,Inc. and Subsidiaries****CondensedConsolidated Statements of Income**

(In thousands, except per share data)(Unaudited)
| ** **                                                                                           | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine months Ended  September 30,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                           | ** ** | **2007**                                        | ** ** | **2006**                                  | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                                           | ** ** | ** **                                      | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenue:**                                                                                         | ** ** | ** **                                      | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Professional and  support services and other (including revenues from related parties- See Note  6.) |       | $                                               | 9,466      |                                      | $          | 6,970 |   | $ | 27,602 |   | $ | 18,424 |   |
| Software  licensing                                                                                  |       | 2,340                                           |       | 326                                       |       | 3,038 |   | 1,551 |   |
| **Total revenue**                                                                                    |       | 11,806                                          |       | 7,296                                     |       | 30,640 |   | 19,975 |   |
| **Operating  expenses:**                                                                             | ** ** | ** **                                      | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cost of services  provided                                                                           |       | 1,840                                           |       | 1,480                                     |       | 5,124 |   | 4,170 |   |
| Product  development                                                                                 |       | 2,074                                           |       | 1,297                                     |       | 6,122 |   | 3,265 |   |
| Sales and  marketing                                                                                 |       | 1,099                                           |       | 729                                       |       | 3,129 |   | 1,969 |   |
| General and  administrative                                                                          |       | 2,449                                           |       | 1,531                                     |       | 6,135 |   | 4,892 |   |
| Amortization and  depreciation                                                                       |       | 632                                             |       | 435                                       |       | 1,882 |   | 1,166 |   |
| **Total operating expenses**                                                                         |       | 8,094                                           |       | 5,472                                     |       | 22,392 |   | 15,462 |   |
| **Operating income**                                                                                 |       | 3,712                                           |       | 1,824                                     |       | 8,248 |   | 4,513 |   |
| Interest income,  net of interest expense                                                            |       | 174                                             |       | 30                                        |       | 11 |   | 81 |   |
| Foreign exchange  gain (loss)                                                                        |       | 175                                             |       | (72                                       | )          | 302 |   | 16 |   |
| **Income  before income taxes**                                                                      |       | 4,061                                           |       | 1,782                                     |       | 8,561 |   | 4,610 |   |
| Income tax  expense                                                                                  |       | (368                                            | )          | (123                                      | )          | (393 | ) | (318 | ) |
| **Net  income**                                                                                      |       | $                                               | 3,693      |                                      | $          | 1,659 |   | $ | 8,168 |   | $ | 4,292 |   |
|                                                                                                 |       |                                            |       |                                      |       |   |   |   |   |
| **Basic  earnings per common share**                                                                 |       | $                                               | 1.13       |                                      | $          | 0.60 |   | $ | 2.69 |   | $ | 1.56 |   |
|                                                                                                 |       |                                            |       |                                      |       |   |   |   |   |
| **Diluted  earnings per common share**                                                               |       | $                                               | 1.00       |                                      | $          | 0.53 |   | $ | 2.39 |   | $ | 1.37 |   |
|                                                                                                 |       |                                            |       |                                      |       |   |   |   |   |
| Basic weighted  average shares outstanding                                                           |       | 3,272                                           |       | 2,763                                     |       | 3,033 |   | 2,757 |   |
|                                                                                                 |       |                                            |       |                                      |       |   |   |   |   |
| Diluted weighted  average shares outstanding                                                         |       | 3,680                                           |       | 3,119                                     |       | 3,422 |   | 3,131 |   |

See accompanying notes to condensed consolidatedfinancial statements.

 

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**Ebix, Inc. and Subsidiaries****Condensed Consolidated Statements of Cash Flows**

(In thousands)(Unaudited)
| ** **                                                                                  | ** ** | **Nine months Ended September 30,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                  | ** ** | **2007**                                      | ** ** | **2006** | ** ** |
|                                                                                        |       |                                          |       |   |   |
| **Cash  flows from operating activities:**                                                  | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Net income                                                                                  |       | $                                             | 8,168      |   | $ | 4,292 |   |
| **Adjustments  to reconcile net income to net cash provided by operating activities:** | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Depreciation and  amortization                                                              |       | 1,882                                         |       | 1,166 |   |
| Stock-based  compensation                                                                   |       | 161                                           |       | 65 |   |
| Restricted stock  compensation                                                              |       | 102                                           |       | 112 |   |
| Provision for  doubtful accounts receivable                                                 |       | 469                                           |       | 10 |   |
| **Changes  in assets and liabilities:**                                                     | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Accounts  receivable                                                                        |       | (2,154                                        | )          | (1,510 | ) |
| Other assets                                                                                |       | (238                                          | )          | (248 | ) |
| Accounts payable  and accrued expenses                                                      |       | (62                                           | )          | (943 | ) |
| Accrued payroll  and related benefits                                                       |       | (263                                          | )          | (138 | ) |
| Deferred revenue                                                                            |       | 622                                           |       | (284 | ) |
| Other  liabilities                                                                          |       | 161                                           |       | — |   |
| Net cash provided by operating activities                                                   |       | 8,848                                         |       | 2,522 |   |
| **Cash  flows from investing activities:**                                                  | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Acquisition of  Infinity                                                                    |       | —                                        |       | (3,040 | ) |
| Acquisition of  Finetre                                                                     |       | (15                                           | )          | — |   |
| Deferred rent                                                                               |       | (17                                           | )          | 231 |   |
| Purchases of  property, equipment, and other capital assets                                 |       | (502                                          | )          | (370 | ) |
| Net cash used in investing activities                                                       |       | (534                                          | )          | (3,179 | ) |
| **Cash  flows from financing activities:**                                                  | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Payments of  short term debt                                                                |       | (10,000                                       | )          | — |   |
| Principal  payments under debt obligations                                                  |       | (1,015                                        | )          | (966 | ) |
| Capital leases                                                                              |       | (2                                            | )          | 13 |   |
| Proceeds from  the issuance of common stock, net of issuance costs                          |       | 13,275                                        |       | 322 |   |
| Proceeds from  the exercise of the stock options                                            |       | 237                                           |       | — |   |
| Repurchase of  common stock                                                                 |       | —                                        |       | (148 | ) |
| Net cash (used)/provided in financing activities                                            |       | 2,495                                         |       | (779 | ) |
| Effect of  foreign exchange rates on cash                                                   |       | 52                                            |       | 37 |   |
| Net change in cash and cash equivalents                                                     |       | 10,861                                        |       | (1,399 | ) |
| Cash and cash equivalents at the beginning of the period                                    |       | 5,013                                         |       | 6,733 |   |
| Cash and cash equivalents at the end of the period                                          |       | $                                             | 15,874     |   | $ | 5,334 |   |
|                                                                                        |       |                                          |       |   |   |
| **Supplemental  disclosures of cash flow information:**                                     | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Interest paid                                                                               |       | $                                             | 277        |   | $ | — |   |
| Income taxes  paid                                                                          |       | $                                             | 107        |   | $ | 384 |   |

 

See accompanying notes to condensed consolidated financial statements.

 

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Ebix,Inc. and SubsidiariesNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousandsexcept for share and per share data)(UNAUDITED)

Note 1. BASIS OFPRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

**Basis ofpresentation**—Thesecondensed unaudited consolidated financial statements include the accounts ofEbix, Inc. and its wholly-owned subsidiaries (Ebix or “the Company”) andreflect all adjustments (consisting only of normal recurring adjustments) whichare, in the opinion of management, necessary for a fair presentation of theresults of the interim periods. These condensed consolidated financialstatements should be read in conjunction with the consolidated financialstatements, and accompanying notes thereto, included in the

Company’s AnnualReport on Form 10-K for the year ended December 31, 2006.The results ofoperations for the current interim period are not necessarily indicative ofresults to be expected for the entire current year. Certain prior periodamounts have been reclassified to conform to the current period presentation.

**Summaryof significant accounting policies—**

**RevenueRecognition**—Wederive our revenue primarily from two sources: (1) professional andsupport services, which includes revenue derived from software developmentprojects and associated fees for consulting, implementation, training, andproject management provided to the Company’s customers with installed systems, subscriptionand transaction fees related to services delivered on an application serviceprovider (“ASP”) basis, fees for hosting software, fees for software licensemaintenance and registration, and business process outsourcing revenue, and(2) software revenue, which includes the licensing of proprietary andthird-party software.  As described below,significant management judgments and estimates must be made and used inconnection with the revenue recognized in any accounting period. Materialdifferences may result in the amount and timing of our revenue for any periodif our management made different judgments or utilized different estimates.

The Companyconsiders revenue earned and realizable when (a) persuasive evidence of thesales arrangement exists, provided that the arrangement fee is fixed ordeterminable, (b) delivery or performance has occurred, (c) customer acceptancehas been received, if contractually required, and, (d) collectibility of thearrangement fee is probable.  The Companyuses signed contractual agreements as persuasive evidence of a salesarrangement.

We apply theprovisions of Statement of Position 97-2, “Software Revenue Recognition(SOP 97-2),” as amended by Statement of Position 98-9, “Modificationof SOP 97-2, Software Revenue Recognition, With Respect to CertainTransactions, (SOP 98-9)” to all transactions involving the license of softwarewhere the software deliverables are considered more than inconsequential to theother elements in the arrangement. For contracts that contain multipledeliverables, we analyze the revenue arrangements in accordance with EmergingIssues Task Force Issue No. 00-21, “Revenue Arrangements withMultiple Deliverables” (EITF 00-21), which provides criteriagoverning how to determine  whether goodsor services that are delivered separately in a bundled sales arrangement shouldbe considered as separate units of accounting for the purpose of revenuerecognition, Deliverables are accounted for separately if they meet all of thefollowing criteria: a) the delivered items has value to the customer on astand-alone basis; b) there is objective and reliable evidence ofthe fair value of the undelivered items; and c) if the arrangementincludes a general right of return relative to the delivered items, thedelivery or performance of the undelivered items is probable and substantiallycontrolled by the seller. To the extent arrangements contain multipledeliverables, the Company performs an analysis of the nature of thedeliverables to determine to what extent the deliverables of the arrangementare governed by any “higher level literature” (as defined in EITF 00-21).EITF 00-21 recognizes arrangements that qualify for treatment underSOP 97-2 and certain arrangements that qualify for contractaccounting (i.e. SOP 81-1) as falling under the definition of higherlevel literature.

In regards toarrangements containing multiple performance elements, revenue recognition ondelivered elements is predicated upon the establishment of vendor-specificobjective evidence (VSOE) of the fair value for the undelivered elements andapplying the residual method of SOP 98-9 if necessary. Fair value isdetermined for each undelivered element based on the price the Company chargeswhen the item is sold separately.

 

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The Company fullyrecognizes revenue from license fees for its software products upon deliveryand the customers acceptance of the software implementation and customizationsif applicable.  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 recognized upondelivery together with the Company’s licensed software products. Training, dataconversion, installation, and consulting services fees are recognized asrevenue when the services are performed. Revenue for maintenance and support services is recognized ratably overthe term of the support agreement.

In contracts thatcontain first year maintenance bundled with software fees, unbundling ofmaintenance is based on the price charged for renewal maintenance. Revenue formaintenance and support service is recognized ratably over the term of thesupport agreement.  Revenues derived frominitial setup or registration fees are recognized ratably over the term of theagreement in accordance with SEC Staff Accounting Bulletin (“SAB”) 104, “RevenueRecognition.”

ASP transactionservices fee revenue is recognized as the transactions occur and generallybilled in arrears.   Service fees forhosting arrangements are recognized over the requisite service period. Deferredrevenue includes maintenance and support payments or billings that have beenreceived or recorded prior to performance and, in certain cases, cashcollections; initial setup or registration fees under hosting agreements; andamounts received under multi-element arrangements in which the VSOE forthe undelivered elements does not exist. In these instances revenue isrecognized when the VSOE for the undelivered elements is established or whenall contractual elements have been completed and delivered.

Softwaredevelopment arrangements involving significant customization, modification orproduction are accounted for in accordance with Statement of Position 81-1,“Accounting for Performance on Construction-Type and Certain Production-TypeContracts, (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,

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.

**Allowance for doubtfulaccounts receivable****—**Management specifically analyzesaccounts receivable and historical bad debts, write-offs, customerconcentrations, customer credit-worthiness, current economic trends andchanges in our customer payment terms when evaluating the adequacy of theallowance for doubtful accounts. Bad debt expense was $447 and $1 during thethree months ended September 30, 2007 and 2006, and $477 and $10 during thenine months ended September 30, 2007 and 2006 respectively. The Companyrecorded a $420 increase to the allowance for doubtful accounts receivableduring the third quarter of 2007 to address two dated invoices issued to onecustomer.

**Software DevelopmentCosts****—The** Company’s policy is tocapitalize internally generated software development costs and purchasedsoftware in compliance with Statement Financial Accounting Standards (“SFAS”)No. 86, “Accounting for the Costs of Computer Software to Be Sold, Leasedor Otherwise Marketed.” Under SFAS No. 86, capitalization of softwaredevelopment costs begins upon the establishment of technological feasibility ofthe product and continues through the point of general release of the product.The ongoing assessment of the recoverability of these costs takes intoconsideration future expected net cash flows to be derived from the softwareand external factors such as business trends, marketing prospects, and generaleconomic conditions.

**Goodwilland Other Intangible Assets—**The Company applies the provisions of FinancialAccounting Statement No. 142 “Goodwill and Other Intangible Assets (SFAS 142)”which addresses how goodwill and other acquired intangible assets should beaccounted for in financial statements. In this regard we test these intangible assets for impairment annuallyor more frequently if indicators of potential impairment are present.  The testing involves comparing the reportingunit and asset carrying values to their respective fair values; we determinefair value by using the present value of future estimated net cash flows.

**Income Taxes****—The** Company follows the asset and liabilitymethod of accounting for income taxes pursuant to Financial AccountingStatement  No. 109, “Accounting forIncome Taxes (SFAS 109)”.  Deferredincome taxes are recorded to reflect the tax consequences on future years ofdifferences between the tax basis of assets and liabilities, and operating lossand tax credit carryforwards and their financial reporting amounts at eachperiod end using enacted tax rates expected to apply to taxable income in theyears in which those temporary differences are expected to be recovered orsettled. In assessing the realizability of the deferred tax assets, managementconsiders whether

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it is more likelythan not that some portion or all of the deferred tax assets will not berealized. A valuation allowance is recorded for the portion of the deferred taxassets that are not expected to be realized based on the levels of historicaltaxable income and projections for future taxable income over the periods inwhich the temporary differences will be deductible.

Effective January of 2007 the Company adopted the Financial AccountingInterpretation 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 to berealized upon final settlement.  As used in FIN 48, the term “more likelythan not” is means that the likelihood of an occurrence is greater than 50%.

**Foreign CurrencyTranslation****—The** functional currency of theCompany’s foreign subsidiaries is the local currency of the country in whichthe subsidiary operates. The assets and liabilities of foreign subsidiaries aretranslated into U.S. Dollars at the rates of exchange at the balance sheetdates. Income and expense accounts are translated at the average exchange ratesin effect during the period. Gains and losses resulting from translationadjustments are included as a component of other comprehensive income in theaccompanying consolidated financial statements. Foreign exchange transactiongains and losses that are derived from transactions denominated in other thanthe subsidiary’s’ functional currency is included in the determination of netincome.

 

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**Newaccounting pronouncements—**

EffectiveJanuary 1, 2006, the Company adopted Statement of Financial AccountingStandards No. 123 (“SFAS 123”) (revised 2004), “Share Based Payment [“SFAS123(R)”], applying the modified prospective method. Prior to the adoption ofSFAS 123(R), the Company applied the provisions of APB OpinionNo. 25, “Accounting for Stock Issued to Employees,” in accounting for itsstock-based awards, and accordingly, recognized no compensation cost for itsstock plans other than for its restricted stock awards. Under the modified prospective method, SFAS 123(R) appliesto new awards and to awards that were outstanding as of December 31, 2005that are subsequently vested, modified, repurchased or cancelled. Compensationexpense recognized during 2007 and 2006 includes the portion vesting during theperiod for (1) all share-based payments granted prior to, but not yetvested as of December 31, 2005, based on the grant date fair valueestimated in accordance with SFAS 123 and (2) all share-based paymentsgranted subsequent to December 31, 2005, based on the grant-date fairvalue estimated using the Black-Scholes option-pricing model. As a result ofthe Company’s decision to adopt the modified prospective method, prior periodresults have not been restated

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.  The Company adopted FIN 48 as ofJanuary 1, 2007 as required.  There was no cumulative adjustment to beginningretained earnings related to the 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 theassumptions that market participants would use when pricing an asset orliability. Additionally, it establishes a fair value hierarchy that prioritizesthe information used to develop those assumptions.  SFAS 157 is effectivefor financial 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.

EffectiveJanuary 1, 2006, the Company adopted Statement of Financial AccountingStandards No. 123 (“SFAS 123”) (revised 2004), “Share Based Payment [“SFAS123(R)”], applying the modified prospective method. Prior to the adoption ofSFAS 123(R), the Company applied the provisions of APB OpinionNo. 25, “Accounting for Stock Issued to Employees,” in accounting for itsstock-based awards, and accordingly, recognized no compensation cost for itsstock plans other than for its restricted stock awards. Under the modified prospective method, SFAS 123(R) appliesto new awards and to awards that were outstanding as of December 31, 2005that are subsequently vested, modified, repurchased or cancelled. Compensationexpense recognized during 2007 and 2006 includes the portion vesting during theperiod for (1) all share-based payments granted prior to, but not yetvested as of December 31, 2005, based on the grant date fair valueestimated in accordance with SFAS 123 and (2) all share-based paymentsgranted subsequent to December 31, 2005, based on the grant-date fair valueestimated using the Black-Scholes option-pricing model. As a result of theCompany’s decision to adopt the modified prospective method, prior periodresults have not been restated.

Note 2. SHAREBASED COMPENSATION

At September 30,2007, the Company has two share-based compensation plans.

**StockOptions—**

No stock optionswere granted to employees during the three quarters of 2007 or 2006; however,options were granted to Directors during the first quarter of 2006. Stockcompensation expense of $40 and $16 was recognized during the quarter endedSeptember 30, 2007 and 2006 and $133 and $48 was recognized during thenine-months ended September 30, 2007 and 2006 on existing stock optionsoutstanding and unvested options.

A summary of stock optionactivity within the Company’s stock-based compensation plans for the quarterended September 30, 2007 is as follows:

 

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| ** **                             | ** ** | ** **            | ** ** | ** **    | ** ** | ** **  | ** ** | ** **      | ** ** | **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 |   |
|                                   |       |                  |       |          |       |        |       |            |       |          |       |          |       |
| Moved to within  Plan                  |       | 125                   |       | (125          | )          |        |       |            |       |          |       |          |       |
| Granted                                |       | —                |       | —        |       | —      |       | $               | —     |          | —     |          | —     |   |
| Exercised                              |       | (4,176                | )          | —        |       | —      |       | $               | 8.25       |          | —     |          | —     |   |
| Canceled                               |       | (38                   | )          | —        |       | —      |       | $               | 42.50      |          | —     |          | —     |   |
| Outstanding at  June 30, 2007          |       | 518,958               |       | 47,781        |       | 3,750       |       | $               | 12.44      |          | 4.89       |          | $          | 15,835 |   |
|                                   |       |                  |       |          |       |        |       |            |       |          |       |          |       |
| Granted                                |       | 0                     |       | —        |       | —      |       | $               | —     |          | —     |          | —     |   |
| Exercised                              |       | (19,935               | )          | —        |       | (1,875      | )          | $               | 9.55       |          | —     |          | —     |   |
| Canceled                               |       | (63                   | )          | —        |       | —      |       | $               | 6.50       |          | —     |          | —     |   |
| Outstanding at  September 30, 2007     |       | 498,960               |       | 47,781        |       | 1,875       |       | $               | 12.48      |          | 4.66       |          | $          | 20,393 |   |
| Exercisable at  September 30, 2007     |       | 497,525               |       | 33,370        |       | 1,562       |       | $               | 11.33      |          | 4.66       |          | $          | 20,404 |   |

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(*) The aggregate intrinsic value for stockoptions outstanding and exercisable is defined as the difference between themarket value of the Company’s stock as of the end of the period and theexercise price of the stock options.

The outstandingoptions in the table above include 25,000 options to purchase the Company’scommon stock which were granted to Rahul Raina, the brother of the ChiefExecutive Officer, in connection with his employment with the Company. Theseoptions had originally been granted with an exercise price below market.  In December 2006 these options were amendedand the exercise price was increased from $2.85 per share to $6.70 per share,which is equal to the fair market value of the common stock underlying thestock options at the original grant date. This option grant was valued usingthe Black-Scholes option-pricing model. The Company recognized compensationexpense of approximately $6 and $6 related to these options during the threemonths ended September 30, 2007 and 2006 and $27 and $18 related to theseoptions during the nine-month periods ended September 30, 2007 and 2006,respectively.

The Company hasgranted non-employee non-statutory and incentive options outside the Company’sstock option plans to purchase up to an aggregate of  57,000 shares of the Company’s common stock,of which options to purchase 1,875 shares were outstanding at September30, 2007. These options were granted at prices determined by the Board ofDirectors. The majority of these options are performance-based awards,with no service commitment and subject to vesting only if the Company’s stockprice reaches a certain target. At September 30, 2007, 1,562 of these non-employeeoptions were vested.

The Company had 15,144 ofstock options that were not vested at September 30, 2007 that were expensed in1999. Additionally, the Company has 1,562 of unvested stock options that hadbeen issued to Rahul Raina. At September 30, 2007 no ,compensation cost relatedto total nonvested stock options.

The outstanding optionsin the table above include 59,500 incentive stock options to purchase shares ofthe Company’s common stock for which vesting is contingent upon increases inthe Company’s stock price and other performance based measures, such asachieving specified revenues for new products. For these options, vestinggenerally occurs when the Company’s stock price equals $72.00, $96.00, $120.00and $160.00 per share. The exercise price of each option, which has a ten-yearlife, is equal to the market price of the Company’s stock on the date of grant.There was no compensation expense related to these options for the quarters ornine-month periods ended September 30, 2007 and 2006.

**RestrictedStock—**

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, the Company’sChairman, Chief Executive Officer and President.  The award was made 

 

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pursuant to the 2006 incentivecompensation program (the “2006 Program”) approved by the Company’s Board ofDirectors.  In accordance with the 2006 Program, the number of shares ofrestricted stock issued to Mr. Raina represents approximately 23% of theaggregate of the his total salary and cash bonus compensation earned for 2006,divided by the market price of the Company’s stock on May 9, 2007, the date theCompensation Committee of the Board of Directors approved the restricted stockgrant. The Company recognized compensation expense of approximately $21 and $35related to these shares during the quarter and nine-month period endedSeptember 30, 2007.

During 2006, theCompensation Committee of the Board of Directors of the Company gave finalapproval to awards of 8,354 shares of restricted stock to Robin Raina, theCompany’s Chairman, Chief Executive Officer and President, and2,506 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.  Thenumber of shares of restricted stock issued to each of Messrs. Raina andBaum represents 15% of the aggregate of the total salary and cash bonuscompensation earned by each for 2005. The Company recognized compensation expense of approximately $14 foreach of the quarters and $41 and $86 for the nine-month periods ended September30, 2007 and 2006, respectively.

During June 2005,the Compensation 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 number of shares of restricted stock awardedto each of Messrs. Raina and Baum were subject to a determination by theCompensation Committee and the Board, after the Company’s release of its 2004operating results, that such operating results were substantially consistentwith the operating results of the Company for the first nine months of 2004, asthey compared to those for the same period of the prior year

Also during June 2005,the Compensation Committee of the Board of Directors of the Company gave finalapproval to awards of restricted stock were issued to Robin Raina the Company’sChairman, Chief Executive Officer and President and , to Richard J. Baum,the Company’s then Executive Vice President, Chief Financial Officer andSecretary. The number of shares issued to each Messrs. Raina and Baumrepresents 10% of the aggregate of the total salary and cash bonus compensationearned by each for 2004.  The Companyrecognized compensation expense of approximately $8 for each of the quartersand $25 for the nine-month periods ended September 30, 2007 and 2006.

Pursuant to theserestricted 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 or Retirement, , theCompany’s termination of the officer other than for Cause or a Change inControl of the Company. Mr. Baum’s restricted stock fully vested upon hisretirement effective December 31, 2006.

Note 3. 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 and nine months ended September 30, 2007was 3,272 and 3,033, respectively. The weighted average number of sharesoutstanding for the three and nine months ended September 30, 2006 was 2,763and 2,757 respectively. Diluted EPS is calculated as if the Company hadadditional common stock outstanding from the beginning of the year or the dateof grant for all common stock equivalents, net of assumed repurchased sharesusing the treasury stock method, and is equal to net income divided by thecombined sum of the weighted average number of shares outstanding and commonstock equivalents. The Company’s common stock equivalents consist of restrictedstock and stock options.  For the threeand nine months ended September 30, 2007 and 2006,common stock equivalentsincreased weighted average number of shares outstanding of by 408 and 390,respectively, resulting in a total of fully diluted weighted average number ofshares outstanding of 3,680 and 3,422, respectively.  For the three and nine months ended  September 30, 2006, the fully dilutedweighted average number of shares outstanding was 3,119 and 3,131 respectively.At September 30, 2007, there were 203 shares potentially issuable with respectto stock options, which could dilute EPS in the future but which were excludedfrom the diluted EPS calculation because their effect was antidilutive. AtSeptember 30, 2006, there were 283 shares potentially issuable with respect tostock options, which could dilute EPS in the future but which were excludedfrom the diluted EPS calculation because their current effect was antidilutive.

 

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Note 4.COMPREHENSIVE INCOME
| ** **                                                                       | ** ** | **Three Months Ended September 30,** | ** ** | **Nine months Ended September 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                       | ** ** | **2007**                                            | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                             |       |                                                |       |                                          |       |   |   |   |   |
| Net income                                                                       |       | $3,693                                              |       | $1,659                                        |       | $30,081 |   | $4,292 |   |
| Other  comprehensive income (loss)— foreign currency translation adjustment |       | (256                                                | )          | $572                                          |       | 576 |   | $229 |   |
| Comprehensive  income                                                            |       | $3,437                                              |       | $2,231                                        |       | $30,657 |   | $4,521 |   |

Note 5. RELATED PARTY TRANSACTIONS

830,163 shares ofthe Company’s common stock, representing an approximate equity ownership of25%, is held by Brit Insurance Holdings PLC and its affiliates (“Brit”).  Brit is also customer and has entered intovarious software and service agreements with the Company.  During the three and nine months endedSeptember 30, 2007 $383 and $ 1,366 , respectively, was recognized as revenuefrom Brit which represented 3% and 4% of the Company’s total revenues for theseperiods.  During the three and ninemonths ended September 30, 2006 $702 and $1,415 respectively, was recognized asrevenue from Brit which represented 10% and 11% of the Company’s total revenuesfor these periods.  Total accountsreceivable from Brit at September 30, 2007 and December 31, 2006 were $1,054and $1,039 respectively and represented 11% and 13% of the Company’s totalreceivables at these dates.

NOTE 6 SIGNIFICANTCUSTOMER

We currentlyconsider HCC Services Company and The Princeton Insurance Company to besignificant customers. During the three and nine months ended September 30,2007, $1,062 and $1,219 respectively was recognized as revenue from HCCServices Company which represented 9% and 4% of our total revenue for theseperiods. During the three and nine months ended September 30, 2007, $1,441 and$1,768 respectively was recognized as revenue from the Princeton InsuranceCompany which represented 12% and 6% of our total revenue for these periods.Total accounts receivable from HCC Services Company and The Princeton InsuranceCompany at September 30, 2007 was $396 and $558 respectively. In 2006 we hadconsidered AON to be a significant customer. During the three and nine months ended September 30, 2006, $712 and$1,208, respectively, was recognized as revenue from AON which represented 10%and 9% of the Company’s total revenues for these periods. Total accountsreceivable from AON Insurance Company at September 30, 2006 was $462.

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.  The Companyincurred approximately $380 of direct expenses related to closing the Finetreacquisition. The Company funded the acquisition using available cash on hand of$2,000 and its $11,000 line of credit. The acquisition of Finetre was consistent with the Company’s overallfocus of providing software solutions to insurance carriers, agents andbrokers. This acquisition increased the Company’s consolidated revenue whileproviding complementary sales opportunities for the Company’s other existingservices.  Revenues attributable toFinetre for the three and nine months ending September 30, 2007 were $2,334 and$6,645 respectively.*

Concurrentwith the acquisition, the Company ascribed a value to each of the assets and liabilities acquired. The followingtable summarizes the fair value of the assets acquired and liabilities assumedat 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 9 years, $896 was assigned to developed technologywith a remaining useful life of 5 years, $140 was assigned to backlog with aremaining estimated useful life of 14 months and $9 assigned to in-processresearch and development “IPR&D” which was expensed immediately. TheCompany recorded $139 and $417 of amortization expense related to theseintangible assets for the three and nine months ended September 30, 2007,respectively.  There was no amortizationexpense related to these intangibles for the three and nine months endedSeptember 30, 2006 as the acquisition was consummated in October 2006.

 

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*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. ** **As of September 30, 2007 no additionalpayments have been made.  TheCompany capitalized approximately $149 of transaction costs in conjunction withthe Infinity acquisition.  Theacquisition of Infinity was consistent with the Company’s overall focus onproviding software solutions to insurance carriers, agents and brokers. Thisacquisition increased the Company’s consolidated revenue while providingcomplementary sales opportunities for the Company’s other existingservices.  Revenues attributable toInfinity for the three and nine months ending September 30, 2007 were $3,097and $5,655 respectively.  Revenuesattributable to Infinity three and nine months ending September 30, 2006 were$1,085 and $1,823, respectively.

Concurrent with theacquisition, the Company ascribed a value to each of the assets and liabilities assumed from the acquisition ofInfinity. The following table summarizes the fair value of the Infinity assetsacquired and liabilities assumed 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 10years, $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 10 years.  The Company recorded $98 and $294 ofamortization expense related to these intangible assets for the three and ninemonths ended September 30, 2007, respectively and $98 and $163  of amortization expense related to theseintangibleassets for the three and nine months ended September 30, 2006.

Note 8—PRO FORMAFINANCIALS related to recent acquisitions

The followingunaudited pro forma financial information for the three and nine months endedSeptember 30, 2007 and 2006 presents the consolidated operations of the Companyas if the Finetre and Infinity acquisitions had been made on January 1,2006, after giving effect to certain adjustments for the pro forma acquisitionas of the acquisition date. The Company made adjustments primarily for theamortization of intangible assets and interest expense related to theacquisitions. The unaudited pro forma financial information is provided forinformational purposes only and does not project the Company’s results ofoperations for any future period:
| ** **                  | ** ** | **Three Months  Ended  September 30, 2007** | ** ** | **Three Months  Ended  September 30, 2006** | ** ** | **Nine months  Ended  September 30, 2007** | ** ** | **Nine months  Ended  September 30, 2006** | ** ** |
|-----------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                  | ** ** | ** **                                            | ** ** | ** **                                            | ** ** | ** **                                      | ** ** | ** **                                      | ** ** |
| Revenue                     |       | $                                                     | 11,806     |                                                  | $          | 8,675                                           |       | $                                               | 30,640     |   | $ | 25,761 |   |
| Net income                  |       | $                                                     | 3,693      |                                                  | $          | 1,045                                           |       | $                                               | 8,168      |   | $ | 2,647 |   |
| Basic earnings  per share   |       | $                                                     | 1.13       |                                                  | $          | .38                                             |       | $                                               | 2.69       |   | $ | .96 |   |
| Diluted earnings  per share |       | $                                                     | 1.00       |                                                  | $          | .34                                             |       | $                                               | 2.39       |   | $ | .85 |   |

 

Note 9—LINE OF CREDIT AND OTHER COMMITMENTS

**Bank Line of Credit:**

TheCompany maintains a revolving line of credit facility with LaSalle Bank N.A.During 2006, the line of credit was increased from $5,000 to $12,000. The lineprovides for a variable interest rate equal to LIBOR + 1.50% and is secured bya first security interest in substantially all of the Company’s assets. Thecompany paid $21 to refinance this note in 2006 and expensed the entire amountin 2006. During 2006 in connection with the Finetre acquisition, the Company borrowed$11,000 on the line of credit, all of 

 

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whichhas since been repaid. At September 30, 2007, the balance of the line of creditwas $0. The line of credit matured on August 31, 2007.  InSeptember 2007 the maturity date on this note was extended for one year and nowexpires on August 31, 2008. As part of the extension the line was increased to$15,000 and the interest rate decreased to LIBOR + 1.30. The companypaid no fees in 2007 in relation to the extension of the note. The currentinterest rate on this line is approx 6.51%.  The line of credit containscertain financial covenants related to profitability, current assets and debtcoverage, to which the Company is in compliance.

Lettersof 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). The three letters of creditexpired on July 31, 2005, July 31, 2006 and July 31, 2007,respectively. In July 2007 the Company made the final $512 installment paymentdue.

Under terms of the leaseagreement for office space in Herndon, Virginia, the Company is required tomaintain a stand-by letter credit in the amount $150. The requirement for thisletter 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 September 30, 2007, the maximum aggregateliability calculated was $933 for the current annual contract period, whichends in September 2007.**

**Note 10—LONG-TERM DEBT**

The following table summarizes the Company outstanding long-term debtand related maturities as of September 30, 2007:

 
| ** ** | ** ** | **Year Ended December 31,** | ** ** |
|------------|------------|--------------------------------------------|------------|
| ** ** | ** ** | **2007**                                   | ** ** | **2008** | ** ** | **2009** | ** ** | **Total** | ** ** |
| EbixLife   |       | $                                          | —     |   | $ | 500 |   | $ | 465 |   | $ | 965 |   |
|       |       |                                       |       |   |   |   |   |   |   |   |
|            |            |                                            |            |  |  |  |  |  |  |  |  |  |  |

** **

The EbixLife debt is aresult of the EbixLife acquisition in 2004 and represents a $2,500 non-interestbearing note payable. The note is payable in annual installments of $500 overfive years. The Company has imputed interest on this debt of 4%, and has madeinstallment payments in February 2005, 2006 and 2007.

 

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 the company does not have topurchase this entire amount.

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 for the nine months ended September 30, 2007.

 

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**Note 12—UNREGISTERED SALE OF EQUITY SECURITIES**

On June 1, 2007, Ebix, Inc. (“Ebix” or the “Company”) entered into ashare purchase agreement (the “Share Purchase Agreement”)  to sell 400,000 shares (the “Shares”) of unregisteredcommon stock at $33.25 per share to Luxor Capital Partners, LP, a Delawarelimited partnership, and Luxor Capital Partners Offshore, Ltd., a CaymanIslands exempted company.  The purchaseprice represented a premium to the 30-day average closing price of Ebix commonstock 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 $5,440 in cash andLuxor Capital Partners Offshore, Ltd. acquired 236,400 shares of the Company’scommon stock in exchange for $7,860 in cash, for an aggregate 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.

 

Pursuant to the Share Purchase Agreement, Ebix must, among otherthings: (1) prepare and file with the Securities and Exchange Commission (the “SEC”)a registration statement registering the Shares as soon as practicable, but inno event later than the 45th day following the closing date of thesale of the Shares; (2) use its reasonable best efforts to cause the SEC tonotify the Company of the SEC’s willingness to declare the registrationstatement effective on or before  120days after the closing date of the sale of the Shares; (3) cause the Shares tobe duly listed for trading on the Nasdaq Global Market concurrently with theeffectiveness of the registration statement; and (4) take such action that isnecessary to keep the registration statement effective until the earlier of (a)the date on which the Shares may be resold without registration and withoutregard to any volume limitations under Rule 144(k), (b) all of the Shares havebeen sold pursuant to the registration statement or Rule 144, or (c) the secondanniversary of the closing date of the sale of the Shares. During the thirdquarter of 2007while the company was clearing comments received from theSecurities and Exchange Commission the S-1 the purchaser requested that anadditional 100,000 shares purchased be included in this filing.  The company expects to file an amended S-1Awith the SEC in early November 2007**.** In addition,in the event the SEC requires the Company to identify Luxor Capital Partners LPand Luxor Capital Partners Offshore, Ltd. as underwriters in the registrationstatement, the Company must cooperate to allow Luxor Capital Partners LP andLuxor Capital Partners Offshore, Ltd. to conduct customary underwriter’s duediligence with respect to the Company. The Company will bear all expenses related to the registration of theShares.  The Share Purchase Agreementincludes standard cross- indemnification provisions

 

The Company sold the unregistered securities in accordance with Rule506 of Regulation D under the Securities Act of 1933, as amended.  There were two purchasers involved in thesale and both are “accredited investors”, as such term is defined in Rule 501of Regulation D.

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**Item2.**                          MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

**Safe Harbor for Forward-Looking Statements underthe Securities Litigation Reform Act of 1995** — This QuarterlyReport on Form 10-Q contains various forward-looking statements and informationthat are based on management’s beliefs, as well as assumptions made by, andinformation currently available to management, including statements regardingfuture economic performance and financial condition, liquidity and capitalresources, acceptance of the Company’s products by the market and management’splans and objectives. The Company has tried to identify such forward lookingstatements by use of words such as “expects,” “intends,” “anticipates,” “plans,”  “believes, “will,” “should,” and similarexpressions, but these words are not the exclusive means of identifying suchstatements. The forward looking statements included in this Quarterly Reportare subject to various risks, uncertainties and other factors which could causeactual results to vary materially from those expressed in, or implied by, theforward looking statements. Such risks, uncertainties and other factors includethose discussed in “Risk Factors” below and included in the Company’s Form 10-Kfor the year ended December 31, 2006. Except as expressly required by thefederal securities laws, the Company undertakes no obligation to update anysuch factors or to publicly announce the results of any of the forward-lookingstatements contained herein to reflect changed circumstances or future eventsor developments or for any other reason.

The followinginformation should be read in conjunction with the unaudited condensedconsolidated financial statements and the notes thereto included in Part 1.Item 1 of this Quarterly Report, and the audited consolidated financialstatements and notes thereto and Management’s Discussion and Analysis ofFinancial Condition and Results of Operations contained in the Company’s AnnualReport on Form 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.

Management focuses on avariety of key business indicators to monitor operating and financialperformance. These indicators include measurements of revenue growth, operatingincome, operating margin, income from continuing operations, diluted earningsper share, and cash flow 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 keyperformance indicators for the three and nine months ended September 30,2007 and 2006 were as follows:
| ** **                           | ** ** | **Key Performance Indicators**                       | ** ** |
|--------------------------------------|------------|------------------------------------------------------|------------|
| ** **                           | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
| ** **                           | ** ** | **2007**                                             | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                           | ** ** | **(In thousands, except per share data)**            | ** ** |
| Operating  revenue                   | ** ** | **$**                                                | 11,806     |   | 7,296 |   | 30,640 |   | 19,975 |   |
| Revenue growth                       |       | 62                                                   | %          | 4 | % | 53 | % | 11 | % |
| Operating income                     | ** ** | **$**                                                | 3,712      |   | 1,824 |   | 8,248 |   | 4,513 |   |
| Operating margin                     |       | 31                                                   | %          | 23 | % | 27 | % | 21 | % |
| Net income                           | ** ** | **$**                                                | 3,693      |   | 1,659 |   | 8,168 |   | 4,292 |   |
| Diluted earnings  per share          | ** ** | **$**                                                | 1.00       |   | .53 |   | 2.39 |   | 1.37 |   |
| Cash flow from operating  activities | ** ** | **$**                                                | 5,041      |   | 958 |   | 8,847 |   | 2,522 |   |

 

**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, goodwill and other intangible assets, and the accountingfor income taxes. For a discussion of these policies, see “Management’sDiscussion and Analysis of Financial Condition and Results of Operations —Critical Accounting Policies” in the Company’s Annual Report on Form 10-K forthe year ended December 31, 2006.

 

 

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**RecentAccounting Pronouncements**

The following arerecently issued accounting pronouncements that are pertinent to the Company’sbusiness:

•                  In June2006, the Financial Accounting Standards Board (“FASB”) issued InterpretationNo. 48, *Accounting for Uncertainty in IncomeTaxes* (“FIN 48”).  FIN 48 clarifies the accounting foruncertainty in income taxes by prescribing the minimum recognition threshold atax position is required to meet before being recognized in the financialstatements

•                  InSeptember 2006, the FASB issued SFAS No. 157, *Fair Value Measurements* (“SFAS 157”). This standardclarifies the principle that fair value should be based on the assumptions thatmarket participants would use when pricing an asset or liability.

•                  InFebruary 2007, the FASB issued SFAS No. 159, *TheFair Value Option for Financial Assets and Financial Liabilities -Including an Amendment of FASB Statement No. 115*(“SFAS 159”).SFAS 159 permits entities to choose to measure many financial assets andfinancial liabilities at fair value. Unrealized gains and losses on items forwhich the fair value option has been elected are reported in earnings

•                  In December 2004, the FASB issued SFAS No. 123R, “Share-BasedPayment” (“SFAS No. 123R”). SFAS No. 123R replacesSFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”)and supersedes Accounting Principles Board (“APB”) No. 25, “Accounting forStock Issued to Employees” (“APB No. 25”). SFAS No. 123Rrequires that the cost relating to share-based payment transactions in which anentity exchanges its equity instruments for goods or services from eitheremployees or non-employees be recognized in the financial statements as thegoods are received or services are rendered.

**Resultsof Operations**

**Three-MonthPeriod Ended September 30, 2007 Compared to the Three-Month Period EndedSeptember 30, 2006**

**TotalRevenue** — TheCompany’s revenue is primarily derived from professional and support services (“servicesrevenue”), including consulting, implementation, training and projectmanagement provided to the Company’s customers with installed systems and thosein the process of installing systems. In addition, professional and supportservices include fees for software license maintenance, application serviceprovider (“ASP”) services, hosting and other miscellaneous revenues.  Revenues are derived from the the licensingof proprietary and third party software (“software revenue”). Total revenue forthe quarter ended September 30, 2007 increased $4,510, or 62%, to $11,806 from$7,296 for the comparable quarter of the prior year.

**ServicesRevenue** — Totalservices revenue for the third quarter of 2007 increased $2,496, or 36%, to$9,466 from $6,970 for the comparable quarter of the prior year. This increasewas primarily due to the acquisition of Finetre which accounted for $2,334  or 25% of the company’s service revenue forthe quarter.

During the thirdquarter of 2007 and 2006, approximately $383 and $1,062 respectively wasrecognized as services revenue from Brit Insurance Holdings PLC (“Brit”) andits affiliates. The amounts represented 3% and 15%, of the Company’s totalrevenues for the third quarters of 2007 and 2006, respectively. Brit ownedapproximately 25% of the Company’s common stock as of September 30, 2007.Neither Brit nor its affiliates have long-term agreements with the Company thatprovide certainty that such revenues will be recurring.

**SoftwareRevenue** — Totalsoftware revenue for the third quarter of 2007 increased $2,014, or 618%, to$2,340 from $326 for the comparable quarter of the prior year. This increase isrelated to two new contracts signed by the Infinity Division this quarter.These contracts involve the sale of source code, software licenses, andcustomization and implementation services that were delivered or will bedelivered over the current and subsequent seven quarters.

**Costs ofservices provided**—Cost of services provided includes costs associated with support, call center,consulting, implementation and training services. These costs for the thirdquarter increased $360, or 24%, to $1,840 from $1,480 for the comparablequarter of the prior year. This increase was due primarily to an increase inpayroll expenses of $142 and facility costs of $112 primarily related to theacquisition of Finetre, and $95 of additional service costs incurred to supportthe Company’s products.

**ProductDevelopment Expenses**— Product development expenses include payroll expenses and facilitiescosts for the development and product management departments.  Total product development expenses for thethird quarter of 2007 increased $777, or 59%, to 

 

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$2,074 from $1,297for the comparable quarter of the prior year. This increase was due to anincrease in domestic payroll expenses of $496 and facility costs of $206primarily due to the acquisitions of Finetre and Infinity.

**Sales andMarketing Expenses**— Total sales and marketing expenses for the third quarter of 2007 increased$369, or 50%, to $1,099 from $730 for the comparable quarter of the prior year.This increase was attributable to an increase in payroll expenses and employeerelated costs of $311, and an increase in facility costs of $60 primarily dueto the acquisitions of Finetre and Infinity

**Generaland Administrative Expenses** — Total general and administrative expenses for thethird quarter increased $918, or 60%, to $2,410 from $1,530 for the comparablequarter of the prior year. The increase is primarily due to additional payrollcosts of $568 caused by the Finetre acquisition, increased internationalheadcount, and higher health insurance expenses. The Company also experiencedincreases in rent of $113 primarily related to Finetre acquisition, additionaltravel and related costs of $102, and increases in professional fees for auditand legal services fees of $54. Partially offsetting these costs increases was an overall decrease infacility costs of $377.Additionally the company recorded a $420 increase to theallowance of doubtful accounts receivable to address two dated invoices fromone customer.

**Amortizationand Depreciation Expenses** — Total amortization and depreciation expenses for the third quarterincreased $197, or 45 %, to $632 from $435 for the comparable quarter of theprior year. This increase is primarily due to additional intangible assetamortization expense related to the acquisition of Finetre.

**Incometax expense**— Theincome tax provision for the three months ended September 30, 2007 and2006 was based on the estimated effective tax rates applicable for the twelvemonths ended December 31, 2007 and 2006, after considering itemsspecifically related to the interim periods. The effective tax rate of 9.07%for the third quarter of 2007 was 2.35% higher than the 6.72% effective ratefor the comparable quarter of the prior year due to a different income mixamong the various tax jurisdictions in which the Company does business.

**Nine-month****Period Ended September30, 2007 Compared to the Nine-month Period Ended September 30, 2006**

**TotalRevenue** — TheCompany’s revenue is primarily derived from professional and support services (“servicesrevenue”), including consulting, implementation, training and projectmanagement provided to the Company’s customers with installed systems and thosein the process of installing systems. In addition, professional and supportservices include fees for software license maintenance, Application ServiceProvider (“ASP”) services, hosting and other miscellaneous revenues.  Revenues are derived from the the licensingof proprietary and third party software (“software revenue”). Total revenue forthe nine months ended September 30, 2007 increased $10,665 or 53%, to $30,640from $19,975 for the comparable first nine months of the prior year.

**ServicesRevenue** — Totalservices revenue for the first nine months of 2007 increased $8,878 or 47%, to$27,602 from $18,724 for the comparable first nine months of the prior year.This increase was primarily due to the acquisitions of Finetre and Infinity,which accounted for $6,645 (75%) and $2,295 (26%) respectively.  Additionally we experienced continued growthin our EbixLife suite of products of $727, partially offset by a $661 decrease inconsulting for BRiT projects.

During the firstnine months of 2007 and 2006, approximately $1,366 and $2,477, respectively wasrecognized as services revenue from Brit Insurance Holdings PLC (“Brit”) andits affiliates. The amounts represented 4% and 12%, of the Company’s totalrevenues for the first nine months of 2007 and 2006, respectively. Brit ownedapproximately 25% of the Company’s common stock as of September 30, 2007.Neither Brit nor its affiliates have long-term agreements with the Company thatprovide certainty that such revenues will be recurring.

**SoftwareRevenue** — Totalsoftware revenue for the first nine months of 2007 increased $1,787 or 143%, to$3,038 from $1,251 for the comparable first nine months of the prior year. Thisincrease was primarily due to an increase in domestic software sales andreflects successful marketing efforts by the Infinity Services Division.

**Costs ofservices provided**—Cost of services provided includes costs associated with support, call center,consulting, implementation and training services. These costs for the firstnine months increased $954, or 22%, to $5,124 from $4,170 for the comparableperiod of the prior year. This increase was due primarily to an increase inpayroll expenses of $779 and facility costs of $347 related to the acquisitionsof Finetre and Infinity, partially offset by a $199 reduction in service costsnecessary to support the Company’s products.

**ProductDevelopment Expenses**— Product development expenses include payroll expenses and facilitiescosts for the development and product management departments.  Total product development expenses for thefirst nine months of 2007 increased $2,857 or 

 

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87%, to $6,122from $3,265 for the comparable period of the prior year. This increase was dueto an increase in domestic payroll expenses of $1,944, facility costs of $766,and travel related expenses of $106 primarily associated with the acquisitionsof Finetre and Infinity.

**Sales andMarketing Expenses**— Total sales and marketing expenses for the first nine months of 2007increased $1,160, or 58%, to $3,129 from $1,969 for the comparable period ofthe prior year. This increase was attributable to an increase in payrollexpenses of $710, an increase in travel and related expenses of $200 and anincrease in facility costs of $236 primarily associated with the acquisitionsof Finetre and Infinity.

**Generaland Administrative Expenses** — Total general and administrative expenses for thefirst nine months increased $1,243 or 25%, to $6,135 from $4,892 for thecomparable period of the prior year. This increase was primarily due to anincrease in salaries of $1,043 associated with the Finetre acquistion,increased international headcount, and higher health insurance costs. TheCompany also experienced increases in rent of $345, travel and related costsof  $272, and increases in professionalfees for audit and legal services fees of $170

**Amortizationand Depreciation Expenses** — Total amortization and depreciation expenses for the first ninemonths increased $716, or 61%, to $1,882 from $1,166 for the comparable periodof the prior year. This increase is primarily due to additional intangibleasset amortization expense related to the acquisitions of Finetre and Infinity.

**Incometax expense**— Theincome tax provision for the nine months ended September 30, 2007 and 2006was based on the estimated effective tax rates applicable for the twelve monthsended December 31, 2007 and 2006, after considering items specificallyrelated to the interim periods.  The effective tax rate of 4.57% for the ninemonths of 2007 was 2.32% lower  than the6.89% effective rate for the comparable period of the prior year due to adifferent income mix among the various tax jurisdictions in which the Companydoes business.

**Liquidityand Capital Resources**

The Company hadcash and cash equivalents of $15,925 at September 30, 2007, compared to cashand cash equivalents of $5,013 at December 31, 2006.  The increase in the Company’s cash position isprimarily due to the additional cash generated from operations and inparticular the acquired operations of Finetre and Infinity.

During the ninemonths ended September 30, 2007, the Company generated operating cash flow of$8,848 as compared to $2,522 of operating cash flow for the nine months endedSeptember 30, 2006. The additional cash flow realized from operations duringthe nine months ended September 30, 2007 is principally due the additionaloperating income generated by Finetre and Infinity, and improved accountsreceivable turnover.

Cash used ininvesting activities of $534 in the nine months ended September 30, 2007primarily represented expenditures made to purchase fixed assets.  During the nine months ended September 30,2006 the $3,179 of cash was used for investing activities primarily for theInfinity acquisition.

Net cash providedby financing activities during the nine months ended September 30, 2007 was$2,495.  During these nine months theCompany generated $13,275 from the sale of 400 common shares and used $10,000to pay off the outstanding balance on its line-of-credit.  During the nine months ended September 30,2006, the Company used $779 for financing activities primarily related toprincipal payments on outstanding long-term debt obligations.

TheCompany maintains a revolving line of credit facility with LaSalle Bank N.A.During 2006, the line of credit was increased from $5,000 to $12,000. The lineprovides for a variable interest rate equal to LIBOR + 1.50% and is secured bya first security interest in substantially all of the Company’s assets.  During 2006 in connection with the Finetreacquisition, the Company borrowed $11,000 on the line of credit, all of whichhas since has been repaid. At September 30, 2007, the balance of the line ofcredit was $0.  In September of 2007 the maturity date on thisnote was extended for one year and the interest rate decreased to LIBOR + 1.30.The current interest rate on this line is approx 6.51%.  Theline of credit contains certain financial covenants related to profitability,current assets and debt coverage to which the Company is in compliance.

DuringOctober 2006 in connection with the Company’s acquisition of Finetre, Ebix paidFinetre shareholders $13,000 for substantially all Finetre stock, and Finetreshareholders retain the right to earn up to $3,000 in additional payments overtwo years if certain revenue and operating income targets earned from Finetreservices are met. No additionalpayments have been made to date** **The Company funded the acquisitionusing available cash on hand of $2,000 and $11,000 from the Company’s line ofcredit.

 

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DuringMay 2006, the Company acquired substantially all of the operating assetsof Infinity.  The Company acquired theseassets for an upfront payment of $2,900 in cash and a potential future paymentnot exceeding $4,500 in cash if Infinity related services meet certain futurerevenue targets.  To date, no additionalpayments have been made****TheCompany funded the acquisition using available cash on hand.

Letters of Credit:Under terms of the agreement with Heart Consulting Services Pty. Ltd. (“Heart”),which was acquired in 2004, $1,399 is payable by the Company under stand-byletters of credit issued by the Company’s lender on the Company’s line ofcredit in three equal annual installments. The three letters of credit expiredon July 31, 2005, July 31, 2006 and July 31, 2007, respectively.Under terms of the lease agreement for office space in Herndon, Virginia, theCompany is required to maintain a stand-by letter credit in the amount $150.The requirement for this letter of credit expires in November 2007.

Stock repurchaseplan: In June2006, 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.The program does not obligate the Company to acquire any specific number ofshares and may be suspended or terminated at any time. The Company has notrepurchased any shares of common stock for the nine months ended September 30,2007.

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. The Company has renewed its line of credit when itmatured in August 2007.  Based onthese considerations, the Company believes it will have sufficient cash fromoperations and credit facilities to satisfy its operating requirements,contractual obligations, and contingent payments from prior acquisitions, forat 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.

The company is currentlynegotiating a strategic acquisition.  Ifthe negotiations are successful the acquisition will be closed before the 2007year end and will result in a significant reduction to our cash balance.

Thetable below summarizes the Company’s contractual commitments and long term debtobligations:
| ** **                                | ** ** | **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) |       | $                                        | 965        |   | $ | 500 |   | $ | 465 |   | $ | — |   | $ | — |   |
| Operating Leases  Obligations             |       | $                                        | 5,646      |   | $ | 1,256 |   | $ | 2,016 |   | $ | 1,244 |   | $ | 1,130 |   |
| Capital Leases  Obligations               |       | $                                        | 11         |   | $ | 4 |   | $ | 7 |   | $ | — |   | $ | — |   |
| Total                                     |       | $                                        | 6,622      |   | $ | 1,760 |   | $ | 2,488 |   | $ | 1,244 |   | $ | 1,130 |   |

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(1)             Includesinterest at an imputed interest rate of 4% for Heart and LifeLink and at aninterest rate of 6.5% for the line of credit.

The Company has no off-balance sheet arrangements.

The Company hadnet interest income for the quarter ending September 30, 2007 of $174 whichconsisted of interest income of $182, generated from cash bank balances,partially offset by $8 of interest expense on the EbixLife debt. The netinterest income of $11 for the nine months ended September 30, 2007 consistedof  $351 of interest income earned oncash bank balances offset primarily by $31 of interest expense on the EbixLifedebt and $299 on our bank credit line.

**Item3.**                          QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is subject to certain market risks, includingforeign currency and interest rates. The majority of the Company’s operations are based inthe U.S. and, accordingly, the majority of our transactions are denominated inU.S. dollars. However, we have significant foreign-based operations wheretransactions are denominated in foreign currencies and are subject to marketrisk with respect to fluctuations in the relative value of the respective localcurrencies. Presently the Company has operations in Australia, New Zealand,Singapore, Canada and India, and conducts transactions in the local currenciesof each country. There can be no assurance that fluctuations in the value offoreign currencies will not have a material adverse effect on the Company’sbusiness, operating results, revenues or financial condition. The net change in cumulative foreign currencytranslation adjustment was 

 

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an unrealized gain of $175 and an unrealized loss of $72for the three monthsended September 30, 2007 and 2006, respectively, and an unrealized gain of $302and $16 for the nine months ended September 30, 2007 and 2006, respectively.The Company considered the historical trends in currency exchange rate and hasdetermined that it was reasonably possible that adverse changes in exchangerates of 20% for all currencies could be experienced in the near term. Suchadverse changes would have resulted in an adverse impact on income before taxesof approximately $80 for the three months ended September 30, 2007 and apositive impact on income before taxes of approximately $26 for the threemonths ended September 2006. Such adverse changes would have resulted in an adverseimpact on income before taxes of approximately $372 and $140 for the ninemonths ended September 30, 2007 and 2006, respectively. There has been nomaterial changes in the Company’s interest rate risk during the nine monthsended September 30, 2007. For additional information on interest rate risk,refer to the “Quantitative Disclosures About Market Risk” section of theCompany’s Annual Report on Form 10-K for the year ended December 31, 2006.

**Item4.**                          CONTROLS AND PROCEDURES

*DisclosureControls and Procedures*.*  *The Company maintains controls andprocedures designed to ensure that in all material respects  it is able to accurately collect theinformation 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, 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 Officer and the Chief Financial Officer concluded that, asof the end of the fiscal quarter ended September 30, 2007, the Company’scontrols and procedures are effective to ensure that the Company is able tocollect, process and disclose the information it is required to disclose in thereport it files with the SEC within the required time periods.

There were no changes toour internal control over financial reporting during the quarter endedSeptember 30, 2007 that materially affected, or are reasonably likely tomaterially affect the Company’s internal control over financial reports.

**Part II — OTHER INFORMATION**

***Item1.        LEGAL PROCEEDINGS***

***None.***

**Item 1A.**                 RISK FACTORS

Information regarding risk factors appears in “MD&A- Forward-Looking Statements,” in Part I - Item 2 of this Form 10-Q and in “RiskFactors” in Part I - Item IA of our Annual Report on Form 10-K for the fiscalyear ended December 31, 2006.  While webelieve there have been no material changes from the risk factors previouslydisclosed in such Annual Report, you should carefully consider, in addition tothe other information set forth in this report, the risk factors discussed inour Annual Report which could materially affect our business, financialcondition or future results.  Such riskfactors are expressly incorporated herein by reference.  The risks described in our Annual Report arenot the only risks facing our Company. In addition to risks and uncertainties inherent in forward lookingstatements contained in this Report on Form 10-Q, and additional risks anduncertainties not currently known to us or that we currently deem to beimmaterial also may materially adversely affect our business, financialcondition and/or operating results.

** **

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

On June 1, 2007,  the Companyentered into a share purchase agreement (the “Share Purchase Agreement”)  to sell 400,000 shares (the “Shares”) ofunregistered common stock at $33.25 per share to Luxor Capital Partners, LP, aDelaware limited partnership, and Luxor Capital Partners Offshore, Ltd., aCayman Islands exempted company.  Thepurchase price represented a premium to the 30-day average closing price ofEbix common stock on the date of the sale. Under the terms of the Share Purchase Agreement, Luxor Capital PartnersLP acquired 163,600 shares of the Company’s common stock in exchange for $5,440in cash and Luxor Capital Partners Offshore, Ltd. acquired 236,400 shares ofthe Company’s common stock in exchange for $7,860 in cash, for an aggregateoffering price of $13.3 million.  As aresult, at June 4, 2007, Luxor Capital Partners, LP owned approximately 5% ofthe Company’s 

 

 

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outstanding common stock and Luxor Capital Partners Offshore, Ltd.owned approximately 7% of the Company’s outstanding common stock.

 

Pursuant to the Share Purchase Agreement, Ebix must, among otherthings: (1) prepare and file with the Securities and Exchange Commission (the “SEC”)a registration statement registering the Shares as soon as practicable, but inno event later than the 45th day following the closing date of thesale of the Shares; (2) use its reasonable best efforts to cause the SEC tonotify the Company of the SEC’s willingness to declare the registrationstatement effective on or before  120days after the closing date of the sale of the Shares; (3) cause the Shares tobe duly listed for trading on the Nasdaq Global Market concurrently with theeffectiveness of the registration statement; and (4) take such action that isnecessary to keep the registration statement effective until the earlier of (a)the date on which the Shares may be resold without registration and withoutregard to any volume limitations under Rule 144(k), (b) all of the Shares havebeen sold pursuant to the registration statement or Rule 144, or (c) the secondanniversary of the closing date of the sale of the Shares. During the thirdquarter of 2007 while the company was clearing comments received from theSecurities and Exchange Commission on the S-1, the purchaser requested anadditional 100,000 purchased shares be included in this filing. The companyexpects to file an amended S-1A with the SEC in early November 2007**.**

 

**Item 3.         DEFAULTS UPON SENIOR SECURITIES**

None.

**Item4.         SUBMISSION OF MATTERS TO AVOTE OF SECURITIES HOLDERS**

None.

**Item5.         OTHER INFORMATION**

None.

**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: October 31, 2007 | By         |  /s/ Robin  Raina |
|                   |       | Robin Raina |
|                   |       | Chief Executive 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 Accounting 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 Accounting Officer Pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                     |

 

 

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