UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from               to
 Commission file number 333-123081
 
 HEALTH BENEFITS DIRECT CORPORATION
  Delaware
    
    98-0438502(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 150 North Radnor-Chester Rd.
Radnor Financial Center, Suite B101
Radnor, Pennsylvania 19087
 (484) 654-2200
 þ o
 o o
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-Accelerated Filer o
    
    Smaller Reporting Company þ(Do not check if a smaller reporting company)
 o þ




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HEALTH BENEFITS DIRECT CORPORATION
Form 10-Q Quarterly Report
INDEX
 PART IFINANCIAL INFORMATIONItem 1 Financial StatementsConsolidated Balance Sheets as of September 30, 2009 (UNAUDITED) and December 31,
2008
    
    
    3Consolidated Statements of Operations (UNAUDITED) for the three and nine months
ended September 30, 2009 and 2008
    
    
    4Consolidated Statements of Changes in Shareholders Equity (UNAUDITED)
for the nine months ended September 30, 2009
    
    
    5Consolidated Statements of Cash Flows (UNAUDITED) for the nine months ended
September 30, 2009 and 2008
    
    
    6Notes to Consolidated UNAUDITED Financial Statements
    
    
    7Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    37Item 4T Controls and Procedures
    
    
    61PART IIOTHER INFORMATIONItem 1 Legal Proceedings
    
    
    62Item 6 Exhibits
    
    
    63Signatures
    
    
    64
 Page 2




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##### 



PART I.
FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
 September 30, 2009
    
    
    December 31, 2008(Unaudited)
    
    
    (1)ASSETSCURRENT ASSETS:Cash
    
    $
    641,666
    
    
    $
    1,842,419Accounts receivable, less allowance for doubtful accounts $3,034 and $0
    
    
    899,797
    
    
    
    461,875Tax receivable
    
    
    5,615
    
    
    
    31,290Prepaid expenses
    
    
    104,819
    
    
    
    126,804Other current assets
    
    
    11,820
    
    
    
    8,461Total current assets
    
    
    1,663,717
    
    
    
    2,470,849Restricted cash
    
    
    1,150,000
    
    
    
    1,150,000Property and equipment, net of accumulated depreciation of $467,624 and $267,384
    
    
    846,054
    
    
    
    729,881Intangibles, net of accumulated amortization of $1,616,345 and $1,021,187
    
    
    1,293,914
    
    
    
    1,911,461Other assets
    
    
    110,608
    
    
    
    110,608Total assets
    
    $
    5,064,293
    
    
    $
    6,372,799LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Note payable
    
    $
    15,016
    
    
    $
    Accounts payable
    
    
    780,011
    
    
    
    733,128Accrued expenses
    
    
    1,062,364
    
    
    
    697,256Current portion of capital lease obligations
    
    
    123,004
    
    
    
    89,297Due to related parties
    
    
    40,000
    
    
    
    4,315Deferred revenue
    
    
    436,128
    
    
    
    457,500Liabilities of discontinued operations
    
    
    2,305,272
    
    
    
    2,238,315Total current liabilities
    
    
    4,761,795
    
    
    
    4,219,811LONG TERM LIABILITIES:Capital lease obligations
    
    
    246,057
    
    
    
    209,511Total long term liabilities
    
    
    246,057
    
    
    
    209,511SHAREHOLDERS EQUITY:Preferred stock ($.001 par value; 10,000,000 shares authorized; Series A
convertible preferred stock; 3,437,500 shares authorized, 1,000,000 shares issued
and outstanding (liquidation value $10,000,000))
    
    
    1,983,984
    
    
    
    Common stock ($.001 par value; 200,000,000 shares authorized;
41,279,645 shares issued and outstanding)
    
    
    41,279
    
    
    
    41,279Additional paid-in capital
    
    
    45,691,766
    
    
    
    43,281,139Accumulated deficit
    
    
    (47,660,588
    )
    
    
    (41,378,941
    )Total shareholders equity
    
    
    56,441
    
    
    
    1,943,477Total liabilities and shareholders equity
    
    $
    5,064,293
    
    
    $
    6,372,799
  
 (1)
    
    Derived from audited financial statements Page 3




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##### 



HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Revenues
    
    $
    1,475,696
    
    
    $
    1,426,160
    
    
    $
    4,733,406
    
    
    $
    4,120,950Operating Expenses:Salaries, employee benefits and related taxes
    
    
    1,805,213
    
    
    
    1,587,203
    
    
    
    6,151,608
    
    
    
    5,156,072Advertising and other marketing
    
    
    90,814
    
    
    
    6,171
    
    
    
    231,923
    
    
    
    29,971Depreciation and amortization
    
    
    293,696
    
    
    
    253,770
    
    
    
    859,103
    
    
    
    759,285Rent, utilities, telephone and communications
    
    
    201,700
    
    
    
    149,299
    
    
    
    613,017
    
    
    
    469,541Professional fees
    
    
    942,010
    
    
    
    715,080
    
    
    
    2,449,555
    
    
    
    1,773,352Other general and administrative
    
    
    372,011
    
    
    
    337,786
    
    
    
    1,088,244
    
    
    
    1,129,0433,705,444
    
    
    
    3,049,309
    
    
    
    11,393,450
    
    
    
    9,317,264Loss from operations
    
    
    (2,229,748
    )
    
    
    (1,623,149
    )
    
    
    (6,660,044
    )
    
    
    (5,196,314
    )Gain (loss) from discontinued operations
    
    
    806,791
    
    
    
    (118,548
    )
    
    
    423,764
    
    
    
    (2,245,592
    )Other income (expense):Interest income
    
    
    4,771
    
    
    
    14,384
    
    
    
    27,082
    
    
    
    67,119Interest expense
    
    
    (28,413
    )
    
    
    (11,695
    )
    
    
    (72,449
    )
    
    
    (27,910
    )Total other income (expense)
    
    
    (23,642
    )
    
    
    2,689
    
    
    
    (45,367
    )
    
    
    39,209Net loss
    
    $
    (1,446,599
    )
    
    $
    (1,739,008
    )
    
    $
    (6,281,647
    )
    
    $
    (7,402,697
    )Net loss per common share  basic and diluted:Loss from operations
    
    $
    (0.05
    )
    
    $
    (0.04
    )
    
    $
    (0.16
    )
    
    $
    (0.13
    )Gain (loss) from discontinued operations
    
    
    0.02
    
    
    
    (0.00
    )
    
    
    0.01
    
    
    
    (0.06
    )Net loss per common share  basic and diluted
    
    $
    (0.03
    )
    
    $
    (0.04
    )
    
    $
    (0.15
    )
    
    $
    (0.19
    )Weighted average common shares outstanding  basic and diluted
    
    
    41,279,645
    
    
    
    41,354,645
    
    
    
    41,279,645
    
    
    
    39,248,333
  Page 4




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HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FOR NINE MONTHS ENDED SEPTEMBER 30, 2009
 Preferred Stock, $.001
    
    Common Stock, $.001Par Value
    
    Par Value
    
    
    
    
    
    
    
    
    

    TotalNumber of
    
    
    
    
    
    Number of
    
    
    
    
    
    Additional
    
    Accumulated
    
    ShareholdersShares
    
    Amount
    
    Shares
    
    Amount
    
    Paid-in Capital
    
    Deficit
    
    EquityBalance  December 31, 2008
    
    
    
    
    
    $
    
    
    
    
    41,279,645
    
    
    $
    41,279
    
    
    $
    43,281,139
    
    
    $
    (41,378,941
    )
    
    $
    1,943,477Preferred stock and warrants issued in private
placement
    
    
    1,000,000
    
    
    
    1,983,984
    
    
    
    
    
    
    
    
    
    
    
    1,960,399
    
    
    
    
    
    
    
    3,944,383Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450,228
    
    
    
    
    
    
    
    450,228Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,281,647
    )
    
    
    (6,281,647
    )Balance  September 30, 2009
    
    
    1,000,000
    
    
    $
    1,983,984
    
    
    
    41,279,645
    
    
    $
    41,279
    
    
    $
    45,691,766
    
    
    $
    (47,660,588
    )
    
    $
    56,441
  Page 5




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HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Nine Months EndedSeptember 30,2009
    
    
    2008(Unaudited)
    
    
    (Unaudited)Cash Flows From Operating Activities:Net loss
    
    $
    (6,281,647
    )
    
    $
    (7,402,697
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    859,103
    
    
    
    759,285Stock-based compensation and consulting
    
    
    450,227
    
    
    
    1,571,243Loss on impairment of property and equipment of discontinued operations
    
    
    416,764
    
    
    
    88,922Loss on impairment of intangible assets of discontinued operations
    
    
    1,222,817
    
    
    
    295,633Gain on the disposal of property and equipment of discontinued operations
    
    
    (227,763
    )
    
    
    92,374Provision for bad debt
    
    
    2,489
    
    
    
    63,851Changes in assets and liabilities:Accounts receivable
    
    
    (440,411
    )
    
    
    (212,914
    )Tax receivable
    
    
    25,675
    
    
    
    (31,290
    )Prepaid expenses
    
    
    21,985
    
    
    
    (55,822
    )Other current assets
    
    
    (3,359
    )
    
    
    11,841Other assets
    
    
    
    
    
    
    1,722Accounts payable
    
    
    46,883
    
    
    
    22,462Accrued expenses
    
    
    365,109
    
    
    
    (397,953
    )Due to related parties
    
    
    (4,315
    )
    
    
    (28,500
    )Deferred revenue
    
    
    (21,372
    )
    
    
    (149,125
    )Income tax payable
    
    
    
    
    
    
    (157,288
    )Liabilities of discontinued operations
    
    
    (1,409,421
    )
    
    
    (2,355,205
    )Net cash used in operating activities
    
    
    (4,977,236
    )
    
    
    (7,883,461
    )Cash Flows From Investing Activities:Purchase of property and equipment
    
    
    (304,664
    )
    
    
    (409,352
    )Proceeds from the sale of property and equipment of discontinued operations
    
    
    11,495
    
    
    
    27,000Purchase of intangible assets and capitalization of software development
    
    
    
    
    
    
    (291,847
    )Net cash used in investing activities
    
    
    (293,169
    )
    
    
    (674,199
    )Cash Flows From Financing Activities:Gross proceeds from note
    
    
    32,831
    
    
    
    Payments on note payable
    
    
    (17,816
    )
    
    
    Gross proceeds from capital leases
    
    
    155,055
    
    
    
    193,498Payments on capital leases
    
    
    (84,801
    )
    
    
    (23,979
    )Gross proceeds from sales of preferred stock
    
    
    4,000,000
    
    
    
    Gross proceeds from sales of common stock
    
    
    
    
    
    
    5,000,000Fees paid in connection with offering
    
    
    (15,617
    )
    
    
    (70,238
    )Net cash provided by financing activities
    
    
    4,069,652
    
    
    
    5,099,281Net decrease in cash
    
    
    (1,200,753
    )
    
    
    (3,458,379
    )Cash  beginning of the year
    
    
    1,842,419
    
    
    
    5,787,585Cash  end of the period
    
    $
    641,666
    
    
    $
    2,329,206Supplemental
Disclosures of Cash Flow Information Cash payments for income taxes
    
    $
    
    
    
    $
    188,578Non cash financing activities:Fees payable to a related party in connection with offering
    
    $
    40,000
    
    
    $
    
  Page 6




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of presentation
     Organization
   Page 7




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
   Use of estimates
  Cash and cash equivalents
  Restricted cash
  Accounts receivable
  Page 8




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
  Fair value of financial instruments
  Property and equipment
  Intangible assets
    Page 9




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 .
 Impairment of long-lived assets
   Income taxes
  Page 10




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Loss per common share
  Convertible preferred stock
    
    
    20,000,000Options
    
    
    5,439,148Warrants
    
    
    51,566,88777,006,035
 Revenue recognition
      Page 11




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
     Advertising and other marketing expense
  Concentrations of credit risk
   Stock-based compensation
  Page 12




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Non-employee stock based compensation
  Registration rights agreements
   Recent accounting pronouncements
  Page 13




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
      Page 14




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
    DISCONTINUED OPERATIONS
    Page 15




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DISCONTINUED OPERATIONS (continued)
   Revenue Recognition for Discontinued Operations
    Page 16




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DISCONTINUED OPERATIONS (continued)
      Impairment of Long Lived Assets
   Page 17




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##### 



DISCONTINUED OPERATIONS (continued)
   September 30, 2009
    
    
    December 31, 2008Accounts receivable, less allowance for doubtful accounts $0 and $2,173
    
    $
    (340,658
    )
    
    $
    (457,994
    )Deferred compensation advances
    
    
    (926
    )
    
    
    (36,186
    )Prepaid expenses
    
    
    (10,375
    )
    
    
    (51,029
    )Other current assets
    
    
    (5,943
    )
    
    
    Property and equipment, net of accumulated depreciation of $0 and $1,300,155
    
    
    
    
    
    
    (434,067
    )Intangibles, net of accumulated amortization of $0 and $3,858,592
    
    
    
    
    
    
    (1,286,946
    )Other assets
    
    
    (124,463
    )
    
    
    (70,033
    )Accounts payable
    
    
    103,515
    
    
    
    179,623Accrued expenses
    
    
    2,544,129
    
    
    
    1,333,693Sub-tenant security deposit
    
    
    121,007
    
    
    
    39,093Unearned commission advances
    
    
    18,986
    
    
    
    3,022,161Net current liabilities of discontinued operations
    
    $
    2,305,272
    
    
    $
    2,238,315
  For the Three Months Ended September 30,
    
    
    For the Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:Commission and other revenue from carriers
    
    $
    251,023
    
    
    $
    4,100,158
    
    
    $
    1,972,178
    
    
    $
    13,847,293Gain recognized upon the execution of the Agreement
    
    
    
    
    
    
    
    
    
    
    2,664,794
    
    
    
    Transition policy commission pursuant to the Agreement
    
    
    606,424
    
    
    
    
    
    
    
    1,383,279
    
    
    
    Gain on disposal of property and equipment
    
    
    217,501
    
    
    
    
    
    
    
    227,728
    
    
    
    Lead sale revenue
    
    
    
    
    
    
    103,798
    
    
    
    2,442
    
    
    
    391,293Sub-lease revenue
    
    
    326,393
    
    
    
    85,903
    
    
    
    1,007,898
    
    
    
    138,9401,401,341
    
    
    
    4,289,859
    
    
    
    7,258,319
    
    
    
    14,377,526Operating expenses:Salaries, commission and related taxes
    
    
    125,329
    
    
    
    2,461,203
    
    
    
    1,034,188
    
    
    
    8,848,034Lead, advertising and other marketing
    
    
    (27,001
    )
    
    
    832,129
    
    
    
    98,350
    
    
    
    3,877,825Depreciation and amortization
    
    
    
    
    
    
    374,451
    
    
    
    95,619
    
    
    
    1,192,366Rent, utilities, telephone and communications
    
    
    348,001
    
    
    
    486,758
    
    
    
    3,348,542
    
    
    
    1,668,196Professional fees
    
    
    35,222
    
    
    
    47,813
    
    
    
    393,090
    
    
    
    186,648Loss on impairment of property and equipment
    
    
    
    
    
    
    
    
    
    
    416,764
    
    
    
    88,922Loss on impairment of intangible assets
    
    
    
    
    
    
    
    
    
    
    1,222,817
    
    
    
    295,633Other general and administrative
    
    
    112,999
    
    
    
    113,679
    
    
    
    225,185
    
    
    
    373,120Loss on disposal of property and equipment
    
    
    
    
    
    
    92,374
    
    
    
    
    
    
    
    92,374594,550
    
    
    
    4,408,407
    
    
    
    6,834,555
    
    
    
    16,623,118Gain (loss) from discontinued operations
    
    $
    806,791
    
    
    $
    (118,548
    )
    
    $
    423,764
    
    
    $
    (2,245,592
    )
 Page 18




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##### 



PROPERTY AND EQUIPMENT
  UsefulLife
    
    At September 30,
    
    
    At December 31,(Years)
    
    2009
    
    
    2008Computer equipment and software
    
    3
    
    $
    895,427
    
    
    $
    657,205Office equipment
    
    4.6
    
    
    194,360
    
    
    
    11,998Office furniture and fixtures
    
    6.7
    
    
    189,857
    
    
    
    294,029Leasehold improvements
    
    9.8
    
    
    34,034
    
    
    
    34,0331,313,678
    
    
    
    997,265Less accumulated depreciation
    
    
    
    
    (467,624
    )
    
    
    (267,384
    )$
    846,054
    
    
    $
    729,881
  INTANGIBLE ASSETS
  UsefulLife
    
    At September 30,
    
    
    At December 31,(Years)
    
    2009
    
    
    2008Atiam intangible assets acquired
    
    4.7
    
    $
    2,097,672
    
    
    $
    2,097,672Software development costs for internal use
    
    2.6
    
    
    638,291
    
    
    
    660,680Software development costs for external marketing
    
    2
    
    
    174,296
    
    
    
    174,2962,910,259
    
    
    
    2,932,648Less: accumulated amortization
    
    
    
    
    (1,616,345
    )
    
    
    (1,021,187
    )$
    1,293,914
    
    
    $
    1,911,461
  Page 19




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INTANGIBLE ASSETS (continued)
   2009
    
    $
    205,8472010
    
    
    481,2832011
    
    
    346,7342012
    
    
    260,050$
    1,293,914
 RELATED PARTY TRANSACTIONS
  SHAREHOLDERS EQUITY
 Common Stock
 2008
   Page 20




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##### 



SHAREHOLDERS EQUITY (continued)
    2009
   Page 21




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##### 



SHAREHOLDERS EQUITY (continued)
 Preferred Stock
    pari passu
 Page 22




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##### 



SHAREHOLDERS EQUITY (continued)
     Page 23




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##### 



SHAREHOLDERS EQUITY (continued)
 Stock Options
         Expected volatility
    
    
    201
    %Risk-free interest rate
    
    
    3.69
    %Expected life in years
    
    
    4.6Assumed dividend yield
    
    
    0
    %
 Page 24




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##### 



SHAREHOLDERS EQUITY (continued)
  Number
    
    
    WeightedOf Shares
    
    
    Average
    
    
    WeightedUnderlying
    
    
    Exercise
    
    
    AverageOptions
    
    
    Price
    
    
    Fair ValueOutstanding at December 31, 2008
    
    
    4,291,200
    
    
    $
    1.99
    
    
    $
    0.86For the period ended September 30, 2009Granted
    
    
    2,125,000
    
    
    
    0.08
    
    
    
    0.08Exercised
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    977,052
    
    
    
    2.52
    
    
    
    0.35Outstanding at September 30, 2009
    
    
    5,439,148
    
    
    
    1.15
    
    
    
    0.65Outstanding and exercisable at September 30, 2009
    
    
    3,987,966
    
    
    $
    1.51
    
    
    $
    0.80
  Options Outstanding
    
    Options ExercisableWeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageExercise
    
    Number of Shares
    
    Contractual
    
    Exercise
    
    
    
    
    
    ExercisePrice
    
    Underlying Options
    
    Life
    
    Price
    
    Number Exercisable
    
    Price$0.06
    
    
    155,000
    
    
    
    4.5
    
    
    $
    0.06
    
    
    
    
    
    
    $
    0.10
    
    
    1,970,000
    
    
    
    4.4
    
    
    
    0.10
    
    
    
    720,000
    
    
    
    0.100.24
    
    
    15,000
    
    
    
    4.1
    
    
    
    0.24
    
    
    
    
    
    
    
    0.78
    
    
    10,000
    
    
    
    3.6
    
    
    
    0.78
    
    
    
    3,333
    
    
    
    1.00
    
    
    1,300,000
    
    
    
    6.2
    
    
    
    1.00
    
    
    
    1,300,000
    
    
    
    1.001.01
    
    
    550,000
    
    
    
    8.5
    
    
    
    1.01
    
    
    
    550,000
    
    
    
    1.012.50
    
    
    421,648
    
    
    
    6.1
    
    
    
    2.50
    
    
    
    421,434
    
    
    
    2.502.62
    
    
    20,000
    
    
    
    2.2
    
    
    
    2.62
    
    
    
    13,200
    
    
    
    2.622.70
    
    
    475,000
    
    
    
    1.6
    
    
    
    2.70
    
    
    
    458,333
    
    
    
    2.702.95
    
    
    45,000
    
    
    
    1.6
    
    
    
    2.95
    
    
    
    45,000
    
    
    
    2.953.00
    
    
    2,500
    
    
    
    2.6
    
    
    
    3.00
    
    
    
    1,666
    
    
    
    3.003.50
    
    
    75,000
    
    
    
    6.5
    
    
    
    3.50
    
    
    
    75,000
    
    
    
    3.503.60
    
    
    400,000
    
    
    
    1.6
    
    
    
    3.60
    
    
    
    400,000
    
    
    
    3.605,439,148
    
    
    
    
    
    
    
    
    
    
    
    3,987,966
 Page 25




---



##### 



SHAREHOLDERS EQUITY (continued)
    Common Stock Warrants
     Page 26




---



##### 



SHAREHOLDERS EQUITY (continued)
  WeightedCommon
    
    
    AverageStock
    
    
    ExerciseWarrants
    
    
    PriceOutstanding at December 31, 2008
    
    
    13,636,686
    
    
    $
    0.38For the period ended September 30, 2009Granted
    
    
    20,000,000
    
    
    
    0.20Adjustment to warrants issued in 2007 for Preferred Stock and 2009 Warrants
    
    
    1,942,701
    
    
    
    1.51Adjustment to warrants issued in 2008 for Preferred Stock and 2009 Warrants
    
    
    18,750,000
    
    
    
    0.20Exercised
    
    
    
    
    
    
    Expired
    
    
    (2,762,500
    )
    
    
    1.50Outstanding at September 30, 2009
    
    
    51,566,887
    
    
    $
    0.38Exercisable at September 30, 2009
    
    
    51,566,887
    
    
    $
    0.38
  CommonYear of
    
    Stock
    
    ExerciseExpiration
    
    Warrants
    
    Price2010
    
    
    75,000
    
    
    $
    1.502010
    
    
    350,000
    
    
    
    2.802011
    
    
    1,175,000
    
    
    
    1.502012
    
    
    4,966,887
    
    
    
    1.512013
    
    
    25,000,000
    
    
    
    0.202014
    
    
    20,000,000
    
    
    $
    0.2051,566,887
  Page 27




---



##### 



SHAREHOLDERS EQUITY (continued)
 Registration Rights
  CAPITAL LEASE OBLIGATIONS
   September 30, 2009
    
    
    December 31, 2008Useful Life (Years)Computer equipment and software
    
    3
    
    $
    483,130
    
    
    
    328,074Phone System
    
    3
    
    
    15,011
    
    
    
    15,011498,141
    
    
    
    343,085Less accumulated depreciation
    
    
    
    
    (180,623
    )
    
    
    (68,091
    )$
    317,518
    
    
    
    274,994
 Page 28




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##### 



CAPITAL LEASE OBLIGATIONS (continued)
  2009
    
    $
    37,3132010
    
    
    170,1322011
    
    
    150,5122012
    
    
    70,4432013
    
    
    6,663Total future payments
    
    
    435,063Less amount representing interest
    
    
    66,002Present value of future minimum payments
    
    
    369,061Less current portion
    
    
    123,004Long-term portion
    
    $
    246,057
 DEFINED CONTRIBUTION 401(k) PLAN
  Page 29




---



##### 



RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES
 Employment and Separation Agreements
  Restricted Cash and Operating Leases
    Page 30




---



##### 



RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
     Page 31




---



##### 



RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
 Guarantee of Indebtedness by the Company to Third Parties Pertaining to Unearned Commission
Advances Paid to Non-employee ISG Agents
  Litigation
  Page 32




---



##### 



RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
   Page 33




---



##### 



RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
 License Agreement with Realtime Solutions Group
    SUBSEQUENT EVENTS
   Page 34




---



##### 



SUBSEQUENT EVENTS (continued)
   Page 35




---



##### 



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
    Page 36




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
        Page 37




---



##### 



Page 38




---



##### 



Revenues
  For the Three Months Ended September 30,2009
    
    
    2008Consulting and implementation services
    
    $
    831,701
    
    
    $
    988,564ASP revenue
    
    
    371,143
    
    
    
    287,276Maintenance revenue
    
    
    144,500
    
    
    
    117,000License revenue
    
    
    87,500
    
    
    
    Other technology fees
    
    
    31,526
    
    
    
    33,320Sub-leasing revenue
    
    
    9,326
    
    
    
    Total
    
    $
    1,475,696
    
    
    $
    1,426,160
 
    
    The decrease in consulting and implementation services in Third Quarter 2009 as compared
to Third Quarter 2008 is attributable to a decrease in work modification enhancements and
data conversion required for clients. Consulting and implementation services are from seven
InsPro clients. Implementation services provided to these clients included assisting
clients in setting up their insurance products in InsPro, providing modifications to
InsPros functionality to support the clients business, interfacing InsPro with the
clients other systems, automation of client correspondence to their customers and data
conversion from the clients existing systems to InsPro.
    
    In Third Quarter 2009 we earned ASP revenue from seven InsPro clients. The increase in
ASP revenue in Third Quarter 2009 as compared to Third Quarter 2008 is due to the
implementation of two new ASP agreements. ASP hosting service enables a client to lease
the InsPro software, paying only for that capacity required to support their business. ASP
clients access InsPro installed on InsPro Technologies owned servers located at InsPro
Technologies offices or at a third partys site.
    
    In Third Quarter 2009 we earned maintenance revenues from four clients compared to two
clients in Third Quarter 2008.
    
    In Third Quarter 2009 we earned license revenue from a single existing client, which
represent the delivery of contractually agreed to modifications to previously installed
InsPro modules.
    
    In Third Quarter 2009 we earned Sub-leasing revenue of $9,326 from the sub leasing of
space in our Radnor office, which commenced in the first quarter of 2009.
 Page 39




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##### 



Total Operating Expenses
  For the Three Months Ended September 30,2009
    
    
    2008Salaries, employee benefits and related taxes
    
    $
    1,805,213
    
    
    $
    1,587,203Advertising and other marketing
    
    
    90,814
    
    
    
    6,171Depreciation and amortization
    
    
    293,696
    
    
    
    253,770Rent, utilities, telephone and communications
    
    
    201,700
    
    
    
    149,299Professional fees
    
    
    942,010
    
    
    
    715,080Other general and administrative
    
    
    372,011
    
    
    
    337,786Total
    
    $
    3,705,444
    
    
    $
    3,049,309
  For the Three Months EndedSeptember 30,2009
    
    
    2008Salaries, wages and bonuses
    
    $
    1,516,573
    
    
    $
    1,254,092Share based employee and director compensation
    
    
    74,976
    
    
    
    169,290Employee benefits
    
    
    74,156
    
    
    
    41,116Payroll taxes
    
    
    102,906
    
    
    
    72,664Severance and other compensation
    
    
    12,061
    
    
    
    33,576Directors compensation
    
    
    24,541
    
    
    
    16,465Total
    
    $
    1,805,213
    
    
    $
    1,587,203
 
    
    Salaries, wages and bonuses were $1,516,573 in Third Quarter 2009 as compared to
$1,254,092 in Third Quarter 2008, an increase of $262,481 or 21%. The increase is the
result of the hiring of additional staff in InsPro Technologies sales and technology
departments to promote the growth in revenue and to service an expanding client base.
 Page 40




---



##### 




    
    Share based employee and director compensation expense was $74,976 in Third Quarter 2009
as compared to $169,290 in Third Quarter 2008, a decrease of $94,314 or 56%. The decrease
is primarily attributable to the vesting of stock grants and options to directors and
employees. Share based employee and director compensation consist of stock option and
restricted stock grants, which are valued at fair-value at the date of the grant and
expensed over the stock options vesting period or the duration of employment, whichever is
shorter.
    
    Employee benefits and payroll taxes increased as a result of the hiring of additional
staff in InsPro Technologies. Our employee benefit cost consists of the company paid
portion of group medical, dental and life insurance coverage and partial company matching
of employee contributions to a 401(k) plan. The increase was the result of an increase in
InsPro Technologies and Insurints staffing.
   For the Three Months EndedSeptember 30,2009
    
    
    2008Amortization of intangibles acquired as a result of the InsPro acquisition
    
    $
    117,020
    
    
    $
    117,020Amortization of software and website development for external marketing
    
    
    21,787
    
    
    
    21,787Amortization of software and website development for internal use
    
    
    67,042
    
    
    
    55,797Depreciation expense
    
    
    87,847
    
    
    
    59,166Total
    
    $
    293,696
    
    
    $
    253,770
 
    
    In Third Quarter 2009 we incurred amortization expense for the intangible assets
acquired from InsPro Technologies on October 1, 2007. Intangible assets acquired from
InsPro Technologies were assigned the following values:
 o
    
    value of client contracts and relationships other than license with
an assigned value of $1,089,223 amortized straight line over five yearso
    
    value of purchased software for sale and licensing value with an
assigned value of $644,449 amortized straight line over five yearso
    
    employment and non-compete agreements acquired with an assigned
value of $364,000 amortized straight line over three years.o
    
    In Third Quarter 2009 we incurred amortization expense for software
development cost for external marketing pertaining to InsPro Technologies InsPro
system.
 Page 41




---



##### 




    
    In Third Quarter 2009 we incurred amortization expense of $67,042 as compared to
$55,797 in Third Quarter 2008 for software and website development for internal use
pertaining to Insurint.
    
    In Third Quarter 2009 we incurred depreciation expense of $87,847 as compared to
$59,166 in Third Quarter 2008. The increase was due to equipment acquired for use in
InsPro Technologies operations.
  For the Three Months Ended September 30,2009
    
    
    2008Rent, utilities and other occupancy
    
    $
    166,012
    
    
    $
    117,272Telephone and communications
    
    
    35,688
    
    
    
    32,027Total
    
    $
    201,700
    
    
    $
    149,299
 
    
    In Third Quarter 2009 we had an increase in rent, utilities and other occupancy due to
the leasing of additional space to accommodate the increase in staffing in InsPro
Technologies Eddystone office.
  For the Three Months Ended September 30,2009
    
    
    2008Accounting and auditing
    
    $
    67,708
    
    
    $
    73,012Legal
    
    
    359,486
    
    
    
    117,434Technology
    
    
    469,822
    
    
    
    377,164All other
    
    
    44,994
    
    
    
    147,470$
    942,010
    
    
    $
    715,080
 
    
    In Third Quarter 2009 we had an increase in legal fees as compared to Third Quarter
2008, which was primarily due to legal costs incurred in connection with the settlement of
litigation with the shareholders who brought action against the Company in New York in
which the plaintiffs agreed to withdraw from the litigation and provided a general release
of all claims against the Company, its board of directors and the other defendants.
    
    In Third Quarter 2009 we had an increase in technology fees as compared to Third Quarter
2008, which was attributable to an increase in technology consultants needed to support
additional InsPro client requirements.
 Page 42




---



##### 




    
    All other consulting consists of recruiting, investor relations and general management
consulting expense, which decreased as a result of expense reduction actions in all three
areas.
  For the Three Months EndedSeptember 30,2009
    
    
    2008Office expenses
    
    $
    103,513
    
    
    $
    95,462Travel and entertainment
    
    
    70,571
    
    
    
    43,548Insurance
    
    
    13,519
    
    
    
    38,386Computer processing, hardware and software
    
    
    184,781
    
    
    
    145,570Other
    
    
    (373
    )
    
    
    14,820Total
    
    $
    372,011
    
    
    $
    337,786
 
    
    In Third Quarter 2009 office expense increased compared to Third Quarter 2008 due to
costs associated with additional leased space at InsPro Technologies Eddystone office.
    
    We incur travel and entertainment expense in connection with marketing, sales and
implementation of InsPro at client locations.
    
    We incur computer processing fees associated with ASP hosting services. InsPro
Technologies has a hosting services contract with a third party, which can be terminated
with notice and payment of a termination fee. This third party provides InsPro
Technologies with hosting services for our clients ASP production and test environments.
In Third Quarter 2009 computer processing fees increased compared to Third Quarter 2008 due
to the implementation of two additional ASP hosting agreements.
 Loss from operations
  Page 43




---



##### 



Gain (loss) on discontinued operations
  For the Three Months Ended September 30,2009
    
    
    2008Revenues:Commission and other revenue from carriers
    
    $
    251,023
    
    
    $
    4,100,158Transition policy commission pursuant to the Agreement
    
    
    606,424
    
    
    
    Gain on disposal of property and equipment
    
    
    217,501
    
    
    
    Lead sale revenue
    
    
    
    
    
    
    103,798Sub-lease revenue
    
    
    326,393
    
    
    
    85,9031,401,341
    
    
    
    4,289,859Operating expenses:Salaries, commission and related taxes
    
    
    125,329
    
    
    
    2,461,203Lead, advertising and other marketing
    
    
    (27,001
    )
    
    
    832,129Depreciation and amortization
    
    
    
    
    
    
    374,451Rent, utilities, telephone and communications
    
    
    348,001
    
    
    
    486,758Professional fees
    
    
    35,222
    
    
    
    47,813Other general and administrative
    
    
    112,999
    
    
    
    113,679(Gain) on disposal of property and equipment
    
    
    
    
    
    
    92,374594,550
    
    
    
    4,408,407Gain (loss) from discontinued operations
    
    $
    806,791
    
    
    $
    (118,548
    )
   Page 44




---



##### 



Revenue Recognition for Discontinued Operations
    Page 45




---



##### 




    
    During the Third Quarter 2009 we recognized commission and other revenue from carriers
of $251,023 as compared to $4,100,158 in Third Quarter 2008. The decrease is primarily the
result of the execution of the agreement with eHealth whereby we no longer receives
commission revenue on transferred policies effective on or about February 1, 2009. We
continue to receive commissions from carriers other than specified carriers and commissions
on policies other than transferred policies.
    
    During the Third Quarter 2009 we recognized $606,424 from commission payments from
eHealth subsequent to the sale of our agency business. We recognize as revenue commission
payments received from eHealth upon our notification by eHealth of such amounts.
    
    During the Third Quarter 2009 we recognized a gain on disposal of property and equipment
of $217,601. On July 1, 2009 we entered into a sub-lease agreement with a third party,
effective July 15, 2009 which terminated an existing sub-lease agreement for approximately
8,000 square feet of our Deerfield Beach office and replaced it with a sub-lease agreement
for approximately 29,952 square feet. This new sub-lease terminates on February 28, 2011.
As part of the sub-lease agreement, we also agreed to lease certain personal property to
the sub-lessee for the term of the lease. The sub-lessee agreed to pay us 20 monthly
payments of $10,890 for such personal property and we have agreed to deliver to the
sub-lessee a bill of sale for the leased personal property at the end of the term. We have
accounted for this personal property sub-lease arrangement as a sale.
    
    During the Third Quarter 2009 we earned no lead sale-revenue as compared to $103,798 in
Third Quarter 2008. We re-sold certain Telesales leads that we purchase in order to recoup
a portion of our lead cost. The decrease in lead sales revenue is a result of the
cessation of direct marketing in the Second Quarter of 2009.
 Page 46




---



##### 




    
    During the Third Quarter 2009 we earned sub-lease revenue of $326,393 as compared to
$85,903 in Third Quarter 2008 relating to the sub-lease of a portion of our Florida office
and our former New York sales office. Sub-lease revenue includes base rent, additional rent
pertaining to utilities and occupancy costs and certain telephony, technology and facility
services provided by us to certain of our sub-tenants.
 o
    
    On February 21, 2008 we entered into a sub-lease agreement with a third
party whereby the third party sub-leased approximately 5,200 square feet of our
Deerfield Beach office space beginning March 1, 2008 through February 28, 2009.
This sub-lease agreement was amended and restated on October 3, 2008 to increase the
sub-leased square footage to 13,900 and extend the lease term through January 31,
2010.o
    
    On October 1, 2008 we entered into a sub-lease agreement with a third
party whereby the third party sub-leased approximately 8,000 square feet of our
Deerfield Beach office space beginning October 15, 2008 through January 31, 2010.
In accordance with this sub-lease agreement we recognize base rent, additional rent
representing a portion of certain actual occupancy expenses for our Deerfield Beach
office and certain telephony, technology and facility services provided to our
sub-tenant. On July 1, 2009 we entered into a sub-lease agreement with a third party
effective July 15, 2009, which terminated an existing sub-lease agreement for
approximately 8,000 square feet of our Deerfield Beach office and replaced it with a
sub-lease agreement of approximately 29,952 square feet.o
    
    On April 17, 2008 we entered into a sub-lease agreement with a third
party whereby the third party agreed to sub-lease our New York office space for the
balance of our sublease agreement and pay our sub-lease payments essentially equal
to our costs under the sublease agreement. The third party commenced paying
sub-sublease payments to us in September 2008; however the third party failed to pay
its December 2008 and subsequent rent when due. We were a beneficiary to a letter
of credit in the amount of $151,503, which we had drawn against as a result of the
third partys failure to pay its rent when due. On July 23, 2009 we entered into a
settlement agreement with the third party whereby we cancelled the sub-lease, the
third party surrendered the sub-leased premises back to us and we and the third
party agreed to release each other from all claims.
  Gain (loss) from discontinued operations
  Page 47




---



##### 



Other income (expenses)
   Net loss
   Revenues
  For the Nine Months Ended September 30,2009
    
    
    2008Consulting and implementation services
    
    $
    3,000,592
    
    
    $
    2,787,385ASP revenue
    
    
    1,072,466
    
    
    
    829,245Sales of software licenses
    
    
    87,500
    
    
    
    115,000Maintenance revenue
    
    
    433,500
    
    
    
    306,000Other technology fees
    
    
    118,022
    
    
    
    83,320Sub-leasing revenue
    
    
    21,326
    
    
    
    Total
    
    $
    4,733,406
    
    
    $
    4,120,950
 Page 48




---



##### 




    
    Consulting and implementation services are from seven InsPro clients. The increase in
consulting and implementation services in 2009 To Date as compared to 2008 To Date is
attributable to an increase in work modification enhancements and data conversion required
for additional clients. Implementation services provided to these clients included
assisting clients in setting up their insurance products in InsPro, providing modifications
to InsPros functionality to support the clients business, interfacing InsPro with the
clients other systems, automation of client correspondence to their customers and data
conversion from the clients existing systems to InsPro.
    
    In 2009 To Date and 2008 To Date we earned 87,500 and $115,000, respectively from sales
of software licenses from a single InsPro client.
    
    In 2009 To Date we earned ASP revenue from seven InsPro clients as compared to five in
2008 To Date. ASP hosting service enables a client to lease the InsPro software, paying
only for that capacity required to support their business. ASP clients access InsPro
installed on InsPro Technologies owned servers located at InsPro Technologies offices or
at a third partys site.
    
    In 2009 To Date we earned maintenance revenues from four clients compared to two clients
in 2008 To Date.
    
    In 2009 To Date we earned Sub-leasing revenue of $21,326 from the sub leasing of space
in our Radnor office.
 Total Operating Expenses
  For the Nine Months Ended September 30,2009
    
    
    2008Salaries, employee benefits and related taxes
    
    $
    6,151,608
    
    
    $
    5,156,072Advertising and other marketing
    
    
    231,923
    
    
    
    29,971Depreciation and amortization
    
    
    859,103
    
    
    
    759,285Rent, utilities, telephone and communications
    
    
    613,017
    
    
    
    469,541Professional fees
    
    
    2,449,555
    
    
    
    1,773,352Other general and administrative
    
    
    1,088,244
    
    
    
    1,129,043Total
    
    $
    11,393,450
    
    
    $
    9,317,264
 Page 49




---



##### 



For the Nine Months Ended September 30,2009
    
    
    2008Salaries, wages and bonuses
    
    $
    4,707,944
    
    
    $
    3,285,053Share based employee and director compensation
    
    
    385,667
    
    
    
    1,287,351Commissions to employees
    
    
    37,545
    
    
    
    Employee benefits
    
    
    228,585
    
    
    
    139,185Payroll taxes
    
    
    348,306
    
    
    
    312,098Severance and other compensation
    
    
    374,191
    
    
    
    72,135Directors compensation
    
    
    69,370
    
    
    
    60,250Total
    
    $
    6,151,608
    
    
    $
    5,156,072
 
    
    Salaries, wages and bonuses were $4,707,944 in 2009 To Date as compared to $3,285,053 in
2008 To Date, an increase of $1,422,891 or 43%. The increase is the result of the hiring
of additional staff in InsPro Technologies sales and technology departments and Insurints
sales departments to promote the growth in revenue and to service an expanding client base
and $150,000 of bonuses to certain executives.
    
    Share based employee and director compensation expense was $385,667 in 2009 To Date as
compared to $1,287,351 in 2008 To Date, a decrease of $901,684 or 70%. The decrease is
attributable to expense pertaining to an option grant to Mr. Alvin Clemens, who is our
former CEO, in the Second Quarter 2008, and due to the vesting of an option grant to a
director and options to directors and employees. Share based employee and director
compensation consist of stock option and restricted stock grants, which are valued at
fair-value at the date of the grant and expensed over the stock options vesting period or
the duration of employment, whichever is shorter.
    
    Commissions to employees represents commissions paid to InsPro Technologies and Insurint
sales personnel.
    
    Employee benefits expense increased as a result of the hiring of additional staff in
InsPro Technologies and Insurint. Our employee benefit cost consists of the company paid
portion of group medical, dental and life insurance coverage and partial company matching
of employee contributions to a 401(k) plan. The increase was the result of an increase in
InsPro Technologies and Insurints staffing.
    
    Payroll taxes expense increased as a result of the hiring of additional staff in InsPro
Technologies and Insurint partially offset by a greater number of salaries exceeding the
maximum FICA contribution limit.
    
    Severance and other compensation increased primarily as a result of the Separation of
Employment and General Release Agreement with Mr. Eissa.
 Page 50




---



##### 



For the Nine Months Ended September 30,2009
    
    
    2008Amortization of intangibles acquired as a result of the InsPro acquisition
    
    $
    351,060
    
    
    $
    351,061Amortization of software and website development for external marketing
    
    
    65,361
    
    
    
    21,787Amortization of software and website development for internal use
    
    
    201,126
    
    
    
    143,070Depreciation expense
    
    
    241,556
    
    
    
    243,367Total
    
    $
    859,103
    
    
    $
    759,285
 
    
    In 2009 To Date we incurred amortization expense of $351,060 for the intangible
assets acquired from InsPro Technologies on October 1, 2007. Intangible assets acquired
from InsPro Technologies were assigned the following values:
 o
    
    value of client contracts and relationships other than license with
an assigned value of $1,089,223 amortized straight line over five yearso
    
    value of purchased software for sale and licensing value with an
assigned value of $644,449 amortized straight line over five yearso
    
    employment and non-compete agreements acquired with an assigned
value of $364,000 amortized straight line over three years.
 
    
    In 2009 To Date we incurred amortization expense of $65,361 as compared to $21,787
in 2008 To Date for software development cost for external marketing pertaining to
InsPro Technologies InsPro system.
    
    In 2009 To Date we incurred amortization expense of $201,126 as compared to $143,070
in 2008 To Date for software and website development for internal use pertaining to
Insurint.
    
    In 2009 To Date we incurred depreciation expense of $241,556 as compared to $243,367
in 2008 To Date. The decrease was due to the impairment of assets on discontinued
operations.
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For the Nine Months Ended September 30,2009
    
    
    2008Rent, utilities and other occupancy
    
    $
    483,536
    
    
    $
    369,702Telephone and communications
    
    
    129,481
    
    
    
    99,839Total
    
    $
    613,017
    
    
    $
    469,541
 
    
    In 2009 To Date we had an increase in rent, utilities and other occupancy due to the
leasing of additional space to accommodate the increase in staffing in InsPro Technologies
Eddystone office and annual rent increases in our Radnor office.
  For the Nine Months Ended September 30,2009
    
    
    2008Accounting and auditing
    
    $
    201,618
    
    
    
    246,284Legal
    
    
    568,766
    
    
    
    291,818Technology
    
    
    1,499,866
    
    
    
    835,141All other
    
    
    179,305
    
    
    
    400,109$
    2,449,555
    
    
    $
    1,773,352
 
    
    In 2009 To Date we had an increase in legal fees as compared to 2008 To Date, which
was primarily due to legal costs incurred in connection with the settlement of litigation
with the shareholders who brought action against the Company in New York in which the
plaintiffs agreed to withdraw from the litigation and provided a general release of all
claims against the Company, its board of directors and the other defendants.
    
    In 2009 To Date we had a decrease of $44,666 in accounting and auditing fees as compared
to 2008 To Date, which was attributable to reduced consulting costs associated with
Sarbanes Oxley.
    
    In 2009 To Date we had an increase of $664,725 in technology fees as compared to 2008 To
Date, which was attributable to an increase in technology consultants needed to support
additional InsPro client requirements.
    
    All other consulting consists of executive recruiting, investor relations and management
consulting expense, which decreased as a result of expense reduction actions in all three
areas.
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##### 



For the Nine Months Ended September 30,2009
    
    
    2008Office expenses
    
    $
    252,821
    
    
    $
    309,705Travel and entertainment
    
    
    160,657
    
    
    
    189,504Insurance
    
    
    77,509
    
    
    
    102,095Computer processing, hardware and software
    
    
    495,613
    
    
    
    379,374Other
    
    
    101,644
    
    
    
    148,367Total
    
    $
    1,088,244
    
    
    $
    1,129,044
 
    
    In 2009 To Date office expense decreased due to the reduction in staff in our Florida
office.
    
    We incur travel and entertainment expense in connection with marketing, sales and
implementation of InsPro at client locations.
    
    In 2009 To Date computer processing, hardware and software expense increased due to an
increase in InsPro ASP clients to seven in 2009 compared to five in 2008. We incur
computer processing fees associated with ASP hosting services. InsPro Technologies has a
hosting services contract with a third party, which can be terminated with notice and
payment of a termination fee. This third party provides InsPro Technologies with hosting
services for our clients ASP production and test environments. In 2009 To Date computer
processing fees increased compared to 2008 To Date due to the implementation of two
additional ASP hosting agreements.
 Loss from operations
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Gain (loss) on discontinued operations
  For the Nine Months Ended September 30,2009
    
    
    2008Revenues:Commission and other revenue from carriers
    
    $
    1,972,178
    
    
    $
    13,847,293Gain recognized upon the execution of the Agreement
    
    
    2,664,794
    
    
    
    Transition policy commission pursuant to the Agreement
    
    
    1,383,279
    
    
    
    Gain on disposal of property and equipment
    
    
    227,728
    
    
    
    Lead sale revenue
    
    
    2,442
    
    
    
    391,293Sub-lease revenue
    
    
    1,007,898
    
    
    
    138,9407,258,319
    
    
    
    14,377,526Operating expenses:Salaries, commission and related taxes
    
    
    1,034,188
    
    
    
    8,848,034Lead, advertising and other marketing
    
    
    98,350
    
    
    
    3,877,825Depreciation and amortization
    
    
    95,619
    
    
    
    1,192,366Rent, utilities, telephone and communications
    
    
    3,348,542
    
    
    
    1,668,196Professional fees
    
    
    393,090
    
    
    
    186,648Loss on impairment of property and equipment
    
    
    416,764
    
    
    
    88,922Loss on impairment of intangible assets
    
    
    1,222,817
    
    
    
    295,633Other general and administrative
    
    
    225,185
    
    
    
    373,120(Gain) on disposal of property and equipment
    
    
    
    
    
    
    92,3746,834,555
    
    
    
    16,623,118Gain (loss) from discontinued operations
    
    $
    423,764
    
    
    $
    (2,245,592
    )
   Page 54




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
    
    During 2009 To Date we recognized commission and other revenue from carriers of
$1,972,178 as compared to $13,847,293 in 2008 To Date. The decrease is primarily the
result of the execution of the agreement with eHealth whereby we no longer receive
commission revenue on transferred policies effective on or about February 1, 2009.
We continue to receive commissions from carriers other than specified carriers and
commissions on policies other than transferred policies.
    
    During 2009 To Date we recognized a gain upon the execution of the Agreement of
$2,664,794, which is the sum of the aggregate initial amount of consideration paid by
eHealth to us and eHealths assumption of certain liabilities relating to historical
commission advances on the transferred policies.
    
    During 2009 To Date we recognized $1,383,279 from commission payments from eHealth
subsequent to the sale of our agency business. We recognize as revenue commission payments
received from eHealth upon our notification by eHealth of such amounts.
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##### 




    
    During 2009 To Date we recognized a gain on disposal of property and equipment of
$227,728. On July 1, 2009 we entered into a sub-lease agreement with a third party,
effective July 15, 2009 which terminated an existing sub-lease agreement for approximately
8,000 square feet of our Deerfield Beach office and replaced it with a sub-lease agreement
for approximately 29,952 square feet. This new sub-lease terminates on February 28, 2011.
As part of the sub-lease agreement, we also agreed to lease certain personal property to
the sub-lessee for the term of the lease. The sub-lessee agreed to pay us 20 monthly
payments of $10,890 for such personal property and we have agreed to deliver to the
sub-lessee a bill of sale for the leased personal property at the end of the term. We have
accounted for this personal property sub-lease arrangement as a sale. During 2009 To Date
we earned lead sale-revenue of $2,442 as compared to $391,193 in 2008 To Date. We re-sold
certain Telesales leads that we purchase in order to recoup a portion of our lead cost.
The decrease in lead sales revenue is a result of the cessation of direct marketing in the
first quarter of 2009.
    
    During 2009 To Date we earned sub-lease revenue of $1,007,898 as compared to $138,940 in
2008 To Date relating to the sub-lease of a portion of our Florida office and our former
New York sales office. Sub-lease revenue includes base rent, additional rent pertaining to
utilities and occupancy costs and certain telephony, technology and facility services
provided by us to certain of our sub-tenants.
 o
    
    On February 21, 2008 we entered into a sub-lease agreement with a third
party whereby the third party sub-leased approximately 5,200 square feet of our
Deerfield Beach office space beginning March 1, 2008 through February 28, 2009.
This sub-lease agreement was amended and restated on October 3, 2008 to increase the
sub-leased square footage to 13,900 and extend the lease term through January 31,
2010.o
    
    On October 1, 2008 we entered into a sub-lease agreement with a third
party whereby the third party sub-leased approximately 8,000 square feet of our
Deerfield Beach office space beginning October 15, 2008 through January 31, 2010.
On July 1, 2009 we entered into a sub-lease agreement with a third party effective
July 15, 2009, which terminated an existing sub-lease agreement for approximately
8,000 square feet of our Deerfield Beach office and replaced it with a sub-lease
agreement of approximately 29,952 square feet. This sub-lease terminates on
February 28, 2011. In accordance with this sub-lease agreement we recognize base
rent, additional rent representing a portion of certain actual occupancy expenses
for our Deerfield Beach office and certain telephony, technology and facility
services provided to our sub-tenant.o
    
    On April 17, 2008 we entered into a sub-lease agreement with a third
party whereby the third party agreed to sub-lease our New York office space for the
balance of our sublease agreement and pay us sub-lease payments essentially equal to
our costs under the sublease agreement. The third party commenced paying
sub-sublease payments to us in September 2008; however the third party failed to pay
its December 2008 and subsequent rent when due. We were a beneficiary to a letter
of credit in the amount of $151,503, which we had drawn against as a result of the
third partys failure to pay its rent when due. On July 23, 2009 we entered into a
settlement agreement with the third party whereby we cancelled the sub-lease, the
third party surrendered the sub-leased premises back to us and we and the third
party each released each other from all claims.
  
    
    The primary reason for the decrease in operating expenses of discontinued operations is
attributable to the cessation of direct marketing and selling activities in the first
quarter of 2009.
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##### 




    
    During the first quarter of 2009 we determined certain long term assets were impaired as
a result of the cessation of direct marketing and sales in the Telesales call center. We
recorded expense in 2009 to write-off the value of these long term assets, which included
property and equipment net of depreciation of $416,764, intangible assets net of
accumulated amortization acquired from ISG of $1,200,428 and the value of internet domain
name www.healthbenefitsdirect.com net of accumulated amortization of $22,389.
    
    During the second quarter we recorded $2,031,210 rent expense related to the
non-cancelable lease for the abandoned portion of the Deerfield Beach office. Effective
September 30, 2009, we have accrued $1,951,504 related to the non-cancelable lease for the
abandoned portion of the Deerfield Beach office, which is net present value of our future
lease payments through March 31, 2011 and consideration for early termination due under the
lease plus managements estimate of contractually required expenses pertaining to the
Deerfield Beach office, which are estimated to be $3,210,938, less a portion of the
Deerfield Beach office used in operations, which is estimated to be $107,971, less future
sub-lease revenue, which is estimated to be $1,148,727.
 Gain (loss) from discontinued operations
  Other income (expenses)
   Net loss
     Page 57




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##### 




    
    Increases in accounts receivable of $440,411, which is primarily the result of
increased billings to certain of InsPro Technologies clients.
    
    Increases in accrued expenses of $365,109, which is the result of accrued severance as
a result of the Separation of Employment and General Release Agreement with Mr. Eissa.
    
    Decreases in liabilities of discontinued operations of $1,409,421, which is primarily
the result of the repayment and assumption of certain unearned commission advances as a
result of the sale of our Telesales call center produced agency business, which was
partially offset by the accrual of the non-cancelable lease for the abandoned portion of
the Deerfield Beach office.
  
    
    Recorded stock-based compensation and consulting expense of $450,227 (compared to
$1,571,243 in the nine months ended September 30, 2008).
    
    Recorded depreciation and amortization expense of $859,103 (compared to $759,285 in the
nine months ended September 30, 2008).
    
    We recorded $1,639,581 pertaining to the impairment of certain long lived assets of our
discontinued operations (compared to $384,555 in the nine months ended September 30,
2008).
    
    We recorded $2,489 pertaining to the provision for bad debts (compared to $63,851 in the
nine months ended September 30, 2008).
  Page 58




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##### 




    
    In first quarter 2009, we completed a private placement with Co-Investment and issued
1,000,000 shares of our Preferred Stock and warrants to purchase 1,000,000 shares of our
Preferred Stock. Our gross proceeds were $4,000,000 and we incurred $15,617 of legal and
other expenses paid in connection with this 2009 private placement.
    
    In first quarter 2008, we completed a private placement with certain institutional
accredited investors and issued 6,250,000 shares of our common stock and warrants to
purchase 6,250,000 shares of our common stock. Our gross proceeds were $5,000,000 and we
incurred $70,238 of legal and other expenses in connection with this private placement.
    
    Our InsPro Technologies business segment has entered into several capital lease
obligations to purchase equipment used for operations.
 Liquidity Considerations
      Page 59




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##### 



Off-Balance Sheet Arrangements
   Guarantee of Indebtedness by the Company to Third Parties Pertaining to Unearned Commission
Advances Paid to Non-employee ISG Agents
  License Agreement With Realtime Solutions Group
   Page 60




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##### 



Item 4T. Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures
   (b) Change in Internal Control over Financial Reporting.
  Page 61




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##### 



PART II.
OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
     Page 62




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##### 



Item 6.
    
    Exhibits
 Exhibit No.
    
    Description31.1*
    
    Chief Executive Officers Rule 13a-14(a)/15d-14(a) Certification *31.2*
    
    Chief Financial Officers Rule 13a-14(a)/15d-14(a) Certification *32.1*
    
    Chief Executive Officers Section 1350 Certification 32.2*
    
    Chief Financial Officers Section 1350 Certification 
 
 *
    
    Filed herewith.
    
    Furnished herewith. Page 63




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##### 



SIGNATURES
  Date: November 16, 2009
    HEALTH BENEFITS DIRECT CORPORATIONBy:
    /s/ ANTHONY R. VERDIAnthony R. VerdiChief Financial Officer and Chief Operating Officer
(Principal Executive and Financial Officer) Page 64




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##### 



EXHIBIT INDEX
 Exhibit No.
    
    Description31.1*
    
    Principal Executive Officers Rule 13a-14(a)/15d-14(a) Certification *31.2*
    
    Chief Financial Officers Rule 13a-14(a)/15d-14(a) Certification *32.1*
    
    Principal Executive Officers Section 1350 Certification 32.2*
    
    Chief Financial Officers Section 1350 Certification 
 
 *
    
    Filed herewith.
    
    Furnished herewith. Page 65