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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 Form 10-QSB
  þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 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. Employer Identification No.)Incorporation or Organization)
 (Address of Principal Executive Offices)
 (Issuers Telephone Number, Including Area Code)
 (Former name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 þ o
 o þ
  o þ




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##### 



PagePART I  FINANCIAL INFORMATIONItem 1  Consolidated Financial StatementsConsolidated Balance Sheet
As of March 31, 2007 (Unaudited)
    
    
    3Consolidated Statements of Operations (Unaudited)
For the Three Months Ended March 31, 2007 and 2006
    
    
    4Consolidated Statements of Changes in Shareholders Equity (Unaudited)
for the Three Months Ended March 31, 2007
    
    
    5Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 2007 and 2006
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2 Managements Discussion and Analysis or Plan of Operation
    
    
    29Item 3  Controls and Procedures
    
    
    39PART II  OTHER INFORMATIONItem 6 - Exhibits
    
    
    40Signatures
    
    
    41Certificate of the Chief Executive OfficerCertificate of the Chief Financial OfficerCertificate of the Chief Executive Officer, required by rule 13a-14(b)Certificate of the Chief Financial Officer, required by rule 13a-14(b)
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HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEET
 March 31, 2007 
(Unaudited)
 ASSETSCURRENT ASSETS:Cash
    
    $
    9,156,487Accounts
receivable, less allowance for doubtful accounts of $1,258
    
    
    1,409,693Amount receivable from escrow agent
    
    
    4,165,000Deferred compensation advances
    
    
    897,083Prepaid expenses
    
    
    94,841Other current assets
    
    
    27,021Total current assets
    
    
    15,750,125Restricted cash
    
    
    1,150,000Property and equipment, net of accumulated depreciation of $650,478
    
    
    1,521,321Intangibles, net of accumulated amortization of $2,080,844
    
    
    3,889,932Other assets
    
    
    144,683Total assets
    
    $
    22,456,061LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    1,024,600Amount payable to private placement investor
    
    
    562,500Accrued expenses
    
    
    1,405,431Due to related parties
    
    
    39,163Unearned commission advances
    
    
    7,063,736Total current liabilities
    
    
    10,095,430SHAREHOLDERS EQUITY:Preferred stock ($.001 par value; 10,000,000 shares authorized;
no shares issued and outstanding)
    
    
    Common stock ($.001 par value; 90,000,000 shares authorized;
34,061,471 shares issued and outstanding
    
    
    34,061Additional paid-in capital
    
    
    35,952,015Accumulated deficit
    
    
    (21,534,754
    )Deferred compensation
    
    
    (2,090,691
    )Total shareholders equity
    
    
    12,360,631Total liabilities and shareholders equity
    
    $
    22,456,061
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HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three Months EndedMarch 31,2007
    
    
    2006(Unaudited)
    
    
    (Unaudited)Revenues
    
    $
    4,513,015
    
    
    $
    1,268,307Operating Expenses:Salaries, commission and related taxes
    
    
    4,093,920
    
    
    
    1,831,550Lead, advertising and other marketing
    
    
    1,861,584
    
    
    
    602,273Depreciation and amortization
    
    
    551,106
    
    
    
    69,271Rent, utilities, telephone and communications
    
    
    650,739
    
    
    
    251,619Professional fees
    
    
    260,307
    
    
    
    368,308Other general and administrative
    
    
    404,121
    
    
    
    324,7677,821,777
    
    
    
    3,447,788Loss from operations
    
    
    (3,308,762
    )
    
    
    (2,179,481
    )Other income (expense):Registration rights penalty reversal
    
    
    
    
    
    
    60,537Interest income
    
    
    49,078
    
    
    
    112,278Interest expense
    
    
    (8,814
    )
    
    
    (5,693
    )Total other income (expense)
    
    
    40,264
    
    
    
    167,122Net loss
    
    $
    (3,268,498
    )
    
    $
    (2,012,359
    )Net loss per common share:Net loss per common share  basic and diluted
    
    $
    (0.11
    )
    
    $
    (0.08
    )Weighted average common shares outstanding 
basic and diluted
    
    
    28,896,388
    
    
    
    25,903,138
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HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 
 STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
 FOR THREE MONTHS ENDED MARCH 31, 2007
 (Unaudited)
 Common Stock, $ .001Par Value
    
    Additional
    
    
    
    
    
    
    
    
    
    TotalNumber of
    
    
    
    
    
    Paid-in
    
    Accumulated
    
    Deferred
    
    ShareholdersShares
    
    Amount
    
    Capital
    
    Deficit
    
    Compensation
    
    EquityBalance  December 31, 2006
    
    
    28,586,471
    
    
    $
    28,586
    
    
    $
    24,479,129
    
    
    
    ($18,266,256
    )
    
    
    ($1,810,677
    )
    
    $
    4,430,782Common stock issued in private placement
    
    
    5,000,000
    
    
    
    5,000
    
    
    
    10,349,760
    
    
    
    
    
    
    
    
    
    
    
    10,354,760Issuance of restricted stock to employees
    
    
    250,000
    
    
    
    250
    
    
    
    749,750
    
    
    
    
    
    
    
    (750,000
    )
    
    
    Common stock issued upon exercise of warrants
    
    
    225,000
    
    
    
    225
    
    
    
    337,275
    
    
    
    
    
    
    
    
    
    
    
    337,500Issuance of stock options
    
    
    
    
    
    
    
    
    
    
    36,101
    
    
    
    
    
    
    
    
    
    
    
    36,101Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    469,986
    
    
    
    469,986Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,268,498
    )
    
    
    
    
    
    
    (3,268,498
    )Balance  March 31, 2007
    
    
    34,061,471
    
    
    $
    34,061
    
    
    $
    35,952,015
    
    
    
    ($21,534,754
    )
    
    
    ($2,090,691
    )
    
    $
    12,360,631
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HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the three months EndedMarch 31,2007
    
    
    2006(Unaudited)
    
    
    (Unaudited)Cash Flows From Operating Activities:Net loss
    
    $
    (3,268,498
    )
    
    $
    (2,012,359
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    551,106
    
    
    
    69,270Stock-based compensation and consulting
    
    
    514,861
    
    
    
    125,997Provision for bad debt
    
    
    (25,179
    )
    
    
    (285
    )Changes in assets and liabilities:Accounts receivable
    
    
    813,009
    
    
    
    (12,971
    )Deferred compensation advances
    
    
    (212,085
    )
    
    
    (107,008
    )Prepaid expenses
    
    
    4,379
    
    
    
    (377,888
    )Other current assets
    
    
    (16,010
    )
    
    
    (14,497
    )Other assets
    
    
    37,217
    
    
    
    (41,447
    )Accounts payable
    
    
    (135,654
    )
    
    
    107,645Accrued expenses
    
    
    (87,437
    )
    
    
    28,585Due to related parties
    
    
    (24,509
    )
    
    
    (8,998
    )Unearned commission advances
    
    
    1,908,619
    
    
    
    516,579Net cash provided by (used in) operating activities
    
    
    59,819
    
    
    
    (1,727,377
    )Cash Flows From Investing Activities:Purchase of property and equipment
    
    
    (176,403
    )
    
    
    (557,252
    )Purchase of intangible assets and capitalization of software development
    
    
    (193,710
    )
    
    
    (48,137
    )Net cash used in investing activities
    
    
    (370,113
    )
    
    
    (605,389
    )Cash Flows From Financing Activities:Gross proceeds from sales of common stock
    
    
    6,817,500
    
    
    
    6,450,000Gross proceeds from exercise of warrants
    
    
    337,500
    
    
    
    Placement and other fees paid in connection with offering
    
    
    
    
    
    
    (285,826
    )Net cash provided by financing activities
    
    
    7,155,000
    
    
    
    6,164,174Net increase in cash
    
    
    6,844,706
    
    
    
    3,831,408Cash  beginning of period
    
    
    2,311,781
    
    
    
    6,433,426Cash  end of period
    
    $
    9,156,487
    
    
    $
    10,264,834Supplemental Disclosures of Cash Flow InformationCash payments for interest
    
    $
    
    
    
    $
    28,305
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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
  Restricted cash
  Accounts receivable
   Page 8




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Property and equipment
  Intangible assets
   Impairment of long-lived assets
  Income taxes
  Page 9




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
   Loss per common share
  Options
    
    
    4,862,663Warrants
    
    
    10,825,00015,687,663
 Revenue recognition
   Page 10




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
     Deferred compensation advances
  Lead, advertising and other marketing expense
  Concentrations of credit risk
  Page 11




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
  Stock-based compensation
  Non-employee stock based compensation
  Registration rights agreements
    Page 12




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Recent accounting pronouncements
    Page 13




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




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ISG ACQUISITION (continued)
    Cash payment to seller
    
    $
    1,135,000Fair value of common stock issued to seller
    
    
    3,310,806Discounted value of future fixed payments of employment agreement
    
    
    225,212Fair value of stock option issued to seller
    
    
    425,381Estimated direct transaction fees and expenses
    
    
    57,930Estimated purchase price
    
    $
    5,154,329
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ISG ACQUISITION (continued)
  Cash
    
    $
    111,024Accounts receivable
    
    
    210,889Deferred compensation advances
    
    
    256,775Prepaid expenses and other assets
    
    
    957Property and equipment, net
    
    
    600Intangible assets
    
    
    4,964,330Accrued expenses
    
    
    (164,549
    )Unearned commission advances
    
    
    (225,697
    )$
    5,154,329
   For the Three MonthsEnded March 31,2007
    
    2006Revenues, net
    
    $
    4,513,015
    
    
    $
    1,703,020Net loss
    
    
    (3,268,498
    )
    
    
    (2,190,274
    )Net loss per common share  basic and diluted
    
    $
    (0.11
    )
    
    $
    (0.08
    )
 HEALTHPLAN CHOICE ASSET PURCHASE
   Page 16




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HEALTHPLAN CHOICE ASSET PURCHASE (continued)
 www.healthbenefitsdirect.com
 CONSULTING AGREEMENT WITH REAL IT GROUP LLC
    Page 17




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INTERNET DOMAIN NAME PURCHASE AND ASSIGNMENT AGREEMENT
 www.healthbenefitsdirect.com www.healthbenefitsdirect.com www.healthbenefitsdirect.com www.healthbenefitsdirect.com
  PROPERTY AND EQUIPMENT
  Useful Life (Years)Computer equipment and software
    
    3
    
    $
    569,070Phone equipment and software
    
    3
    
    
    728,891Office equipment
    
    5
    
    
    79,017Office furniture and fixtures
    
    7
    
    
    465,117Leasehold improvements
    
    10
    
    
    329,7042,171,799Less accumulated depreciation
    
    
    
    
    (650,478
    )$
    1,521,321
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INTANGIBLE ASSETS
  Useful Life(Years)Weighted averageISG intangible assets acquired
    
    4.5
    
    $
    4,964,338Software development costs
    
    1.8
    
    
    604,595Internet domain (www.healthbenefits.com)
    
    3.0
    
    
    161,2005,730,133Less: accumulated amortization
    
    
    
    
    (1,840,201
    )$
    3,889,932
   2007
    
    $
    1,104,7142008
    
    
    1,088,3252009
    
    
    910,2432010
    
    
    642,7512011
    
    
    143,899$
    3,889,932
 LINE OF CREDIT
  UNEARNED COMMISSION ADVANCES
  Page 19




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RELATED PARTY TRANSACTIONS
      SHAREHOLDERS EQUITY
 Common Stock
  Page 20




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SHAREHOLDERS EQUITY
       Page 21




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SHAREHOLDERS EQUITY (continued)
 Stock Options
      Page 22




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SHAREHOLDERS EQUITY (continued)
  Number
    
    WeightedOf Shares
    
    AverageUnderlying
    
    ExerciseOptions
    
    PriceOutstanding at December 31, 2006
    
    
    4,881,268
    
    
    $
    2.22Outstanding and exercisable at December 31, 2006
    
    
    2,074,352
    
    
    
    1.90For the three month period ended March 31, 2007Granted
    
    
    Exercised
    
    
    Forfeited
    
    
    18,605
    
    
    
    2.50Outstanding at March 31, 2007
    
    
    4,862,663
    
    
    
    2.22Outstanding and exercisable at March 31, 2007
    
    
    2,783,076
    
    
    $
    1.98
  Options Outstanding
    
    Options ExercisableWeightedNumber of Shares
    
    Average
    
    Weighted
    
    
    
    
    
    WeightedUnderlying
    
    Remaining
    
    Average
    
    Number
    
    AverageExercise
    
    Options at March
    
    Contractual
    
    Exercise
    
    Exercisable at
    
    ExercisePrice
    
    31, 2007
    
    Life
    
    Price
    
    March 31, 2007
    
    Price$  1.00
    
    
    1,550,000
    
    
    
    8.7
    
    
    $
    1.00
    
    
    
    1,195,828
    
    
    $
    1.002.50
    
    
    2,000,163
    
    
    
    8.6
    
    
    
    2.50
    
    
    
    922,248
    
    
    
    2.502.55
    
    
    25,000
    
    
    
    4.3
    
    
    
    2.55
    
    
    
    
    
    
    
    2.62
    
    
    20,000
    
    
    
    4.7
    
    
    
    2.62
    
    
    
    
    
    
    
    2.70
    
    
    425,000
    
    
    
    4.0
    
    
    
    2.70
    
    
    
    425,000
    
    
    $
    2.702.95
    
    
    45,000
    
    
    
    4.1
    
    
    
    2.95
    
    
    
    
    
    
    
    3.50
    
    
    150,000
    
    
    
    9.0
    
    
    
    3.50
    
    
    
    
    
    
    
    $  3.60
    
    
    647,500
    
    
    
    4.1
    
    
    $
    3.60
    
    
    
    240,000
    
    
    $
    3.604,862,663
    
    
    
    
    
    
    
    
    
    
    
    2,783,076
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SHAREHOLDERS EQUITY (continued)
 Common Stock warrants
     WeightedCommon
    
    AverageStock
    
    ExerciseWarrants
    
    PriceOutstanding at December 31, 2006
    
    
    8,200,000
    
    
    $
    1.50For the three month period ended March 31, 2007Granted
    
    
    2,850,000
    
    
    $
    2.98Exercised
    
    
    225,000
    
    
    $
    1.50Outstanding at March 31, 2007
    
    
    10,825,000
    
    
    $
    1.87Exercisable at March 31, 2007
    
    
    10,825,000
    
    
    $
    1.87
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SHAREHOLDERS EQUITY (continued)
 Registration Rights
   RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES
 Employment and Separation Agreements
   Page 25




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RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
     Restricted Cash and Operating Leases
   Page 26




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RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
 License Agreement With Realtime Solutions Group
     Registration Rights Agreements
   Other Commitments
  Page 27




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SUBSEQUENT EVENTS
 Settlement of Amounts Outstanding Pertaining to the 2007 Private Placement
  Waiver of Certain Registration Rights
  Consent and Lock-Up Agreement
  Exercise of Warrants
  Page 28




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FORWARD LOOKING STATEMENTS
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
      Page 29




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
  Cash payment to seller
    
    $
    1,135,000Fair value of common stock issued to seller
    
    
    3,310,806Discounted value of guaranteed future fixed
    
    
    225,212Fair value of stock option issued to seller
    
    
    425,381Estimated direct transaction fees and expenses
    
    
    57,930$
    5,154,329
  Cash
    
    $
    111,024Accounts receivable
    
    
    210,889Deferred compensation advances
    
    
    256,775Prepaid expenses and other assets
    
    
    957Property and equipment, net
    
    
    600Intangible assets
    
    
    4,964,330Accrued expenses
    
    
    (164,549
    )Unearned commission advances
    
    
    (225,697
    )$
    5,154,329
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
      
    
    In 2007 we earned revenues of $3,765,337 excluding revenue associated with ISG and lead
revenue as compared to $1,191,855 in 2006. The primary reasons for the increase is the
increase in number of licensed insurance agents employed by the Company from 47 at March
31, 2006 to 95 at March 31, 2007 and the increase of the number of insurance products being
sold. These amounts included non recurring bonuses from carriers, which were $217,181 and
$172,858 in 2007 and 2006, respectively.
    
    In 2007 we earned revenues of $515,051 relating to ISG as compared to $0 in 2006. We
acquired ISG during the second quarter of 2006.
    
    In 2007 we earned revenues of $232,627 relating to the sale of leads to third parties as
compared to $76,452 in 2006. We re-sell certain leads purchased in order to recoup a
portion of our lead cost. The primary reasons for the increase is an increased emphasis on
identifying leads suitable for sale and the increased number of leads purchased.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
   
    
    In 2007 we incurred salaries, commission and related taxes of $4,093,920 as compared to
$1,831,550 for 2006. Salaries, commission and related taxes consisted of the following:
 For the Three MonthsEnded March 31,2007
    
    
    2006Salaries, wages and bonuses
    
    $
    2,449,957
    
    
    $
    1,313,546Share based employee and director compensation
    
    
    506,086
    
    
    
    100,997Commissions to employees
    
    
    628,877
    
    
    
    233,438Commissions to non-employees
    
    
    115,672
    
    
    
    Employee benefits
    
    
    98,542
    
    
    
    1,180Payroll taxes
    
    
    259,453
    
    
    
    161,555Directors compensation
    
    
    35,333
    
    
    
    20,834Total
    
    $
    4,093,920
    
    
    $
    1,831,550
 
    
    Salaries and wages were $2,449,957 as compared to $1,313,546 for 2006, an increase of
$1,136,411 or 87%. This increase is the result of $100,000 of management bonuses paid in
2007 and the hiring of additional executive and administrative personnel employed by the
Company. The Company had 199 employees at March 31, 2007.
    
    Share based employee and director compensation expense was $506,086 in 2007 as compared
to $100,997 in 2006. Share based employee and director compensation consists 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. The increase in expense in 2007 as compared to 2006 is the result
of stock options and restricted stock granted subsequent to March 31, 2006.
    
    Commissions to employees in 2007 were $628,877 in 2007 as compared to $233,438 in 2006.
These increases were the result of an increase in sales that resulted in higher sales
commission expense.
    
    Commissions to non employees were $115,672 in 2007 as compared to $0 in 2006.
Effective April 3, 2006 as a result of the ISG acquisition the Company now incurs
commission expense to non employees, who are independent licensed insurance agents. ISGs
revenue is the result of the sale of health insurance products sold through independent
insurance agents. Unlike the Companys employee licensed insurance agents, the Companys
only material expense pertaining to independent insurance agents are commissions.
    
    Employee benefits expense was $98,542 in 2007 as compared to $1,180 in 2006. The
Company implemented an expanded employee benefits package during 2006 and further enhanced
employee benefits in 2007 with the addition of a 401(k) plan, which includes group
medical, dental and life insurance coverage. The employee pays the majority of the cost
of group insurance coverage.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
 
    
    Payroll taxes expense was $259,453 in 2007 as compared to $161,555 in 2006. The
increase was the result of higher salaries, wages, bonuses and commissions to employees.
    
    Other compensation expense was $25,117 in 2007 as compared to $0 in 2006. The increase
was the result of additional compensation incentives to employees.
    
    Directors compensation increased as a result of the adoption of a new director
compensation plan.
    
    Lead, advertising and other marketing was $1,861,584 in 2007 as compared to $602,273 in
2006, an increase of $1,259,311 or 209%.
 
    
    In 2007 we had an increase in lead expense of $1,244,058 as compared to 2006. As
we increase the number of licensed agents we employ, we expect our lead expense to
increase in the future in order to facilitate the flow of quality leads to our sale
agents.
    
    In 2007 we had an increase in advertising and other marketing of $15,523 as
compared to 2006.
 §
    
    The Company has executed letters of authorization to a direct marketing
agency to spend $184,601 in certain direct mail advertising during 2007.
Through March 31, 2007 the Company has paid $40,520 in connection with these
letters of authorization of which $25,000 was expensed and $15,520 was
recorded as prepaid marketing expenses.§
    
    During 2006 the company incurred expense in connection with a Marketing
Services Agreement with SendTec, Inc. (SendTec). Paul Soltoff, a director
of the Company, is the Chief Executive Officer of SendTec. SendTec provided
certain marketing and advertising services.
 
    
    Depreciation and amortization expense was $551,106 in 2007 as compared to $69,271 in
2006. Depreciation and amortization expense consisted of the following:
 For the Three MonthsEnded March 31,2007
    
    
    2006Amortization of intangibles acquired as a
result of the ISG acquisition
    
    $
    344,093
    
    
    $
    Amortization of software and website
development
    
    
    55,137
    
    
    
    15,128Amortization of Internet domain name
    
    
    13,433
    
    
    
    Depreciation expense
    
    
    138,443
    
    
    
    54,143Total
    
    $
    551,106
    
    
    $
    69,271
 
    
    In 2007 we incurred amortization expense of $344,093 for the intangible assets acquired
from ISG. The ISG acquisition was effective April 3, 2006. Accordingly there is no
amortization in 2006. The intangible assets acquired from ISG represent the value of
purchased commission override revenue with an assigned value of $1,411,594 amortized over
five years in proportion to expected future value, value of acquired carrier contracts and
agent relationships with an assigned value of $2,752,143 amortized straight line over the
expected useful life of 5 years and value of employment and non-compete agreement acquired
with an assigned value of $800,593 amortized straight line over a weighted average useful
life of 3.1 years.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
 
    
    In 2007 we incurred amortization expense of $55,137 compared to $15,128 in 2006 for the
software and website development. As of September 30, 2006, the Company determined that
intangible assets pertaining to the Companys former website were impaired. Expense in
2007 pertains to the Companys new web site whereas 2006 expense pertains to the Companys
old web site.
    
    In 2007 we incurred amortization expense of $13,433 pertaining to the Companys July
17, 2006 purchase of the Internet domain name www.healthbenefitsdirect.com. The fair
value of the Companys purchase price was estimated to be $161,200, which consisted of a
cash payment of $50,000 and 50,000 shares of our common stock, and are amortized straight
line over 36 months.
    
    In 2007 we incurred depreciation expense of $138,443 as compared to $54,143 in 2006
period. The increase pertains to the depreciation of fixed assets acquired subsequent to
March 31, 2006.
    
    In 2007 we incurred rent, utilities, telephone and communications expenses of $650,739
as compared to $251,619 in 2006, an increase of $399,120 or 159%. Rent, utilities,
telephone and communications expenses consisted of the following:
 For the Three MonthsEnded March 31,2007
    
    
    2006Rent, utilities and other occupancy
    
    $
    446,074
    
    
    $
    167,929Telephone and communications
    
    
    204,665
    
    
    
    83,690Total
    
    $
    650,739
    
    
    $
    251,619
 
    
    In 2007 we had increases in rent, utilities and other occupancy as compared to 2006
attributable to the cost of new and larger facilities. In March 2006, we relocated our
Florida office into a larger facility and entered into a lease for a larger New York sales
office. We relocated our New York sales office in the third quarter of 2006. In
November, 2006 we moved our corporate offices in Radnor to a new and larger office.
    
    In 2007 we had an increase in telephone and communications expense as compared to 2006
due to the increase in the number of sales agents.
    
    In 2007 we incurred professional fees of $260,307 as compared to $368,308 in 2006, a
decrease of $108,001. The decrease was attributable to declines in legal, recruiting and
investor relations fees, which is attributable to hiring of legal and recruiting staff
thus reducing the need for outside services and lower investor relations fees.
    
    In 2007 we incurred other general and administrative expenses of $404,121 as compared
to $324,767 in 2006, an increase of $79,354 or 24%. Other general and administrative
expenses consisted of the following:
 For the Three MonthsEnded March 31,2007
    
    
    2006Licensing and permit fees
    
    $
    117,116
    
    
    $
    129,148Travel and entertainment
    
    
    77,793
    
    
    
    73,612Office expense
    
    
    196,615
    
    
    
    102,866Other
    
    
    12,597
    
    
    
    19,141Total
    
    $
    404,121
    
    
    $
    324,767
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
 
    
    In 2007 we had an increase in office expense as compared to 2007 due to increase in
office space and operations.
    
    In 2007 we had a decrease in other expense primarily due to lower equipment maintenance
and lower bad debt expense.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
    
    
    Decreases in accounts receivable of $813,009 related to the collection of bonus
commissions earned in the fourth quarter of 2006, increased unearned commission advances
and to a lesser extent increased earned revenues;
    
    Increases in deferred compensation advances of $212,085. We have advanced commissions
relating to the advanced commissions the Company has received from insurance carriers. The
deferred compensation advances are charged to expense in proportion to the Companys
recognition of unearned commissions as revenue;
    
    Decrease in accounts payable of $135,654 relating to the payment of amounts owned for
lead, advertising and other marketing expenses.
    
    Decreases in accrued expenses of $87,437 relating to primarily to decreased salaries,
wages, commissions and severance accrual;
    
    Increases in unearned commission advances of $1,908,618 relating to increased revenues
from certain of the Companys insurance carriers that advance the Company future
commission revenue. The Company has agreements with certain of its insurance carriers
whereby the Companys insurance carriers advance the Company first year premium
commissions before the commissions are earned. The unearned portion of premium
commissions has been included in the consolidated balance sheet as a liability for
unearned commission advances. These advance agreements represent a material source of
cash to fund the Companys operations. The Companys advance agreement with its largest
insurance carrier cannot exceed $9,000,000, can be terminated by either party and in the
event of termination the Companys outstanding advance balance can be called by the
insurance carrier with 7 days written notice. As of March 31, 2007, the Companys
outstanding advance balance with this carrier was $5,311,582. The Companys advance
agreement with its second largest insurance carrier allows the insurance carrier to
terminate future advances and convert the outstanding advance balance into a promissory
note, which if not repaid within 30 days, would incur interest expense. As of March 31,
2007, the Companys outstanding advance balance with this carrier was $1,693,860.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
  
    
    Recorded $506,086 of stock-based compensation and consulting expense. Effective January
1, 2006, we adopted the provisions of SFAS No. 123(R), Share-Based Payment, under the
modified prospective method. SFAS No. 123(R) eliminates accounting for share-based
compensation transactions using the intrinsic value method prescribed under APB Opinion No.
25, Accounting for Stock Issued to Employees, and requires instead that such transactions
be accounted for using a fair-value-based method. Under the modified prospective method, we
are required to recognize compensation cost for share-based payments to employees based on
their grant-date fair value from the beginning of the fiscal period in which the
recognition provisions are first applied.
    
    On February 15, 2007, the Company granted 125,000 restricted shares of Common Stock to
each of Charles A. Eissa, the Companys President and Chief Operating Officer, and Ivan M.
Spinner, the Companys Senior Vice President, in accordance with the terms of the Companys
2006 Omnibus Equity Compensation Plan (the Plan). The shares granted to Messrs. Eissa
and Spinner were valued at $3.00 per share and will vest as follows: 50,000 shares on
February 15, 2008; 50,000 additional shares on February 15, 2009; 2,083 shares per month on
the 15th day of each month thereafter beginning on March 15, 2009 through January 15, 2010;
and 2,087 shares on February 15, 2010. The expense pertaining to these restricted stock
grants is included in the aforementioned stock based compensation and consulting expense.
   
    
    In 2007 we completed a private placement with certain institutional and individual
accredited investors and issued 5,000,000 shares of our Common Stock, par value $0.001 per
share and warrants to purchase 2,500,000 shares of our Common Stock. We received
$6,817,500, which represented a portion of the gross proceeds of $6,255,000 together with
an overpayment of $562,500 from one investor. We recorded the issuance of the Units,
amounts receivable from private placement escrow agent of $4,165,000, which represents
$4,995,000 gross proceeds net of placement agents fees and expenses of $830,000, and
amounts payable to private placement investor of $562,500. On April 2, 2007 we received
the amounts receivable from private placement escrow agent and we paid the amounts payable
to private placement investor.
    
    In 2007 certain holders of the Companys warrants exercised their warrants to purchase
in aggregate 225,000 shares of the Companys common stock at an exercise price of $1.50 per
share and the Company received $337,500.
    
    In 2006 the Company completed a private placement, which began in 2005. During the
first quarter of 2006 we received net proceeds from the sale of common stock of $6,164,174.
   
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ITEM 3. CONTROLS AND PROCEDURES
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PART II  OTHER INFORMATION
 
 Item 6. Exhibits
 Exhibit No
    
    Description31.1
    
    Certificate of the Chief Executive Officer of Health Benefits Direct Corporation
required by rule 13a-14(a) under the Exchange Act.31.2
    
    Certificate of the Chief Financial Officer of Health Benefits Direct Corporation
required by rule 13a-14(a) under the Exchange Act.32.1
    
    Certificate of the Chief Executive Officer of Health Benefits Direct Corporation
required by rule 13a-14(b) under the Exchange Act.32.2
    
    Certificate of the Chief Financial Officer of Health Benefits Direct Corporation
required by rule 13a-14(b) under the Exchange Act.
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HEALTH BENEFITS DIRECT CORPORATIONDated: May 15, 2007
    By:
    /s/ ALVIN H. CLEMENSAlvin H. ClemensChairman and Chief Executive Officer
(Principal Executive Officer)Dated: May 15, 2007
    By:
    /s/ ANTHONY R. VERDIAnthony R. VerdiChief Financial Officer
(Principal Financial and Accounting Officer) Page 41