##### Table of Contents



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 June 30, 2008
 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
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company þ 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 June 30, 2008 (UNAUDITED) and
December 31, 2007
    
    
    3Consolidated Statements of Operations (UNAUDITED) for the three and
six months ended June 30, 2008 and 2007
    
    
    4Consolidated Statements of Changes in Shareholders Equity (UNAUDITED)
for the six months Ended June 30, 2008
    
    
    5Consolidated Statements of Cash Flows (UNAUDITED) for the six months
ended June 30, 2008 and 2007
    
    
    6Notes to Consolidated UNAUDITED Financial Statements
    
    
    7Item 2
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    36Item 4T
    
    Controls and Procedures
    
    
    63PART IIOTHER INFORMATIONItem 1
    
    Legal Proceedings
    
    
    64Item 6
    
    Exhibits
    
    
    64Signatures
    
    
    65Principal Executive Officer's Rule 13a-14(a)/15d-14(a) CertificationChief Financial Officer's Rule 13a-14(a)/15d-14(a) CertificationPrincipal Executive Officer's Section 1350 CertificationChief Financial Officer's Section 1350 Certification
  Page 2




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##### Table of Contents



PART I.
FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
 June 30, 2008
    
    
    December 31, 2007(Unaudited)
    
    
    (1)ASSETSCURRENT ASSETS:Cash
    
    $
    5,781,065
    
    
    $
    5,787,585Accounts receivable, less allowance for doubtful
accounts $0 and $59,106
    
    
    1,334,939
    
    
    
    1,720,014Tax receivable
    
    
    36,212
    
    
    
    Deferred compensation advances
    
    
    252,261
    
    
    
    578,372Prepaid expenses
    
    
    279,575
    
    
    
    182,087Other current assets
    
    
    12,808
    
    
    
    22,285Total current assets
    
    
    7,696,860
    
    
    
    8,290,343Restricted cash
    
    
    1,150,000
    
    
    
    1,150,000Property and equipment, net of accumulated depreciation
$1,441,280 and $1,115,562
    
    
    1,325,543
    
    
    
    1,592,480Intangibles, net of accumulated amortization
$3,856,483 and $3,108,771
    
    
    4,154,672
    
    
    
    5,095,960Other assets
    
    
    164,142
    
    
    
    165,871Total assets
    
    $
    14,491,217
    
    
    $
    16,294,654LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    1,369,062
    
    
    $
    1,483,064Accrued expenses
    
    
    1,631,313
    
    
    
    1,406,641Current portion of capital lease obligations
    
    
    44,332
    
    
    
    14,707Sub-tenant security deposit
    
    
    7,301
    
    
    
    Due to related
parties
    
    
    
    
    
    
    28,500Unearned
commission
advances
    
    
    6,139,886
    
    
    
    8,450,585Deferred revenue
    
    
    60,000
    
    
    
    209,125Income tax
payable
    
    
    
    
    
    
    157,288Total
current
liabilities
    
    
    9,251,894
    
    
    
    11,749,910LONG TERM LIABILITIES:Capital
lease
obligations
    
    
    128,505
    
    
    
    44,241Total
long
term
liabilities
    
    
    128,505
    
    
    
    44,241SHAREHOLDERS 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;41,354,645 and 34,951,384
shares issued and
outstanding
    
    
    41,354
    
    
    
    34,951Additional paid-in
capital
    
    
    43,136,010
    
    
    
    36,868,409Accumulated deficit
    
    
    (38,066,546
    )
    
    
    (32,402,857
    )Total
shareholders
equity
    
    
    5,110,818
    
    
    
    4,500,503Total liabilities and
shareholders equity
    
    $
    14,491,217
    
    
    $
    16,294,654
  
 (1)
    
    Derived from audited financail statements. Page 3




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HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Revenues
    
    $
    6,394,436
    
    
    $
    5,143,393
    
    
    $
    12,782,457
    
    
    $
    9,656,408Operating expenses:Salaries, commission and related taxes
    
    
    4,178,714
    
    
    
    3,821,704
    
    
    
    9,955,700
    
    
    
    7,915,624Lead, advertising and other marketing
    
    
    1,070,765
    
    
    
    1,934,069
    
    
    
    3,069,498
    
    
    
    3,795,653Depreciation and amortization
    
    
    607,714
    
    
    
    561,978
    
    
    
    1,323,430
    
    
    
    1,113,084Rent, utilities, telephone and communications
    
    
    689,691
    
    
    
    613,713
    
    
    
    1,501,679
    
    
    
    1,264,452Professional fees
    
    
    668,381
    
    
    
    633,421
    
    
    
    1,197,108
    
    
    
    893,728Loss on impairment of property and equipment
    
    
    
    
    
    
    
    
    
    
    88,922
    
    
    
    Loss on impairment of intangible asset
    
    
    
    
    
    
    
    
    
    
    295,633
    
    
    
    Other general and administrative
    
    
    532,252
    
    
    
    402,015
    
    
    
    1,050,696
    
    
    
    806,1367,747,517
    
    
    
    7,966,900
    
    
    
    18,482,666
    
    
    
    15,788,677Loss from operations
    
    
    (1,353,081
    )
    
    
    (2,823,507
    )
    
    
    (5,700,209
    )
    
    
    (6,132,269
    )Other income (expense):Interest income
    
    
    22,229
    
    
    
    123,569
    
    
    
    52,735
    
    
    
    172,647Interest expense
    
    
    (11,605
    )
    
    
    (7,201
    )
    
    
    (16,215
    )
    
    
    (16,015
    )Total other income (expense)
    
    
    10,624
    
    
    
    116,368
    
    
    
    36,520
    
    
    
    156,632Net loss
    
    $
    (1,342,457
    )
    
    $
    (2,707,139
    )
    
    $
    (5,663,689
    )
    
    $
    (5,975,637
    )Net loss per common share:Net loss per common share  basic and diluted
    
    $
    (0.03
    )
    
    $
    (0.08
    )
    
    $
    (0.15
    )
    
    $
    (0.19
    )Weighted average common shares outstanding  basic and diluted
    
    
    41,808,004
    
    
    
    34,084,273
    
    
    
    38,410,827
    
    
    
    31,504,662
  Page 4




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HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FOR SIX MONTHS ENDED JUNE 30, 2008
(Unaudited)
 Common Stock, $.001Par Value
    
    
    
    
    
    
    
    
    
    TotalNumber of
    
    
    
    
    
    Additional
    
    Accumulated
    
    ShareholdersShares
    
    Amount
    
    Paid-in Capital
    
    Deficit
    
    EquityBalance  December 31, 2007
    
    $
    34,951,384
    
    
    $
    34,951
    
    
    $
    36,868,409
    
    
    $
    (32,402,857
    )
    
    $
    4,500,503Common stock issued in private placement
    
    
    6,250,000
    
    
    
    6,250
    
    
    
    4,923,512
    
    
    
    
    
    
    
    4,929,762Common stock issued to directors as compensation
    
    
    174,010
    
    
    
    174
    
    
    
    228,826
    
    
    
    
    
    
    
    229,000Return of restricted stock from employees in payment of withholding tax
    
    
    (20,749
    )
    
    
    (21
    )
    
    
    (27,368
    )
    
    
    
    
    
    
    (27,389
    )Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    1,142,631
    
    
    
    
    
    
    
    1,142,631Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,663,689
    )
    
    
    (5,663,689
    )Balance  December 31, 2008
    
    $
    41,354,645
    
    
    $
    41,354
    
    
    $
    43,136,010
    
    
    $
    (38,066,546
    )
    
    $
    5,110,818
  Page 5




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HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Six Months EndedJune 30,2008
    
    
    2007(Unaudited)
    
    
    (Unaudited)Cash Flows From Operating Activities:Net loss
    
    $
    (5,663,689
    )
    
    $
    (5,975,637
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    1,323,430
    
    
    
    1,113,084Stock-based compensation and consulting
    
    
    1,371,632
    
    
    
    835,688Loss on impairment of property and equipment
    
    
    88,922
    
    
    
    Loss on impairment of intangible assets
    
    
    295,633
    
    
    
    Provision for bad debt
    
    
    63,850
    
    
    
    620Changes in assets and liabilities:Accounts receivable
    
    
    321,225
    
    
    
    879,580Tax receivable
    
    
    (36,212
    )
    
    
    Deferred compensation advances
    
    
    326,111
    
    
    
    (176,140
    )Prepaid expenses
    
    
    (97,488
    )
    
    
    (191,441
    )Other current assets
    
    
    9,477
    
    
    
    (30,926
    )Other assets
    
    
    1,729
    
    
    
    (147,205
    )Accounts payable
    
    
    (114,002
    )
    
    
    60,020Accrued expenses
    
    
    199,668
    
    
    
    57,589Sub-tenant security deposit
    
    
    7,301
    
    
    
    Due to related parties
    
    
    (28,500
    )
    
    
    (63,672
    )Unearned commission advances
    
    
    (2,310,699
    )
    
    
    2,229,195Deferred revenue
    
    
    (149,125
    )
    
    
    Income tax payable
    
    
    (157,288
    )
    
    
    Net cash used in operating activities
    
    
    (4,548,025
    )
    
    
    (1,409,245
    )Cash Flows From Investing Activities:Purchase of property and equipment
    
    
    (234,945
    )
    
    
    (352,986
    )Purchase of intangible assets and capitalization of
software development
    
    
    (267,202
    )
    
    
    (260,862
    )Net cash used in investing activities
    
    
    (502,147
    )
    
    
    (613,848
    )Cash Flows From Financing Activities:Gross proceeds from capital leases
    
    
    126,097
    
    
    
    Payments on capital leases
    
    
    (12,207
    )
    
    
    Gross proceeds from sales of common stock
    
    
    5,000,000
    
    
    
    11,250,000Gross proceeds from exercise of warrants
    
    
    
    
    
    
    393,750Placement and other fees paid in connection with offering
    
    
    (70,238
    )
    
    
    (895,240
    )Net cash provided by financing activities
    
    
    5,043,652
    
    
    
    10,748,510Net increase (decrease) in cash
    
    
    (6,520
    )
    
    
    8,725,417Cash  beginning of the year
    
    
    5,787,585
    
    
    
    2,311,781Cash  end of the period
    
    $
    5,781,065
    
    
    $
    11,037,198Supplemental Disclosures of Cash Flow InformationCash payments for income taxes
    
    $
    193,500
    
    
    $
    
  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)
 Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed.
 Impairment of long-lived assets
    Page 10




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
  Income taxes
  Loss per common share
  Options
    
    
    5,139,575Warrants
    
    
    17,524,18622,663,761
 Revenue recognition
  Page 11




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Telesales segment revenue recognition
      Atiam segment revenue recognition
   Page 12




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
  Software
Revenue Recognition
   Deferred compensation advances
  Lead, advertising and other marketing expense
  Page 13




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Concentrations of credit risk
   Stock-based compensation
  Non-employee stock based compensation
  Registration rights agreements
  Page 14




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
  Recent accounting pronouncements
   
    
    Recognizes and measures in its financial statements the identifiable assets acquired,
the liabilities assumed, and any noncontrolling interest in the acquiree;
    
    Recognizes and measures the goodwill acquired in the business combination or a gain from
a bargain purchase; and
    
    Determines what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination.
  
    
    The ownership interests in subsidiaries held by parties other than the parent be clearly
identified, labeled, and presented in the consolidated statement of financial position
within equity, but separate from the parents equity.
    
    The amount of consolidated net income attributable to the parent and to the
noncontrolling interest be clearly identified and presented on the face of the consolidated
statement of income.
 Page 15




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NOTE 1  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
 
    
    Changes in a parents ownership interest while the parent retains its controlling
financial interest in its subsidiary be accounted for consistently. A parents ownership
interest in a subsidiary changes if the parent purchases additional ownership interests in
its subsidiary or if the parent sells some of its ownership interests in its subsidiary. It
also changes if the subsidiary reacquires some of its ownership interests or the subsidiary
issues additional ownership interests. All of those transactions are economically similar,
and this Statement requires that they be accounted for similarly, as equity transactions.
    
    When a subsidiary is deconsolidated, any retained noncontrolling equity investment in
the former subsidiary be initially measured at fair value. The gain or loss on the
deconsolidation of the subsidiary is measured using the fair value of any noncontrolling
equity investment rather than the carrying amount of that retained investment.
    
    Entities provide sufficient disclosures that clearly identify and distinguish between
the interests of the parent and the interests of the noncontrolling owners.
   The Hierarchy of Generally Accepted Accounting Principles Accounting Changes and Error Corrections The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.
  Page 16




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
  ISG ACQUISITION
   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
  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
 Page 17




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##### Table of Contents



ISG ACQUISITION (continued)
  ACQUISITION OF ATIAM
    Page 18




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ACQUISITION OF ATIAM
    Cash payments to sellers
    
    $
    1,350,000Fair value of common stock issued to sellers
    
    
    1,650,006Estimated direct transaction fees and expenses
    
    
    80,738Estimated purchase price
    
    $
    3,080,744
 Page 19




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##### Table of Contents



ACQUISITION OF ATIAM (continued)
  Cash
    
    $
    608,534Accounts receivable
    
    
    643,017Prepaid expenses & other assets
    
    
    22,623Property and equipment, net
    
    
    158,819Other assets
    
    
    3,401Intangible assets
    
    
    2,097,672Accounts payable
    
    
    (34,278
    )Accrued expenses
    
    
    (122,675
    )Income taxes payable
    
    
    (157,288
    )Deferred revenue
    
    
    (120,000
    )Long and short term capital lease obligations
    
    
    (19,081
    )$
    3,080,744
    For the SixMonths EndedJune 30,2007Revenues, net
    
    $
    11,156,564Net loss
    
    
    (5,920,044
    )Net loss per common share  basic and diluted
    
    $
    (0.18
    )
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##### Table of Contents



ACQUISITION OF ATIAM (continued)
  PROPERTY AND EQUIPMENT
  Useful Life
    
    
    
    
    
    At December 31,(Years)
    
    At June 30, 2008
    
    
    2007Computer equipment and
software
    
    
    3
    
    
    $
    1,178,094
    
    
    $
    967,347Phone equipment and software
    
    
    3
    
    
    
    726,535
    
    
    
    726,535Office equipment
    
    
    3
    
    
    
    62,503
    
    
    
    89,485Office furniture and fixtures
    
    
    6.8
    
    
    
    595,951
    
    
    
    575,450Leasehold improvements
    
    
    9.8
    
    
    
    203,740
    
    
    
    349,2252,766,823
    
    
    
    2,708,042Less accumulated depreciation
    
    
    
    
    
    
    (1,441,280
    )
    
    
    (1,115,562
    )$
    1,325,543
    
    
    $
    1,592,480
  21




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INTANGIBLE ASSETS
  Useful Life (Years)
    
    At June 30,
    
    At DecemberWeighted average
    
    2008
    
    31, 2007ISG intangible assets acquired
    
    
    4.7
    
    
    $
    4,964,338
    
    
    $
    4,964,338Atiam intangible assets acquired
    
    
    4.7
    
    
    
    2,097,672
    
    
    
    2,097,672Software development costs for internal use
    
    
    2.6
    
    
    
    638,289
    
    
    
    981,521Software development costs for external
marketing
    
    
    2
    
    
    
    149,656
    
    
    
    Internet domain
(www.healthbenefitsdirect.com)
    
    
    3.0
    
    
    
    161,200
    
    
    
    161,2008,011,155
    
    
    
    8,204,731Less: accumulated amortization
    
    
    
    
    
    
    (3,856,483
    )
    
    
    (3,108,771
    )$
    4,154,672
    
    
    $
    5,095,960
   2008
    
    $
    877,1952009
    
    
    1,504,2682010
    
    
    1,034,9572011
    
    
    478,2012012
    
    
    260,051$
    4,154,672
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UNEARNED COMMISSION ADVANCES
  RELATED PARTY TRANSACTIONS
   
    
    Keystone Equities Group, L.P provided the Company investment advisory services in 2007
at a cost of $53,572. John Harrison, a director of the Company, is associated with
Keystone Equities Group, L.P. The Company paid Keystone Equities Group, L.P $28,572 in
2007, recorded a related party liability of $25,000 as of December 31, 2007, which was
subsequently paid in 2008.
    
    SendTec, Inc. (SendTec) provided certain marketing and advertising services in 2007 at
a cost of $14,950. Paul Soltoff, a director of the Company, is the Chief Executive Officer
of SendTec. The Company paid SendTec $32,741 in 2007 and recorded a related party
liability of $3,500 as of December 31, 2007, which was subsequently paid in 2008.
 23




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SHAREHOLDERS EQUITY
 Common Stock
 2007
        24




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SHAREHOLDERS EQUITY (continued)
 2008
     Stock Options
  25




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SHAREHOLDERS EQUITY (continued)
      Number
    
    
    WeightedOf Shares
    
    
    Average
    
    
    WeightedUnderlying
    
    
    Exercise
    
    
    AverageOptions
    
    
    Price
    
    
    Fair ValueOutstanding at December 31, 2007
    
    
    4,832,000
    
    
    $
    2.23
    
    
    $
    0.89For the period ended June 30, 2008Granted
    
    
    570,000
    
    
    
    1.01
    
    
    
    0.57Exercised
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    262,425
    
    
    
    3.46
    
    
    
    2.78Outstanding at June 30, 2008
    
    
    5,139,575
    
    
    
    2.03
    
    
    
    0.76Outstanding and exercisable at June 30, 2008
    
    
    4,524,440
    
    
    $
    2.02
    
    
    $
    0.69
 Page 26




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##### Table of Contents



SHAREHOLDERS EQUITY (continued)
  Expected volatility
    
    
    67
    %Risk-free interest rate
    
    
    1.42
    %Expected life in years
    
    
    5Assumed dividend yield
    
    
    0
    %
  Options Outstanding
    
    Options ExercisableWeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageExercise
    
    Number of Shares
    
    Contractual
    
    Exercise
    
    
    
    
    
    ExercisePrice
    
    Underlying Options
    
    Life
    
    Price
    
    Number Exercisable
    
    Price$
    0.78
    
    

    10,000
    

    
    4.8
    
    
    $
    0.78
    
    
    
    
    
    
    $
    1.00
    
    

    1,550,000
    

    
    7.4
    
    
    
    1.00
    
    
    
    1,550,000
    
    
    
    1.001.01
    
    

    550,000
    

    
    9.8
    
    
    
    1.01
    
    
    
    341,666
    
    
    
    1.011.05
    
    

    10,000
    

    
    3.7
    
    
    
    1.05
    
    
    
    
    
    
    
    2.13
    
    

    15,000
    

    
    4.4
    
    
    
    2.13
    
    
    
    
    
    
    
    2.30
    
    

    5,000
    

    
    4.1
    
    
    
    2.30
    
    
    
    
    
    
    
    2.50
    
    

    1,776,000
    

    
    4.2
    
    
    
    2.50
    
    
    
    1,629,644
    
    
    
    2.502.55
    
    

    25,000
    

    
    3.0
    
    
    
    2.55
    
    
    
    8,250
    
    
    
    2.552.62
    
    

    20,000
    

    
    3.5
    
    
    
    2.62
    
    
    
    6,600
    
    
    
    2.622.70
    
    

    475,000
    

    
    2.8
    
    
    
    2.70
    
    
    
    441,500
    
    
    
    2.702.95
    
    

    45,000
    

    
    2.8
    
    
    
    2.95
    
    
    
    29,700
    
    
    
    2.953.00
    
    

    108,575
    

    
    3.9
    
    
    
    3.00
    
    
    
    35,830
    
    
    
    3.003.50
    
    

    150,000
    

    
    7.8
    
    
    
    3.50
    
    
    
    81,250
    
    
    
    3.50$
    3.60
    
    

    400,000
    

    
    2.8
    
    
    $
    3.60
    
    
    
    400,000
    
    
    $
    3.605,139,575
    

    
    
    
    
    
    
    
    
    
    4,524,440
   Page 27




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##### Table of Contents






SHAREHOLDERS EQUITY (continued)
 Common Stock warrants
    WeightedCommon
    
    
    AverageStock
    
    
    ExerciseWarrants
    
    
    PriceOutstanding at December 31, 2007
    
    
    10,750,000
    
    
    $
    1.89For the period ended June 30, 2008
Granted
    
    
    6,250,000
    
    
    
    0.80Adjustment to warrants issued in 2007
for the issuance of warrants in 2008
    
    
    524,186
    
    
    
    2.48Exercised
    
    
    
    
    
    
    Outstanding at June 30, 2008
    
    
    17,524,186
    
    
    $
    1.45Exercisable at June 31, 2008
    
    
    17,524,186
    
    
    $
    1.45
 Page 28




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##### Table of Contents



SHAREHOLDERS EQUITY (continued)
  CommonStock
    
    Exercise

    Year ofWarrants
    
     Price

     Expiration3,887,500
    
    

    $1.50
    


    20083,937,500
    
    

    1.50
    


    200975,000
    
    

    1.50
    


    20103,024,186
    
    

    2.48
    


    2012350,000
    
    

    2.80
    


    20106,250,000
    
    

    $0.80
    


    201317,524,186
  Registration Rights
    Page 29




---



##### Table of Contents



CAPTIAL LEASE OBLIGATIONS
   Useful Life (Years)Computer equipment and software
    
    
    3
    
    
    $
    171,900Phone System
    
    
    3
    
    
    
    15,011186,911Less accumulated depreciation
    
    
    
    
    
    
    (23,819
    )$
    163,092
  2008
    
    $
    29,8202009
    
    
    62,8322010
    
    
    61,5862011
    
    
    44,7592012
    
    
    12,847Total future payments
    
    
    211,844Less amount representing interest
    
    
    39,007Present value of future minimum payments
    
    
    172,836Less current portion
    
    
    44,332Long-term portion
    
    $
    128,505
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##### Table of Contents



DEFINED CONTRIBUTION 401(k) PLAN
  RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES
 Employment and Separation Agreements
    Page 31




---



##### Table of Contents



RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
       Restricted Cash and Operating Leases
  Page 32




---



##### Table of Contents



RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
    Litigation
  License Agreement With Realtime Solutions Group
   Page 33




---



##### Table of Contents



RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
   SEGMENT INFORMATION
   For the Six Months
    
    For the Six MonthsEnded June 30, 2008
    
    Ended June 30, 2007Telesales
    
    Atiam
    
    Total
    
    Telesales
    
    Atiam
    
    TotalRevenue
    
    $
    10,137,667
    
    
    $
    2,644,790
    
    
    $
    12,782,457
    
    
    $
    9,656,408
    
    
    
    
    
    
    $
    9,656,408Gain (loss) from operations
    
    $
    (5,539,051
    )
    
    $
    (161,158
    )
    
    $
    (5,700,209
    )
    
    $
    (6,132,269
    )
    
    
    
    
    
    $
    (6,132,269
    )June 30, 2008
    
    December 31, 2007Total assets
    
    $
    10,562,043
    
    
    $
    3,929,174
    
    
    $
    14,491,217
    
    
    $
    12,492,539
    
    
    
    3,802,117
    
    
    $
    16,294,656
 Page 34




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##### Table of Contents



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
    Page 35




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
        Page 36




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##### Table of Contents



Software
Revenue Recognition
   Page 37




---



##### Table of Contents



Results of Operations for the Telesales and Atiam Business Segments
  Page 38




---



##### Table of Contents



Revenues
  For the Three MonthsEnded June 30,2008
    
    
    2007Commission revenue from carriers excluding periodic bonuses and ISG
    
    $
    4,455,789
    
    
    $
    4,123,839Periodic bonus revenue from carriers
    
    
    9,874
    
    
    
    295,432ISG commission revenue
    
    
    375,595
    
    
    
    460,812Lead sale revenue
    
    
    103,176
    
    
    
    263,310Insurint technology fees
    
    
    50,000
    
    
    
    Sub-lease and other revenue
    
    
    40,535
    
    
    
    Telesales business segment
    
    
    5,034,969
    
    
    
    5,143,393Consulting and implementation services
    
    
    967,173
    
    
    
    ASP revenue
    
    
    293,294
    
    
    
    Maintenance revenue
    
    
    99,000
    
    
    
    Atiam business segment
    
    
    1,359,467
    
    
    
    Total
    
    $
    6,394,436
    
    
    $
    5,143,393
 
    
    In Second Quarter 2008 we earned commission revenue from carriers excluding periodic
bonuses and ISG revenues of $4,455,788 as compared to $4,123,839 in Second Quarter 2007.
 
    
    We had 63 licensed insurance agent employees at June 30, 2008 as compared
to 96 at June 30, 2007 and 118 at December 31, 2007.
    
    In early March of 2008 we closed our New York sales office, which
accounted for approximately 20% of the Companys sales activity for the year ended
December 31, 2007. We also reduced sales and sales support staff in our Florida
office. Management believes the closure of the New York sales office and the other
staff reductions in Florida will result in the reduced expenses in excess of reduced
revenue. As a result of the closure, we terminated 34 licensed sales agents and
eliminated eight open licensed sales positions, which were vacated subsequent to
December 31, 2007.
 
    
    In Second Quarter 2008 we earned periodic bonuses from carriers of $9,874 as compared to
$295,432 in Second Quarter 2007. The Telesales segment receives bonuses from certain
carriers, which are based primarily on the Telesales segments sales performance and
criteria established by carriers and generally do not extend beyond the current calendar
year. Accordingly we cannot determine what criteria, if any, may be offered by its
carriers pertaining to bonuses beyond the current calendar year.
 
    
    In Second Quarter 2008 we earned revenue of $375,595 relating to ISG as compared to
$460,812 in Second Quarter 2007. ISG revenue declined as a result of excess lapsation of
inforce business that was caused by significant rate increases implemented by a carrier no
longer actively sold by the Telesales segment, and to a lesser extent reduced commission
rates earned by the Telesales segment on new and inforce business.
 Page 39




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##### Table of Contents




    
    In Second Quarter 2008 we earned revenue of $103,176 relating to the sale of leads to
third parties as compared to $263,310 in Second Quarter 2007. We re-sell certain leads
purchased in order to recoup a portion of our lead cost. The primary reason for the
decrease in lead sales revenue is a decrease in lead cost spending, which results in a
reduced number of leads available for sale and to a lesser extent better targeting of leads
purchased, which results in fewer leads available for resale.
    
    In Second Quarter 2008 we earned revenue of $50,000 relating to Insurint technology
fees. The Companys Insurint subsidiary provides a proprietary, professional-grade, web
based agent portal to support and assist insurance agents in the business of marketing and
selling health insurance and related products. Insurints technology fees commenced in
Second Quarter 2008.
 Total Operating Expenses
  For the Three MonthsEnded June 30,2008
    
    
    2007Telesales business segment
    
    $
    6,187,863
    
    
    $
    7,966,900Atiam business segment
    
    
    1,559,654
    
    
    
    Total
    
    $
    7,747,517
    
    
    $
    7,966,900
  For the Three MonthsEnded June 30,2008
    
    
    2007Salaries, commission and related taxes
    
    $
    3,269,281
    
    
    $
    3,821,704Lead, advertising and other marketing
    
    
    1,065,267
    
    
    
    1,934,069Depreciation and amortization
    
    
    461,504
    
    
    
    561,978Rent, utilities, telephone and communications
    
    
    635,819
    
    
    
    613,713Professional fees
    
    
    390,298
    
    
    
    633,421Other general and administrative
    
    
    365,694
    
    
    
    402,015Total
    
    $
    6,187,863
    
    
    $
    7,966,900
 Page 40




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##### Table of Contents




    
    In early March 2008 we closed our New York sales office, which accounted for
approximately 20% of the Companys sales activity for the year ended December 31, 2007. We
also reduced sales and sales support staff in our Florida office. Management believes the
closure of the New York sales office and the other staff reductions in Florida will result
in the reduced expenses in excess of reduced revenue. As a result of the closure, we
terminated 47 employees and eliminated 16 open positions, which were vacated subsequent to
December 31, 2007. Lead, advertising and other marketing cost decreased as a result of
reductions in sales staff and to a lesser extent marketing and sales efficiency
improvements.
    
    Salaries, wages and related taxes for the Second Quarter of 2008 included approximately
$0.3 million of non-recurring charges pertaining to the resignation of the Companys former
CEO.
  For the Three MonthsEnded June 30,2008
    
    
    2007Salaries, commission and related taxes
    
    $
    909,433
    
    
    $
    Lead, advertising and other marketing
    
    
    5,498
    
    
    
    Depreciation and amortization
    
    
    146,210
    
    
    
    Rent, utilities, telephone and communications
    
    
    53,872
    
    
    
    Professional fees
    
    
    278,083
    
    
    
    Other general and administrative
    
    
    166,558
    
    
    
    Total
    
    $
    1,559,654
    
    
    $
    
 Other income (expenses)
   Net loss
  Page 41




---



##### Table of Contents



Results of Operations for Telesales Business Segment
 Revenues
  For the Three MonthsEnded June 30,2008
    
    
    2007Commission revenue from carriers excluding periodic bonuses and ISG
    
    $
    4,455,789
    
    
    $
    4,123,839Periodic bonus revenue from carriers
    
    
    9,874
    
    
    
    295,432ISG commission revenue
    
    
    375,595
    
    
    
    460,812Lead sale revenue
    
    
    103,176
    
    
    
    263,310Insurint technology fees
    
    
    50,000
    
    
    
    Sub-lease and other revenue
    
    
    40,535
    
    
    
    Total
    
    $
    5,034,969
    
    
    $
    5,143,393
 
    
    In Second Quarter 2008 we earned commission revenue from carriers excluding periodic
bonuses and ISG revenues of $4,455,788 as compared to $4,123,839 in Second Quarter 2007.
 
    
    We had 63 licensed insurance agent employees at June 30, 2008 as compared
to 96 at June 30, 2007 and 118 at December 31, 2007.
    
    In early March 2008 we closed our New York sales office, which accounted
for approximately 20% of the Companys sales activity for the year ended December
31, 2007. We also reduced sales and sales support staff in our Florida office.
Management believes the closure of the New York sales office and the other staff
reductions in Florida will result in the reduced expenses in excess of reduced
revenue. As a result of the closure, we terminated 34 licensed sales agents and
eliminated eight open licensed sales positions, which were vacated subsequent to
December 31, 2007.
 
    
    In Second Quarter 2008 we earned periodic bonuses from carriers of $9,874 as compared to
$295,432 in Second Quarter 2007. The Telesales segment receives bonuses from certain
carriers, which are based primarily on the Telesales segments sales performance and
criteria established by carriers and generally do not extend beyond the current calendar
year. Accordingly we cannot determine what criteria, if any, may be offered by its
carriers pertaining to bonuses beyond the current calendar year.
    
    In Second Quarter 2008 we earned revenue of $375,595 relating to ISG as compared to
$460,812 in Second Quarter 2007. ISG revenue declined as a result of excess lapsation of
inforce business that was caused by significant rate increases implemented by a carrier no
longer actively sold by the Telesales segment, and to a lesser extent reduced commission
rates earned by the Telesales segment on new and inforce business.
 Page 42




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##### Table of Contents




    
    In Second Quarter 2008 we earned revenue of $103,176 relating to the sale of leads to
third parties as compared to $263,310 in Second Quarter 2007. We re-sell certain leads
purchased in order to recoup a portion of our lead cost. The primary reason for the
decrease in lead sales revenue is a decrease in lead cost spending, which results in a
reduced number of leads available for sale and to a lesser extent better targeting of leads
purchased, which results in fewer leads available for resale.
    
    In Second Quarter 2008 we earned revenue of $50,000 relating to Insurint technology
fees. The Companys Insurint subsidiary provides a proprietary, professional-grade, web
based agent portal to support and assist insurance agents in the business of marketing and
selling health insurance and related products. Insurints technology fees commenced in
Second Quarter 2008.
 Total Operating Expenses
  
    
    Salaries, commission and related taxes consisted of the following:
 For the Three Months Ended June 30,2008
    
    
    2007Salaries, wages and bonuses
    
    $
    1,962,591
    
    
    $
    2,339,549Share based employee and
director compensation
    
    
    516,944
    
    
    
    309,127Commissions to employees
    
    
    386,795
    
    
    
    674,961Commissions to non-employees
    
    
    100,571
    
    
    
    93,966Employee benefits
    
    
    84,572
    
    
    
    119,665Payroll taxes
    
    
    175,979
    
    
    
    202,392Severance and other compensation
    
    
    13,329
    
    
    
    49,211Directors compensation
    
    
    28,500
    
    
    
    32,833Total
    
    $
    3,269,281
    
    
    $
    3,821,704
 
    
    Salaries and wages were $1,962,591 in Second Quarter 2008 as compared to
$2,339,549 in Second Quarter 2007, a
decrease of $376,958 or 16%. This decrease is the result of the reduced personnel
employed by the Telesales segment.
 
    
    The Telesales segment had 164 employees at June 30, 2008 as compared to
220 at June 30, 2007 and 253 at December 31, 2007.
    
    In early March of 2008 we closed our New York sales office, which
accounted for approximately 20% of the Companys sales activity for the year
ended December 31, 2007. We also reduced sales and sales support staff in
our Florida office. Management believes the closure of the New York sales
office and the other staff reductions in Florida will result in the reduced
expenses in excess of reduced revenue. As a result of the closure, we
terminated 47 employees and eliminated 16 open positions, which were vacated
subsequent to December 31, 2007.
 
    
    Share based employee and director compensation expense was $516,944 in Second
Quarter 2008 as compared to $309,127 in Second Quarter 2007.
 Page 43




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##### Table of Contents




    
    The increase in expense in Second Quarter 2008 as compared to Second
Quarter 2007 is the result of an option grant to Mr. Clemens. On March 31,
2008, the Board approved the grant of 550,000 incentive stock options to
Alvin H. Clemens, the Companys former Chief Executive Officer and current
Co-Chairman, under the Health Benefits Direct Corporation 2006 Omnibus Equity
Compensation Plan, in consideration of Mr. Clemens resignation as Chief
Executive Officer and the termination of his existing Amended and Restated
Employment Agreement, effective on April 1, 2008. This option has a term of
ten years, an exercise per share of $1.01 and will vest as follows: 300,000
shares on April 1, 2008; 20,833 on the first calendar day of each month from
May 1, 2008 through March 1, 2009 and 20,837 shares on April 1, 2009. The
Company recorded the entire fair value of this option as compensation expense
as of June 30, 2008.
    
    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.
 
    
    Commissions to employees were $386,795 in Second Quarter 2008 as compared to
$674,961 in Second Quarter 2007. This decrease was the result of a decrease in
sales that resulted in lower sales commission expense.
    
    Commissions to non employees were $100,571 in Second Quarter 2008 as compared to
$93,966 in Second Quarter 2007. We pay commissions to non employee ISG agents.
    
    Employee benefits expense was $84,572 in Second Quarter 2008 as compared to
$119,665 in Second Quarter 2007. This decrease is the result of the reduced
personnel employed by the Telesales segment. The Companys 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.
    
    Payroll taxes expense was $175,979 in Second Quarter 2008 as compared to $202,392
in Second Quarter 2007. The decrease was the result of lower salaries, wages,
bonuses and commissions to employees.
    
    Severance and other compensation expense was $13,329 in Second Quarter 2008 as
compared to $49,211 in Second Quarter 2007.
 
    
    Lead, advertising and other marketing was $1,065,2675 in Second Quarter 2008 as
compared to $1,934,069 in Second Quarter 2007, a decrease of $868,802 or 45% due primarily
to decrease in the number of leads purchased in Second Quarter 2008 compared to Second
Quarter 2007.
 
    
    Depreciation and amortization expense consisted of the following:
 For the Three Months Ended June 30,2008
    
    
    2007Amortization of intangibles
acquired as a result of the ISG
acquisition
    
    $
    259,926
    
    
    $
    319,807Amortization of software and
website development
    
    
    50,232
    
    
    
    81,360Amortization of internet domain
name
    
    
    13,433
    
    
    
    13,434Depreciation expense
    
    
    137,913
    
    
    
    147,377Total
    
    $
    461,504
    
    
    $
    561,978
 Page 44




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##### Table of Contents




    
    In Second Quarter 2008 we incurred amortization expense of $259,926 as compared to
$319,807 for the intangible assets acquired from ISG. 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 over five years in proportion to expected future value 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.
    
    In Second Quarter 2008 we incurred amortization expense of $50,232 compared to $81,360
in Second Quarter 2007 for software and website development.
    
    In Second Quarter 2008 we incurred depreciation expense of $137,913 as compared to
$147,377 in the Second Quarter 2007 period. The decrease pertains to the depreciation of
fixed assets of the New York Office.
    
    Rent, utilities, telephone and communications expenses consisted of the following:
 For the Three Months Ended June 30,2008
    
    
    2007Rent, utilities and other occupancy
    
    $
    471,609
    
    
    $
    443,017Telephone and communications
    
    
    164,210
    
    
    
    180,696Total
    
    $
    635,819
    
    
    $
    613,713
 
    
    In Second Quarter 2008 we had increases in rent, utilities and other occupancy as
compared to Second Quarter 2007 as a result of rent escalation provisions pertaining
to the Companys leased office space in Florida and New York.
    
    During the first quarter of 2008 the Company closed its sales office located in
New York. The Company anticipates subleasing its office space subject to the
approval of the buildings owner. Effective June 30, 2008, the Company has accrued
$89,772 related to the non-cancelable lease for the abandoned facilities, which is
net present value of the Companys future lease payments due under the remaining
lease term plus managements estimate of utility payments, which is estimated to be
$1 million, less managements estimate of potential future sub-lease revenue, which
is estimated to be $0.9 million.
 
    
    In Second Quarter 2008 we incurred professional fees of $390,298 as compared to
$633,421 in Second Quarter 2007. The decrease was primarily attributable to lower legal,
technology outsourcing fees and recruiting costs.
    
    Other general and administrative expenses consisted of the following:
 For the Three Months Ended June 30,2008
    
    
    2007Licensing and appointment fees
    
    $
    61,888
    
    
    $
    93,489Travel and entertainment
    
    
    34,732
    
    
    
    88,917Office expense
    
    
    148,948
    
    
    
    170,568Other
    
    
    120,126
    
    
    
    49,041Total
    
    $
    365,694
    
    
    $
    402,015
 
    
    We incur licensing and appointment costs associated with the licensing of our employee
insurance agents. The reduction in licensing cost is the result of the reduction in
licensed employees.
 Page 45




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##### Table of Contents




    
    In Second Quarter 2008 we had a decrease in travel and entertainment and office expense
as compared to Second Quarter 2007 due to the closing of the New York sales office.
    
    In Second Quarter 2008 we incurred other expense of $120,126 as compared to $49,041 in
Second Quarter 2007. The increase was attributable to bad debt expense pertaining to
certain ISG agents.
 Loss from operations
  Results of Operations for the Atiam Business Segment
 Revenues
  For the Three MonthsEnded June 30,2008
    
    
    2007Consulting and implementation services
    
    $
    967,173
    
    
    $
    ASP revenue
    
    
    293,294
    
    
    
    Maintenance revenue
    
    
    99,000
    
    
    
    Total
    
    $
    1,359,467
    
    
    $
    
 
    
    Consulting and implementation services are from four InsPro clients. Two clients are
implementing a software licensed application of InsPro, which are anticipated for
completion in 2008, whereas the remaining two clients are implementing ASP InsPro
applications, which are also anticipated to be completed in 2008. 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 Second Quarter 2008 we earned ASP revenue from five InsPro clients.
    
    In Second Quarter 2008 we earned software license revenue from a single InsPro client.
    
    In Second Quarter 2008 we earned maintenance revenues from two clients.
 Page 46




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##### Table of Contents



Total Operating Expenses
  
    
    Salaries, commission and related taxes consisted of the following:
 For the Three Months Ended June 30,2008
    
    
    2007Salaries, wages and bonuses
    
    $
    806,783
    
    
    $
    Employee benefits
    
    
    48,324
    
    
    
    Payroll taxes
    
    
    54,326
    
    
    
    Total
    
    $
    909,433
    
    
    $
    
 
    
    The Atiam business segment had 24 employees at June 30, 2008.
    
    Effective in First Quarter 2008 Atiam business segment employees are covered by
our employee benefit program.
 
    
    Lead, advertising and other marketing was $5,498 in the Second Quarter 2008 and
consisted of marketing and conference fees.
    
    Depreciation and amortization expense consisted of the following:
 For the Three Months Ended June 30,2008
    
    
    2007Amortization of intangibles
acquired as a result of the
Atiam acquisition
    
    $
    117,021
    
    
    $
    Depreciation expense
    
    
    29,189
    
    
    
    Total
    
    $
    146,210
    
    
    $
    
 
    
    In Second Quarter 2008 we incurred amortization expense of $117,021 for the
intangible assets acquired from Atiam. The Atiam acquisition was effective October 1,
2007. Intangible assets acquired from Atiam were assigned the following values:
 
    
    value of client contracts and relationships other than license with an
assigned value of $1,089,223 amortized straight line over five years
    
    value of purchased software for sale and licensing value with an assigned
value of $644,449 amortized straight line over five years
    
    employment and non-compete agreements acquired with an assigned value of
$364,000 amortized straight line over three years.
 
    
    In Second Quarter 2008 we incurred depreciation expense of $29,189 primarily from
assets acquired from Atiam.
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
    
    In Second Quarter 2008 we incurred rent, utilities, telephone and communications
expense, which consisted of the following:
 For the Three Months Ended June 30,2008
    
    
    2007Rent, utilities and other occupancy
    
    $
    38,022
    
    
    $
    Telephone and communications
    
    
    15,850
    
    
    
    Total
    
    $
    53,872
    
    
    $
    
 
    
    In Second Quarter 2008 we incurred professional fees of $278,083 which pertains
primarily to outsourced system development costs and to a lesser extent employee
recruiting services.
    
    In Second Quarter 2008 we incurred other general and administrative expenses, which
consisted of the following:
 For the Three Months Ended June 30,2008
    
    
    2007Office expenses
    
    $
    616
    
    
    $
    Travel and entertainment
    
    
    34,129
    
    
    
    Computer processing, hardware,
software and other
    
    
    131,815
    
    
    
    Total
    
    $
    166,560
    
    
    $
    
 
    
    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. Atiam 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 Atiam with hosting services for
our clients ASP production and test environments.
    
    We incur computer hardware and software cost, which consists of equipment rental and
software licensing and maintenance expenses.
 Loss from operations
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Revenues
  For the Six MonthsEnded June 30,2008
    
    
    2007Commission revenue from carriers excluding periodic bonuses and ISG
    
    $
    8,873,607
    
    
    $
    7,671,995Periodic bonus revenue from carriers
    
    
    82,457
    
    
    
    512,613ISG commission revenue
    
    
    791,071
    
    
    
    975,863Lead sale revenue
    
    
    287,495
    
    
    
    495,937Insurint technology fees
    
    
    50,000
    
    
    
    Sub-lease and other revenue
    
    
    53,037
    
    
    
    Telesales business segment
    
    
    10,137,667
    
    
    
    9,656,408Consulting and implementation services
    
    
    1,798,821
    
    
    
    ASP revenue
    
    
    541,969
    
    
    
    Sales of software licenses
    
    
    115,000
    
    
    
    Maintenance revenue
    
    
    189,000
    
    
    
    Atiam business segment
    
    
    2,644,790
    
    
    
    Total
    
    $
    12,782,457
    
    
    $
    9,656,408
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
    
    In 2008 we earned commission revenue from carriers excluding periodic bonuses and ISG
revenues of $8,873,606 as compared to $7,671,995 in 2007.
 
    
    We had 63 licensed insurance agent employees at June 30, 2008 as compared
to 96 at June 30, 2007 and 118 at December 31, 2007.
    
    In early March 2008 we closed our New York sales office, which accounted
for approximately 20% of the Companys sales activity for the year ended December
31, 2007. We also reduced sales and sales support staff in our Florida office.
Management believes the closure of the New York sales office and the other staff
reductions in Florida will result in the reduced expenses in excess of reduced
revenue. As a result of the closure, we terminated 34 licensed sales agents and
eliminated eight open licensed sales positions, which were vacated subsequent to
December 31, 2007.
 
    
    In 2008 we earned periodic bonuses from carriers of $82,457 as compared to $512,613 in
2007. The Telesales segment receives bonuses from certain carriers, which are based
primarily on the Telesales segments sales performance and criteria established by carriers
and generally do not extend beyond the current calendar year. Accordingly we cannot
determine what criteria, if any, may be offered by its carriers pertaining to bonuses
beyond the current calendar year.
    
    In 2008 we earned revenue of $791,071 relating to ISG as compared to $975,863 in 2007.
ISG revenue declined as a result of excess lapsation of inforce business that was caused by
significant rate increases implemented by a carrier no longer actively sold by the
Telesales segment, and to a lesser extent reduced commission rates earned by the Telesales
segment on new and inforce business.
    
    In 2008 we earned revenues of $287,495 relating to the sale of leads to third parties as
compared to $495,937 in 2007. We re-sell certain leads purchased in order to recoup a
portion of our lead cost.
    
    In Second Quarter 2008 we earned revenues of $50,000 relating to Insurint technology
fees. The Companys Insurint subsidiary provides a proprietary, professional-grade, web
based agent portal to support and assist insurance agents in the business of marketing and
selling health insurance and related products. Insurints technology fees commenced in
Second Quarter 2008.
 Total Operating Expenses
  For the Six MonthsEnded June 30,2008
    
    
    2007Telesales business segment
    
    $
    15,676,718
    
    
    $
    15,788,677Atiam business segment
    
    
    2,805,948
    
    
    
    Total
    
    $
    18,482,666
    
    
    $
    15,788,677
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For the Six MonthsEnded June 30,2008
    
    
    2007Salaries, commission and related taxes
    
    $
    8,318,708
    
    
    $
    7,915,624Lead, advertising and other marketing
    
    
    3,060,970
    
    
    
    3,795,653Depreciation and amortization
    
    
    1,041,869
    
    
    
    1,113,084Rent, utilities, telephone and communications
    
    
    1,402,516
    
    
    
    1,264,452Professional fees
    
    
    746,742
    
    
    
    893,728Loss on impairment of property and equipment
    
    
    88,922
    
    
    
    Loss on impairment of intangible asset
    
    
    295,633
    
    
    
    Other general and administrative
    
    
    721,358
    
    
    
    806,136Total
    
    $
    15,676,718
    
    
    $
    15,788,677
 
    
    Salaries, commissions and related taxes in 2008 included approximately $1.6 million of
non-recurring charges pertaining to the departure of certain executives and a director,
together with expenses related to the Companys closing of its New York office.
    
    Rent, utilities, telephone and communications in 2008 included $89,772 related to the
non-cancelable lease for the Companys former New York sales office, which is net present
value of the Companys future lease payments due under the remaining lease term plus
managements estimate of utility payments, which is estimated to be $1 million, less
managements estimate of potential future sub-lease revenue, which is estimated to be $0.9
million.
    
    During the first quarter of 2008 Telesales closed its sales office located in New York.
As of March 31, 2008, we determined that all furniture and lease-hold improvements located
at the New York sales office were impaired as a result of the office closure. During the
first quarter of 2008 the Company recorded $88,922 expense to write-down the value of these
assets to their net realizable value.
    
    During the first quarter of 2008 we determined that the portion of license fee paid by
Telesales for a commission system together with capitalized costs incurred to implement the
commission system was impaired as a result of the absence of definitive plans to implement
this system for internal use in Telesales. The Company recorded a $295,633 expense in the
First Quarter of 2008 to write-off the value of this asset.
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For the Six MonthsEnded June 30,2008
    
    
    2007Salaries, commission and related taxes
    
    $
    1,636,992
    
    
    $
    Lead, advertising and other marketing
    
    
    8,528
    
    
    
    Depreciation and amortization
    
    
    281,561
    
    
    
    Rent, utilities, telephone and communications
    
    
    99,163
    
    
    
    Professional fees
    
    
    450,366
    
    
    
    Other general and administrative
    
    
    329,338
    
    
    
    Total
    
    $
    2,805,948
    
    
    $
    
 Other income (expenses)
   Net loss
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Results of Operations for Telesales Business Segment
 Revenues
  For the Six MonthsEnded June 30,2008
    
    
    2007Commission revenue from carriers excluding periodic bonuses and ISG
    
    $
    8,873,607
    
    
    $
    7,671,995Periodic bonus revenue from carriers
    
    
    82,457
    
    
    
    512,613ISG commission revenue
    
    
    791,071
    
    
    
    975,863Lead sale revenue
    
    
    287,495
    
    
    
    495,937Insurint technology fees
    
    
    50,000
    
    
    
    Sub-lease and other revenue
    
    
    53,037
    
    
    
    Total
    
    $
    10,137,667
    
    
    $
    9,656,408
 
    
    In 2008 we earned commission revenue from carriers excluding periodic bonuses and ISG
revenues of $8,873,606 as compared to $7,671,995 in 2007.
 
    
    We had 63 licensed insurance agent employees at June 30, 2008 as compared
to 96 at June 30, 2007 and 118 at December 31, 2007.
    
    In early March 2008 we closed our New York sales office, which accounted
for approximately 20% of the Companys sales activity for the year ended December
31, 2007. We also reduced sales and sales support staff in our Florida office.
Management believes the closure of the New York sales office and the other staff
reductions in Florida will result in the reduced expenses in excess of reduced
revenue. As a result of the closure, we terminated 34 licensed sales agents and
eliminated eight open licensed sales positions, which were vacated subsequent to
December 31, 2007.
 
    
    In 2008 we earned periodic bonuses from carriers of $82,457 as compared to $512,613 in
2007. The Telesales segment receives bonuses from certain carriers, which are based
primarily on the Telesales segments sales performance and criteria established by carriers
and generally do not extend beyond the current calendar year. Accordingly we cannot
determine what criteria, if any, may be offered by its carriers pertaining to bonuses
beyond the current calendar year.
    
    In 2008 we earned revenue of $791,071 relating to ISG as compared to $975,863 in 2007.
ISG revenue declined as a result of excess lapsation of inforce business that was caused by
significant rate increases implemented by a carrier no longer actively sold by the
Telesales segment, and to a lesser extent reduced commission rates earned by the Telesales
segment on new and inforce business.
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
    
    In 2008 we earned revenues of $287,495 relating to the sale of leads to third parties as
compared to $495,937 in 2007. We re-sell certain leads purchased in order to recoup a
portion of our lead cost. The primary reason for the decrease in lead sales revenue is a
decrease in lead cost spending, which results in a reduced number of leads available for
sale and to a lesser extent better targeting of leads purchased, which results in fewer
leads available for resale.
    
    In 2008 we earned revenues of $50,000 relating to Insurint technology fees. The
Companys Insurint subsidiary provides a proprietary, professional-grade, web based agent
portal to support and assist insurance agents in the business of marketing and selling
health insurance and related products. Insurints technology fees commenced in Second
Quarter 2008.
 Total Operating Expenses
  
    
    Salaries, commission and related taxes consisted of the following:
 For the Six Months Ended June 30,2008
    
    
    2007Salaries, wages and bonuses
    
    $
    4,566,363
    
    
    $
    4,764,389Share based employee and director
compensation
    
    
    1,371,632
    
    
    
    815,213Commissions to employees
    
    
    1,118,305
    
    
    
    1,303,838Commissions to non-employees
    
    
    201,816
    
    
    
    209,638Employee benefits
    
    
    193,406
    
    
    
    218,207Payroll taxes
    
    
    449,392
    
    
    
    461,845Severance and other compensation
    
    
    374,009
    
    
    
    74,328Directors compensation
    
    
    43,785
    
    
    
    68,166Total
    
    $
    8,318,708
    
    
    $
    7,915,624
 
    
    Salaries and wages were $4,566,363 in 2008 as compared to $4,764,389 in 2007, a
decrease of $198,026 or 4%.
 
    
    This decrease is the result of the reduced personnel employed by the
Telesales segment.
    
    The Telesales segment had 164 employees at June 30, 2008 as compared to
220 at June 30, 2007 and 253 at December 31, 2007.
    
    In early March of 2008 we closed our New York sales office, which
accounted for approximately 20% of the Companys sales activity for the year
ended December 31, 2007. We also reduced sales and sales support staff in
our Florida office. Management believes the closure of the New York sales
office and the other staff reductions in Florida will result in the reduced
expenses in excess of reduced revenue. As a result of the closure, we
terminated 47 employees and eliminated 16 open positions, which were vacated
subsequent to December 31, 2007.
 
    
    Share based employee and director compensation expense was $1,371,632 in 2008 as
compared to $815,213 in 2007.
 
    
    The increase in 2008 as compared to 2007 was the result of an option grant
to Mr. Clemens and to a lesser extent stock granted to directors.
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
    
    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.
 
    
    Commissions to employees were $1,118,305 in 2008 as compared to $1,303,838 in
2007. This decrease was the result of a decrease in sales that resulted in lower
sales commission expense.
    
    Commissions to non employees were $201,816 in 2008 as compared to $209,638 in
2007. We pay commissions to non employee ISG agents.
    
    Employee benefits expense was $193,406 in 2008 as compared to $218,207 in 2007.
The Companys 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.
    
    Payroll taxes expense was $449,392 in 2008 as compared to $461,845 in 2007. The
decrease was the result of lower salaries, wages, bonuses and commissions to
employees.
    
    Severance and other compensation expense was $374,009 in 2008 as compared to
$74,328 in 2007. The increase was the result of accrued severance for Ivan Spinner.
 
    
    Lead, advertising and other marketing was $3,060,970 in 2008 as compared to $3,795,653
in 2007, a decrease of $734,683 or 19% due to decrease in the number of leads purchased in
2008 compared to 2007.
    
    Depreciation and amortization expense consisted of the following:
 For the Six Months Ended June 30,2008
    
    
    2007Amortization of intangibles
acquired as a result of the ISG
acquisition
    
    $
    565,365
    
    
    $
    663,900Amortization of software and
website development
    
    
    87,272
    
    
    
    136,497Amortization of internet domain
name
    
    
    26,867
    
    
    
    26,867Depreciation expense
    
    
    362,365
    
    
    
    285,820Total
    
    $
    1,041,869
    
    
    $
    1,113,084
 
    
    In 2008 we incurred amortization expense of $565,365 as compared to $663,900 for the
intangible assets acquired from ISG. 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
over five years in proportion to expected future value 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.
    
    In 2008 we incurred amortization expense of $87,272 compared to $136,497 in 2007 for
software and website development.
    
    In 2008 we incurred depreciation expense of $362,365 as compared to $285,820 in 2007.
The increase pertains to the impairment of furniture and equipment located at the
Companys former New York sales office.
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
    
    Rent, utilities, telephone and communications expenses consisted of the following:
 For the Six Months Ended June 30,2008
    
    
    2007Rent, utilities and other occupancy
    
    $
    1,045,847
    
    
    $
    879,091Telephone and communications
    
    
    356,669
    
    
    
    385,361Total
    
    $
    1,402,516
    
    
    $
    1,264,452
 
    
    In 2008 we had increases in rent, utilities and other occupancy as compared to
2007. During the first quarter of 2008 the Company closed its sales office located
in New York. The Company anticipates subleasing its office space subject to the
approval of the buildings owner. Effective June 30, 2008, the Company has accrued
$89,772 related to the non-cancelable lease for the abandoned facilities, which is
net present value of the Companys future lease payments due under the remaining
lease term plus managements estimate of utility payments, which is estimated to be
$1 million, less managements estimate of potential future sub-lease revenue, which
is estimated to be $0.9 million.
 
    
    In 2008 we incurred professional fees of $746,742 as compared to $893,728 in 2007. The
decrease was primarily attributable to lower legal fees, technology outsourcing fees and
recruiting fees.
    
    During the first quarter of 2008 Telesales closed its sales office located in New York.
As of March 31, 2008, we determined that all furniture and lease-hold improvements
located at the New York sales office were impaired as a result of the office closure.
During the first quarter of 2008 the Company recorded $88,922 expense to write-down the
value of these assets to their net realizable value.
    
    During the first quarter of 2008 we determined that the portion of license fee paid by
Telesales for a commission system together with capitalized costs incurred to implement
the commission system was impaired as a result of the absence of definitive plans to
implement this system for internal use in Telesales. The Company recorded a $295,633
expense in the First Quarter of 2008 to write-off the value of this asset.
    
    Other general and administrative expenses consisted of the following:
 For the Six Months Ended June 30,2008
    
    
    2007Licensing and appointment fees
    
    $
    187,618
    
    
    $
    210,605Travel and entertainment
    
    
    78,621
    
    
    
    166,710Office expense
    
    
    335,859
    
    
    
    367,183Other
    
    
    119,262
    
    
    
    61,638Total
    
    $
    721,360
    
    
    $
    806,136
 
    
    We incur licensing and appointment costs associated with the licensing of our employee
insurance agents. The reduction in licensing cost is the result of the reduction in
licensed employees.
    
    In 2008 we had a decrease in travel and entertainment and office expense as compared to
2007 due to the closing of the New York sales office.
    
    In Second Quarter 2008 we incurred other expense of $120,126 as compared to $49,041 in
Second Quarter 2007. The increase was attributable to bad debt expense pertaining to
certain ISG agents.
 56




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Loss from operations
  Results of Operations for the Atiam Business Segment
 Revenues
  For the Six MonthsEnded June 30,2008
    
    
    2007Consulting and implementation services
    
    $
    1,798,821
    
    
    $
    ASP revenue
    
    
    541,969
    
    
    
    Sales of software licenses
    
    
    115,000
    
    
    
    Maintenance revenue
    
    
    189,000
    
    
    
    Total
    
    $
    2,644,790
    
    
    $
    
  For the Six MonthsEnded June 30,2008
    
    
    2007Client 1
    
    $
    1,164,937
    
    
    $
    Client 2
    
    
    412,247
    
    
    
    Client 3
    
    
    362,343
    
    
    
    Client 4
    
    
    321,112Clients 5, 6, 7
    
    
    384,151$
    2,644,790
    
    
    $
    
 
    
    Consulting and implementation services are from four InsPro clients. Two clients are
implementing a software licensed application of InsPro, which are anticipated for
completion in 2008, whereas the remaining two clients are implementing ASP InsPro
applications, which are also anticipated to be completed in 2008. 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 2008 we earned ASP revenue from five InsPro clients.
    
    In 2008 we earned software license revenue from a single InsPro client.
    
    In we earned maintenance revenues from two clients.
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Total Operating Expenses
  
    
    Salaries, commission and related taxes consisted of the following:
 For the Six Months Ended June 30,2008
    
    
    2007Salaries, wages and bonuses
    
    $
    1,433,330
    
    
    $
    Employee benefits
    
    
    91,690
    
    
    
    Payroll taxes
    
    
    111,972
    
    
    
    Total
    
    $
    1,636,992
    
    
    $
    
 
    
    The Atiam business segment had 24 employees at June 30, 2008.
    
    Effective in First Quarter 2008 Atiam business segment employees are covered by
our employee benefit program.
 
    
    Lead, advertising and other marketing was $8,528 in 2008 and consisted of marketing and
conference fees.
    
    Depreciation and amortization expense consisted of the following:
 For the Six Months Ended June 30,2008
    
    
    2007Amortization of intangibles
acquired as a result of the Atiam
acquisition
    
    $
    234,041
    
    
    $
    Depreciation expense
    
    
    47,520
    
    
    
    Total
    
    $
    281,561
    
    
    $
    
 
    
    In 2008 we incurred amortization expense of $234,041 for the intangible assets
acquired from Atiam. The Atiam acquisition was effective October 1, 2007.
Intangible assets acquired from Atiam were assigned the following values:
 
    
    value of client contracts and relationships other than license with an
assigned value of $1,089,223 amortized straight line over five years
    
    value of purchased software for sale and licensing value with an assigned
value of $644,449 amortized straight line over five years
    
    employment and non-compete agreements acquired with an assigned value of
$364,000 amortized straight line over three years.
 
    
    In 2008 we incurred depreciation expense of $47,520 primarily from assets
acquired from Atiam.
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
    
    In 2008 we incurred rent, utilities, telephone and communications expense, which
consisted of the following:
 For the Six Months Ended June 30,2008
    
    
    2007Rent, utilities and other occupancy
    
    $
    67,017
    
    
    $
    Telephone and communications
    
    
    32,146
    
    
    
    Total
    
    $
    99,163
    
    
    $
    
 
    
    In 2008 we incurred professional fees of $452,491 which pertains primarily to
outsourced system development costs and to a lesser extent employee recruiting services.
    
    In 2008 we incurred other general and administrative expenses, which consisted of the
following:
 For the Six Months Ended June 30,2008
    
    
    2007Office expenses
    
    $
    1,995
    
    
    $
    Travel and entertainment
    
    
    67,335
    
    
    
    Computer processing, hardware,
software and other
    
    
    260,006
    
    
    
    Total
    
    $
    329,336
    
    
    $
    
 
    
    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. Atiam
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 Atiam with
hosting services for our clients ASP production and test environments.
    
    We incur computer hardware and software cost, which consists of equipment rental
and software licensing and maintenance expenses.
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Loss From Operations
         Page 60




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##### Table of Contents




    
    Decreases in unearned commission advances of $2,310,699 relating to decreased
commission payments 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 is contractually limited to a maximum of $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 June 30, 2008
the Companys outstanding advance balance with this carrier was $4,725,837. 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 June 30,
2008 the Companys outstanding advance balance with this carrier was $586,779. During the
third quarter of 2007, the Company began receiving advances of first year premium
commissions before the commissions are earned from its third largest insurance carrier.
The Companys understanding pertaining to the advance from this carrier is that the
carrier may terminate future advances and demand repayment of the outstanding unearned
commission advance balance if certain performance standards are not met. The Company and
this insurance carrier are working together on reaching an agreement pertaining to these
advances. As of June 30, 2008 the Companys outstanding advance balance with this carrier
was $620,907.
    
    Payment of $157,288 of income tax liabilities assumed as a result of our acquisition of
Atiam in 2007.
    
    Decreases in accounts receivable of $419,653 in 2008, which is the result of decreased
commission payments from certain of the Companys insurance carriers that advance the
Company future commission revenue.
  
    
    Recorded stock-based compensation and consulting expense of $1,371,632 and $835,688 in
2008 and 2007, respectively.
    
    Recorded depreciation and amortization expense of $1,323,430 and $1,113,084 in 2008 and
2007, respectively.
    
    As of March 31, 2008, we determined that all furniture and lease-hold improvements
located at our former New York sales office were impaired as a result of the office
closure. We recorded $88,922 expense to write-down the value of these assets to their net
realizable value.
    
    As of March 31, 2008, we determined that the portion of license fee paid by Telesales
for a commission system together with capitalized costs incurred to implement the
commission system was impaired as a result of the absence of definitive plans to implement
this system for internal use in Telesales. We recorded a $295,633 expense in 2008 to
write-off the value of this asset.
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
    
    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 the 2008 Private Placement.
    
    In First Quarter 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. Gross
proceeds were $11,250,000 and placement and other fees paid in connection with the 2007
private placement were $895,240.
    
    In 2008 the Companys Atiam business segment has entered into several capital lease
obligations to purchase equipment used for operations.
 Off-Balance Sheet Arrangements
   License Agreement With Realtime Solutions Group
     Page 62




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##### Table of Contents



Item 4T. Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures
   (b) Change in Internal Control over Financial Reporting.
  Page 63




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##### Table of Contents



PART II.
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 6. Exhibits
 ExhibitNo.
    
    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 64




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##### Table of Contents



SIGNATURES
  Date: August 14, 2008
    HEALTH BENEFITS DIRECT CORPORATIONBy:
    /s/ ANTHONY R. VERDIAnthony R. VerdiChief Financial Officer and Chief Operating Officer
(Principal Executive and Financial Officer) Page 65




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##### Table of Contents



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 66