##### 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 March 31, 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
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




---



##### 



HEALTH BENEFITS DIRECT CORPORATION
Form 10-Q Quarterly Report
INDEX
 PART IFINANCIALINFORMATIONItem 1
    
    Financial StatementsConsolidated Balance Sheets as of March 31, 2008 (unaudited) and
December 31, 2007
    
    
    
    3Consolidated Statements of Operations (unaudited) for the three
months ended March 31, 2008 and 2007
    
    
    
    4Consolidated Statements of Changes in Shareholders Equity (Unaudited)
for the three months Ended March 31, 2008
    
    
    
    5Consolidated Statements of Cash Flows (unaudited) for the three
months ended March 31, 2008 and 2007
    
    
    
    6Notes to Consolidated Financial Statements
    
    
    
    7Item 2
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    
    37Item 4T
    
    Controls and Procedures
    
    
    
    56PART IIOTHER INFORMATIONItem 1
    
    Legal Proceedings
    
    
    
    57Item 6
    
    Exhibits
    
    
    
    57Signatures
    
    
    
    58CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERCERTIFICATION OF CHIEF FINANCIAL OFFICERCERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERCERTIFICATION OF CHIEF FINANCIAL OFFICER
  Page 2




---



##### Table of Contents



PART I.
FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 2008
 March 31, 2008
    
    
    December 31, 2007(Unaudited)ASSETSCURRENT ASSETS:Cash
    
    $
    7,420,494
    
    
    $
    5,787,585Accounts
receivable, less allowance for doubtful accounts $35,080 and $59,106
    
    
    1,732,037
    
    
    
    1,720,014Tax receivable
    
    
    36,212
    
    
    
    Deferred compensation advances
    
    
    345,732
    
    
    
    578,372Prepaid expenses
    
    
    218,949
    
    
    
    182,087Other current assets
    
    
    12,193
    
    
    
    22,285Total current assets
    
    
    9,765,617
    
    
    
    8,290,343Restricted cash
    
    
    1,150,000
    
    
    
    1,150,000Property and equipment, net of accumulated depreciation $1,274,178 and $1,115,562
    
    
    1,348,983
    
    
    
    1,592,480Intangibles, net of accumulated amortization $3,416,560 and $3,108,771
    
    
    4,420,387
    
    
    
    5,095,960Other assets
    
    
    163,997
    
    
    
    165,871Total assets
    
    $
    16,848,984
    
    
    $
    16,294,654LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    986,835
    
    
    $
    1,483,064Accrued expenses
    
    
    1,579,788
    
    
    
    1,406,641Current portion of capital lease obligations
    
    
    22,776
    
    
    
    14,707Sub-tenant security deposit
    
    
    7,301
    
    
    
    Due to related parties
    
    
    
    
    
    
    28,500Unearned commission advances
    
    
    8,117,836
    
    
    
    8,450,585Deferred revenue
    
    
    128,875
    
    
    
    209,125Income tax payable
    
    
    
    
    
    
    157,288Total current liabilities
    
    
    10,843,411
    
    
    
    11,749,910LONG TERM LIABILITIES:Capital lease obligations
    
    
    69,242
    
    
    
    44,241Total long term liabilities
    
    
    69,242
    
    
    
    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; 41,255,635 and
34,951,384 shares issued and outstanding
    
    
    41,255
    
    
    
    34,951Additional paid-in capital
    
    
    42,619,165
    
    
    
    36,868,409Accumulated deficit
    
    
    (36,724,089
    )
    
    
    (32,402,857
    )Total shareholders equity
    
    
    5,936,331
    
    
    
    4,500,503Total liabilities and shareholders equity
    
    $
    16,848,984
    
    
    $
    16,294,654
  Page 3




---



##### Table of Contents



HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three Months EndedMarch 31,2008
    
    
    2007(Unaudited)
    
    
    (Unaudited)Revenues
    
    $
    6,388,021
    
    
    $
    4,513,015Operating expenses:Salaries, commission and related taxes
    
    
    5,776,986
    
    
    
    4,093,920Lead, advertising and other marketing
    
    
    1,998,733
    
    
    
    1,861,584Depreciation and amortization
    
    
    715,716
    
    
    
    551,106Rent, utilities, telephone and communications
    
    
    811,988
    
    
    
    650,739Professional fees
    
    
    528,727
    
    
    
    260,307Other general and administrative
    
    
    518,444
    
    
    
    404,12110,350,594
    
    
    
    7,821,777Loss from operations
    
    
    (3,962,573
    )
    
    
    (3,308,762
    )Other income (expense):Loss on impairment of property and equipment
    
    
    (88,922
    )
    
    
    Loss on impairment of intangible asset
    
    
    (295,633
    )
    
    
    Interest income
    
    
    30,506
    
    
    
    49,078Interest expense
    
    
    (4,610
    )
    
    
    (8,814
    )Total other income (expense)
    
    
    (358,659
    )
    
    
    40,264Net loss
    
    $
    (4,321,232
    )
    
    $
    (3,268,498
    )Net loss per common share:Net loss per common share  basic and diluted
    
    $
    (0.12
    )
    
    $
    (0.11
    )Weighted average common shares outstanding  basic and diluted
    
    
    35,467,010
    
    
    
    28,896,388
  Page 4




---



##### Table of Contents



HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FOR THREE MONTHS ENDED MARCH 31, 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
    
    
    75,000
    
    
    
    75
    
    
    
    128,925
    
    
    
    
    
    
    
    129,000Return of restricted stock
from employees in payment
of withholding tax
    
    
    (20,749
    )
    
    
    (21
    )
    
    
    (27,368
    )
    
    
    
    
    
    
    (27,389
    )Amortization of deferred
compensation
    
    
    
    
    
    
    
    
    
    
    725,687
    
    
    
    
    
    
    
    725,687Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,321,232
    )
    
    
    (4,321,232
    )Balance  March 31, 2008
    
    
    41,255,635
    
    
    $
    41,255
    
    
    $
    42,619,165
    
    
    $
    (36,724,089
    )
    
    $
    5,936,331
  Page 5




---



##### Table of Contents



HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Three Months EndedMarch 31,2008
    
    
    2007(Unaudited)
    
    
    (Unaudited)Cash Flows From Operating Activities:Net loss
    
    $
    (4,321,232
    )
    
    $
    (3,268,498
    )Adjustments to reconcile net loss to net cash (used in) operating
activities:Depreciation and amortization
    
    
    715,716
    
    
    
    551,106Stock-based compensation and consulting
    
    
    854,688
    
    
    
    514,861Loss on impairment of property and equipment
    
    
    88,922
    
    
    
    Loss on impairment of intangible assets
    
    
    295,633
    
    
    
    Provision for bad debt
    
    
    (22,029
    )
    
    
    (25,179
    )Changes in assets and liabilities:Accounts receivable
    
    
    10,006
    
    
    
    813,009Tax receivable
    
    
    (36,212
    )
    
    
    Deferred compensation advances
    
    
    232,640
    
    
    
    (212,085
    )Prepaid expenses
    
    
    (36,862
    )
    
    
    4,379Other current assets
    
    
    10,092
    
    
    
    (16,010
    )Other assets
    
    
    1,874
    
    
    
    37,217Accounts payable
    
    
    (496,233
    )
    
    
    (135,654
    )Accrued expenses
    
    
    148,147
    
    
    
    (87,437
    )Sub-tenant security deposit
    
    
    7,301
    
    
    
    Due to related parties
    
    
    (28,500
    )
    
    
    (24,509
    )Unearned commission advances
    
    
    (332,749
    )
    
    
    1,908,619Deferred revenue
    
    
    (80,250
    )
    
    
    Income tax payable
    
    
    (157,288
    )
    
    
    Net cash (used in) operating activities
    
    
    (3,146,336
    )
    
    
    59,819Cash Flows From Investing Activities:Purchase of property and equipment
    
    
    (90,595
    )
    
    
    (176,403
    )Purchase of intangible assets and capitalization of software development
    
    
    (92,993
    )
    
    
    (193,710
    )Net cash (used in) investing activities
    
    
    (183,588
    )
    
    
    (370,113
    )Cash Flows From Financing Activities:Gross proceeds from capital leases
    
    
    37,411
    
    
    
    Payments on capital leases
    
    
    (4,340
    )
    
    
    Gross proceeds from sales of common stock
    
    
    5,000,000
    
    
    
    6,817,500Gross proceeds from exercise of warrants
    
    
    
    
    
    
    337,500Placement and other fees paid in connection with offering
    
    
    (70,238
    )
    
    
    Net cash provided by financing activities
    
    
    4,962,833
    
    
    
    7,155,000Net increase in cash
    
    
    1,632,909
    
    
    
    6,844,706Cash  beginning of the year
    
    
    5,787,585
    
    
    
    2,311,781Cash  end of the period
    
    $
    7,420,494
    
    
    $
    9,156,487Supplemental Disclosures of Cash Flow Information
Cash payments for income taxes
    
    $
    193,500
    
    
    $
    
  Page 6




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Restricted cash
  Accounts receivable
   Fair value of financial instruments
  Property and equipment
  Page 9




---



##### Table of Contents



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




---



##### Table of Contents



BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
  Income taxes
  Loss per common share
  Options
    
    
    4,587,825Warrants
    
    
    17,524,18622,112,011
 Revenue recognition
  Page 11




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Registration rights agreements
   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.
 Page 15




---



##### Table of Contents



BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
  
    
    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.
    
    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.
    Page 16




---



##### Table of Contents



ISG ACQUISITION
  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
 Page 17




---



##### Table of Contents



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
  ACQUISITION OF ATIAM
   Page 18




---



##### Table of Contents



ACQUISITION OF ATIAM (continued)
     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




---



##### 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 ThreeMonths EndedMarch 31,2007Revenues, net
    
    $
    6,755,281Net loss
    
    
    (4,640,084
    )Net loss per common share  basic and diluted
    
    $
    (0.13
    )
 Page 20




---



##### Table of Contents



ACQUISITION OF ATIAM (continued)
  PROPERTY AND EQUIPMENT
  Useful Life
    
    
    
    
    
    
    At December 31,(Years)
    
    
    At March 31, 2008
    
    
    2007Computer equipment and
software
    
    3
    
    
    $
    1,116,941
    
    
    $
    967,347Phone equipment and software
    
    3
    
    
    
    726,535
    
    
    
    726,535Office equipment
    
    3
    
    
    
    62,503
    
    
    
    89,485Office furniture and fixtures
    
    6,8
    
    
    
    513,442
    
    
    
    575,450Leasehold improvements
    
     7.5
    
    
    
    203,740
    
    
    
    349,2252,623,161
    
    
    
    2,708,042Less accumulated depreciation
    
    
    
    
    
    
    (1,274,178
    )
    
    
    (1,115,562
    )$
    1,348,983
    
    
    $
    1,592,480
  Page 21




---



##### Table of Contents



INTANGIBLE ASSETS
  Useful Life(Years)
    
    At March 31,
    
    At DecemberWeighted average
    
    2008
    
    31, 2007ISG intangible assets acquired
    
    
    4.7
    
    
    $
    4,964,338
    
    
    $
    4,964,338Atiam intangible assets acquired
    
    
    4.7
    
    
    
    2,097,670
    
    
    
    2,097,672Software development costs
    
    
    2.6
    
    
    
    613,739
    
    
    
    981,521Internet domain
    
    
    3.0
    
    
    
    161,200
    
    
    
    161,200(www.healthbenefitsdirect.com)7,836,947
    
    
    
    8,204,731Less: accumulated amortization
    
    
    
    
    
    
    (3,416,560
    )
    
    
    (3,108,771
    )$
    4,420,387
    
    
    $
    5,095,960
   2008
    
    $
    1,283,6432009
    
    
    1,441,5752010
    
    
    981,8722011
    
    
    453,2602012
    
    
    260,037$
    4,420,387
 Page 22




---



##### Table of Contents



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.
 Page 23




---



##### Table of Contents



SHAREHOLDERS EQUITY
 Common Stock
 2007
        Page 24




---



##### Table of Contents



SHAREHOLDERS EQUITY (continued)
 2008
    Stock Options
    Page 25




---



##### Table of Contents



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 March 31, 2008Granted
    
    
    10,000
    
    
    
    1.05
    
    
    
    0.53Exercised
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    254,175
    
    
    
    3.58
    
    
    
    2.87Outstanding at March 31, 2008
    
    
    4,587,825
    
    
    
    2.16
    
    
    
    0.78Outstanding and exercisable at March 31, 2008
    
    
    3,597,764
    
    
    $
    2.04
    
    
    $
    0.81
  Expected volatility
    
    
    58
    %Risk-free interest rate
    
    
    1.42
    %Expected life in years
    
    
    5Assumed dividend yield
    
    
    0
    %
 Page 26




---



##### Table of Contents



SHAREHOLDERS EQUITY (continued)
  Options Outstanding
    
    Options ExercisableWeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageExercise
    
    Number of Shares
    
    Contractual
    
    Exercise
    
    
    
    
    
    ExercisePrice
    
    Underlying Options
    
    Life
    
    Price
    
    Number Exercisable
    
    Price$
    1.00
    
    
    
    1,550,000
    
    
    
    7.9
    
    
    $
    1.00
    
    
    
    1,529,158
    
    
    $
    1.001.05
    
    
    
    10,000
    
    
    
    4.9
    
    
    
    1.05
    
    
    
    2.13
    
    
    
    15,000
    
    
    
    4.9
    
    
    
    2.13
    
    
    
    
    
    
    
    2.30
    
    
    
    5,000
    
    
    
    4.6
    
    
    
    2.30
    
    
    
    
    
    
    
    2.50
    
    
    
    1,783,500
    
    
    
    6.2
    
    
    
    2.50
    
    
    
    1,110,481
    
    
    
    2.502.55
    
    
    
    25,000
    
    
    
    3.5
    
    
    
    2.55
    
    
    
    
    
    
    
    2.62
    
    
    
    20,000
    
    
    
    4.0
    
    
    
    2.62
    
    
    
    5,000
    
    
    
    2.622.70
    
    
    
    475,000
    
    
    
    3.3
    
    
    
    2.70
    
    
    
    425,000
    
    
    
    2.702.95
    
    
    
    45,000
    
    
    
    3.3
    
    
    
    2.95
    
    
    
    11,250
    
    
    
    2.953.00
    
    
    
    109,325
    
    
    
    4.4
    
    
    
    3.00
    
    
    
    
    
    
    
    3.50
    
    
    
    150,000
    
    
    
    8.3
    
    
    
    3.50
    
    
    
    62,500
    
    
    
    3.50$
    3.60
    
    
    
    400,000
    
    
    
    3.3
    
    
    $
    3.60
    
    
    
    454,375
    
    
    $
    3.604,587,825
    
    
    
    
    
    
    
    
    
    
    
    3,597,764
   Page 27




---



##### Table of Contents



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




---



##### Table of Contents



SHAREHOLDERS EQUITY (continued)
 Registration Rights
      Page 29




---



##### Table of Contents



SHAREHOLDERS EQUITY (continued)
    CAPTIAL LEASE OBLIGATIONS
  Page 30




---



##### Table of Contents



CAPTIAL LEASE OBLIGATIONS (continued)
  Useful Life (Years)Computer equipment and software
    
    3
    
    
    $
    83,214Phone system
    
    3
    
    
    
    15,011Leasehold improvements
    
    
    
    
    
    
    98,225Less accumulated depreciation
    
    
    
    
    
    
    (10,854
    )$
    87,371
  2008
    
    $
    24,7132009
    
    
    35,0952010
    
    
    33,8492011
    
    
    19,3572012
    
    
    2,195Total future payments
    
    
    115,209Less amount representing interest
    
    
    23,191Present value of future minimum payments
    
    
    92,018Less current portion
    
    
    22,776Long-term portion
    
    $
    69,242
 DEFINED CONTRIBUTION 401(k) PLAN
  Page 31




---



##### Table of Contents



RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES
 Employment and Separation Agreements
       Page 32




---



##### Table of Contents



RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES
   Restricted Cash and Operating Leases
    Page 33




---



##### Table of Contents



RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
  License Agreement With Realtime Solutions Group
     SEGMENT INFORMATION
  Page 34




---



##### Table of Contents



SEGMENT INFORMATION (continued)
  For the Three Months
    
    For the Three MonthsEnded March 31, 2008
    
    Ended March 31, 2007Telesales
    
    Atiam
    
    Total
    
    Telesales
    
    Atiam
    
    TotalRevenue
    
    $
    5,102,698
    
    
    $
    1,285,323
    
    
    $
    6,388,021
    
    
    $
    4,513,015
    
    
    
    
    
    
    $
    4,513,015Gain (loss) from operations
    
    $
    (4,001,604
    )
    
    $
    39,031
    
    
    $
    (3,962,573
    )
    
    $
    (3,308,762
    )
    
    
    
    
    
    $
    (3,308,762
    )March 31, 2008
    
    December 31, 2007Total assets
    
    $
    13,106,820
    
    
    $
    3,742,164
    
    
    $
    16,848,984
    
    
    $
    16,294,654
    
    
    
    
    
    
    $
    16,294,654
 SUBSEQUENT EVENTS
    Page 35




---



##### Table of Contents



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
    Page 36




---



##### Table of Contents



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




---



##### Table of Contents



Software
Revenue Recognition
   Page 38




---



##### Table of Contents



ISG Acquisition
  Page 39




---



##### Table of Contents



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
    
    
    425381Estimated 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
  Atiam Acquisition
   Page 40




---



##### Table of Contents



Cash payment 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
  Cash
    
    $
    608,534Accounts receivable
    
    
    643,017Prepaid expenses and other assets
    
    
    22,624Property and equipment , net
    
    
    158,819Other assets
    
    
    3,400Intangible 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
   Page 41




---



##### Table of Contents



Results of Operations for the Telesales and Atiam Business Segments
  Revenues
  For the Three MonthsEnded March 31,2008
    
    
    2007Commission revenue from carriers excluding periodic bonuses and ISG
    
    $
    4,417,818
    
    
    $
    3,548,156Periodic bonus revenue from carriers
    
    
    72,583
    
    
    
    217,181ISG commission revenue
    
    
    415,476
    
    
    
    515,051Lead sale revenue
    
    
    184,319
    
    
    
    232,627Sub-lease and other revenue
    
    
    12,502
    
    
    
    Telesales business segment
    
    
    5,102,698
    
    
    
    4,513,015Consulting and implementation services
    
    
    831,648
    
    
    
    ASP revenue
    
    
    248,675
    
    
    
    Sales of software licenses
    
    
    115,000
    
    
    
    Maintenance revenue
    
    
    90,000
    
    
    
    Atiam business segment
    
    
    1,285,323
    
    
    
    Total
    
    $
    6,388,021
    
    
    $
    4,513,015
 Page 42




---



##### Table of Contents




    
    In First Quarter 2008 we earned commission revenue from carriers excluding periodic
bonuses and ISG revenues of $4,417,818 as compared to $3,548,156 in First Quarter 2007.
 
    
    We had 74 licensed insurance agent employees at March 31, 2008 as
compared to 95 at March 31, 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 8 open licensed sales positions, which were vacated subsequent to
December 31, 2007.
 
    
    In First Quarter 2008 we earned periodic bonuses from carriers of $72,583 as compared to
$217,181 in First 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 First Quarter 2008 we earned revenue of $415,476 relating to ISG as compared to
$515,051 in First 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.
    
    In First Quarter 2008 we earned revenues of $184,319 relating to the sale of leads to
third parties as compared to $232,627 in First Quarter 2007. We re-sell certain leads
purchased in order to recoup a portion of our lead cost.
 Total Operating Expenses
  For the Three MonthsEnded March 31,2008
    
    
    2007Telesales business segment
    
    $
    9,104,302
    
    
    $
    7,821,777Atiam business segment
    
    
    1,246,292
    
    
    
    Total
    
    $
    10,350,594
    
    
    $
    7,821,777
 Page 43




---



##### Table of Contents



For the Three MonthsEnded March 31,2008
    
    
    2007Salaries, commission and related taxes
    
    $
    5,049,427
    
    
    $
    4,093,920Lead, advertising and other marketing
    
    
    1,995,703
    
    
    
    1,861,584Depreciation and amortization
    
    
    580,365
    
    
    
    551,106Rent, utilities, telephone and communications
    
    
    766,697
    
    
    
    650,739Professional fees
    
    
    356,444
    
    
    
    260,307Other general and administrative
    
    
    355,666
    
    
    
    404,121Total
    
    $
    9,104,302
    
    
    $
    7,821,777
 
    
    Salaries, wages and related taxes for the first quarter of 2008 included approximately
$1 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 for the first quarter of 2008 included
$92,008 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 $1.1
million, less managements estimate of potential future sub-lease revenue, which is
estimated to be $1 million.
  For the Three MonthsEnded March 31,2008
    
    
    2007Salaries, commission and related taxes
    
    $
    727,559
    
    
    $
    Lead, advertising and other marketing
    
    
    3,030
    
    
    
    Depreciation and amortization
    
    
    135,351
    
    
    
    Rent, utilities, telephone and communications
    
    
    45,291
    
    
    
    Professional fees
    
    
    172,283
    
    
    
    Other general and administrative
    
    
    162,778
    
    
    
    Total
    
    $
    1,246,292
    
    
    $
    
   Page 44




---



##### Table of Contents



Net loss
  Results of Operations for Telesales Business Segment
 Revenues
  For the Three MonthsEnded March 31,2008
    
    
    2007Commission revenue from carriers excluding periodic bonuses and ISG
    
    $
    4,417,818
    
    
    $
    3,548,156Periodic bonus revenue from carriers
    
    
    72,583
    
    
    
    217,181ISG commission revenue
    
    
    415,476
    
    
    
    515,051Lead sale revenue
    
    
    184,319
    
    
    
    232,627Sub-lease and other revenue
    
    
    12,502
    
    
    
    Total
    
    $
    5,102,698
    
    
    $
    4,513,015
 
    
    In First Quarter 2008 we earned commission revenue from carriers excluding periodic
bonuses and ISG revenues of $4,417,818 as compared to $3,548,156 in First Quarter 2007.
 
    
    We had 74 licensed insurance agent employees at March 31, 2008 as
compared to 95 at March 31, 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 8 open licensed sales positions, which were vacated subsequent to
December 31, 2007.
 
    
    In First Quarter 2008 we earned periodic bonuses from carriers of $72,583 as compared to
$217,181 in First 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.
 Page 45




---



##### Table of Contents




    
    In First Quarter 2008 we earned revenue of $415,417 relating to ISG as compared to
$515,051 in First 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.
    
    In First Quarter 2008 we earned revenues of $184,319 relating to the sale of leads to
third parties as compared to $232,627 in First Quarter 2007. We re-sell certain leads
purchased in order to recoup a portion of our lead cost.
 Total Operating Expenses
  
    
    In First Quarter 2008 we incurred salaries, commission and related taxes of $5,049,427
as compared to $4,093,920 for First Quarter 2007. Salaries, commission and related taxes
consisted of the following:
 For the Three MonthsEnded March 31,2008
    
    
    2007Salaries, wages and bonuses
    
    $
    2,603,772
    
    
    $
    2,424,840Share based employee and
director compensation
    
    
    854,688
    
    
    
    506,086Commissions to employees
    
    
    731,510
    
    
    
    628,877Commissions to non-employees
    
    
    101,245
    
    
    
    115,672Employee benefits
    
    
    108,834
    
    
    
    98,542Payroll taxes
    
    
    273,413
    
    
    
    259,453Severance and other compensation
    
    
    360,680
    
    
    
    25,117Directors compensation
    
    
    15,285
    
    
    
    35,333Total
    
    $
    5,049,427
    
    
    $
    4,093,920
 
    
    Salaries and wages were $2,603,772 in First Quarter 2008 as compared to $2,424,840 in
First Quarter 2007, an increase of $178,932 or 7%.
 
    
    This increase is the result of the hiring of additional personnel employed by the
Telesales segment.
    
    The Telesales segment had 171 employees at March 31, 2008 as compared to 199 at
March 31, 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 $854,688 in First Quarter
2008 as compared to $506,086 in First Quarter 2007.
 Page 46




---



##### Table of Contents




    
    The increase in expense in First Quarter 2008 as compared to First Quarter 2007
is the result of the accelerated vesting pertaining to the termination of certain
employees and a director, which amounted to $474,965, partially offset by lower
expense pertaining to options granted to a director in becoming fully vested and
expensed in the first quarter of 2007.
    
    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 $731,510 in First Quarter 2008 as compared to $628,877 in
First Quarter 2007. The increase was the result of an increase in the allowance for
doubtful recovery of advances to employees as a result of the reduction in the number of
licensed agents employed by the Company.
    
    Commissions to non employees were $101,245 in First Quarter 2008 as compared to
$115,672 in First Quarter 2007. We pay commissions to non employee ISG agents.
    
    Employee benefits expense was $108,834 in First Quarter 2008 as compared to $98,542 in
First Quarter 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 $273,413 in First Quarter 2008 as compared to $259,453 in
First Quarter 2007. The increase was the result of higher salaries, wages, bonuses and
commissions to employees.
    
    Severance and other compensation expense was $360,680 in First Quarter 2008 as compared
to $25,117 in First Quarter 2007. The increase was the result of accrued severance for
Ivan Spinner.
    
    Lead, advertising and other marketing was $1,995,703 in First Quarter 2008 as compared
to $1,861,584 in First Quarter 2007, an increase of $94,119 or 5% due to increase in the
number of leads purchased, cost per lead and lower conversion rates in First Quarter 2008
compared to First Quarter 2007.
    
    Depreciation and amortization expense was $580,365 in First Quarter 2008 as compared to
$551,106 in First Quarter 2007. Depreciation and amortization expense consisted of the
following:
 For the Three MonthsEnded March 31,2008
    
    
    2007Amortization of intangibles
acquired as a result of the ISG
acquisition
    
    $
    305,439
    
    
    $
    344,093Amortization of software and
website development
    
    
    37,041
    
    
    
    55,137Amortization of internet domain
name
    
    
    13,433
    
    
    
    13,433Depreciation expense
    
    
    224,452
    
    
    
    138,443Total
    
    $
    580,365
    
    
    $
    551,106
 Page 47




---



##### Table of Contents




    
    In First Quarter 2008 we incurred amortization expense of $305,439 as compared to
$344,093 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 First Quarter 2008 we incurred amortization expense of $37,041 compared to $55,137
in First Quarter 2007 for software and website development.
    
    In First Quarter 2008 we incurred depreciation expense of $224,452 as compared to
$138,443 in the First Quarter 2007 period. The increase pertains to the impairment of
furniture and equipment located at the Companys former New York sales office.
    
    In First Quarter 2008 we incurred rent, utilities, telephone and communications expense
of $766,697 as compared to $650,739 in First Quarter 2007. Rent, utilities, telephone and
communications expenses consisted of the following:
 For the Three MonthsEnded March 31,2008
    
    
    2007Rent, utilities and other occupancy
    
    $
    574,238
    
    
    $
    446,074Telephone and communications
    
    
    192,459
    
    
    
    204,665Total
    
    $
    766,697
    
    
    $
    650,739
 
    
    In First Quarter 2008 we had increases in rent, utilities and other occupancy as
compared to First Quarter 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 March 31, 2008, the Company
has accrued $92,008 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 $1.1
million, less managements estimate of potential future sub-lease revenue, which is
estimated to be $1 million.
    
    In First Quarter 2008 we incurred professional fees of $356,444 as compared to $260,307
in First Quarter 2007 primarily attributable to technology outsourcing fees and increase
accounting fees.
    
    In First Quarter 2008 we incurred other general and administrative expenses of $355,666
as compared to $404,121 in First Quarter 2007. Other general and administrative expenses
consisted of the following:
 For the Three MonthsEnded March 31,2008
    
    
    2007Licensing and appointment fees
    
    $
    125,730
    
    
    $
    117,116Travel and entertainment
    
    
    43,889
    
    
    
    77,793Office expense
    
    
    186,911
    
    
    
    196,615Other
    
    
    (864
    )
    
    
    12,597Total
    
    $
    355,666
    
    
    $
    404,121
 Page 48




---



##### Table of Contents




    
    We incur licensing and appointment costs associated with the licensing of our employee
insurance agents. In First Quarter 2008 we had a slight increase in licensing and
appointment costs as compared to First Quarter 2007 due to fluctuations in billing.
    
    In First Quarter 2008 we had a decrease in office expense and travel and entertainment
as compared to First Quarter 2007 due to the closing of the NY office.
 Loss from operations
  Results of Operations for the Atiam Business Segment
 Revenues
  For the Three MonthsEnded March 31,2008
    
    
    2007Consulting and implementation services
    
    $
    831,648
    
    
    $
    ASP revenue
    
    
    248,675
    
    
    
    Sales of software licenses
    
    
    115,000
    
    
    
    Maintenance revenue
    
    
    90,000
    
    
    
    Total
    
    $
    1,285,323
    
    
    $
    
  For the Three MonthsEnded March 31,2008
    
    
    2007Client 1
    
    $
    573,643
    
    
    $
    Client 2
    
    
    229,045
    
    
    
    Client 3
    
    
    191,945Client 4
    
    
    178,376Clients 5, 6 and 7
    
    
    112,314
    
    
    
    $
    1,285,323
    
    
    $
    
 
    
    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 First Quarter 2008 we earned ASP revenue from five InsPro clients.
    
    In First Quarter 2008 we earned software license revenue from a single InsPro client.
 Page 49




---



##### Table of Contents




    
    In First Quarter 2008 we earned maintenance revenues from two clients.
 Total Operating Expenses
  
    
    In First Quarter 2008 we incurred salaries, commission and related taxes of $727,559.
Salaries, commission and related taxes consisted of the following:
 For the Three MonthsEnded March 31,2008
    
    
    2007Salaries, wages and bonuses
    
    $
    626,547
    
    
    $
    Employee benefits
    
    
    43,366
    
    
    
    Payroll taxes
    
    
    57,646
    
    
    
    Total
    
    $
    727,559
    
    
    $
    
 
    
    The Atiam business segment had 22 employees at March 31, 2008.
    
    Effective in First Quarter 2008 Atiam business segment employees are covered by
our employee benefit program.
 
    
    Lead, advertising and other marketing was $3,030 in the First Quarter 2008 and
consisted of marketing and conference fees.
    
    Depreciation and amortization expense was $135,351 in First Quarter 2008. Depreciation
and amortization expense consisted of the following:
 For the Three MonthsEnded March 31,2008
    
    
    2007Amortization of intangibles
acquired as a result of the
Atiam acquisition
    
    $
    117,020
    
    
    $
    Depreciation expense
    
    
    18,331
    
    
    
    Total
    
    $
    135,351
    
    
    $
    
 
    
    In First Quarter 2008 we incurred amortization expense of $117,020 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.
 Page 50




---



##### Table of Contents




    
    In First Quarter 2008 we incurred depreciation expense of $18,331 primarily from assets
acquired from Atiam.
    
    In First Quarter 2008 we incurred rent, utilities, telephone and communications
expense, which consisted of the following:
 For the Three MonthsEnded March 31,2008
    
    
    2007Rent, utilities and other occupancy
    
    $
    28,995
    
    
    $
    Telephone and communications
    
    
    16,296
    
    
    
    Total
    
    $
    45,291
    
    
    $
    
 
    
    In First Quarter 2008 we incurred professional fees of $172,283 which pertains
primarily to outsourced system development costs and to a lesser extent employee
recruiting services.
    
    In First Quarter 2008 we incurred other general and administrative expenses, which
consisted of the following:
 For the Three MonthsEnded March 31,2008
    
    
    2007Office expenses
    
    $
    1,379
    
    
    $
    Travel and entertainment
    
    
    33,206
    
    
    
    Computer processing, hardware,
software and other
    
    
    128,193
    
    
    
    Total
    
    $
    162,778
    
    
    $
    
 
    
    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.
   Page 51




---



##### Table of Contents



Page 52




---



##### Table of Contents




    
    Decreases in accounts payable of $496,229 related to payment of certain lead
acquisition and other operating expenditures incurred in First Quarter 2007;
    
    Decreases in unearned commission advances of $332,749 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 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, 2008, the Companys
outstanding advance balance with this carrier was $6,178,622. 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,
2008, the Companys outstanding advance balance with this carrier was $841,253. During
the third quarter of 2007 the Company began receiving 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. As of March 31, 2008, the
Companys outstanding advance balance with this carrier was $894,808.
    
    Payment of $157,288 of income tax liabilities assumed as a result of our acquisition of
Atiam in 2007.
  
    
    Recorded stock-based compensation and consulting expense of $854,688 and $506,086 in
First Quarter 2008 and First Quarter 2007, respectively.
    
    On January 3, 2008, we issued 75,000 unrestricted shares of our common stock to certain
of our Directors in accordance with the Companys Non Employee Director Compensation Plan,
which were valued at $129,000 based on the $1.72 closing price of our common stock on the
OTCBB on January 3, 2008.
    
    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 the First
Quarter 2008 to write-off the value of this asset.
  Page 53




---



##### Table of Contents




    
    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. 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 First Quarter 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 54




---



##### Table of Contents



Page 55




---



##### Table of Contents



Item 4T. Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures
   (b) Change in Internal Control over Financial Reporting.
  Page 56




---



##### Table of Contents



PART II.
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 6. Exhibits
 Exhibit No.
    
    Description31.1
    
    Chief Executive Officers Rule 13a-14(a)/15d-14(a) Certification *31.2
    
    Chief Financial Officers Rule 13a-14(a)/15d-14(a) Certification *32.1
    
    Chief Executive Officers Section 1350 Certification 32.2
    
    Chief Financial Officers Section 1350 Certification 
 
 *
    
    Filed herewith.
    
    Furnished herewith. Page 57




---



##### Table of Contents



SIGNATURES
  Date: May 15, 2008
    HEALTH BENEFITS DIRECT CORPORATIONBy:
    /s/ ANTHONY R. VERDIAnthony R. VerdiChief Financial Officer and Chief Operating Officer
(Principal Executive and Financial Officer) Page 58




---



##### 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 59