##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 Form 10-QSB
  þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 For the transition period from _________to _________
 Commission File Number: 333-123081
 HEALTH BENEFITS DIRECT CORPORATION
 
  Delaware
    
    98-0438502(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)
 Radnor, Pennsylvania 19087
 (484) 654-2200
  þ o
 o þ
  o þ




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##### 



PagePART I  FINANCIAL INFORMATIONItem 1  Consolidated Financial StatementsConsolidated Balance Sheet
As of September 30, 2007 (Unaudited)
    
    3Consolidated Statements of Operations (Unaudited)
For the Three and Nine months Ended September 30, 2007 and 2006
    
    4Consolidated Statements of Changes in Shareholders Equity (Unaudited)
for the Nine months Ended September 30, 2007
    
    5Consolidated Statements of Cash Flows (Unaudited)
For the Nine months Ended September 30, 2007 and 2006
    
    6Notes to Unaudited Consolidated Financial Statements
    
    7Item 2  Managements Discussion and Analysis or Plan of Operation
    
    32Item 3  Controls and Procedures
    
    48PART II  OTHER INFORMATIONItem 6  Exhibits
    
    49Signatures
    
    50Certificate of the Chief Executive OfficerCertificate of the Chief Financial OfficerCertificate of the Chief Executive Officer required by rule 13a-14(b)Certificate of the Chief Financial Officer required by rule 13a-14(b)
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Part I. Financial Information
 
 Item 1. Financial Statements
 
 HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 2007
(Unaudited)
 ASSETSCURRENT ASSETS:Cash
    
    $
    8,868,990Accounts receivable, less allowance for doubtful accounts of $34,962
    
    
    1,978,874Deferred compensation advances
    
    
    775,120Prepaid expenses
    
    
    218,948Other current assets
    
    
    22,409Total current assets
    
    
    11,864,341Restricted cash
    
    
    1,150,000Property and equipment, net of accumulated depreciation of $948,453
    
    
    1,496,130Intangibles, net of accumulated amortization of $2,620,293
    
    
    3,509,953Other assets
    
    
    210,922Total assets
    
    $
    18,231,346LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    1,277,087Accrued expenses
    
    
    1,344,404Unearned commission advances
    
    
    8,774,910Total current liabilities
    
    
    11,396,401SHAREHOLDERS EQUITY:Preferred stock ($.001 par value; 10,000,000 shares authorized;
no shares issued and outstanding)
    
    
    Common stock ($.001 par value; 90,000,000 shares authorized;
34,098,971 shares issued and outstanding
    
    
    34,099Additional paid-in capital
    
    
    34,535,820Accumulated deficit
    
    
    (27,734,974
    )Total shareholders equity
    
    
    6,834,945Total liabilities and shareholders equity
    
    $
    18,231,346
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HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Revenues
    
    $
    5,048,139
    
    
    $
    3,222,434
    
    
    $
    14,704,547
    
    
    $
    7,082,413Operating Expenses:Salaries, commission and related taxes
    
    
    4,413,794
    
    
    
    3,917,483
    
    
    
    12,329,418
    
    
    
    9,455,841Lead, advertising and other marketing
    
    
    2,177,789
    
    
    
    1,511,262
    
    
    
    5,973,442
    
    
    
    3,082,819Depreciation and amortization
    
    
    518,098
    
    
    
    645,802
    
    
    
    1,631,182
    
    
    
    1,485,115Rent, utilities, telephone and communications
    
    
    669,847
    
    
    
    536,267
    
    
    
    1,934,299
    
    
    
    1,323,462Professional fees
    
    
    383,617
    
    
    
    206,273
    
    
    
    1,277,345
    
    
    
    994,535Other general and administrative
    
    
    476,990
    
    
    
    517,491
    
    
    
    1,283,126
    
    
    
    1,379,9128,640,135
    
    
    
    7,334,578
    
    
    
    24,428,812
    
    
    
    17,721,684Loss from operations
    
    
    (3,591,996
    )
    
    
    (4,112,144
    )
    
    
    (9,724,265
    )
    
    
    (10,639,271
    )Other income (expense):Loss on disposal of property and equipment
    
    
    (2,592
    )
    
    
    (339
    )
    
    
    (2,592
    )
    
    
    (339
    )Registration rights penalty reversal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,537Interest income
    
    
    107,317
    
    
    
    54,638
    
    
    
    279,964
    
    
    
    258,220Interest expense
    
    
    (5,810
    )
    
    
    (3,630
    )
    
    
    (21,825
    )
    
    
    (17,467
    )Total other income (expense)
    
    
    98,915
    
    
    
    50,669
    
    
    
    255,547
    
    
    
    300,951Net loss
    
    $
    (3,493,081
    )
    
    $
    (4,061,475
    )
    
    $
    (9,468,718
    )
    
    $
    (10,338,320
    )Net loss per common share:Net loss per common share  basic and diluted
    
    $
    (0.10
    )
    
    $
    (0.14
    )
    
    $
    (0.29
    )
    
    $
    (0.38
    )Weighted average common shares outstanding -
basic and diluted
    
    
    34,098,971
    
    
    
    28,254,578
    
    
    
    32,378,934
    
    
    
    27,351,853
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HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
FOR NINE MONTHS ENDED SEPTEMBER 30, 2007
(Unaudited)
 Common Stock, $.001
Par Value
 Additional
    
    
    
    
    
    TotalNumber of
    
    
    
    
    
    Paid-in
    
    Accumulated
    
    ShareholdersShares
    
    Amount
    
    Capital
    
    Deficit
    
    EquityBalance  December 31, 2006
    
    
    28,586,471
    
    
    $
    28,586
    
    
    $
    22,668,452
    
    
    
    ($18,266,256
    )
    
    $
    4,430,782Common stock issued in private placement
    
    
    5,000,000
    
    
    
    5,000
    
    
    
    10,349,760
    
    
    
    
    
    
    
    10,354,760Issuance of restricted stock to employees
    
    
    250,000
    
    
    
    250
    
    
    
    (250
    )
    
    
    
    
    
    
    Common stock issued upon exercise of warrants
    
    
    262,500
    
    
    
    263
    
    
    
    393,487
    
    
    
    
    
    
    
    393,750Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    1,124,371
    
    
    
    
    
    
    
    1,124,371Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,468,718
    )
    
    
    (9,468,718
    )Balance  September 30, 2007
    
    
    34,098,971
    
    
    $
    34,099
    
    
    $
    34,535,820
    
    
    
    ($27,734,974
    )
    
    $
    6,834,945
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HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Nine Months EndedSeptember 30,2007
    
    
    2006(Unaudited)
    
    
    (Unaudited)Cash Flows From Operating Activities:Net loss
    
    $
    (9,468,718
    )
    
    $
    (10,338,320
    )Adjustments to reconcile net loss to net cash used in
operating activities:operating activities:Depreciation and amortization
    
    
    1,631,182
    
    
    
    1,485,453Stock-based compensation and consulting
    
    
    1,144,845
    
    
    
    1,620,357Provision for bad debt
    
    
    (9,026
    )
    
    
    (9,886
    )Changes in assets and liabilities:Accounts receivable
    
    
    227,675
    
    
    
    (1,282,767
    )Deferred compensation advances
    
    
    (90,122
    )
    
    
    (512,497
    )Prepaid expenses
    
    
    (131,428
    )
    
    
    (374,130
    )Other current assets
    
    
    (11,398
    )
    
    
    (17,611
    )Other assets
    
    
    (29,019
    )
    
    
    (147,192
    )Accounts payable
    
    
    116,833
    
    
    
    390,584Accrued expenses
    
    
    (83,224
    )
    
    
    414,392Due to related parties
    
    
    (63,672
    )
    
    
    68,926Unearned commission advances
    
    
    3,619,793
    
    
    
    2,904,041Net cash used in operating activities
    
    
    (3,146,279
    )
    
    
    (5,798,650
    )Cash Flows From Investing Activities:Purchase of property and equipment
    
    
    (451,147
    )
    
    
    (1,481,530
    )Purchase of intangible assets and capitalization of
software development
    
    
    (593,875
    )
    
    
    (1,415,186
    )Net cash used in investing activities
    
    
    (1,045,022
    )
    
    
    (2,896,716
    )Cash Flows From Financing Activities:Gross proceeds from sales of common stock
    
    
    11,250,000
    
    
    
    6,450,000Gross proceeds from exercise of warrants
    
    
    393,750
    
    
    
    525,000Gross proceeds from exercise of stock options
    
    
    
    
    
    
    200,000Restricted cash in connection with letters of credit
    
    
    
    
    
    
    (1,154,504
    )Placement and other fees paid in connection with offering
    
    
    (895,240
    )
    
    
    (285,826
    )Payment on notes payable
    
    
    
    
    
    
    (399,630
    )Net cash provided by financing activities
    
    
    10,748,510
    
    
    
    5,335,040Net increase (decrease) in cash
    
    
    6,557,209
    
    
    
    (3,360,326
    )Cash  beginning of period
    
    
    2,311,781
    
    
    
    6,433,426Cash  end of period
    
    $
    8,868,990
    
    
    $
    3,073,100Supplemental Disclosures of Cash Flow Information
Cash payments for interest
    
    $
    
    
    
    $
    15,044
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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of presentation
     Organization
    Page 7




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




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




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
   Loss per common share
  Options
    
    
    4,856,985Warrants
    
    
    10,787,50015,644,485
 Revenue recognition
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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
     Deferred compensation advances
  Lead, advertising and other marketing expense
  Concentrations of credit risk
  Page 11




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




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




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
   Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of FASB Statements No 87, 88, 106 and 132(R) .
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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
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ISG ACQUISITION (continued)
  Cash
    
    $
    111,024Accounts receivable
    
    
    210,889Deferred compensation advances
    
    
    256,775Prepaid expenses and other assets
    
    
    957Property and equipment, net
    
    
    600Intangible assets
    
    
    4,964,330Accrued expenses
    
    
    (164,549
    )Unearned commission advances
    
    
    (225,697
    )$
    5,154,329
   For the Nine MonthsEnded September 30,2007
    
    2006Revenues
    
    $
    14,704,547
    
    
    
    7,517,126$Net loss
    
    
    (9,468,718
    )
    
    
    (10,294,962
    )Net loss per common share  basic and diluted
    
    $
    (0.29
    )
    
    $
    (0.38
    )
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HEALTHPLAN CHOICE ASSET PURCHASE
  
 HEALTHPLAN CHOICE ASSET PURCHASE (continued)
  CONSULTING AGREEMENT WITH REAL IT GROUP LLC
   Page 17




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INTERNET DOMAIN NAME PURCHASE AND ASSIGNMENT AGREEMENT
 www.healthbenefitsdirect.com www.healthbenefitsdirect.com www.healthbenefitsdirect.com www.healthbenefitsdirect.com
 PROPERTY AND EQUIPMENT
  Useful Life (Years)Computer equipment and software
    
    3
    
    $
    769,003Phone equipment and software
    
    3
    
    
    726,535Office equipment
    
    3
    
    
    89,485Office furniture and fixtures
    
    7
    
    
    511,229Leasehold improvements
    
    7
    
    
    348,3312,444,583Less accumulated depreciation
    
    
    
    
    (948,453
    )$
    1,496,130
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INTANGIBLE ASSETS
  Useful Life (Years)Weighted averageISG intangible assets acquired
    
    4.5
    
    $
    4,964,338Software development costs
    
    1.8
    
    
    1,004,708Internet domain (www.healthbenefits.com)
    
    3.0
    
    
    161,2006,130,246Less: accumulated amortization
    
    
    
    
    (2,620,293
    )$
    3,509,953
   2007
    
    $
    338,3842008
    
    
    1,202,5262009
    
    
    1,043,6142010
    
    
    762,3612011
    
    
    163,068$
    3,509,953
 LINE OF CREDIT
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UNEARNED COMMISSION ADVANCES
  RELATED PARTY TRANSACTIONS
    Page 20




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SHAREHOLDERS EQUITY
 Common Stock
       Page 21




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SHAREHOLDERS EQUITY (continued)
  Stock Options
       Page 22




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SHAREHOLDERS EQUITY (continued)
  Number
    
    WeightedOf Shares
    
    Average
    
    WeightedUnderlying
    
    Exercise
    
    AverageOptions
    
    Price
    
    Fair ValueFor the year ended December 31, 2006Granted
    
    
    1,672,500
    
    
    
    2.91
    
    
    
    2.35Exercised
    
    
    300,000
    
    
    
    1.00
    
    
    
    0.30Forfeited
    
    
    426,232
    
    
    
    2.73
    
    
    
    0.74Outstanding at December 31, 2006
    
    
    4,881,268
    
    
    $
    2.22
    
    
    $
    0.83Outstanding and exercisable at December 31, 2006
    
    
    2,074,352
    
    
    
    1.90
    
    
    
    0.49For the nine month period ended September 30, 2007Granted
    
    
    175,550
    
    
    
    2.89
    
    
    
    2.31Exercised
    
    
    Forfeited
    
    
    199,833
    
    
    
    2.50
    
    
    
    0.03Outstanding at September 30, 2007
    
    
    4,856,985
    
    
    
    2.24
    
    
    
    0.92Outstanding and exercisable at September 30, 2007
    
    
    3,427,225
    
    
    $
    2.06
    
    
    $
    0.78
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SHAREHOLDERS EQUITY (continued)
  Options Outstanding
    
    Options ExercisableNumber of Shares
    
    WeightedUnderlying
    
    Average
    
    Weighted
    
    
    
    
    
    WeightedOptions at
    
    Remaining
    
    Average
    
    Exercisable at
    
    AverageExercise
    
    September 30,
    
    Contractual
    
    Exercise
    
    September 30,
    
    ExercisePrice
    
    2007
    
    Life
    
    Price
    
    2007
    
    Price$1.00
    
    
    1,550,000
    
    
    
    8.2
    
    
    $
    1.00
    
    
    
    1,433,320
    
    
    $
    1.002.30
    
    
    5,000
    
    
    
    4.8
    
    
    
    2.30
    
    
    
    
    
    
    2.50
    
    
    1,825,935
    
    
    
    8.1
    
    
    
    2.50
    
    
    
    1,045,155
    
    
    
    2.502.55
    
    
    25,000
    
    
    
    3.8
    
    
    
    2.55
    
    
    
    
    
    
    2.62
    
    
    20,000
    
    
    
    4.2
    
    
    
    2.62
    
    
    
    5,000
    
    
    
    2.622.70
    
    
    475,000
    
    
    
    3.6
    
    
    
    2.70
    
    
    
    425,000
    
    
    
    2.702.95
    
    
    45,000
    
    
    
    3.6
    
    
    
    2.95
    
    
    
    11,250
    
    
    
    2.953.00
    
    
    113,550
    
    
    
    4.6
    
    
    
    3.00
    
    
    
    
    
    
    3.50
    
    
    150,000
    
    
    
    8.5
    
    
    
    3.50
    
    
    
    53,125
    
    
    $3.60
    
    
    647,500
    
    
    
    3.6
    
    
    $
    3.60
    
    
    
    454,375
    
    
    $
    3.604,856,985
    
    
    
    
    
    
    
    
    
    
    
    3,427,225
  Common Stock warrants
  Page 24




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SHAREHOLDERS EQUITY (continued)
    WeightedCommon
    
    AverageStock
    
    ExerciseWarrants
    
    PriceOutstanding at December 31, 2006
    
    
    8,200,000
    
    
    $
    1.50For the nine month period ended September 30, 2007Granted
    
    
    2,850,000
    
    
    $
    2.98Exercised
    
    
    262,500
    
    
    $
    1.50Outstanding at September 30, 2007
    
    
    10,787,500
    
    
    $
    1.87Exercisable at September 30, 2007
    
    
    10,787,500
    
    
    $
    1.87
  Registration Rights
  Page 25




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SHAREHOLDERS EQUITY (continued)
    RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES
 Employment and Separation Agreements
   Page 26




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RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
       Page 27




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RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
  Restricted Cash and Operating Leases
   License Agreement With Realtime Solutions Group
     Page 28




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RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
 Software License Agreement and Professional Services Agreement With Atiam Technologies L.P.
       Page 29




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SUBSEQUENT EVENTS
 Acquisition of ATIAM
      Page 30




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SUBSEQUENT EVENTS (continued)
     Page 31




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FORWARD LOOKING STATEMENTS
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
      Page 32




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
     Page 33




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
  Cash payment to seller
    
    $
    1,135,000Fair value of common stock issued to seller
    
    
    3,310,806payments to seller
    
    
    225,212Fair value of stock option issued to seller
    
    
    425,381Estimated direct transaction fees and expenses
    
    
    57,930$
    5,154,329
  Cash
    
    $
    111,024Accounts receivable
    
    
    210,889Deferred compensation advances
    
    
    256,775Prepaid expenses and other assets
    
    
    957Property and equipment, net
    
    
    600Intangible assets
    
    
    4,964,330Accrued expenses
    
    
    (164,549
    )Unearned commission advances
    
    
    (225,697
    )$
    5,154,329
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
     For the Three MonthsEnded September 30,2007
    
    
    2006Commission revenue from carriers excluding
periodic bonuses and ISG
    
    $
    4,064,572
    
    
    $
    2,224,224Periodic bonus revenue from carriers
    
    
    340,864
    
    
    
    ISG commission revenue
    
    
    432,714
    
    
    
    668,253Lead sale revenue
    
    
    209,989
    
    
    
    329,957Total
    
    $
    5,048,139
    
    
    $
    3,222,434
 
    
    In third quarter 2007 we earned revenues of $4,064,572 excluding revenue associated with
ISG and lead revenue as compared to $2,224,224 in third quarter 2006. The primary reasons
for the increase is the increase sales, which was the result of the increase in number of
licensed insurance agents employed by the Company from 90 at September 30, 2006 to 111 at
September 30, 2007 and the increase of the number of insurance products being sold.
    
    In third quarter 2007 we earned periodic bonuses from carriers of $340,864 as compared
to $0 in 2006. The Company receives bonuses from certain carriers, which are based
primarily on the Companys sales performance and criteria established by carriers, which
varies over time and generally do not extend beyond the current calendar year. Accordingly
the Company cannot determine what criteria, if any, may be offered by its carriers
pertaining to bonuses beyond the current calendar year.
    
    In third quarter 2007 we earned revenues of $432,714 relating to ISG as compared to
$668,253 in third quarter 2006. We acquired ISG during the second quarter 2006. 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 Company,
and to a lesser extent reduced commission rates earned by the Company on new and inforce
business.
    
    In third quarter 2007 we earned revenues of $209,989 relating to the sale of leads to
third parties as compared to $329,957 in third quarter 2006. We re-sell certain leads
purchased in order to recoup a portion of our lead cost. The primary reason for the
decrease is an increased emphasis on retaining leads for sale by the Companys employee
agents and to a lesser extent better targeting of leads purchased, which results in fewer
leads available for resale.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
   
    
    In third quarter 2007 we incurred salaries, commission and related taxes of $4,413,794
as compared to $3,917,483 for third quarter 2006. Salaries, commission and related taxes
consisted of the following:
 For the Three MonthsEnded September 30,2007
    
    
    2006Salaries, wages and bonuses
    
    $
    2,806,818
    
    
    $
    2,311,342Share based employee and director compensation
    
    
    309,157
    
    
    
    694,556Commissions to employees
    
    
    653,774
    
    
    
    449,826Commissions to non-employees
    
    
    62,878
    
    
    
    85,159Employee benefits
    
    
    104,321
    
    
    
    94,019Payroll taxes
    
    
    221,448
    
    
    
    200,021Severance and other compensation
    
    
    231,397
    
    
    
    14,060Directors compensation
    
    
    24,001
    
    
    
    68,500Total
    
    $
    4,413,794
    
    
    $
    3,917,483
 
    
    Salaries and wages in third quarter 2007 were $2,806,818 as compared to $2,311,342 for
third quarter 2006, an increase of $495,476 or 21%. This increase is the result of the
hiring of additional personnel employed by the Company. The Company had 263 and 232
employees at September 30, 2007 and 2006, respectively.
    
    Share based employee and director compensation expense was $309,157 in third quarter
2007 as compared to $694,556 in third quarter 2006. Share based employee and director
compensation consists of stock option and restricted stock grants, which are valued at
fair-value at the date of the grant and expensed over the stock options vesting period or
the duration of employment, whichever is shorter. The decrease in expense in third
quarter 2007 as compared to third quarter 2006 is the result of the vesting schedules of
stock options issued in 2005 and the first quarter of 2006.
    
    Commissions to employees were $653,774 in third quarter 2007 as compared to $449,826 in
third quarter 2006, an increase of $203,948 or 45%. This increase was the result of an
increase in sales that resulted in higher sales commission expense.
    
    Commissions to non employees were $62,878 in third quarter 2007 as compared to $85,159
in third quarter 2006. We pay commissions to non employee ISG agents. This decrease was
the result of decreased in ISG revenue.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
 
    
    Severance and other compensation expense was $231,397 in third quarter 2007 as compared
to $14,060 in third quarter 2006. The increase was the result of $180,736 higher
severance, vehicle and equipment allowances.
    
    Lead, advertising and other marketing was $2,177,789 in third quarter 2007 as compared
to $1,511,262 in third quarter 2006, an increase of $666,527 or 44%.
 
    
    In third quarter 2007 we had an increase in lead expense of $620,895 as compared
to third quarter 2006. As we increase the number of licensed agents we employ, we
expect our lead expense to increase in the future in order to facilitate the flow of
quality leads to our sale agents.
    
    In third quarter 2007 we had an increase in advertising and other marketing of
$45,632 as compared to third quarter 2006. The increase is the result of direct
mail marketing activities in 2007.
 
    
    Depreciation and amortization expense was $518,088 in third quarter 2007 as compared to
$645,802 in third quarter 2006. Depreciation and amortization expense consisted of the
following:
 For the Three MonthsEnded September 30,2007
    
    
    2006Amortization of intangibles acquired as a
result of the ISG acquisition
    
    $
    302,515
    
    
    $
    425,685Amortization of intangibles acquired as a
result of the HealthPlan Choice Asset Purchase
    
    
    
    
    
    
    18,985Amortization of software and website development
    
    
    49,543
    
    
    
    69,853Amortization of Internet domain name
    
    
    13,433
    
    
    
    Depreciation expense
    
    
    152,607
    
    
    
    131,279Total
    
    $
    518,098
    
    
    $
    645,802
 
    
    In third quarter 2007 we incurred amortization expense of $302,515 as compared to
$425,685 for the intangible assets acquired from ISG. The reason for the decrease in
expense is the decline in the purchased commission override revenue due to lapsation and
aging of the underlying insurance book of business, which was anticipated in the
amortization implemented at the time of the Companys acquisition of ISG. The ISG
acquisition was effective April 3, 2006. The intangible assets acquired from ISG
represent the value of purchased commission override revenue with an assigned value of
$1,411,594 amortized over five years in proportion to expected future value, value of
acquired carrier contracts and agent relationships with an assigned value of $2,752,143
amortized straight line over the expected useful life of 5 years and value of employment
and non-compete agreement acquired with an assigned value of $800,593 amortized straight
line over a weighted average useful life of 3.1 years.
    
    In third quarter 2006 we recorded amortization expense of $18,985 for the intangible
assets acquired as a result of the HealthPlan Choice asset purchase, which was fully
amortized in third quarter 2006.
    
    In third quarter 2007 we incurred amortization expense of $49,543 compared to $69,853
in third quarter 2006 for the software and website development. Expense in third quarter
2007 pertains to the Companys new web site whereas third quarter 2006 expense pertains to
the Companys old web site.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
 
    
    In third quarter 2007 we incurred amortization expense of $13,433 pertaining to the
Companys July 17, 2006 purchase of the Internet domain name www.healthbenefitsdirect.com.
    
    In third quarter 2007 we incurred depreciation expense of $152,607 as compared to
$131,279 in third quarter 2006. The increase pertains to the depreciation of fixed assets
acquired subsequent to September 30, 2006.
    
    In third quarter 2007 we incurred rent, utilities, telephone and communications
expenses of $669,847 as compared to $536,267 in third quarter 2006. Rent, utilities,
telephone and communications expenses consisted of the following:
 For the Three MonthsEnded September 30,2007
    
    
    2006Rent, utilities and other occupancy
    
    $
    469,427
    
    
    $
    350,579Telephone and communications
    
    
    200,420
    
    
    
    185,688Total
    
    $
    669,847
    
    
    $
    536,267
 
    
    In third quarter 2007 we had increases in rent, utilities and other occupancy as
compared to third quarter 2006 attributable to the cost of new and larger facilities. We
relocated our New York sales office to a larger office in the third quarter of 2006. In
November, 2006 we moved our corporate offices in Radnor to a new and larger office.
    
    In third quarter 2007 we had an increase in telephone and communications expense as
compared to third quarter 2006 due to the increase in the number of sales agents.
    
    In third quarter 2007 we incurred professional fees of $383,617 as compared to $206,273
in third quarter 2006, an increase of $177,344. The increase was attributable to legal,
accounting, employee recruiting and technology outsourcing fees.
    
    In third quarter 2007 we incurred other general and administrative expenses of $476,990
as compared to $517,491 in third quarter 2006, a decrease of $40,501 or 8%. Other general
and administrative expenses consisted of the following:
 For the Three MonthsEnded September 30,2007
    
    
    2006Licensing and appointment
    
    $
    115,227
    
    
    $
    209,789Travel and entertainment
    
    
    83,993
    
    
    
    70,807Office expense
    
    
    212,496
    
    
    
    178,074Other
    
    
    65,274
    
    
    
    58,821Total
    
    $
    476,990
    
    
    $
    517,491
 
    
    We incur licensing and appointment costs associated with the licensing of our employee
insurance agents. In third quarter 2007 we had a decrease in licensing and appointment
costs as compared to 2006 due to decreased new agent recruiting and licensing.
    
    In third quarter 2007 we had an increase in office expense as compared to 2006 due to
increase in office space and operations.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
         For the Nine monthsEnded September 30,2007
    
    
    2006Commission revenue from carriers excluding
periodic bonuses and ISG
    
    $
    11,736,573
    
    
    $
    5,128,417Periodic bonus revenue from carriers
    
    
    853,477
    
    
    
    172,858ISG commission revenue
    
    
    1,408,571
    
    
    
    1,252,688Lead sale revenue
    
    
    705,926
    
    
    
    528,450Total
    
    $
    14,704,547
    
    
    $
    7,082,413
 
    
    In 2007 we earned commission revenue from carriers excluding periodic bonuses and ISG
revenues of $11,736,573 as compared to $5,128,417 in 2006. The primary reasons for the
increase is the increase in number of licensed insurance agents employed by the Company
from 90 at September 30, 2006 to 111 at September 30, 2007 and the increase of the number
of insurance products being sold.
    
    In 2007 we earned periodic bonuses from carriers of $853,477 as compared to $172,858 in
2006. The Company receives bonuses from certain carriers, which are based primarily on the
Companys sales performance and criteria established by carriers and generally do not
extend beyond the current calendar year. Accordingly the Company cannot determine what
criteria, if any, may be offered by its carriers pertaining to bonuses beyond the current
calendar year.
    
    In 2007 we earned revenue of $1,408,571 relating to ISG as compared to $1,252,688 in
2006. We acquired ISG during the second quarter of 2006 and we only recognized ISG revenue
in the second and third quarters of 2006 whereas we recognized ISG revenue in first, second
and third quarters of 2007.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
 
    
    In 2007 we earned revenues of $705,926 relating to the sale of leads to third parties as
compared to $528,450 in 2006. We re-sell certain leads purchased in order to recoup a
portion of our lead cost. The primary reasons for the increase is an increased emphasis on
identifying leads suitable for sale and the increased number of leads purchased.
   
    
    In 2007 we incurred salaries, commission and related taxes of $12,329,418 as compared
to $9,455,841 for 2006. Salaries, commission and related taxes consisted of the
following:
 For the Nine monthsEnded September 30,2007
    
    
    2006Salaries, wages and bonuses
    
    $
    7,571,207
    
    
    $
    5,615,458Share based employee and director compensation
    
    
    1,124,370
    
    
    
    1,539,507Commissions to employees
    
    
    1,957,612
    
    
    
    1,114,067Commissions to non-employees
    
    
    272,516
    
    
    
    229,410Employee benefits
    
    
    322,528
    
    
    
    204,875Payroll taxes
    
    
    683,293
    
    
    
    574,130Severance and other compensation
    
    
    305,725
    
    
    
    26,560Directors compensation
    
    
    92,167
    
    
    
    151,834Total
    
    $
    12,329,418
    
    
    $
    9,455,841
 
    
    Salaries and wages were $7,571,207 as compared to $5,615,458 for 2006, an increase of
$1,955,749 or 35%. This increase is the result of the hiring of additional personnel
employed by the Company.
    
    Share based employee and director compensation expense was $1,124,370 in 2007 as
compared to $1,539,507 in 2006. Share based employee and director compensation consists
of stock option and restricted stock grants, which are valued at fair-value at the date of
the grant and expensed over the stock options vesting period or the duration of
employment, whichever is shorter. The decrease in expense in 2007 as compared to 2006 is
the result of the vesting schedules of stock options issued in 2005 and the first quarter
of 2006.
    
    Commissions to employees were $1,957,612 in 2007 as compared to $1,114,067 in 2006.
The increase was the result of an increase in sales that resulted in higher sales
commission expense.
    
    Commissions to non employees were $272,516 in 2007 as compared to $229,410 in 2006. We
pay commissions to non employee ISG agents. We acquired ISG during the second quarter of
2006 and we only recognized commission expense to non employees in the second and third
quarters of 2006 whereas we recognized commission expense to non employees in first,
second and third quarters of 2007.
    
    Employee benefits expense was $322,528 in 2007 as compared to $204,875 in 2006. The
Company implemented an expanded employee benefits package during 2006, which included
group medical, dental and life insurance coverage and further enhanced employee benefits
in 2007 with the addition of a 401(k) plan. The employee pays the majority of the cost of
group insurance coverage.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
 
    
    Payroll taxes expense was $683,293 in 2007 as compared to $574,130 in 2006. The
increase was the result of higher salaries, wages, bonuses and commissions to employees.
    
    Severance and other compensation expense was $305,725 in 2007 as compared to $26,560 in
2006. The increase was the result of $180,736 higher severance, vehicle and equipment
allowances.
    
    Lead, advertising and other marketing was $5,973,442 in 2007 as compared to $3,082,819
in 2006, an increase of $2,890,623 or 94%.
 
    
    In 2007 we had an increase in lead expense of $2,729,057 as compared to 2006. As
we increase the number of licensed agents we employ, we expect our lead expense to
increase in the future in order to facilitate the flow of quality leads to our sale
agents.
    
    In 2007 we had an increase in advertising and other marketing of $161,566 as
compared to 2006, which increased as a result of direct mail marketing activities in
2007.
 
    
    Depreciation and amortization expense was $1,631,172 in 2007 as compared to $1,485,115
in 2006. Depreciation and amortization expense consisted of the following:
 For the Nine monthsEnded September 30,2007
    
    
    2006Amortization of intangibles acquired as a
result of the ISG acquisition
    
    $
    966,415
    
    
    $
    905,821Amortization of intangibles acquired as a
result of the HealthPlan Choice Asset Purchase
    
    
    
    
    
    
    186,518Amortization of software and website development
    
    
    186,040
    
    
    
    103,332Amortization of Internet domain name
    
    
    40,300
    
    
    
    Depreciation expense
    
    
    438,417
    
    
    
    289,444Total
    
    $
    1,631,172
    
    
    $
    1,485,115
 
    
    In 2007 we incurred amortization expense of $966,415 as compared to $905,821 for the
intangible assets acquired from ISG. The ISG acquisition was effective April 3, 2006.
The intangible assets acquired from ISG represent the value of purchased commission
override revenue with an assigned value of $1,411,594 amortized over five years in
proportion to expected future value, value of acquired carrier contracts and agent
relationships with an assigned value of $2,752,143 amortized straight line over the
expected useful life of 5 years and value of employment and non-compete agreement acquired
with an assigned value of $800,593 amortized straight line over a weighted average useful
life of 3.1 years.
    
    In 2006 we recorded amortization expense of $186,518 for the intangible assets acquired
as a result of the HealthPlan Choice asset purchase, which was fully amortized in 2006.
    
    In 2007 we incurred amortization expense of $186,040 compared to $103,332 in 2006 for
the software and website development. As of September 30, 2006, the Company determined
that intangible assets pertaining to the Companys former website were impaired. Expense
in 2007 pertains to the Companys new web site whereas 2006 expense pertains to the
Companys old web site.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
 
    
    In 2007 we incurred amortization expense of $40,300 pertaining to the Companys July
17, 2006 purchase of the Internet domain name www.healthbenefitsdirect.com.
    
    In 2007 we incurred depreciation expense of $438,417 as compared to $289,444 in 2006
period. The increase pertains to the depreciation of fixed assets acquired subsequent to
September 30, 2006.
    
    In 2007 we incurred rent, utilities, telephone and communications expense of $1,934,299
as compared to $1,323,462 in 2006. Rent, utilities, telephone and communications expenses
consisted of the following:
 For the Nine monthsEnded September 30,2007
    
    
    2006Rent, utilities and other occupancy
    
    $
    1,348,518
    
    
    $
    903,857Telephone and communications
    
    
    585,781
    
    
    
    419,605Total
    
    $
    1,934,299
    
    
    $
    1,323,462
 
    
    In 2007 we had increases in rent, utilities and other occupancy as compared to 2006
attributable to the cost of new and larger facilities. We relocated our New York sales
office to a larger office in the third quarter of 2006. In November, 2006 we moved our
corporate offices in Radnor to a new and larger office.
    
    In 2007 we had an increase in telephone and communications expense as compared to 2006
due to the increase in the number of sales agents.
    
    In 2007 we incurred professional fees of $1,277,345 as compared to $994,535 in 2006, an
increase of $282,810 primarily attributable to technology outsourcing fees and to a lesser
extent employee recruiting, legal, and accounting fees.
    
    In 2007 we incurred other general and administrative expenses of $1,283,126 as compared
to $1,379,912 in 2006, a decrease of $96,786 or 7%. Other general and administrative
expenses consisted of the following:
 For the Nine monthsEnded September 30,2007
    
    
    2006Licensing and appointment fees
    
    $
    325,832
    
    
    $
    466,573Travel and entertainment
    
    
    250,703
    
    
    
    276,050Office expense
    
    
    579,678
    
    
    
    430,543Cost of integrating HealthPlan Choice Atlanta
office as a satellite sales office
    
    
    
    
    
    
    102,615Other
    
    
    126,913
    
    
    
    104,131Total
    
    $
    1,283,126
    
    
    $
    1,379,912
 
    
    We incur licensing and appointment costs associated with the licensing of our employee
insurance agents. In 2007 we had a decrease in licensing and appointment costs as compared
to 2006 due to decreased growth rate in new agent recruiting and licensing.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
 
    
    During 2006 we incurred $102,615 pertaining to the cost of integrating HealthPlan
Choices office as our Atlanta satellite sales office, which we subsequently closed in the
fourth quarter of 2006.
    
    In 2007 we had an increase in office expense as compared to 2007 due to increase in
office space and operations.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
    
    
    Decreases in accounts receivable of $227,675 related to the collection of bonus
commissions earned in the fourth quarter of 2006, increased unearned commission advances
and to a lesser extent increased earned revenues;
    
    Increases in unearned commission advances of $3,619,793 relating to increased
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 September 30, 2007, the Companys
outstanding advance balance with this carrier was $6,379,064. 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 September
30, 2007, the Companys outstanding advance balance with this carrier was $1,554,234.
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 September
30, 2007, the Companys outstanding advance balance with this carrier was $634,915.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
  
    
    Recorded $1,144,845 of stock-based compensation and consulting expense. Effective
January 1, 2006, we adopted the provisions of SFAS No. 123(R), Share-Based Payment, under
the modified prospective method. SFAS No. 123(R) eliminates accounting for share-based
compensation transactions using the intrinsic value method prescribed under APB Opinion No.
25, Accounting for Stock Issued to Employees, and requires instead that such transactions
be accounted for using a fair-value-based method. Under the modified prospective method, we
are required to recognize compensation cost for share-based payments to employees based on
their grant-date fair value from the beginning of the fiscal period in which the
recognition provisions are first applied.
    
    On February 15, 2007, the Company granted 125,000 restricted shares of Common Stock to
each of Charles A. Eissa, the Companys President and Chief Operating Officer, and Ivan M.
Spinner, the Companys Senior Vice President, in accordance with the terms of the Companys
2006 Omnibus Equity Compensation Plan (the Plan). The shares granted to Messrs. Eissa
and Spinner were valued at $3.00 per share and will vest as follows: 50,000 shares on
February 15, 2008; 50,000 additional shares on February 15, 2009; 2,083 shares per month on
the 15th day of each month thereafter beginning on March 15, 2009 through January 15, 2010;
and 2,087 shares on February 15, 2010. The expense pertaining to these restricted stock
grants is included in the aforementioned stock based compensation and consulting expense.
   
    
    In 2007 we completed a private placement with certain institutional and individual
accredited investors and issued 5,000,000 shares of our Common Stock, par value $0.001 per
share and warrants to purchase 2,500,000 shares of our Common Stock. Gross proceeds were
$11,250,000 and placement and other fees paid in connection with the 2007 private placement
were $895,240.
    
    In 2007 certain holders of the Companys warrants exercised their warrants to purchase
in aggregate 262,500 shares of the Companys common stock at an exercise price of $1.50 per
share and the Company received $393,750.
    
    In 2006 the Company completed a private placement, which began in 2005. During the
first quarter of 2006 we received net proceeds from the sale of common stock of $6,164,174.
    
    In 2006 Alvin Clemens exercised an option to purchase 200,000 shares of the Companys
common stock at an exercise price of $1 per share and the Company received $200,000.
    
    In 2006 we disbursed $1,150,000 from cash and deposited this amount into a certificate
of deposit, which is reported as restricted cash. The certificate of deposit, which was
subsequently converted into an interest bearing money market account, on deposit with the
same bank that issued 2 letters of credit for the benefit of the Companys landlords of our
new Florida and New York offices.
    
    In 2006 we repaid our $399,630 outstanding balance of a line of credit with Regions Bank
dated August 2004. The Company has no further obligations regarding this line of credit and
this line of credit is not available for future borrowing.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
 Acquisition of ATIAM
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
  
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ITEM 3. CONTROLS AND PROCEDURES
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PART II  OTHER INFORMATION
 
 Item 6. Exhibits
 Exhibit No
    
    Description10.1
    
    Agreement and Plan of Merger, dated as of September 21, 2007, by and among Health
Benefits Direct Corporation, HBDC Acquisition, LLC, System Consulting Associates, Inc.
and the Shareholders of System Consulting Associates, Inc. party thereto (incorporated
by reference to the Registrants Current Report on Form 8-K filed with the Commission on
September 26, 2007).31.1
    
    Certificate of the Chief Executive Officer of Health Benefits Direct Corporation
required by rule 13a-14(a) under the Exchange Act.31.2
    
    Certificate of the Chief Financial Officer of Health Benefits Direct Corporation
required by rule 13a-14(a) under the Exchange Act.32.1
    
    Certificate of the Chief Executive Officer of Health Benefits Direct Corporation
required by rule 13a-14(b) under the Exchange Act.32.2
    
    Certificate of the Chief Financial Officer of Health Benefits Direct Corporation
required by rule 13a-14(b) under the Exchange Act.
 
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HEALTH BENEFITS DIRECT CORPORATIONDated:  November 14, 2007
    By:
    /s/ ALVIN H. CLEMENSAlvin H. ClemensChairman and Chief Executive Officer
(Principal Executive Officer)Dated: November 14, 2007
    By:
    /s/ ANTHONY R. VERDIAnthony R. VerdiChief Financial Officer
(Principal Financial and Accounting Officer) Page 50