UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
DC 20549
 
  FORM 10-Q
  x  QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE
SECURITIES EXCHANGE ACT OF 1934
  For
the quarterly period ended June 30, 2010
  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
 (Exact
Name of Registrant as Specified in Its Charter)
  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
 (Address
of Principal Executive Offices) (Zip Code)
  (484)
654-2200
 (Registrant’s
Telephone Number, Including Area Code)
  Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: Yes x  No o
  Indicate
by check mark whether the Registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulations S-T (232.405 of this
chapter) during the preceding 12 months (or for shorter period that the
Registrant was required to submit and post such
files).    Yes  o    No  o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “ large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (check
one):
  Large
      Accelerated
      Filer           
      o
                  
                  
                  Accelerated
      Filer               
      oNon-Accelerated
      Filer             
      o
                  
                  
                  Smaller
      Reporting
      Company               
      x
  Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): Yes o  No x
  As of
August 16, 2010, there were 41,543,655 outstanding shares of common stock, par
value $0.001 per share, of the registrant.
 
  HEALTH
BENEFITS DIRECT CORPORATION
 Form 10-Q
Quarterly Report
 INDEX
  PART I
                    FINANCIAL
      INFORMATIONItem
      1
                  
                  Financial
      StatementsConsolidated
      Balance Sheets as of June 30, 2010 (UNAUDITED) and
      December 31, 2009
                  
                  3Consolidated
      Statements of Operations (UNAUDITED) for the six months ended June 30,
      2010 and 2009
                  
                  4Consolidated
      Statements of Changes in Shareholders' Deficit (UNAUDITED)for
      the six months ended June 30, 2010
                  
                  5Consolidated
      Statements of Cash Flows (UNAUDITED) for the six months ended June 30,
      2010 and 2009
                  
                  6Notes
      to UNAUDITED Consolidated Financial Statements
                  
                  7Item
      2
                  
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  
                  33Item
      4T
                  
                  Controls
      and Procedures
                  
                  57PART II
                    OTHER
      INFORMATIONItem
      1
                  
                  Legal
      Proceedings
                  
                  57Item
      6
                  
                  Exhibits
                  
                  58Signatures
                  
                  59
  Page
2
  PART I.
 FINANCIAL
INFORMATION
 Item
1. Financial Statements
  HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
  June 30,
                                        2010
                                      
                                      
                                      December 31,
                                        2009(Unaudited)
                                      
                                      
                                      (1)ASSETSCURRENT
      ASSETS:Cash
                                      
                                      $
                                      586,049
                                      
                                      
                                      $
                                      1,403,653Accounts
      receivable, net
                                      
                                      
                                      828,045
                                      
                                      
                                      
                                      1,015,069Tax
      receivable
                                      
                                      
                                      8,385
                                      
                                      
                                      
                                      16,817Deferred
      compensation advances
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Prepaid
      expenses
                                      
                                      
                                      282,707
                                      
                                      
                                      
                                      83,834Other
      current assets
                                      
                                      
                                      58,895
                                      
                                      
                                      
                                      43,227Total
      current assets
                                      
                                      
                                      1,764,081
                                      
                                      
                                      
                                      2,562,600Restricted
      cash
                                      
                                      
                                      1,152,206
                                      
                                      
                                      
                                      1,154,044Property
      and equipment, net
                                      
                                      
                                      742,679
                                      
                                      
                                      
                                      768,184Intangibles,
      net
                                      
                                      
                                      810,451
                                      
                                      
                                      
                                      1,088,065Other
      assets
                                      
                                      
                                      102,555
                                      
                                      
                                      
                                      110,608Total
      assets
                                      
                                      $
                                      4,571,972
                                      
                                      
                                      $
                                      5,683,501LIABILITIES
      AND SHAREHOLDERS' (DEFICIT)CURRENT
      LIABILITIES:Note
      payable
                                      
                                      $
                                      97,301
                                      
                                      
                                      $
                                      7,595Secured
      note from related party
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,252,740Accounts
      payable
                                      
                                      
                                      1,495,555
                                      
                                      
                                      
                                      1,249,883Accrued
      expenses
                                      
                                      
                                      465,684
                                      
                                      
                                      
                                      816,733Current
      portion of capital lease obligations
                                      
                                      
                                      162,196
                                      
                                      
                                      
                                      135,913Due
      to related parties
                                      
                                      
                                      24,827
                                      
                                      
                                      
                                      -Deferred
      revenue
                                      
                                      
                                      423,500
                                      
                                      
                                      
                                      232,500Liabilities
      of discontinued operations
                                      
                                      
                                      315,156
                                      
                                      
                                      
                                      2,144,630Total
      current liabilities
                                      
                                      
                                      2,984,219
                                      
                                      
                                      
                                      5,839,994LONG
      TERM LIABILITIES:Secured
      note from related party
                                      
                                      
                                      2,305,836
                                      
                                      
                                      
                                      -Warrant
      liability
                                      
                                      
                                      2,292,705
                                      
                                      
                                      
                                      2,021,912Capital
      lease obligations
                                      
                                      
                                      249,813
                                      
                                      
                                      
                                      201,627Total
      long term liabilities
                                      
                                      
                                      4,848,354
                                      
                                      
                                      
                                      2,223,539SHAREHOLDERS'
      (DEFICIT):Preferred
      stock ($.001 par value; 10,000,000 shares authorized; Series Aconvertible preferred stock; 3,437,500 shares authorized, 1,276,750
      and 1,000,000shares issued and
      outstanding, respectively (liquidation value $12,767,500 and$10,000,000,
      respectively))
                                      
                                      
                                      2,864,104
                                      
                                      
                                      
                                      1,983,984Common
      stock ($.001 par value; 200,000,000 shares authorized;41,543,655
      shares issued and outstanding)
                                      
                                      
                                      41,543
                                      
                                      
                                      
                                      41,543Additional
      paid-in capital
                                      
                                      
                                      36,387,693
                                      
                                      
                                      
                                      36,380,493Accumulated
      deficit
                                      
                                      
                                      (42,553,941
                                      )
                                      
                                      
                                      (40,786,052
                                      )Total
      shareholders' (deficit)
                                      
                                      
                                      (3,260,601
                                      )
                                      
                                      
                                      (2,380,032
                                      )Total
      liabilities and shareholders' (deficit)
                                      
                                      $
                                      4,571,972
                                      
                                      
                                      $
                                      5,683,501
 
 See
accompanying notes to unaudited consolidated financial statements.
  (1)  Derived
from audited consolidated financial statements.
  Page
3
 
 HEALTH BENEFITS DIRECT CORPORATION AND
SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 For the Three Months Ended
                        
                        
                        For the Six Months EndedJune 30,
                        
                        
                        June 30,2010
                        
                        
                        2009
                        
                        
                        2010
                        
                        
                        2009(Unaudited)
                        
                        
                        (Unaudited)
                        
                        
                        (Unaudited)
                        
                        
                        (Unaudited)Revenues
                        
                        $
                        1,461,542
                        
                        
                        $
                        1,488,503
                        
                        
                        $
                        2,711,177
                        
                        
                        $
                        3,171,214Cost
      of revenues
                        
                        
                        1,637,464
                        
                        
                        
                        1,517,783
                        
                        
                        
                        3,395,872
                        
                        
                        
                        3,035,265Gross
      profit (loss)
                        
                        
                        (175,922
                        )
                        
                        
                        (29,280
                        )
                        
                        
                        (684,695
                        )
                        
                        
                        135,949Selling,
      general and administrative expenses:Salaries,
      employee benefits and related taxes
                        
                        
                        644,756
                        
                        
                        
                        738,096
                        
                        
                        
                        1,240,765
                        
                        
                        
                        2,116,891Advertising
      and other marketing
                        
                        
                        26,060
                        
                        
                        
                        36,204
                        
                        
                        
                        83,404
                        
                        
                        
                        138,103Depreciation
      and amortization
                        
                        
                        241,673
                        
                        
                        
                        220,003
                        
                        
                        
                        473,484
                        
                        
                        
                        431,323Rent,
      utilities, telephone and communications
                        
                        
                        100,759
                        
                        
                        
                        144,242
                        
                        
                        
                        176,002
                        
                        
                        
                        288,434Professional
      fees
                        
                        
                        103,614
                        
                        
                        
                        317,967
                        
                        
                        
                        451,611
                        
                        
                        
                        457,184Other
      general and administrative
                        
                        
                        113,414
                        
                        
                        
                        178,189
                        
                        
                        
                        256,528
                        
                        
                        
                        321,8131,230,276
                        
                        
                        
                        1,634,701
                        
                        
                        
                        2,681,794
                        
                        
                        
                        3,753,748Loss
      from operations
                        
                        
                        (1,406,198
                        )
                        
                        
                        (1,663,981
                        )
                        
                        
                        (3,366,489
                        )
                        
                        
                        (3,617,799
                        )Gain
      (loss) from discontinued operations
                        
                        
                        700,204
                        
                        
                        
                        (1,904,013
                        )
                        
                        
                        1,731,359
                        
                        
                        
                        (1,195,524
                        )Other
      income (expense):Loss
      on change of fair value of warrant liability
                        
                        
                        (1,018,381
                        )
                        
                        
                        -
                        
                        
                        
                        (43,913
                        )
                        
                        
                        -Interest
      income
                        
                        
                        5,380
                        
                        
                        
                        10,200
                        
                        
                        
                        7,465
                        
                        
                        
                        22,311Interest
      expense
                        
                        
                        (45,941
                        )
                        
                        
                        (23,985
                        )
                        
                        
                        (96,311
                        )
                        
                        
                        (44,036
                        )Total
      other income (expense)
                        
                        
                        (1,058,942
                        )
                        
                        
                        (13,785
                        )
                        
                        
                        (132,759
                        )
                        
                        
                        (21,725
                        )Net
      loss
                        
                        $
                        (1,764,936
                        )
                        
                        $
                        (3,581,779
                        )
                        
                        $
                        (1,767,889
                        )
                        
                        $
                        (4,835,048
                        )Net
      loss per common share - basic and diluted:Loss
      from operations
                        
                        $
                        (0.06
                        )
                        
                        $
                        (0.04
                        )
                        
                        $
                        (0.08
                        )
                        
                        $
                        (0.09
                        )Gain
      (loss) from discontinued operations
                        
                        
                        0.02
                        
                        
                        
                        (0.05
                        )
                        
                        
                        0.04
                        
                        
                        
                        (0.03
                        )Net
      loss per common share - basic and diluted
                        
                        $
                        (0.04
                        )
                        
                        $
                        (0.09
                        )
                        
                        $
                        (0.04
                        )
                        
                        $
                        (0.12
                        )Weighted
      average common shares outstanding - basic and diluted
                        
                        
                        41,543,655
                        
                        
                        
                        41,279,645
                        
                        
                        
                        41,543,655
                        
                        
                        
                        41,279,645
 
 See
accompanying notes to unaudited consolidated financial statements.
  Page
4
  HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT)
 FOR
SIX MONTHS ENDED JUNE 30, 2010
 (Unaudited)
 
 Preferred Stock, $.001
                        
                        
                        Common Stock, $.001Par Value
                        
                        
                        Par ValueNumber ofShares
                        
                        
                        Amount
                        
                        
                        Number ofShares
                        
                        
                        Amount
                        
                        
                        AdditionalPaid-inCapital
                        
                        
                        AccumulatedDeficit
                        
                        
                        TotalShareholders'(Deficit)Balance
      - December 31, 2009
                        
                        
                        1,000,000
                        
                        
                        $
                        1,983,984
                        
                        
                        
                        41,543,655
                        
                        
                        $
                        41,543
                        
                        
                        $
                        36,380,493
                        
                        
                        $
                        (40,786,052
                        )
                        
                        $
                        (2,380,032
                        )Preferred
      stock and warrants issued in rights offering
                        
                        
                        276,750
                        
                        
                        
                        880,120
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        880,120Amortization
      of deferred compensation
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        7,200
                        
                        
                        
                        
                        
                        
                        
                        7,200Net
      loss for the period
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (1,767,889
                        )
                        
                        
                        (1,767,889
                        )Balance
      - June 30, 2010
                        
                        
                        1,276,750
                        
                        
                        $
                        2,864,104
                        
                        
                        
                        41,543,655
                        
                        
                        $
                        41,543
                        
                        
                        $
                        36,387,693
                        
                        
                        $
                        (42,553,941
                        )
                        
                        $
                        (3,260,601
                        )
 
 See
accompanying notes to unaudited consolidated financial statements.
  Page
5
 
 HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Unaudited)
 
 For the Six Months EndedJune 30,2010
                            
                            
                            2009Cash
      Flows From Operating Activities:Net
      loss
                            
                            $
                            (1,767,889
                            )
                            
                            $
                            (4,835,048
                            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                            
                            
                            473,484
                            
                            
                            
                            431,323Stock-based
      compensation and consulting
                            
                            
                            7,200
                            
                            
                            
                            310,691Loss
      on change of fair value of warrant liability
                            
                            
                            43,913
                            
                            
                            
                            -Loss
      on impairment of property and equipment of discontinued
      operations
                            
                            
                            -
                            
                            
                            
                            416,764Loss
      on impairment of intangible assets of discontinued
    operations
                            
                            
                            -
                            
                            
                            
                            1,222,817Gain
      (loss) on the disposal of equipment of discontinued
    operations
                            
                            
                            6,530
                            
                            
                            
                            (10,228
                            )Provision
      for bad debt
                            
                            
                            -
                            
                            
                            
                            16,048Changes
      in assets and liabilities:Accounts
      receivable
                            
                            
                            187,024
                            
                            
                            
                            (235,332
                            )Tax
      receivable
                            
                            
                            8,432
                            
                            
                            
                            5,000Prepaid
      expenses
                            
                            
                            (198,873
                            )
                            
                            
                            10,087Other
      current assets
                            
                            
                            (16,247
                            )
                            
                            
                            7,576Other
      assets
                            
                            
                            8,053
                            
                            
                            
                            -Accounts
      payable
                            
                            
                            245,672
                            
                            
                            
                            (268,121
                            )Accrued
      interest on related secured note from related party
                            
                            
                            70,880
                            
                            
                            
                            -Accrued
      expenses
                            
                            
                            (351,049
                            )
                            
                            
                            297,497Due
      to related parties
                            
                            
                            24,827
                            
                            
                            
                            (4,315
                            )Deferred
      revenue
                            
                            
                            191,000
                            
                            
                            
                            65,001Liabilities
      of discontinued operations
                            
                            
                            (1,836,004
                            )
                            
                            
                            (1,023,774
                            )Net
      cash used in operating activities
                            
                            
                            (2,903,047
                            )
                            
                            
                            (3,594,014
                            )Cash
      Flows From Investing Activities:Purchase
      of property and equipment
                            
                            
                            (169,172
                            )
                            
                            
                            (288,930
                            )Proceeds
      from the sale of property and equipment of discontinued
      operations
                            
                            
                            -
                            
                            
                            
                            11,495Net
      cash used in investing activities
                            
                            
                            (169,172
                            )
                            
                            
                            (277,435
                            )Cash
      Flows From Financing Activities:Gross
      proceeds from note payable
                            
                            
                            119,875
                            
                            
                            
                            32,831Payments
      on note payable
                            
                            
                            (30,178
                            )
                            
                            
                            (3,481
                            )Gross
      proceeds from secured note from related party
                            
                            
                            1,000,000
                            
                            
                            
                            68,235Payments
      on secured note from related party
                            
                            
                            -
                            
                            
                            
                            (29,562
                            )Fees
      paid in connection with secured note from related party
                            
                            
                            (18,389
                            )
                            
                            
                            -Gross
      proceeds from capital leases
                            
                            
                            137,310
                            
                            
                            
                            85,790Payments
      on capital leases
                            
                            
                            (62,841
                            )
                            
                            
                            (24,397
                            )Restricted
      cash in connection with letters of credit
                            
                            
                            1,838
                            
                            
                            
                            -Gross
      proceeds from sales of preferred stock
                            
                            
                            1,107,000
                            
                            
                            
                            4,000,000Fees
      paid in connection with offering
                            
                            
                            -
                            
                            
                            
                            (15,617
                            )Net
      cash provided by financing activities
                            
                            
                            2,254,615
                            
                            
                            
                            4,113,799Net
      (decrease) increase in cash
                            
                            
                            (817,604
                            )
                            
                            
                            242,350Cash
      - beginning of the period
                            
                            
                            1,403,653
                            
                            
                            
                            1,842,419Cash
      - end of the period
                            
                            $
                            586,049
                            
                            
                            $
                            2,084,769Supplemental
      Disclosures of Cash Flow InformationCash
      payments for interest
                            
                            $
                            25,431
                            
                            
                            $
                            44,036Non
      cash financing activities:Accrued
      Interest on related party note
                            
                            $
                            53,095
                            
                            
                            $
                            -
 
 See
accompanying notes to unaudited consolidated financial statements.
  Page
6
  HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2010
  NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of
presentation
 
 The
accompanying unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States of
America (“US GAAP”) for interim financial information and with the instructions
to Form 10-Q and Article 8-03 of Regulation S-X.  Accordingly, the
consolidated financial statements do not include all of the information and
footnotes required by US GAAP for complete financial statements.  In
the opinion of management, all adjustments considered necessary for a fair
presentation have been included and such adjustments are of a normal recurring
nature.  These consolidated financial statements should be read in
conjunction with the consolidated financial statements for the year ended
December 31, 2009 and notes thereto and other pertinent information contained in
Form 10-K of Health Benefits Direct Corporation (the “Company”, “we”, “us” or
“our”) as filed with the Securities and Exchange Commission (the
“Commission”).
 
 The
consolidated financial statements of the Company include the Company and its
subsidiaries.  All material inter-company balances and transactions
have been eliminated.
 
 On March
31, 2010 we sold substantially all of Insurint’s assets and ceased our Insurint
operations on that date.  These financial statements reflect
Insurint’s activity as discontinued operations.  For purposes of
comparability, certain prior period amounts have been reclassified to conform to
the 2010 presentation.  See Note 2 –
Discontinued Operations.
 
 The
results of operations for the six months ended June 30, 2010 are not necessarily
indicative of the results for the full fiscal year ending December 31,
2010.
 
 Organization
 
 The
Company was formed in January 2004 initially for the purpose of acquiring,
owning and operating businesses engaged in direct marketing and sale of health
and life insurance products, primarily utilizing the Internet and our former
call center. Our current operations consist of our InsPro Technologies LLC
subsidiary (“InsPro Technologies”).
 
 InsPro
Technologies is a provider of comprehensive, web-based insurance administration
software applications.  InsPro Technologies’ flagship software product
is InsPro Enterprise (“InsPro”), which was introduced in 2004.  InsPro
Technologies offers InsPro on a licensed and an ASP (Application Service
Provider) basis.  InsPro is an insurance administration and marketing
system that supports group and individual business lines, and efficiently
processes agent, direct market, worksite and web site generated
business.  InsPro Technologies’ clients include insurance carriers and
third party administrators.  InsPro Technologies realizes revenue from
the sale of software licenses, application service provider fees, software
maintenance fees and professional services.  We acquired InsPro
Technologies on October 1, 2007.
  Page
7
  HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2010
  NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
 
 Use of
estimates
 
 The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates. Significant estimates in 2010 and 2009 include the allowance for
doubtful accounts, stock-based compensation, the useful lives of property and
equipment and intangible assets, warrant liability and revenue
recognition.
 
 Cash and cash
equivalents
 
 The
Company considers all liquid debt instruments with original maturities of 3
months or less to be cash equivalents.
 
 Restricted
cash
 
 The
Company considers all cash and cash equivalents held in restricted accounts
pertaining to the Company’s letters of credit as restricted cash.
 
 Accounts
receivable
 
 The
Company has a policy of establishing an allowance for uncollectible accounts
based on its best estimate of the amount of probable credit losses in its
existing accounts receivable. The Company periodically reviews its accounts
receivable to determine whether an allowance is necessary based on an analysis
of past due accounts and other factors that may indicate that the realization of
an account may be in doubt. Account balances deemed to be uncollectible are
charged to the allowance after all means of collection have been exhausted and
the potential for recovery is considered remote. At June 30, 2010 and December
31, 2009, the Company has established, based on a review of its outstanding
balances, an allowance for doubtful accounts in the amount of $0.
 
 Accounts
receivable from the two largest InsPro Technologies clients accounted for 26%
and 19%, respectively, of the Company’s total accounts receivable balance at
June 30, 2010.
 
 Fair value of financial
instruments
 
 The
carrying amounts of financial instruments, including cash and cash equivalents,
restricted cash, accounts receivable, accounts payable, accrued expenses and
capital leases approximated fair value as of June 30, 2010 and December 31,
2009, because of the relatively short-term maturity and the market interest
rates of these instruments.
  Page
8
  HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2010
  NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
  Property and
equipment
 
 Property
and equipment are carried at cost. The cost of repairs and maintenance are
expensed as incurred; major replacements and improvements are
capitalized.  When assets are retired or disposed of, the cost and
accumulated depreciation are removed from the accounts, and any resulting gains
or losses are included in income in the year of disposition.  In
accordance with Statement of Financial Accounting Standards ASC 360, "Accounting
for the Impairment or Disposal of Long-Lived Assets" the Company examines the
possibility of decreases in the value of fixed assets when events or changes in
circumstances reflect the fact that their recorded value may not be
recoverable.
 
 Intangible
assets
 
 Intangible
assets consist of assets acquired in connection with the acquisition of InsPro
Technologies and costs incurred in connection with the development of the InsPro
software.  See Note 4 – Intangible Assets.
 
 The
Company’s InsPro Technologies subsidiary capitalized certain costs valued in
connection with developing or obtaining software for external use.  These costs,
which consist of direct technology labor costs, are capitalized subsequent to
the establishment of technological feasibility and until the product is
available for general release.  Both prior and subsequent costs
relating to the establishment of technological feasibility are expensed as
incurred.  Development costs associated with product enhancements that
extend the original product’s life or significantly improve the original
product’s marketability are also capitalized once technological feasibility has
been established.  Software development costs are amortized on a
straight-line basis over the estimated useful lives of the products not to
exceed two years, beginning with the initial release to
customers.  The Company continually evaluates whether events or
circumstances have occurred that indicate the remaining useful life of the
capitalized software development costs should be revised or the remaining
balance of such assets may not be recoverable.  The Company evaluates
the recoverability of capitalized software based on the net realizable value of
its software products, as defined by the estimated future revenue from the
products less the estimated future costs of completing and disposing of the
products, compared to the unamortized capitalized costs of the
products.  As of June 30, 2010, management believes no revisions to
the remaining useful life or additional write-downs of capitalized software
development costs are required because the net realizable value of its software
products exceeds the unamortized capitalized costs.  Management’s
estimates about future revenue and costs associated with its software products
are subject to risks and uncertainties related to, among other things, market
and industry conditions, technological changes, and regulatory
factors.  A change in estimates could result in an impairment charge
related to capitalized software costs.
 
 Impairment of long-lived
assets
 
 The
Company periodically reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be fully recoverable. The Company recognizes an impairment loss
when the sum of expected undiscounted future cash flows is less than the
carrying amount of the asset. The amount of impairment is measured as the
difference between the asset's estimated fair value and its book
value.
  Page
9
  HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2010
  NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
 
 Warrant
Liability
 
 The
Company issued warrants to purchase the Company’s common stock in connection
with the issuance of common and preferred stock, which contain certain
anti-dilution provisions that reduce the exercise price of the warrants in
certain circumstances.  See Note 7 – Equity - Common Stock
Warrants. Upon the Company’s adoption of the Derivative and Hedging Topic
of the FASB Accounting Standards Codification (“ASC 815”) on January 1,
2009, the Company determined that the warrants with provisions that reduce the
exercise price of the warrants did not qualify for a scope exception under ASC
815 as they were determined not to be indexed to the Company’s stock as
prescribed by ASC 815.
 
 The
Company determined the fair value of the warrants issued on March 26, 2010 was
$226,880 and recorded that amount in warrant liability.
 
 For the
six months ended June 30, 2010, the Company recorded a loss on the change in
fair value of derivative liability of $43,913 to mark to market for the increase
in fair value of the warrants during the six months ended June 30,
2010.
 
 The
Company determined the fair value of the warrant liability at June 30, 2010 was
$2,292,705. The fair value was determined using the Black Scholes Option Pricing
Model based on the following assumptions: dividend yield: 0%, risk free
rate: 0.18% and the following:
 
 Warrant
      IssueDate
                          
                          WarrantExercisePrice
                          
                          
                          AggregateNumber ofWarrants
                          
                          
                          Expected Term(Years) ofWarrants
                          
                          
                          Volatility
                          
                          
                          Fair Value1/15/2009
                          
                          $
                          0.20
                          
                          
                          
                          20,000,000
                          
                          
                          4.0
                          
                          
                          
                          328
                          %
                          
                          $
                          1,794,5883/26/2010
                          
                          $
                          0.20
                          
                          
                          
                          5,535,000
                          
                          
                          5.0
                          
                          
                          
                          375
                          %
                          
                          
                          498,117$
                          2,292,705
  A summary
of the Company's warrant liability activity and balances as of and for the six
months ended June 30, 2010 are as follows:
 
 Warrant
      liability balance as of December 31, 2009
                        
                        $
                        2,021,912Fair
      value of warrants issued during the period ended June 30,
    2010
                        
                        
                        226,880Fair
      value of warrants whose anti-dultion provisions expired during the period
      ended June 30, 2010
                        
                        
                        (1,123,521
                        )Increase
      in the fair value of warrants liability during the period ended June 30,
      2010
                        
                        $
                        1,167,434Warrant
      liability balance as of June 30, 2010
                        
                        $
                        2,292,705
  Income
taxes
 
 The
Company accounts for income taxes under the liability method.  Under
this method, deferred income tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
  Page
10
  HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2010
 
 NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
  Loss per common
share
 
 Basic
earnings per share is computed by dividing net income by the weighted average
number of shares of common stock outstanding during the period. Diluted earnings
per share is computed by dividing net income by the weighted average number of
shares of common stock, common stock equivalents and potentially dilutive
securities outstanding during each period. Diluted loss per common share is not
presented because it is anti-dilutive. The Company's common stock equivalents at
June 30, 2010 include the following:
 
 Convertible
      preferred stock
                      
                      
                      25,535,000Options
                      
                      
                      4,890,000Warrants
                      
                      
                      56,751,88787,176,887
  Revenue
recognition
 
 We follow
the guidance of the Statement of Financial Accounting Standards ASC 605 for
revenue recognition. In general, the Company records revenue when persuasive
evidence of an arrangement exists, services have been rendered or product
delivery has occurred, the sales price to the customer is fixed or determinable,
and collectibility is reasonably assured.
 
 InsPro
Technologies offers InsPro on a licensed and an application service provider
(“ASP”) basis.  An InsPro software license entitles the purchaser a
perpetual license to a copy of the InsPro software installed at a single client
location.  Alternatively, ASP hosting service enables a client to
lease the InsPro software, paying only for that capacity required to support
their business.  ASP clients access InsPro installed on InsPro
Technologies owned servers located at InsPro Technologies’ offices or at a third
party’s site.
 
 InsPro
Technologies’ software maintenance fees apply to both licensed and ASP
clients.  Maintenance fees cover periodic updates to the application
and the InsPro help desk.
 
 InsPro
Technologies’ professional services are generally associated with the
implementation of an InsPro instance for either an ASP or licensed client, and
cover such activities as InsPro installation, configuration, modification of
InsPro functionality, client insurance plan set-up, client insurance document
design and system documentation.
  Page
11
  HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2010
  NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
  InsPro
Technologies revenue is generally recognized under ASC
985-605.   For software arrangements involving multiple elements,
the Company allocates revenue to each element based on the relative fair value
or the residual method, as applicable using vendor specific objective evidence
to determine fair value, which is based on prices charged when the element is
sold separately. Software revenue accounted for under ASC 985-605 is recognized
when persuasive evidence of an arrangement exists, the software is delivered in
accordance with all terms and conditions of the customer contracts, the fee is
fixed or determinable and collectibility is probable.  Revenue related
to post-contract customer support (“PCS”), including technical support and
unspecified when-and-if available software upgrades, is recognized ratably over
the PCS term.   Under ASC 985-605, if fair value does not exist
for any undelivered element, revenue is not recognized until the earlier of
(i) delivery of such element or (ii) when fair value of the
undelivered element is established, unless the undelivered element is a service,
in which case revenue is recognized as the service is performed once the service
is the only undelivered element.
 
 The
Company recognizes revenue from software license agreements when persuasive
evidence of an agreement exists, delivery of the software has occurred, the fee
is fixed or determinable, and collectibility is probable.  The Company
considers fees relating to arrangements with payment terms extending beyond one
year to not be fixed or determinable and revenue for these arrangements is
recognized as payments become due from the customer.  In software
arrangements that include more than one InsPro module, the Company allocates the
total arrangement fee among the modules based on the relative fair value of each
of the modules.
 
 License
revenue allocated to software products generally is recognized upon delivery of
the products or deferred and recognized in future periods to the extent that an
arrangement includes one or more elements to be delivered at a future date and
for which fair values have not been established.  Revenue allocated to
maintenance agreements is recognized ratably over the maintenance term and
revenue allocated to training and other service elements is recognized as the
services are performed.
 
 The
unearned portion of InsPro Technologies’ revenue, which is revenue collected or
billed but not yet recognized as earned, has been included in the consolidated
balance sheet as a liability for deferred revenue.
 
 See Note
2 - Discontinued Operations for revenue recognition for discontinued
operations.
 
 Cost of
Revenues
 
 Cost of
revenues includes direct labor and associated costs for employees and
independent contractors performing InsPro design, development, implementation
and testing together with customer management, training and technical support,
as well as facilities, equipment and software costs.
  Page
12
  HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2010
  NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
 
 Advertising and other
marketing
 
 Advertising
and other marketing costs are expensed as incurred.
 
 Concentrations of credit
risk
 
 The
Company maintains its cash and restricted cash in bank deposit accounts, which
exceed the federally insured limits of $250,000 per account as of June 30,
2010.  At June 30, 2010, the Company had $586,049 of cash and
$1,152,206 of restricted cash for a total of $1,738,255 in United States bank
deposits, of which $390,824 was federally insured and $1,347,431 exceeded
federally insured limits.  Effective October 3, 2008 through December
31, 2013, federally insured limits have been increased from $100,000 to $250,000
per account.  The Company has not experienced any losses in such
accounts through June 30, 2010.
 
 The
following table lists the percentage of the Company’s revenue, which was earned
from the Company’s two largest InsPro clients.
 
 For the Six Months
                      ended June 30,2010
                    
                    
                    2009Largest
      InsPro client
                    
                    
                    32
                    %
                    
                    
                    53
                    %Second
      largest InsPro client
                    
                    
                    24
                    %
                    
                    
                    20
                    %
  Stock-based
compensation
 
 The
Company accounts for stock based compensation transactions using a
fair-value-based method and recognizes 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.
 
 Non-employee stock based
compensation
 
 The cost
of stock based compensation awards issued to non-employees for services are
recorded at either the fair value of the services rendered or the instruments
issued in exchange for such services, whichever is more readily determinable,
based on their grant-date fair value from the beginning of the fiscal period in
which the recognition provisions are first applied.
 
 Page
13
  HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2010
  NOTE 1 –
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
  Registration rights
agreements
 
 The
Company classifies as liability instruments the fair value of registration
rights agreements when such agreements (i) require it to file, and cause to be
declared effective under the Securities Act of 1933,as amended (the “Securities
Act”), a registration statement with the Securities and Exchange Commission (the
“SEC”) within contractually fixed time periods, and (ii) provide for the payment
of liquidating damages in the event of its failure to comply with such
agreements. Registration rights with these characteristics are accounted for as
derivative financial instruments at fair value and (ii) contracts that are (a)
indexed to and potentially settled in an issuer's own stock and (b) permit gross
physical or net share settlement with no net cash settlement alternative are
classified as equity instruments.
 
 At June
30, 2010, the Company does not believe that it is probable that the Company will
incur a penalty in connection with registration rights agreements, which we
entered into in connection with the 2008 and 2009 private
placements.  Accordingly no liability was recorded as of June 30,
2010.
 
 Recent accounting
pronouncements
 
 In
January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation
(Topic 810): Accounting and Reporting for Decreases in Ownership of a
Subsidiary. This amendment to Topic 810 clarifies, but does not change, the
scope of current US GAAP. It clarifies the decrease in ownership provisions of
Subtopic 810-10 and removes the potential conflict between guidance in that
Subtopic and asset derecognition and gain or loss recognition guidance that may
exist in other US GAAP. An entity will be required to follow the amended
guidance beginning in the period that it first adopts FAS 160 (now included in
Subtopic 810-10). For those entities that have already adopted FAS 160, the
amendments are effective at the beginning of the first interim or annual
reporting period ending on or after December 15, 2009. The amendments should be
applied retrospectively to the first period that an entity adopted FAS 160. The
Company does not expect the provisions of ASU 2010-02 to have a material effect
on the financial position, results of operations or cash flows of the
Company.
 
 In
January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic
505): Accounting for Distributions to Shareholders with Components of Stock and
Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to
Topic 505 clarifies the stock portion of a distribution to shareholders that
allows them to elect to receive cash or stock with a limit on the amount of cash
that will be distributed is not a stock dividend for purposes of applying Topics
505 and 260. Effective for interim and annual periods ending on or after
December 15, 2009, and would be applied on a retrospective basis. The Company
does not expect the provisions of ASU 2010-01 to have a material effect on the
financial position, results of operations or cash flows of the
Company.
 
 In
February 2010, the FASB issued ASU 2010-09, which addresses certain
implementation issues related to an entity’s requirement to perform and disclose
subsequent events procedures. The ASU (1) exempts entities that file their
financial statements with, or furnish them to, the SEC from disclosing the date
through which subsequent events procedures have been performed and
(2) clarifies the circumstances in which an entity’s financial statements
would be considered restated and in which the entity would therefore be required
to update its subsequent eventsevaluation since the originally issued or available to be issued
financial statements. ASU 2010-09 became effective immediately upon issuance,
and the Company has adopted its disclosure requirements beginning with its year
ended December 31, 2009.
  Page
14
  HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2010
 
 NOTE 2 –
DISCONTINUED
OPERATIONS
 
 The
Company has classified its former telesales call center and external (ISG) agent
produced agency business (the “Agency Business”), its former Insurint business,
and its leased offices located in New York and Florida as discontinued
operations.
 
 During
the first quarter of 2009, the Company ceased the direct marketing and sale of
health and life insurance and related products to individuals and families in
its Telesales call center.  The Company also determined to discontinue
selling health and life insurance and related products to individuals and
families through its non employee ISG agents.  During the first
quarter of 2009 the Company’s Telesales business segment eliminated 43 positions
including all of its licensed employee sales agents along with other Telesales
service and support personnel and eliminated another 20 positions in Telesales
through attrition.
 
 On
February 20, 2009 (the “Closing Date”), the Company entered into and completed
the sale of the Company’s Agency Business to eHealth Insurance Services, Inc.
(“eHealth”), an unaffiliated third party, pursuant to the terms of a Client
Transition Agreement (the “Agreement”).
 
 Pursuant
to the Agreement, the Company transferred to eHealth the broker of record status
and the right to receive commissions on certain of the in-force individual and
family major medical health insurance policies and ancillary dental, life and
vision insurance policies issued by Aetna, Inc., Golden Rule, Humana,
PacifiCare, Inc., Assurant and United Healthcare Insurance Co. (collectively,
the “Specified Carriers”) on which the Company was designated as broker of
record as of the Closing Date (collectively, the “Transferred Policies” and
each, a “Transferred Policy”).  Certain policies and products were
excluded from the transaction, including the Company’s agency business generated
through its ISG agents, all short term medical products and all business
produced through carriers other than the Specified Carriers.  In
addition, the Agreement also provides for the transfer to eHealth of certain
lead information relating to health insurance prospects (the “Lead
Database”).
 
 The
aggregate initial amount of consideration paid by eHealth to the Company
pursuant to the Agreement during the first quarter of 2009 was approximately
$1,280,000.  In addition, on the Closing Date, eHealth agreed to
assume from the Company certain liabilities relating to historical commission
advances on the Transferred Policies made by the Specified Carriers in an
aggregate amount of approximately $1,385,000.  In addition, eHealth
has agreed to pay to HBDC II, Inc., a Delaware corporation and a wholly-owned
subsidiary of the Company (“HBDC II”) a portion of each commission payment
received by eHealth and reported by the Specified Carrier relating to a
Transferred Policy for the duration of the policy, provided that eHealth remains
broker of record on such Transferred Policy.
 
 Simultaneously
with the execution of the Agreement, the Company and eHealth also entered into a
Marketing and Referral Agreement, dated as of February 20, 2009 (the “Referral
Agreement”).  Pursuant to the terms of the Referral Agreement, eHealth
agreed to construct one or more websites for the purpose of selling health
insurance products (the “Referral Sites”) and to pay to HBDC II a portion of all
first year and renewal commissions received by eHealth from policies sold
through the Referral Sites that result from marketing to prospects using the
Lead Database or other leads delivered by the Company to eHealth.  The
Referral Agreement is scheduled to terminate 18 months following the Closing
Date and is terminable by the Company or eHealth upon material breach by the
other party.
  Page
15
  HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2010
 
 NOTE 2 –
DISCONTINUED
OPERATIONS (continued)
 
 On March
31, 2010, the Company entered into and completed an asset purchase agreement of
sale for Insurint (the “Insurint Sale Agreement”) with an unaffiliated third
party.  Pursuant to the terms of the Insurint Sale Agreement, the
Company sold substantially all of the assets used in the Company’s Insurint’s
business, including the Insurint software, the www.insurint.com web site, other
intellectual property specific to Insurint, including but not limited to the
customer base and all future revenue pertaining to Insurint.  The
buyer agreed to assume future Insurint commitments and expenses subsequent to
March 31, 2010.  Pursuant to the Insurint Sale Agreement, the Company
will receive in aggregate $625,000 in cash from the buyer of Insurint, of which
$312,500 was received on April 1, 2010 and the $312,500 balance will be received
over twenty three equal monthly installments in the amount of $13,020.83, with
the first monthly payment being due on May 1, 2010, and the last monthly payment
in the amount of $13,020.91 and due on April 1, 2012.   The
Company recorded a gain on the sale of Insurint of $578,569 on March 31,
2010.
 
 Revenue Recognition for
Discontinued Operations
 
 Our
discontinued operations generates revenue primarily from the receipt of
commissions paid to the Company by insurance companies based upon the insurance
policies sold to consumers by the Company’s Agency Business. We recognize
commission revenue primarily from the sale of health insurance, after we receive
notice that the insurance company has received payment of the related premium.
First year commission revenues per policy can fluctuate due to changing
premiums, commission rates and types or amount of insurance
sold.  Insurance premium commission revenues are recognized pro-rata
over the terms of the policies.  Revenues for renewal commissions are
recognized after we receive notice that the insurance company has received
payment for a renewal premium. Renewal commission rates are significantly less
than first year commission rates and may not be offered by every insurance
company or with respect to certain types of products.  The unearned
portion of premium commissions has been included in the consolidated balance
sheet in net liabilities of discontinued operations.
 
 During
the first quarter of 2009 the Company recognized a gain upon the execution of
the Agreement of $2,664,794, which is the sum of the aggregate initial amount of
consideration paid by eHealth to the Company and eHealth’s assumption of certain
liabilities relating to historical commission advances on the Transferred
Policies.
 
 The
Company recognizes as revenue commission payments received from eHealth in
connection with the Agreement upon the Company’s notification by eHealth of such
amounts.
 
 The
Company also generated revenue from the sub-lease of our leased New York City
office, which is sub-leased on a month to month basis, and also from the
sub-lease of a portion of our leased Deerfield Beach Florida office, which is
leased under operating leases through February 28, 2011. Sub-lease revenue
includes base rent, additional rent representing a portion of occupancy expenses
under the terms of the sub-leases and certain technology and facility services
provided. We recognize sub-lease revenue when lease rent payments are due in
accordance with the sub-lease agreements.  Recognition of sub-lease
revenue commences when control of the facility has been given to the tenant. We
record a provision for losses on accounts receivable equal to the estimated
uncollectible amounts. This estimate is based on our historical experience and a
review of the current status of the Company's receivables.
  Page
16
  HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2010
 
 NOTE 2 –
DISCONTINUED
OPERATIONS (continued)
 
 Through
March 31, 2010, the Company offered InsurintTM and typically charged our
Insurint clients a one time account set up fee, which was recognized as earned
when collected and the service had been provided, and recurring access fees,
which were typically monthly in frequency and were recognized as the service was
provided.  As a result the sale of Insurint, the Company does not
anticipate recognizing any revenue from Insurint subsequent to March 31,
2010.
 
 Impairment of Long Lived
Assets
 
 During
the first quarter of 2009 we determined certain long term assets were impaired
as a result of the cessation of direct marketing and sales in the Telesales call
center.  The Company recorded expense in 2009 to write-off the value
of these long term assets in the results from discontinued operations, which
included property and equipment net of depreciation of $416,764, intangible
assets net of accumulated amortization acquired from ISG of $1,200,428 and the
value of internet domain name www.healthbenefitsdirect.com net of accumulated
amortization of $22,389.
 
 On July
1, 2009 the Company entered into a sub-lease agreement with a third party,
effective July 15, 2009, which terminated an existing sub-lease agreement for
approximately 8,000 square feet of the Company’s Deerfield Beach office and
replaced it with a sub-lease agreement for approximately 29,952 square
feet.  This new sub-lease terminates on February 28,
2011.  As part of the sub-lease agreement, the Company also agreed to
lease certain personal property to the sub-lessee for the term of the
lease.   The sub-lessee agreed to pay the Company 20 monthly
payments of $10,890 for such personal property and the Company has agreed to
deliver to the sub-lessee a bill of sale for the leased personal property at the
end of the term.  The Company has accounted for this personal property
sub-lease arrangement as a sale and recorded a gain of $217,601.
  Page
17
  HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2010
  NOTE 2 –
DISCONTINUED
OPERATIONS (continued)
 
 The
financial position of discontinued operations was as follows:
 
 June 30,
                            2010
                          
                          
                          December 31,
                            2009Accounts
      receivable, less allowance for doubtful accounts $0 and
    $6,909
                          
                          $
                          (222,621
                          )
                          
                          $
                          (322,619
                          )Deferred
      compensation advances
                          
                          
                          (211
                          )
                          
                          
                          (498
                          )Prepaid
      expenses
                          
                          
                          (13,571
                          )
                          
                          
                          (16,932
                          )Other
      current assets
                          
                          
                          (141,826
                          )
                          
                          
                          (5,477
                          )Other
      assets
                          
                          
                          (195,595
                          )
                          
                          
                          (91,809
                          )Accounts
      payable
                          
                          
                          191,597
                          
                          
                          
                          183,722Accrued
      expenses
                          
                          
                          583,629
                          
                          
                          
                          2,273,024Sub-tenant
      security deposit
                          
                          
                          113,706
                          
                          
                          
                          121,007Unearned
      commission advances
                          
                          
                          48
                          
                          
                          
                          3,461Deferred
      revenue
                          
                          
                          -
                          
                          
                          
                          751Net
      current liabilities of discontinued operations
                          
                          $
                          315,156
                          
                          
                          $
                          2,144,630
  The
results of discontinued operations were as follows:
 
 For the Three Months
                                  Ended June 30,
                                
                                
                                For the Six Months
                                  Ended June 30,2010
                                
                                
                                2009
                                
                                
                                2010
                                
                                
                                2009Revenues:Commission
      and other revenue from carriers
                                
                                $
                                113,095
                                
                                
                                $
                                369,189
                                
                                
                                $
                                262,741
                                
                                
                                $
                                1,721,155Gain
      recognized upon the execution of the Agreement
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                2,664,794Transition
      policy commission pursuant to the Agreement
                                
                                
                                317,724
                                
                                
                                
                                552,517
                                
                                
                                
                                668,056
                                
                                
                                
                                776,855Gain
      on the sale of Insurint
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                578,569
                                
                                
                                
                                -Gain
      on disposal of property and equipment
                                
                                
                                530
                                
                                
                                
                                8,716
                                
                                
                                
                                6,530
                                
                                
                                
                                12,669Lead
      sale revenue
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                103
                                
                                
                                
                                -Insurint
      revenue
                                
                                
                                210
                                
                                
                                
                                46,768
                                
                                
                                
                                53,340
                                
                                
                                
                                86,496Sub-lease
      revenue
                                
                                
                                334,941
                                
                                
                                
                                323,578
                                
                                
                                
                                592,892
                                
                                
                                
                                681,505766,500
                                
                                
                                
                                1,300,768
                                
                                
                                
                                2,162,231
                                
                                
                                
                                5,943,474Operating
      expenses:Salaries,
      commission and related taxes
                                
                                
                                30,451
                                
                                
                                
                                346,091
                                
                                
                                
                                197,839
                                
                                
                                
                                1,312,151Lead,
      advertising and other marketing
                                
                                
                                -
                                
                                
                                
                                6,403
                                
                                
                                
                                -
                                
                                
                                
                                128,357Depreciation
      and amortization
                                
                                
                                -
                                
                                
                                
                                67,042
                                
                                
                                
                                -
                                
                                
                                
                                229,703Rent,
      utilities, telephone and communications
                                
                                
                                (94,113
                                )
                                
                                
                                2,443,309
                                
                                
                                
                                (105,500
                                )
                                
                                
                                3,010,688Professional
      fees
                                
                                
                                83,803
                                
                                
                                
                                144,584
                                
                                
                                
                                170,014
                                
                                
                                
                                503,593Loss
      on impairment of property and equipment
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                416,764Loss
      on impairment of intangible assets
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,222,817Other
      general and administrative
                                
                                
                                46,155
                                
                                
                                
                                197,352
                                
                                
                                
                                168,519
                                
                                
                                
                                314,92566,296
                                
                                
                                
                                3,204,781
                                
                                
                                
                                430,872
                                
                                
                                
                                7,138,998Gain
      from discontinued operations
                                
                                $
                                700,204
                                
                                
                                $
                                (1,904,013
                                )
                                
                                $
                                1,731,359
                                
                                
                                $
                                (1,195,524
                                )
  Page
18
  HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2010
 
 NOTE 3 -
PROPERTY AND
EQUIPMENT
 
 Property
and equipment consisted of the following:
 UsefulLife(Years)
                            
                            
                            At June 30,
                              2010
                            
                            
                            At December 31,2009Computer
      equipment and software
                            
                            3
                            
                            
                            $
                            1,070,793
                            
                            
                            $
                            900,428Office
      equipment
                            
                            4.6
                            
                            
                            
                            194,360
                            
                            
                            
                            194,360Office
      furniture and fixtures
                            
                            6.7
                            
                            
                            
                            189,857
                            
                            
                            
                            189,857Leasehold
      improvements
                            
                            9.8
                            
                            
                            
                            34,034
                            
                            
                            
                            34,0341,489,044
                            
                            
                            
                            1,318,679Less
      accumulated depreciation
                            
                            
                            
                            
                            
                            
                            (746,365
                            )
                            
                            
                            (550,495
                            )$
                            742,679
                            
                            
                            $
                            768,184
  For the
three months ended June 30, 2010 and 2009, depreciation expense was
$102,867 and $81,197, respectively. For the six months ended June 30,
2010 and 2009, depreciation expense was $195,871 and $153,709,
respectively.
  NOTE 4 –
INTANGIBLE
ASSETS
 
 Intangible
assets consisted of the following:
 UsefulLife(Years)
                            
                            
                            At June 30,
                              2010
                            
                            
                            At December 31,2009InsPro
      intangible assets acquired
                            
                            4.7
                            
                            
                            $
                            2,097,672
                            
                            
                            $
                            2,097,672Software
      development costs for external marketing
                            
                            2
                            
                            
                            
                            174,296
                            
                            
                            
                            174,2962,271,968
                            
                            
                            
                            2,271,968Less:  accumulated
      amortization
                            
                            
                            
                            
                            
                            
                            (1,461,517
                            )
                            
                            
                            (1,183,903
                            )$
                            810,451
                            
                            
                            $
                            1,088,065
 
 For the
three months ended June 30, 2010 and 2009, amortization expense was
$138,806 and $138,806 respectively.
 For the
six months ended June 30, 2010 and 2009, amortization expense was $277,614
and $277,613 respectively.
 
 Amortization
expense subsequent to the period ended June 30, 2010 is as follows:
 
 2010
                      
                      $
                      203,6672011
                      
                      
                      346,7342012
                      
                      
                      260,050$
                      810,451
  Page
19


HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


June 30,
2010





NOTE 5 –
SECURED NOTE FROM
RELATED PARTY





On
December 22, 2009, the Company and its subsidiaries entered into a Loan
Agreement (the “Loan Agreement”) and a $1,250,000 Secured Promissory Note (the
“Note”) with The Co-Investment Fund II, L.P.
(“Co-Investment”).  Co-Investment is the controlling stockholder of
the Company and a designee of Cross Atlantic Capital Partners, Inc., of which
Frederick C. Tecce, one of our directors, is a managing partner and of which
Donald Caldwell, also one of our directors and Chairman of our board of
directors, is Chairman and Chief Executive Officer.





Pursuant
to the terms of the Loan Agreement and the Note, Co-Investment extended the
principal sum of $1,250,000 (the “Loan”) to the Company and its subsidiaries
(collectively, the “Borrowers”).  Pursuant to the Note, the Borrowers
agreed to pay to the order of Co-Investment the outstanding principal amount of
the Note plus interest.  Interest will accrue on the unpaid principal
balance of the Note at an annual rate of 8%, except in the case of an event of
default as set forth in the Loan Agreement, in which case the rate of interest
will increase to 11% until such event of default is cured.  All
principal and accrued interest is due and payable on December 22, 2010.
 Co-Investment may accelerate payment of the Loan in the event of default
on the Loan as set forth in Loan Agreement.





Pursuant
to the Loan Agreement, the Borrowers are prohibited from, among other things:
(a) (i) entering into any merger, consolidation or reorganization with or
acquiring all or substantially all of the assets or equity interests of any
other entity, or (ii) selling, leasing, transferring or otherwise disposing of
their properties or assets except in the ordinary course of business; (b)
creating or suffering to exist any lien upon any of their property or assets,
except as permitted; (c) becoming liable upon the obligations or liabilities of
any person or entity; (d) purchasing or acquiring obligations or equity
interests of, or any other interest in any person or entity; (e) making
advances, loans or extensions of credit to any person or entity; (f) creating,
incurring, assuming or suffering to exist any indebtedness or (g) violating any
law, ordinance or regulation of any governmental entity.





The Note
is secured by a perfected first-priority security interest in substantially all
of the assets of the Borrowers, including all of the intellectual property
assets of the Borrowers, and 100% of the stock of the Company’s subsidiaries,
pursuant to the terms of a Security Agreement, Intellectual Property Security
Agreement and Pledge Agreement with Co-Investment, each of which were executed
by the Borrowers and Co-Investment on December 22, 2009, concurrent with the
execution of the Loan Agreement and the Note.





On June
15, 2010, the Company and Co-Investment agreed to modify the terms of the Loan
Agreement and the Note to: (i) increase the loan from $1,250,000 to $2,250,000
on June 15, 2010 and (ii) allow Co-Investment to require the Company to repay to
Co-Investment an amount not to exceed the loan balance plus accrued interest in
the form of the Company’s equity securities at the conversion price and terms
identical to the price and terms of the Company’s next issuance of common or
preferred stock issued for cash consideration occurring after June 15, 2010
(“Equity
Issuance”) if and when such Equity Issuance occurs.  An Equity
Issuance does not include the issuance of common or preferred stock for non-cash
consideration such as stock issued for goods or services, or equity securities
issued to employees or directors as incentive compensation.  The
Company and Co-Investment agreed in the event that the Company does not have a
sufficient number of authorized shares of its equity securities to issue to
Co-Investment the Company and Co-Investment will jointly cooperate with one
another in obtaining the necessary shareholder approval to increase the number
of authorized shares of the Parent’s equity securities and the effective date of
the issuance and repayment will be the date of the Company’s shareholder
approval.





As of
June 30, 2010, the Company recorded $55,836 of accrued interest on the Note from
a related party.


Page
20


HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


June 30,
2010





NOTE 5 –
SECURED NOTE FROM
RELATED PARTY





As of
June 30, 2010, Co-Investment cannot convert any portion of the Secured Note from
related party into the Company’s equity securities because no Equity Issuance
has occurred.





NOTE 6 –
RELATED PARTY
TRANSACTIONS





On
January 14, 2009, Co-Investment purchased 1,000,000 shares (each, a “Preferred
Share”) of the Company’s Preferred Stock, par value $0.001, and warrants to
purchase 1,000,000 shares of Preferred Stock, pursuant to the terms of the
Securities Purchase Agreement (the “2009 Purchase Agreement”) for a purchase
price of  $4,000,000 (the “2009 Private Placement”).





During
the first quarter of 2010, pursuant to the subscription rights offering
Co-Investment exercised 1,000 basic subscription rights for $1,000,000 and on
March 26, 2010, the Company issued to Co-Investment 250,000 shares of Preferred
Stock and five-year warrants to purchase in aggregate 5,000,000 shares of Common
Stock at an exercise price of $0.20 per share.  See Note 7 -
Shareholders’ Equity.  See Note 1 – Warrant Liability.





During
the second quarter of 2010 the Company incurred $24,827 of legal costs
pertaining to Co-Investment’s out-of-pocket legal costs pertaining to the Loan
Agreement and Note, which is recorded as due to a related party as of June 30,
2010.  Also during the second quarter of 2010 the Company paid $44,185
to Buchanan Ingersoll & Rooney PC for reimbursement of Co-Investment’s
out-of-pocket legal expenses pertaining to the Company’s indemnification of
Co-Investment in regards to certain litigation.  Mr. Tecce is of
counsel to the law firm of Buchanan Ingersoll & Rooney PC.





NOTE 7 –
SHAREHOLDERS’
EQUITY





Preferred
Stock





On
January 14, 2010 the Company filed a prospectus for a rights offering on form
S-1/A, which the Commission declared effective on January 22, 2010, to
distribute to shareholders at no charge, one non-transferable subscription right
for each 12,256 shares of our common stock and 613 shares of our preferred stock
owned as of January 1, 2010, the record date, either as a holder of record or,
in the case of shares held of record by brokers, dealers, custodian banks or
other nominees on shareholders’ behalf, as a beneficial owner of such
shares.  This rights offering was designed to give all of the holders
of the Company’s common stock the opportunity to participate in an equity
investment in the Company on the same economic terms as the Company’s 2009
private placement.


Page
21


HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


June 30,
2010





NOTE 7 –
SHAREHOLDERS’ EQUITY
(continued)





The basic
subscription right entitled the holder to purchase one unit (a “Subscription
Unit”) at a subscription price of $1,000. A Subscription Unit consisted of 250
shares of the Company’s Series A convertible preferred stock (the “Preferred
Stock”) and a five-year warrant to purchase 5,000 shares of common stock at an
exercise price of $0.20 per share.  In the event that a holder of a
Subscription Unit purchased all of the basic Subscription Units available to the
holder then pursuant to their basic subscription right, the holder had the
option to choose to subscribe for a portion of any Subscription Units that were
not purchased by all other holders of Subscription Units through the exercise of
their basic subscription rights.





Effective
with the expiration of the subscription rights, which occurred on March 26,
2010, holders of subscription rights exercised in aggregate 1,061 basic
subscription rights and 46 over-subscription rights for a total 1,107
Subscription Units.  As a result of the exercise of 1,107 Subscription
Units the Company received $1,107,000 in gross proceeds, and on March 26,
2010, issued in aggregate 276,750 shares of Preferred Stock and five-year
warrants to purchase in aggregate 5,535,000 shares of common stock at an
exercise price of $0.20 per share (“2010 Warrants”). Effective with the
expiration of the rights offering all unexercised subscription rights
expired.  The Preferred Stock issued in 2010 has the same terms as the
Preferred Stock issued in 2009.





The
Company allocated $226,880 of the $1,107,000 proceeds received as a result of
the exercise of Subscription Units to the warrant liability using a
Black-Scholes option pricing model with the following
assumptions:  expected volatility of 345%, a risk-free interest rate
of 0.14%, an expected term of 5 years and 0% dividend
yield.   See Note 1 – Warrant Liability.  The remaining
$880,120 of the proceeds received was allocated to the Preferred Shares issued
in 2010.





Stock
Options





On March
25, 2010 the Company issued to Mr. James Rourke, who is InsPro Technologies’
Senior Vice President of Sales and Marketing, a stock option grant to purchase a
total of 250,000 shares of the Company’s common stock, which vests as follows:
50,000 shares of common stock on each of July 31, 2010, January 31, 2011, July
31, 2011, January 31, 2012 and July 31, 2012. This option has a five year term
and an exercise price of $0.06, which is equal to closing price of one share of
the Company’s common stock as quoted on the OTCBB on March 25,
2010.





During
2010, 550,000 options previously granted to Mr. Alvin Clemens, who is the
former Co-Chairman of the Company’s Board, were forfeited as a result of Mr.
Clemens resignation from the Board in accordance with the terms of the stock
option.





During
2010, 416,648 options previously granted to Mr. Charles Eissa, who is the
former COO of the Company, were forfeited as a result of Mr. Eissa’s termination
of employment in accordance with the terms of the stock option.





During
2010, 70,000 options previously granted to various former employees were
forfeited in accordance with the terms of the stock
options.


Page
22


HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


June 30,
2010




NOTE 7 –
SHAREHOLDERS’ EQUITY
(continued)





The
Company recorded compensation expense pertaining to director and employee stock
options and restricted and unrestricted stock grants as follows:





For the six months
                        ended June 30,2010
                      
                      
                      2009Selling,
      marketing and administrative expensesSalaries,
      commission and related taxes
                      
                      $
                      7,200
                      
                      
                      $
                      337,799Loss
      from discontinued operations
                      
                      
                      -
                      
                      
                      
                      37,453$
                      7,200
                      
                      
                      $
                      375,252





A summary
of the Company's outstanding stock options as of and for the six months ended
June 30, 2010 are as follows:





Number
                    
                    
                    WeightedOf Shares
                    
                    
                    Average
                    
                    
                    WeightedUnderlying
                    
                    
                    Exercise
                    
                    
                    AverageOptions
                    
                    
                    Price
                    
                    
                    Fair ValueOutstanding
      at December 31, 2009
                    
                    
                    5,676,648
                    
                    
                    $
                    0.80
                    
                    
                    $
                    0.55For
      the six months ended June 30, 2010Granted
                    
                    
                    250,000
                    
                    
                    
                    0.06
                    
                    
                    
                    0.06Exercised
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Forfeited
                    
                    
                    (1,036,648
                    )
                    
                    
                    1.01
                    
                    
                    
                    0.57Outstanding
      at June 30, 2010
                    
                    
                    4,890,000
                    
                    
                    $
                    0.72
                    
                    
                    $
                    0.53Outstanding
      and exercisable at June 30, 2010
                    
                    
                    4,440,000
                    
                    
                    $
                    0.98
                    
                    
                    $
                    0.64




The
weighted average fair value of option grants are estimated as of the date of
grant using the Black-Scholes option-pricing model based on the following
assumptions for options granted during the six months ended June 30, 2010:
Expected volatility 345%, risk-free interest rate 0.14%, expected life in years
5, and assumed dividend yield 0%.


Page
23


HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


June 30,
2010





NOTE 7 –
SHAREHOLDERS’ EQUITY
(continued)





The
following information applies to options outstanding at June 30,
2010:





Options
      Outstanding
                        
                        
                        Options
      ExercisableExercise
                          Price
                        
                        Number
      of Shares
                          Underlying
      Options
                        
                        
                        Weighted
                          Average
                          Remaining
                          Contractual
                          Life
                        
                        
                        Exercise
                          Price
                        
                        
                        Number
                          Exercisable
                        
                        
                        Exercise
                          Price$
                        0.06
                        
                        
                        405,000
                        
                        
                        
                        4.4
                        
                        
                        $
                        0.06
                        
                        
                        
                        155,000
                        
                        
                        $
                        0.060.10
                        
                        
                        2,220,000
                        
                        
                        
                        3.6
                        
                        
                        
                        0.10
                        
                        
                        
                        2,020,000
                        
                        
                        
                        0.101.00
                        
                        
                        1,300,000
                        
                        
                        
                        4.3
                        
                        
                        
                        1.00
                        
                        
                        
                        1,300,000
                        
                        
                        
                        1.002.62
                        
                        
                        20,000
                        
                        
                        
                        1.5
                        
                        
                        
                        2.62
                        
                        
                        
                        20,000
                        
                        
                        
                        2.622.70
                        
                        
                        425,000
                        
                        
                        
                        0.7
                        
                        
                        
                        2.70
                        
                        
                        
                        425,000
                        
                        
                        
                        2.702.95
                        
                        
                        45,000
                        
                        
                        
                        0.9
                        
                        
                        
                        2.95
                        
                        
                        
                        45,000
                        
                        
                        
                        2.953.50
                        
                        
                        75,000
                        
                        
                        
                        5.8
                        
                        
                        
                        3.50
                        
                        
                        
                        75,000
                        
                        
                        
                        3.503.60
                        
                        
                        400,000
                        
                        
                        
                        5.8
                        
                        
                        
                        3.60
                        
                        
                        
                        400,000
                        
                        
                        
                        3.604,890,000
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        4,440,000





As of
June 30, 2010, there were 7,000,000 shares of our common stock authorized to be
issued under the Company’s 2008 Equity Compensation Plan, of which 1,106,980
shares of our common stock remain available for future stock option
grants.





The total
intrinsic value of stock options granted during 2010 and 2009 was $0 and $0,
respectively.  The total intrinsic value of stock options outstanding and
exercisable as of June 30, 2010 was $0.





The value
of equity compensation expense not yet expensed pertaining to unvested equity
compensation was $30,192 as of June 30, 2010, which will be recognized over a
weighted average 4.6 years in the future.





Common Stock
warrants





On March
26, 2010 the Company issued the 2010 warrants (the 2010 Warrants”) to purchase
in aggregate 5,535,000 shares of common stock at an exercise price of $0.20 per
share for a period of 5 years.  The 2010 Warrants also include full
ratchet anti-dilution adjustment provisions for issuances of securities below
$0.20 per share of common stock during the first two years following the date of
issuance of the 2010 Warrants, subject to customary exceptions.





Upon the
Company’s adoption of EITF No. 07-05, the Company determined the 2010
Warrants did not qualify for a scope exception under SFAS No. 133 as they
were determined not to be indexed to the Company’s stock as prescribed by EITF
No. 07-05. See Note 1 - Warrant Liability.





On March
30, 2010, warrants to purchase 350,000 shares of the Company’s common stock at
an exercise price of $2.80 per share expired in accordance with the terms of the
warrants.


Page
24


HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


June 30,
2010





NOTE 7 –
SHAREHOLDERS’ EQUITY
(continued)





On March
31, 2010, the full ratchet anti-dilution adjustment provisions pertaining to
warrants issued on March 31, 2008, expired.





A summary
of the status of the Company's outstanding stock warrants as of and for the six
months ended June 30, 2010 are as follows:





WeightedCommon
                    
                    
                    AverageStock
                    
                    
                    ExerciseWarrants
                    
                    
                    PriceOutstanding
      at December 31, 2009
                    
                    
                    51,566,887
                    
                    
                    $
                    0.38For
      the period ended June 30, 2010Granted
                    
                    
                    5,535,000
                    
                    
                    
                    0.20Exercised
                    
                    
                    -
                    
                    
                    
                    -Expired
                    
                    
                    (350,000
                    )
                    
                    
                    2.80Outstanding
      at June 30, 2010
                    
                    
                    56,751,887
                    
                    
                    
                    0.34Exercisable
      at June 30, 2010
                    
                    
                    56,751,887
                    
                    
                    $
                    0.34





The
following information applies to warrants outstanding at June 30,
2010:





Year of
                        Expiration
                      
                      Common
                        Stock
                        Warrants
                      
                      
                      Exercise
                        Price2010
                      
                      
                      75,000
                      
                      
                      $
                      1.502011
                      
                      
                      1,175,000
                      
                      
                      
                      1.502012
                      
                      
                      4,966,887
                      
                      
                      
                      1.512013
                      
                      
                      25,000,000
                      
                      
                      
                      0.202014
                      
                      
                      20,000,000
                      
                      
                      $
                      0.202015
                      
                      
                      5,535,000
                      
                      
                      $
                      0.2056,751,887





Outstanding
warrants at June 30, 2010 have a weighted average remaining contractual life of
3.1 years.


Page
25


HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


June 30,
2010




NOTE 8 –
CAPITAL LEASE
OBLIGATIONS





InsPro
Technologies has entered into several capital lease obligations to purchase
equipment used for operations. The Company has the option to purchase the
equipment at the end of the lease agreement for one dollar. The underlying
assets and related depreciation were included in the appropriate fixed asset
category, and related depreciation account.





Property
and equipment includes the following amounts for leases that have been
capitalized as of June 30, 2010 and December 31, 2009:





June 30, 2010
                      
                      
                      December 31,
      2009Useful Life (Years)Computer
      equipment and software
                      
                      3
                      
                      
                      $
                      595,899
                      
                      
                      
                      483,129Phone
      System
                      
                      3
                      
                      
                      
                      15,011
                      
                      
                      
                      15,011Leasehold
      improvements
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      -610,910
                      
                      
                      
                      498,140Less
      accumulated depreciation
                      
                      
                      
                      
                      
                      (316,144
                      )
                      
                      
                      (222,134
                      )$
                      294,766
                      
                      
                      
                      276,006





Future
minimum payments required under capital leases at June 30, 2010 are as
follows:





2010
                          
                          $
                          102,3842011
                          
                          
                          181,2692012
                          
                          
                          100,6942013
                          
                          
                          37,4202014
                          
                          
                          30,7572015
                          
                          
                          12,815Total
      future payments
                          
                          
                          465,339Less
      amount representing interest
                          
                          
                          53,330Present
      value of future minimum payments
                          
                          
                          412,009Less
      current portion
                          
                          
                          162,196Long-term
      portion
                          
                          $
                          249,813





NOTE 9 –
DEFINED CONTRIBUTION
401(k) PLAN





The
Company implemented a 401(k) plan on January 1, 2007.  Eligible
employees contribute to the 401(k) plan. Employees become eligible after
attaining age 19 and after 6 months of employment with the
Company.  The employee may become a participant of the 401(k) plan on
the first day of the month following the completion of the eligibility
requirements.  Effective January 1, 2007 the Company implemented an
elective contribution to the plan of 25% of the employee’s contribution up to 4%
of the employee’s contribution (the “Contribution”).  The
Contributions are subject to a vesting schedule and become fully vested after
one year of service, retirement, death or disability, whichever occurs
first.  The Company made contributions of $20,419 and $22,806 for the
six months ended June 30, 2010 and 2009.


Page
26


HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


June 30,
2010





NOTE 10 –
RESTRICTED CASH,
COMMITMENTS AND CONTINGENCIES





Restricted Cash and
Operating Leases





On
February 17, 2006, the Company entered into a lease agreement with FG2200, LLC,
a Florida limited liability company, for approximately 50,000 square feet of
office space at 2200 S.W. 10th Street, Deerfield Beach, Florida (the "Lease").
The initial term of the Lease commenced on March 15, 2006 and terminates on
March 31, 2016. The Company has the option to extend the term for two additional
36-month periods. The Company has a one time option to cancel the Lease
effective March 31, 2011 provided the Company; (a) is not in default of the
Lease, (b) no part of the Deerfield Beach office is sub-let beyond March 31,
2011, (c) the Company and its sub-tenants vacate the Deerfield Beach office on
or before March 31, 2011 and (d) the Company gave written notice to FG2200, LLC
on or before June 15, 2010 accompanied with a payment FG2200, LLC the sum of 9
months’ rent pursuant to the lease agreement.  The Company provided
FG2200, LLC with written notice on June 11, 2010 of the Company’s desire to
terminate the Lease effective March 14, 2011 and paid $783,849 to FG2200, LLC on
June 14, 2010.  The monthly rent increases every 12 months, starting
at $62,500 plus certain building expenses incurred by the landlord and ending at
approximately $81,550, plus certain building expenses incurred by the landlord.
In connection with the Lease, the Company provided a $1 million letter of credit
to the landlord as a security deposit for the Company's obligations under the
Lease.





On
February 21, 2008 the Company entered into a sub-lease agreement with a third
party whereby the third party sub-leased approximately 5,200 square feet of our
Deerfield Beach office space beginning March 1, 2008 through February 28,
2009.  This sub-lease agreement was amended and restated on October 3,
2008 to increase the sub-leased square footage to 13,900 and extend the lease
term through January 31, 2010, and was then amended whereby effective March 1,
2010, the sub-leased square footage was decreased to 8,700 and the lease term
was extended through February 28, 2011.





On
October 1, 2008 the Company entered into a sub-lease agreement with a third
party whereby the third party sub-leased approximately 8,000 square feet of our
Deerfield Beach office space beginning October 15, 2008 through January 31,
2010.  In accordance with this sub-lease agreement the Company
recognizes base rent, additional rent representing a portion of certain actual
occupancy expenses for our Deerfield Beach office and certain telephony,
technology and facility services provided to our
sub-tenant.  Effective July 1, 2009 the Company and the third party
entered into a new sub-lease whereby the third party increased the space
sub-leased to 29,952 square feet of our Deerfield Beach office
space.  Effective March 1, 2010 the Company and the third party
amended the new sub-lease increase the space sub-leased to 35,152 square feet of
our Deerfield Beach office space.





From June
30, 2009 through May 15, 2010, the Company used 5,094 square feet of the
approximate 50,000 square feet of the Deerfield Beach office for
operations.  As of June 30, 2010, the Company has accrued $344,211
related to the non-cancelable lease for the abandoned portion of the Deerfield
Beach office, which is the net present value of the Company’s future lease
payments through March 14, 2011 plus management’s estimate of contractually
required expenses pertaining to the Deerfield Beach office, which are estimated
to be $1,056,144, less future sub-lease revenue, which is estimated to be
$711,668.


Page
27


HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


June 30,
2010





NOTE 10– RESTRICTED CASH,
COMMITMENTS AND CONTINGENCIES (continued)





On July
7, 2006, the Company entered into a lease agreement with Radnor Properties-SDC,
L.P. (the “Landlord”) for the lease of 7,414 square feet of office space located
in Radnor Financial Center, Building B, 150 Radnor-Chester Road, Radnor,
Pennsylvania.  The term of the lease commenced on November 1, 2006,
which was the date the Company, with the Landlord’s prior consent, assumed
possession of the premises and the date the Landlord tendered possession of the
premises to the Company following the substantial completion of the improvements
required to be made by the Landlord under the lease agreement, and will expire
on the last day of the 125th month
following the commencement of the lease term. The annual rent increases every
12 months, starting at approximately $161,592 plus a proportionate share of
landlord’s building expenses after the second month and ending at approximately
$258,378 plus a proportionate share of landlord’s building expenses. Under the
terms of the lease agreement, rent is waived for the first five months of the
lease term with respect to 5,238 square feet and for the first twelve months for
the remaining 2,176 square feet.  The Company recorded a liability for
deferred rent in the amount of $131,948 as of June 30, 2010.





The
Company paid to the Landlord a security deposit of $110,000 under the lease (the
“Security Deposit”) during the third quarter of 2006 and the Landlord returned
$10,000 of the Security Deposit during the first quarter of 2010 in accordance
with the terms of the lease, which is accounted for as a deposit in other
assets.  The Company will not earn interest on the Security
Deposit.  The Security Deposit will decrease and the Landlord will
return to the Company $10,000 on the third anniversary of the commencement date
of the lease and on each anniversary thereafter until the required Security
Deposit has been reduced to $20,000.  The Security Deposit will be
returned to the Company 30 days after the end of the lease provided the Company
has complied with all provisions of the lease.





Effective
during the first quarter of 2007, the letters of credit pertaining to the lease
for our Florida office and our New York office were collateralized in the form
of a money market account.  Effective February 12, 2009 the money
market account, which collateralized the letter of credit pertaining to our New
York Office, was transferred into a certificate of deposit
(“CD”).  These bank deposits are on deposit with the issuer of the
letters of credit and are classified as restricted cash on the Company’s balance
sheet, which as of June 30, 2010 and December 31, 2009 had balances of
$1,152,206 and $1,154,044, respectively.   The terms of the money
market account allow the Company to receive interest on the principal but
prohibits the Company from withdrawing the principal for the life of the
Deerfield Beach letter of credit. The terms of the CD allow the Company to
receive interest upon the maturity of the CD, which matures on March 12,
2011.  The Company is prohibited from withdrawing the interest on the
CD until the March 12, 2011 maturity of the CD and the CD’s principal for the
life of the New York letter of credit.


Page
28


HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


June 30,
2010





NOTE 10– RESTRICTED CASH,
COMMITMENTS AND CONTINGENCIES (continued)





On March
7, 2006, the Company entered into a sublease for approximately 13,773 square
feet of office space located on the 7th floor at 1120 Avenue of the Americas,
New York, New York (the “Sublease Agreement”).  The initial term of
the Sublease Agreement commences in March 2006 and terminates on December 31,
2010. The monthly rent increases every 12 months, starting at approximately
$303,000 per annum plus a proportionate share of landlord’s building expenses
and ending at approximately $341,000 per annum plus a proportionate share of
landlord’s building expenses.  In connection with the Sublease
Agreement, the Company provided a $151,503 letter of credit to the landlord as a
security deposit for the Company’s obligations under the sublease.  On
May 15, 2006 the Company received the landlord's consent, dated April 18, 2006,
to the Sublease Agreement.  In March 2008, the Company closed its
sales office located in New York.  Effective June 30, 2010, the
Company has accrued $201,055 related to the non-cancelable lease for the
abandoned New York facility, which is net present value of the Company’s future
lease payments due under the remaining Sublease Agreement term plus management’s
estimate of utility payments.





The
Company leases certain real and personal property under non-cancelable operating
leases.  Rent expense was $9,333 and $2,932,446 for the six months
ended June 30, 2010 and 2009, respectively.





Future
minimum payments required under operating leases and service agreements at June
30, 2010 are as follows:





2010
                    
                    $
                    1,041,7102011
                    
                    
                    1,152,0032012
                    
                    
                    534,6702013
                    
                    
                    277,1842014
                    
                    
                    277,066thereafter
                    
                    
                    562,906Total
                    
                    $
                    3,845,538





Litigation





On August
28, 2008, one of our former employees, the plaintiff, filed a national class
action complaint in the Seventeenth Judicial Circuit of Florida, Broward County,
case no. 062008 CA 042798 XXX CE, alleging that we breached a contract with
employees by failing to provide certain commissions and/or bonuses. The
complaint also contained claims for an accounting and for declaratory relief
relating to the alleged compensation agreement.  The plaintiff purported to
bring these claims on behalf of a class of current and former insurance sales
agents.  We filed a motion to dismiss the complaint.  In response, at
the hearing on our Motion to Dismiss, the plaintiff stated that he would amend
the complaint.  The amended complaint was no longer pled as a class action
but, instead, included 64 named plaintiffs. On April 21, 2010, the Company and
the plaintiffs entered into a memorandum of understanding whereby the Company
agreed to pay $23,500 to settle the case, and the Company and the plaintiffs
agreed to: stay all discovery, mutual releases, no admission of wrongdoing, no
further litigation, confidentiality by the plaintiffs, and non disparagement by
the plaintiffs.  The Company and the plaintiffs have entered into
definitive settlement agreements and the court issued an order dismissing all
claims in this case.


Page
29


HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


June 30,
2010





NOTE 10– RESTRICTED CASH,
COMMITMENTS AND CONTINGENCIES (continued)





On March
24, 2009, certain of our stockholders filed an action in the Supreme Court of
the State of New York, County of New York, Index No. 650174/2009, against us,
our board of directors, two of our investors and the investors’ affiliates
relating to alleged offers we purportedly received in 2008 and a private
placement transaction conducted in January 2009. The plaintiffs alleged that the
members of our board of directors breached their fiduciary duties in responding
to the offers received in 2008 and in connection with the private placement
transaction conducted in January 2009. The complaint also contained claims for
unjust enrichment against certain directors whom plaintiffs claim are
“interested” and claims for aiding and abetting breach of fiduciary duty and
unjust enrichment against our stockholder, Cross Atlantic Capital Partners,
Inc., and its affiliates. The plaintiffs sought to rescind and cancel the
private placement, enjoin the board of directors from undertaking certain
measures and remove certain directors from the board. The plaintiffs also sought
money judgments in an amount not less than $10,000,000, plus interest,
attorneys’ fees, and accounts and experts’ fees. On May 29, 2009, the defendants
moved to dismiss the complaint. The motion was granted on August 13, 2009 on
forum non conveniens grounds. On August 14, 2009, a writ of summons was filed in
the Court of Common Pleas, Philadelphia County No. 090801764 against us, our
board of directors, two of our investors and the investors’ affiliates by the
same stockholders who brought the New York action and seven additional
stockholders.  On October 27, 2009 we entered into an agreement with
the stockholders who brought the New York action in which they agreed to
withdraw from the Philadelphia litigation and provided a general release of all
claims against us, our board of directors and the other defendants. These
stockholders discontinued their claims against the defendants in the writ of
summons filed in August.  The terms of this settlement agreement
required Co-Investment Fund to purchase all of the shares of common stock held
by the settling plaintiffs (which amounted to 6,108,997 shares).




On
December 21, 2009, five of the remaining shareholders who filed the writ of
summons discontinued their claims against the defendants named in the writ of
summons.  Also on December 21, 2009, Alvin Clemens, a former officer and
director of our company, Robert Kaul and Arthur Nagel (both of whom are
shareholders of our company) filed a complaint in the Philadelphia action. The
complaint brought claims for breach of fiduciary duty against the members of our
board of directors for their alleged actions in responding to the offers
received in 2008 and in connection with the private placement transaction
conducted in January 2009. The complaint also contained claims for aiding and
abetting the alleged breach of fiduciary duty and unjust enrichment against our
stockholder, Cross Atlantic Capital Partners, Inc., and its affiliates. The
plaintiffs sought to rescind and cancel the private placement, enjoin the board
of directors from undertaking certain measures and remove certain directors from
the board. The plaintiffs also sought money judgment against our board members
in an amount in excess of $50,000 and against Cross Atlantic and its affiliates
in an amount in excess of $10,000,000, plus interest, attorneys’ fees, and
accounts and experts’ fees.  Defendants filed preliminary objections
to the complaint on January 11, 2010, arguing that the claims should be
dismissed and/or venue should be in Delaware County and not in Philadelphia
County.  Plaintiffs filed an amended complaint on February 1, 2010 but then
discontinued and ended their complaint on February 22, 2010.


Page
30


HEALTH
BENEFITS DIRECT CORPORATION AND SUBSIDIARIES


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


June 30,
2010





NOTE 11 –
SUBSEQUENT
EVENTS





Management
has evaluated the effects of all events subsequent to June 30, 2010 through the
date which the financial statements were available to be issued and has
concluded that all events requiring adjustment to or disclosure in the financial
statements have been made.





Termination of License
Agreement with Realtime Solutions Group





On May
31, 2006, we entered into a Software and Services Agreement (the “License
Agreement”) with Realtime Solutions Group, L.L.C. (“Realtime”), under which
Realtime granted us a worldwide, transferable, non-exclusive, perpetual and
irrevocable license to use, display, copy, modify, enhance, create derivate
works within, and access Realtime Solutions Group’s Straight Through Processing
software (“STP”) and all associated documentation, source code and object code,
for use in the marketing, promotion and sale of health benefits or insurance
products.





As
consideration for the grant of the rights and licenses under the License
Agreement, we paid to Realtime a $10,000 nonrefundable cash deposit and upon
delivery of the STP software and other materials we will pay a license fee in
the form of 216,612 unregistered shares of our common
stock.  Concurrent with entering into the License Agreement, we and
Realtime entered into a Registration Rights Agreement that provides for
piggyback registration rights for the to be issued shares.





As of
June 30, 2010 we had not taken delivery of the STP software or issued common
stock in connection with the License Agreement.





On August
2, 2010, we provided 30 days notice of our unilateral termination of the License
Agreement without cause.


Page
31





SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS




Certain
of the statements contained in this Quarterly Report on Form 10-Q, including in
the “Management’s Discussion and Analysis or Plan of Operation (“MD&A”) and
elsewhere in this report are “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). These
statements are based on management’s current expectations and are subject to
uncertainty and changes in circumstances. Actual results may vary materially
from the expectations contained in the forward-looking statements. The
forward-looking statements herein include, among others, statements addressing
management’s views with respect to future financial and operating results and
costs associated with the Company’s operations and other similar statements.
Various factors, including competitive pressures, market interest rates, changes
in insurance carrier mix, regulatory changes, customer and insurance carrier
defaults or insolvencies, acquisition of businesses that do not perform as we
expect or that are difficult for us to integrate or control, adverse resolution
of any contract or other disputes with customers and insurance carriers, or the
loss of one or more key insurance carrier relationships, could cause actual
outcomes and results to differ materially from those described in
forward-looking statements.





The words
“may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,”
“continue” and similar expressions may identify forward-looking statements, but
the absence of these words does not necessarily mean that a statement is not
forward-looking. While we believe that we have a reasonable basis for each
forward-looking statement contained in this Quarterly Report on Form 10-Q, we
caution you that these statements are based on a combination of facts and
factors currently known by us and projections of the future about which we
cannot be certain. Many factors, including general business and economic
conditions and the risks and uncertainties described in the “Risk Factors”
section of our Annual Report on Form 10-K for the fiscal year ended December 31,
2009, affect our ability to achieve our objectives. As a result of these
factors, we cannot assure you that the forward-looking statements in this
Quarterly Report on Form 10-Q will prove to be accurate. In addition, if our
forward-looking statements prove to be inaccurate, the inaccuracy may be
material. In light of the significant uncertainties in these forward-looking
statements, you should not regard these statements as a representation or
warranty by us or any other person that we will achieve our objectives and plans
in any specified time frame, if at all. We may not update these forward-looking
statements, even though our situation may change in the future.





We
qualify all the forward-looking statements contained in this Quarterly Report of
Form 10-Q by the foregoing cautionary statements.


Page
32


Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations




Overview





The current operations of Health
Benefits Direct Corporation (the “Company”, “we”, “us” or “our”) consist of our
InsPro Technologies, LLC subsidiary (“InsPro Technologies”).





InsPro
is a comprehensive, web-based insurance administration software application.
InsPro was introduced by Atiam Technologies, L.P. (now our InsPro Technologies,
LLC subsidiary) in 2004. InsPro clients include health insurance carriers and
third party administrators. We market InsPro as a licensed software application,
and we realize revenue from the sale of the software licenses, application
service provider fees, software maintenance fees and professional
services.





Critical
Accounting Policies





Financial Reporting Release No. 60,
which was released by the Securities and Exchange Commission (the “Commission”),
encourages all companies to include a discussion of critical accounting policies
or methods used in the preparation of financial statements. Our consolidated
financial statements include a summary of the significant accounting policies
and methods used in the preparation of the consolidated financial statements.
Management believes the following critical accounting policies affect the
significant judgments and estimates used in the preparation of the consolidated
financial statements.





Use of Estimates - Management's
Discussion and Analysis or Plan of Operation is based upon the Company’s
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these consolidated financial statements requires our management
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, management evaluates these estimates,
including those related to allowances for doubtful accounts receivable and
long-lived assets such as intangible assets. Management bases these estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis of
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Significant estimates in 2010 and 2009
include the allowance for doubtful accounts, stock-based compensation, the
useful lives of property and equipment and intangible assets, accrued expenses
pertaining to abandoned facilities, warrant liability and revenue
recognition.  Actual results may differ from these estimates under
different assumptions or conditions.





InsPro Technologies offers InsPro on a
licensed and an ASP basis.  An InsPro software license entitles the
purchaser a perpetual license to a copy of the InsPro software installed at a
single client location, which may be used to drive a production and model office
instance of the application.  The ASP Hosting Service enables a client
to lease the InsPro software, paying only for that capacity required to support
their business.  ASP clients access an instance of InsPro installed on
InsPro Technologies’ servers located at InsPro Technologies’ offices or at a
third party’s site.





Software maintenance fees apply to both
licensed and ASP clients.  Maintenance fees cover periodic updates to
the application and the InsPro Help Desk.





Professional services are generally
associated with the implementation of an InsPro instance for either an ASP or
licensed client, and cover such activity as InsPro installation, configuration,
modification of InsPro functionality, client insurance plan set-up, client
insurance document design and system documentation.


Page
33




InsPro
Technologies revenue is generally recognized under ASC
985-605.   For software arrangements involving multiple elements,
we allocate revenue to each element based on the relative fair value or the
residual method, as applicable using vendor specific objective evidence to
determine fair value, which is based on prices charged when the element is sold
separately. Software revenue accounted for under ASC 985-605 is recognized when
persuasive evidence of an arrangement exists, the software is delivered in
accordance with all terms and conditions of the customer contracts, the fee is
fixed or determinable and collectibility is probable.  Revenue related
to post-contract customer support (“PCS”), including technical support and
unspecified when-and-if available software upgrades, is recognized ratably over
the PCS term.   Under ASC 985-605, if fair value does not exist
for any undelivered element, revenue is not recognized until the earlier of
(i) delivery of such element or (ii) when fair value of the
undelivered element is established, unless the undelivered element is a service,
in which case revenue is recognized as the service is performed once the service
is the only undelivered element.





We recognize revenues from software
license agreements when persuasive evidence of an agreement exists, delivery of
the software has occurred, the fee is fixed or determinable, and collectibility
is probable.  We consider fees relating to arrangements with payment
terms extending beyond one year to not be fixed or determinable and revenue for
these arrangements is recognized as payments become due from the
customer.  In software arrangements that include more than one InsPro
module, we allocate the total arrangement fee among the modules based on the
relative fair value of each of the modules.





License revenue allocated to software
products generally is recognized upon delivery of the products or deferred and
recognized in future periods to the extent that an arrangement includes one or
more elements to be delivered at a future date and for which fair values have
not been established.  Revenue allocated to maintenance agreements is
recognized ratably over the maintenance term and revenue allocated to training
and other service elements is recognized as the services are
performed.





The unearned portion of InsPro
Technologies’ revenue, which is revenue collected or billed but not yet
recognized as earned, has been included in the consolidated balance sheet as a
liability for deferred revenue.





We review the carrying value of
property and equipment and intangible assets for impairment at least annually or
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of long-lived assets is measured
by comparison of its carrying amount to the undiscounted cash flows that the
asset or asset group is expected to generate. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the property, if any, exceeds its fair market
value.


Page
34





RESULTS
OF OPERATIONS FOR THREE MONTHS ENDED JUNE 30, 2010 COMPARED TO THE THREE MONTHS
ENDED JUNE 30, 2009





Revenues





For the
three months ended June 30, 2010 (“Second Quarter 2010”), we earned revenues of
$1,461,542 compared to $1,488,503 for the three months ended June 30, 2009
(“Second Quarter 2009”), a decrease of $26,961 or 2%.  Revenues
include the following:





For the Three Months Ended June 30,2010
                    
                    
                    2009Professional
      services
                    
                    $
                    882,587
                    
                    
                    $
                    985,534ASP
      revenue
                    
                    
                    378,955
                    
                    
                    
                    349,469Maintenance
      revenue
                    
                    
                    200,000
                    
                    
                    
                    144,500Sub-leasing
      revenue
                    
                    
                    -
                    
                    
                    
                    9,000Total
                    
                    $
                    1,461,542
                    
                    
                    $
                    1,488,503





·
            Professional
      services revenue declined $102,947 or 10% as a result of lower post
      implementation services, which were provided by InsPro Technologies in
      Second Quarter 2009 to several clients.  Implementation
      services, which were provided to 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.




·
            ASP
      revenue increased $29,486 or 8% as a result of the commencement of hosting
      services to a recently implemented client partially offset by lower ASP
      revenue from 3 existing clients.  In Second Quarter 2010 we
      earned ASP revenue from seven InsPro clients. ASP hosting service enables
      a client to lease the InsPro software, paying only for that capacity
      required to support their business.  In addition InsPro
      Technologies provides hosting service to client’s licensed InsPro
      software.  InsPro’s ASP hosting clients access InsPro installed
      on InsPro Technologies’ owned servers located at InsPro Technologies’
      offices or at a third party’s site.




·
            Maintenance
      revenue increased $55,500 or 38% as a result of the addition of two
      maintenance contracts compared to Second Quarter 2009.  In
      Second Quarter 2010 we earned maintenance revenues from six
      clients.




Page
35





Cost
of Revenues





Cost of
revenues are incurred by InsPro Technologies to offer InsPro on a licensed and
ASP basis, and to provide professional services together with help desk and
other customer support.  Cost of revenues includes direct labor and
associated costs for employees and independent contractors performing InsPro
design, development, implementation, testing together with customer management,
training and technical support, as well as facilities, equipment and software
costs.





Our cost
of revenues for Second Quarter 2010 was $1,637,464 as compared to $1,517,783 for
Second Quarter 2009 for an increase of $119,681 or 8% as compared to Second
Quarter 2009. Cost of revenues consisted of the following:





For the Three Months
                            Ended June 30,2010
                          
                          
                          2009Salaries,
      employee benefits and related taxes
                          
                          $
                          1,038,735
                          
                          
                          $
                          859,059Professional
      fees
                          
                          
                          351,021
                          
                          
                          
                          457,999Rent,
      utilities, telephone and communications
                          
                          
                          80,234
                          
                          
                          
                          56,911Other
      cost of revenues
                          
                          
                          167,474
                          
                          
                          
                          143,814$
                          1,637,464
                          
                          
                          $
                          1,517,783





·
            Our
      salaries, employee benefits and related taxes component of cost of
      revenues in Second Quarter 2010 was $1,038,735 as compared to $859,059 for
      Second Quarter 2009 for an increase of $179,676 or 21% as compared to
      Second Quarter 2009.  Salaries, employee benefits and related
      taxes increased as a result of increased employee staffing. Subsequent to
      Second Quarter 2009, InsPro Technologies strengthened its management by
      hiring a COO in the fourth quarter of 2009 and hiring staff in quality
      assurance, customer implementation and business development
      areas.




·
            Our
      professional fees component of cost of revenues in Second Quarter 2010 was
      $351,021 as compared to $457,999 for Second Quarter 2009 for an decrease
      of $106,978 or 23% as compared to Second Quarter 2009. Professional fees
      decreased as a result of the hiring of two former consultants as employees
      and reduced utilization of certain domestic based independent
      contractors.




·
            Our
      rent, utilities, telephone and communications component of cost of
      revenues in Second Quarter 2010 was $80,234 as compared to $56,911 for
      Second Quarter 2009 for an increase of $23,323 or 41% as compared to
      Second Quarter 2009.  Rent, utilities, telephone and
      communications increased as a result of increased ASP communications
      expense and an increase in the amount of leased space at InsPro’s
      Eddystone office during 2009.




Page
36


·
            Other
      cost of revenues in Second Quarter 2010 was $167,474 as compared to
      $143,814 in Second Quarter 2009, an increase of $23,660 or
      17%.  The increase was the result of costs incurred in Second
      Quarter 2010 to reorganize and move certain equipment in order to improve
      performance and ultimately reduce cost in the future and certain vendor
      discounts pertaining to computer processing, which were provided to the
      Company in 2009 in connection with a new ASP client, that expired in the
      third quarter of 2009. Other cost of revenues consisted of computer
      processing, hardware and software, travel and entertainment, and office
      expenses.




Gross
Profit





As a
result of the aforementioned factors, we reported a gross loss of $175,922 in
Second Quarter 2010 as compared to a gross loss of $29,280 in Second Quarter
2009.





Selling,
Marketing and Administrative Expenses





Our
selling, marketing and administrative expenses for Second Quarter 2010 was
$1,230,276 as compared to $1,634,701 for Second Quarter 2009 for a decrease of
$404,425 or 25% as compared to Second Quarter 2009.  The primary
reason for the decrease is attributable to reductions in corporate
staffing.  Selling, marketing and administrative expenses consisted of
the following:





For the Three Months
                      Ended June 30,2010
                    
                    
                    2009Salaries,
      employee benefits and related taxes
                    
                    $
                    644,756
                    
                    
                    $
                    738,096Advertising
      and other marketing
                    
                    
                    26,060
                    
                    
                    
                    36,204Depreciation
      and amortization
                    
                    
                    241,673
                    
                    
                    
                    220,003Rent,
      utilities, telephone and communications
                    
                    
                    100,759
                    
                    
                    
                    144,242Professional
      fees
                    
                    
                    103,614
                    
                    
                    
                    317,967Other
      general and administrative
                    
                    
                    113,414
                    
                    
                    
                    178,189$
                    1,230,276
                    
                    
                    $
                    1,634,701




Page
37




In Second
Quarter 2010 we incurred salaries, employee benefits and related taxes of
$644,756 as compared to $738,096 for Second Quarter 2009, a decrease of $93,340
or 13%. Salaries, commission and related taxes consisted of the
following:





For the Three Months
                    Ended June 30,2010
                  
                  
                  2009Salaries,
      wages and bonuses
                  
                  $
                  537,197
                  
                  
                  $
                  536,354Share
      based employee and director compensation
                  
                  
                  4,200
                  
                  
                  
                  90,315Commissions
      to employees
                  
                  
                  5,370
                  
                  
                  
                  13,000Employee
      benefits
                  
                  
                  32,676
                  
                  
                  
                  16,918Payroll
      taxes
                  
                  
                  37,103
                  
                  
                  
                  31,842Severance
      and other compensation
                  
                  
                  6,358
                  
                  
                  
                  13,168Directors’
      compensation
                  
                  
                  21,852
                  
                  
                  
                  36,498Total
                  
                  $
                  644,756
                  
                  
                  $
                  738,096





·
            Salaries,
      wages and bonuses were $537,197 in Second Quarter 2010 as compared to
      $536,354 in Second Quarter 2009.  Reductions in corporate
      staffing in human resources and accounting were offset by increased
      staffing in InsPro’s sales and IT infrastructure
  areas.





·
            Share
      based employee and director compensation expense was $4,200 in Second
      Quarter 2010 as compared to $90,315 in Second Quarter 2009.  The
      decrease is attributable to vesting and expensing of all outstanding
      options as of the October 29, 2009 change of control on that
      date. Consequently the only expense incurred in 2010 pertains to
      options granted after October 29, 2009.  Share based employee
      and director compensation consist of stock option and restricted stock
      grants, which are valued at fair-value at the date of the grant and
      expensed over the stock option’s vesting period or the duration of
      employment, whichever is shorter.





·
            Commissions
      to employees were $5,370 in Second Quarter 2010 as compared to $13,000 in
      Second Quarter 2009, a decrease of $7,630 or 59%.  Commissions
      to employees decreased as a result of decreased commissionable revenue
      activity, which was paid to InsPro Technologies’ sales
      personnel.




·
            Employee
      benefits expense was $32,676 in Second Quarter 2010 as compared to $16,918
      in Second Quarter 2009, an increase of $15,758 or 93%.  The
      increase is primarily the result of increased employee group health
      insurance cost, which was caused by increased staffing in InsPro and a
      change in the Company’s employee benefits program in 2010 to provide all
      employees with comparable employee benefits at comparable
      cost.  Prior to 2009 non InsPro employees paid proportionately
      more for their  employee group health insurance than InsPro
      employees.




·
            Payroll
      taxes expense was $37,103 in Second Quarter 2010 as compared to $31,842 in
      Second Quarter 2009, an increase of $5,261 or 17%.  The increase
      is the result of increased staffing in InsPro’s sales and IT
      infrastructure areas and associated increased payroll
    taxes.




·
            Directors’
      compensation was $21,852 in Second Quarter 2010 as compared to $36,498 in
      Second Quarter 2009.  The decrease is the result of the timing
      of annual retainer expense in Second Quarter
  2009.




Page
38


Advertising
and other marketing in Second Quarter 2010 was $26,060 as compared to $36,204 in
Second Quarter 2009.  The decrease was the result of the completion in
the second quarter of 2009 the development of InsPro Technologies’ marketing
strategy including creating the corporate brand and message and redesign of all
sales and marketing material, company web site, brochures and sales
presentation.  Costs in Second Quarter 2009 included the use of
outside agencies for services rendered in connection with the development
of InsPro Technologies’ marketing strategy.





Depreciation
and amortization expense consisted of the following:





For the Three Months
                        Ended June 30,2010
                      
                      
                      2009Amortization
      of intangibles acquired as a result of the InsPro
    acquisition
                      
                      $
                      117,019
                      
                      
                      $
                      117,019Amortization
      of software and website development for external marketing
                      
                      
                      21,787
                      
                      
                      
                      21,787Depreciation
      expense
                      
                      
                      102,867
                      
                      
                      
                      81,197Total
                      
                      $
                      241,673
                      
                      
                      $
                      220,003





·
            In
      Second Quarter 2010 we incurred amortization expense of $117,019 for the
      intangible assets acquired from InsPro Technologies (formerly Atiam
      Technologies, L.P.) on October 1, 2007.  Intangible assets
      acquired from InsPro Technologies 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
39


·
            In
      Second Quarter 2010 we incurred amortization expense of $21,787 for
      software development cost for external marketing pertaining to InsPro
      Technologies’ InsPro system.




·
            In
      Second Quarter 2010 we incurred depreciation expense of $102,867 as
      compared to $81,197 in Second Quarter 2009. The increase was due to assets
      acquired by InsPro Technologies subsequent to June 30,
    2009.




In Second
Quarter 2010 we incurred rent, utilities, telephone and communications expense
of $100,759 as compared to $144,242 in Second Quarter 2009, a decrease of
$43,483 or 30%.  The decrease is primarily due to reductions in
telephone and communications expenses as a result of corporate staffing
reductions and cost containment actions.




In Second
Quarter 2010 we incurred professional fees of $103,614 as compared to $317,967
in Second Quarter 2009, a decrease of $214,353 or 67%.  Professional
fees consisted of the following:





For the Three Months
                    Ended June 30,2010
                  
                  
                  2009Accounting
      and auditing
                  
                  $
                  55,709
                  
                  
                  $
                  64,111Legal
                  
                  
                  41,389
                  
                  
                  
                  195,529Technology
                  
                  
                  6,786
                  
                  
                  
                  4,123All
      other
                  
                  
                  (270
                  )
                  
                  
                  54,204$
                  103,614
                  
                  
                  $
                  317,967





·
            In
      Second Quarter 2010 we had a decrease in legal fees as compared to Second
      Quarter 2009, which was primarily due to lower legal costs incurred in
      connection with litigation with certain shareholders, which commenced on
      March 24, 2009, and lower legal costs incurred in connection with the
      Company’s filings with the Securities and Exchange Commission (the
      “SEC”).




·
            In
      Second Quarter 2010 we had an increase in technology fees as a result of
      increased utilization of outsourced resources in InsPro’s system
      infrastructure area.




·
            In
      Second Quarter 2010 we had a decrease in all other professional fees as a
      result of lower recruiting costs and lower printing and filing costs
      incurred in connection with the Company’s SEC
  filings.




In Second
Quarter 2010 we incurred other general and administrative expenses of $113,414
as compared to $178,189 in Second Quarter 2009, a decrease of $64,775 or 36%.
The decrease is a result of non recurring telephone system costs, which were
incurred by InsPro in 2009.





Loss
from operations





As a
result of the aforementioned factors, we reported a loss from operations of
$1,406,198 or $0.06 per share in Second Quarter 2010 as compared to a loss from
operations of $1,663,981 or $0.04 per share in Second Quarter
2009.


Page
40




Gain
(loss) on discontinued operations





Results
from discontinued operations were as follows:





For the Three Months
                    Ended June 30,2010
                  
                  
                  2009Revenues:Commission
      and other revenue from carriers
                  
                  $
                  113,095
                  
                  
                  $
                  369,189Transition
      policy commission pursuant to the Agreement
                  
                  
                  317,724
                  
                  
                  
                  552,517Gain
      on disposal of property and equipment
                  
                  
                  530
                  
                  
                  
                  8,716Insurint
      revenue
                  
                  
                  210
                  
                  
                  
                  46,768Sub-lease
      revenue
                  
                  
                  334,941
                  
                  
                  
                  323,578766,500
                  
                  
                  
                  1,300,768Operating
      expenses:Salaries,
      commission and related taxes
                  
                  
                  30,451
                  
                  
                  
                  346,091Lead,
      advertising and other marketing
                  
                  
                  -
                  
                  
                  
                  6,403Depreciation
      and amortization
                  
                  
                  -
                  
                  
                  
                  67,042Rent,
      utilities, telephone and communications
                  
                  
                  (94,113
                  )
                  
                  
                  2,443,309Professional
      fees
                  
                  
                  83,803
                  
                  
                  
                  144,584Other
      general and administrative
                  
                  
                  46,155
                  
                  
                  
                  197,35266,296
                  
                  
                  
                  3,204,781Gain
      (loss) from discontinued operations
                  
                  $
                  700,204
                  
                  
                  $
                  (1,904,013
                  )





During
the first quarter of 2009, we ceased the direct marketing and sale of health and
life insurance and related products to individuals and families in our Telesales
call center.  We also discontinued the sale of health and life
insurance and related products to individuals and families through our non
employee ISG agents.  During the first quarter of 2009, we eliminated
43 positions including all of our licensed employee sales agents along with
other Telesales service and support personnel, and we eliminated another 20
positions in Telesales through attrition.





On
February 20, 2009 (the “Closing Date”) we entered into and completed the sale of
our Telesales call center produced agency business (the “Agency Business”) to
eHealth, an unaffiliated third party, pursuant to the terms of a Client
Transition Agreement (the “Agreement”).


Page
41





Pursuant
to the Agreement we transferred to eHealth broker of record status and the right
to receive commissions on certain of the in-force individual and family major
medical health insurance policies and ancillary dental, life and vision
insurance policies issued by Aetna, Inc., Golden Rule, Humana, PacifiCare, Inc.,
Assurant and United Healthcare Insurance Co. (collectively, the “Specified
Carriers”) on which the Company was designated as broker of record as of the
Closing Date (collectively, the “Transferred Policies” and each, a “Transferred
Policy”).  Certain policies and products were excluded from the
transaction, including our agency business generated through our ISG agents, all
short term medical products and all business produced through carriers other
than the Specified Carriers.  In addition, the Agreement also provides
for the transfer to eHealth of certain lead information relating to health
insurance prospects (the “Lead Database”).





The
aggregate initial amount of consideration paid by eHealth during the first
quarter of 2009 was approximately $1,280,000.  In addition, on the
Closing Date, eHealth agreed to assume from us certain liabilities relating to
historical commission advances on the Transferred Policies made by the Specified
Carriers in an aggregate amount of approximately $1,385,000.  eHealth
has agreed to pay to HBDC II, Inc., a Delaware corporation and our wholly-owned
subsidiary, a portion of each commission payment received by eHealth and
reported by the Specified Carrier relating to a Transferred Policy for the
duration of the policy, provided that eHealth remains broker of record on such
Transferred Policy.





Revenue Recognition for
Discontinued Operations





Our
Telesales business segment generates revenue primarily from the receipt of
commissions paid to the Company as a result of the Agreement and insurance
companies based upon the insurance policies sold to consumers by the
Company.  These revenues are in the form of first year, bonus and
renewal commissions that vary by company and product.  We recognize
commission revenue primarily from the sale of health insurance, after we receive
notice that the insurance company has received payment of the related premium.
Commission revenues can fluctuate due to changing premiums, commission rates and
types or amount of insurance sold.  Renewal commission rates are
significantly less than first year commission rates and may not be offered by
every insurance company or with respect to certain types of
products.  The unearned portion of premium commissions has been
included in the consolidated balance sheet as a liability for unearned
commission advances.





We also
generate revenue from the sub-lease of our leased New York City office and a
portion of our leased Deerfield Beach Florida office, which are both leased
under operating leases. The Company sub-leases portions of our Deerfield Beach
office to two unaffiliated parties through February 28,
2011.  Sub-lease revenue includes base rent, additional rent
representing a portion of occupancy expenses under the terms of the sub-leases
and certain technology and facility services provided. We recognize sub-lease
revenue when lease rent payments are due in accordance with the sub-lease
agreements in accordance with ASC 840 " Leases." Recognition of sub-lease
revenue commences when control of the facility has been given to the tenant. We
record a provision for losses on accounts receivable equal to the estimated
uncollectible amounts. This estimate is based on our historical experience and a
review of the current status of the Company's receivables.


Page
42





For
Second Quarter 2010 we earned revenues in discontinued operations of $766,500
compared to $1,300,768 in the Second Quarter 2009, a decrease of $534,268 or
41%.  Revenues include the following:




·
            Commission
      and other revenue from carriers was $113,095 in Second Quarter 2010
      as compared to $369,189 in Second Quarter 2009.  The decrease is
      primarily the result of the execution of the Agreement whereby we no
      longer receive commission revenue on Transferred Policies effective on or
      about February 1, 2009. We continue to receive commissions from carriers
      other than Specified Carriers and commissions on policies other than
      Transferred Policies. Commission and other revenue from carriers is
      anticipated to decline in the future as a result of anticipated lapsation
      of our ISG and Telesales call center produced agency
    business.




·
            Transition
      policy commission pursuant to the Agreement was $317,724 in Second Quarter
      2010 as compared to $552,517 in the Second Quarter 2009.  The
      decrease is due to lapsation of our Telesales call center produced agency
      business.  Transition policy commission revenue is anticipated
      to decline in the future as a result of anticipated lapsation of our
      Telesales call center produced agency
business.




·
            Insurint
      revenue was $210 in Second Quarter 2010 as compared to $46,768 in the
      Second Quarter 2009.  Insurint revenue effectively ceased
      effective March 31, 2010 as a result of the Insurint Sale
      Agreement.




·
            In
      Second Quarter 2010 we earned sub-lease revenue of $334,941 as compared to
      $323,578 in Second Quarter 2009 relating to the sub-lease of a portion of
      our Florida office and our former New York sales office. Sub-lease revenue
      includes base rent, additional rent pertaining to utilities and occupancy
      costs and certain telephony, technology and facility services provided by
      us to certain of our sub-tenants.





o
            On
      February 21, 2008 we entered into a sub-lease agreement with a third party
      whereby the third party sub-leased approximately 5,200 square feet of our
      Deerfield Beach office space beginning March 1, 2008 through February 28,
      2009.  This sub-lease agreement was amended and restated on
      October 3, 2008 to increase the sub-leased square footage to 13,900 and
      extend the lease term through January 31, 2010, which was subsequently
      amended effective March 1, 2010, to decrease the sub-leased square footage
      to 8,700 and extend the lease term through February 28,
    2011.




o
            On
      October 1, 2008 we entered into a sub-lease agreement with a third party
      whereby the third party sub-leased approximately 8,000 square feet of our
      Deerfield Beach office space beginning October 15, 2008 through January
      31, 2010.  In accordance with this sub-lease agreement the
      Company recognizes base rent, additional rent representing a portion of
      certain actual occupancy expenses for our Deerfield Beach office and
      certain telephony, technology and facility services provided to our
      sub-tenant.  Effective July 1, 2009 the Company and the third
      party entered into a new sub-lease whereby the third party increased the
      space sub-leased to 29,952 square feet of our Deerfield Beach office
      space.  Effective March 1, 2010 the Company and the third party
      amended the new sub-lease increase the space sub-leased to 35,152 square
      feet of our Deerfield Beach office
space.




o
            On
      December 8, 2009 we entered into a sub-lease agreement with a third party
      whereby the third party agreed to sub-lease our New York office space for
      a three month period with an option to extend the lease on a month to
      month basis through December 30,
2010.




Total
operating expenses of discontinued operations for Second Quarter 2010 was
$66,296 as compared to $3,204,781.  The decrease in operating expenses
of discontinued operations is due to lower expenses associated with our
abandoned leased Deerfield Beach office and to a lesser extent the elimination
of Insurint’s expenses effective March 31, 2010 as a result of the Insurint Sale
Agreement.




Page
43




o
            In
      the Second Quarter of 2010 the abandoned lease accrual for our Deerfield
      Beach office was reduced to reflect our $783,849 payment to our landlord
      associated with our notification of our desire to terminate our Deerfield
      Beach lease on March 14, 2011.  This payment was $327,513 lower
      than our previously accrued estimate and as a result more than offset all
      other rent expense in discontinued operations causing negative expense in
      rent, utilities, telephone and
communications.




o
            Effective
      June 30, 2010, the Company accrued $344,211 related to the non-cancelable
      lease for the abandoned portion of the Deerfield Beach office, which
      represented the net present value of the Company’s future lease payments
      through March 14, 2011 and consideration for early termination due under
      lease.




o
            Effective
      June 30, 2010, the Company has accrued $201,055 related to the
      non-cancelable lease for the abandoned New York facility, which is net
      present value of the Company’s future lease payments due under the
      remaining Sublease Agreement term plus management’s estimate of utility
      payments.




Gain
from discontinued operations





As a
result of the aforementioned factors, we reported a gain from discontinued
operations of $700,204 or a $0.02 gain per share in Second Quarter 2010 as
compared to a loss from discontinued operations of $1,904,013 or a $0.05 loss
per share in Second Quarter 2009.





Other
income (expenses)





Interest
income is attributable to interest-bearing cash deposits.  The
decrease in interest income is the result of a decline in interest rates and a
decline in cash balances.





Interest expense of $45,941 in Second
Quarter 2010 includes $28,438 of accrued interest and $7,112 amortization of
deferred loan costs associated with the secured note, which we issued to the
Co-Investment Fund II, LP (the “Note”), which originated in December of 2009 and
was amended on June 15, 2010, together with imputed interest on certain
employee obligations.





In Second
Quarter 2010 we recognized a loss on change in fair value of warrants
liabilities of $1,018,381.  The loss in Second Quarter 2010 represents
the mark to market adjustments for the change in fair value of warrants, which
contain provisions that adjust the exercise price of these warrants in the event
we issue our common stock or other securities convertible into our common stock
at price lower than the exercise price of these warrants.


Page
44





Net
loss





As a
result of these factors discussed above, we reported a net loss of $1,764,936 or
$0.04 loss per share in Second Quarter 2010 as compared to a net loss of
$3,581,779 or $0.09 loss per share in Second Quarter 2009.





RESULTS
OF OPERATIONS FOR SIX MONTHS ENDED JUNE 30, 2010 COMPARED TO THE SIX MONTHS
ENDED JUNE 30, 2009





Revenues





For the
six months ended June 30, 2010 (“2010 To Date”), we earned revenues of
$2,711,177 compared to $3,171,214 for the six months ended June 30, 2009 (“2009
To Date”), a decrease of $460,037 or 15%.  The decrease in
professional services is attributable to a decrease in work modification
enhancements and data conversion required for existing
clients.  Revenues include the following:




For the Six Months
                      Ended June 30,2010
                    
                    
                    2009Professional
      services
                    
                    $
                    1,438,477
                    
                    
                    $
                    2,168,892ASP
      revenue
                    
                    
                    738,700
                    
                    
                    
                    701,322Sales
      of software licenses
                    
                    
                    125,000
                    
                    
                    
                    -Maintenance
      revenue
                    
                    
                    400,000
                    
                    
                    
                    289,000Sub-leasing
      revenue
                    
                    
                    9,000
                    
                    
                    
                    12,000Total
                    
                    $
                    2,711,177
                    
                    
                    $
                    3,171,214





·
            Professional
      services revenue declined $730,415 or 34% as a result of lower post
      implementation services, which were provided by InsPro Technologies in
      2009 To Date to several of our largest clients.  Implementation
      services, which were provided to 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.




·
            ASP
      revenue increased $37,378 or 5% as a result of the commencement of hosting
      services to a recently implemented client partially offset by lower ASP
      revenue from 3 other clients.  In 2010 To Date we earned ASP
      revenue from seven InsPro clients. ASP hosting service enables a client to
      lease the InsPro software, paying only for that capacity required to
      support their business.  InsPro’s ASP clients access InsPro
      installed on InsPro Technologies’ owned servers located at InsPro
      Technologies’ offices or at a third party’s
  site.




·
            In
      2010 To Date we earned license fee revenue upon the completion of the
      implementation of InsPro for a
client.




·
            Maintenance
      revenue increased $111,000 or 38% as a result of the addition of two
      maintenance contracts compared to 2009 To Date.  In 2010 To Date
      we earned maintenance revenues from six
clients.




Page
45




·
            In
      2009 To Date we earned sub-leasing revenue from the sub-leasing of space
      in our Radnor office.  The subleasing commenced in March 2009
      and ended in March 2010.





Cost
of Revenues





Our cost
of revenues for 2010 To Date was $3,395,872 as compared to $3,035,265 for 2009
To Date for an increase of $360,607 or 12% as compared to 2009 To Date. Cost of
revenues consisted of the following:





For the Six Months
                      Ended June 30,2010
                    
                    
                    2009Salaries,
      employee benefits and related taxes
                    
                    $
                    2,026,137
                    
                    
                    $
                    1,733,319Professional
      fees
                    
                    
                    855,539
                    
                    
                    
                    904,636Rent,
      utilities, telephone and communications
                    
                    
                    155,750
                    
                    
                    
                    112,736Other
      cost of revenues
                    
                    
                    358,446
                    
                    
                    
                    284,574$
                    3,395,872
                    
                    
                    $
                    3,035,265





·
            Our
      salaries, employee benefits and related taxes component of cost of
      revenues in 2010 To Date was $2,026,137 as compared to $1,733,319 for 2009
      To Date for an increase of $292,818 or 17% as compared to 2009 To
      Date.  Salaries, employee benefits and related taxes increased
      as a result of increased employee staffing. Subsequent to 2009 To Date,
      InsPro Technologies strengthened its management by hiring a COO in the
      fourth quarter of 2009 and hiring staff in quality assurance, customer
      implementation and business development
areas.




·
            Our
      professional fees component of cost of revenues in 2010 To Date was
      $855,539 as compared to $904,636 for 2009 To Date for a decrease of
      $49,097 or 5% as compared to 2009 To Date. Professional fees decreased as
      a result of the hiring of two key former consultants as employees and
      reduced utilization of certain domestic based independent contractors
      partially offset by $167,571 of training and set up expense incurred
      pertaining to a new vendor, who will provide InsPro Technologies with
      offshore outsourcing capabilities, which we believe will provide us with
      cost effective and scalable technology resources in the
      future.




·
            Our
      rent, utilities, telephone and communications component of cost of
      revenues in 2010 To Date was $155,750 as compared to $112,736 for 2009 To
      Date for an increase of $43,014 or 38% as compared to 2009 To
      Date.  Rent, utilities, telephone and communications increased
      as a result of increased in ASP and corporate telephone and
      communications expense and an increase in the amount of leased space at
      InsPro’s Eddystone office during
2009.




Page
46




·
            Our
      other cost of revenues component of cost of revenues in 2010 To Date was
      $358,446 as compared to $284,574 in 2009 To Date, an increase of $73,872
      or 26%.  Other cost of revenues consisted of the
      following:




For the Six Months
                    Ended June 30,2010
                  
                  
                  2009Office
      expenses
                  
                  $
                  1,811
                  
                  
                  $
                  6,228Travel
      and entertainment
                  
                  
                  62,795
                  
                  
                  
                  31,809Computer
      processing, hardware and software
                  
                  
                  288,862
                  
                  
                  
                  243,032Other
                  
                  
                  4,978
                  
                  
                  
                  3,505Total
                  
                  $
                  358,446
                  
                  
                  $
                  284,574




o
            Our
      travel and entertainment component of cost of revenues in 2010 To Date was
      $62,795 as compared to $31,809 in 2009 To Date, an increase of $30,986 or
      97%.  The increase was the result of increased travel pertaining
      to post implementation support, which was provided to a client whose
      InsPro licensed application was implemented in 2010 To Date. We incur
      travel and entertainment expense in connection with customer relationship
      management and implementation of InsPro at client
    locations.




o
            Our
      computer processing, hardware and software component of cost of revenues
      in 2010 To Date was $288,862 as compared to $243,032 in 2009 To Date, an
      increase of $45,830 or 19%.  The increase was the result of
      costs incurred in Second Quarter 2010 to reorganize and move certain
      equipment in order to improve performance and ultimately reduce cost in
      the future and certain vendor discounts pertaining to computer processing,
      which were provided to the Company in 2009 in connection with a new ASP
      client, that expired in the third quarter of 2009.  We incur
      computer processing, hardware and software fees associated with ASP
      hosting services and these services increased due to incremental services
      and expense associated with a new InsPro client.  InsPro has a
      hosting services contract with a third party, which can be terminated with
      notice and payment of a termination fee.  This third party
      provides InsPro Technologies with hosting services for our client’s ASP
      environments.




Gross
Profit (Loss)





As a
result of the aforementioned factors, we reported a gross loss of $684,695 in
2010 To Date as compared to a gross profit of $135,949 in 2009 To
Date.




Page
47





Selling,
Marketing and Administrative Expenses





Our
selling, marketing and administrative expenses for 2010 To Date was $2,681,794
as compared to $3,753,748 for 2009 To Date for a decrease of $1,071,954 or 29%
as compared to 2009 To Date.  The primary reason for the decrease is
attributable to reductions in corporate staffing.  Selling, marketing
and administrative expenses consisted of the following:





For
      the Six Months
                        Ended
      June 30,2010
                      
                      
                      2009Salaries,
      employee benefits and related taxes
                      
                      $
                      1,240,766
                      
                      
                      $
                      2,116,891Advertising
      and other marketing
                      
                      
                      83,403
                      
                      
                      
                      138,103Depreciation
      and amortization
                      
                      
                      473,484
                      
                      
                      
                      431,323Rent,
      utilities, telephone and communications
                      
                      
                      176,002
                      
                      
                      
                      288,434Professional
      fees
                      
                      
                      451,611
                      
                      
                      
                      457,184Other
      general and administrative
                      
                      
                      256,528
                      
                      
                      
                      321,813$
                      2,681,794
                      
                      
                      $
                      3,753,748







In 2010
To Date we incurred salaries, employee benefits and related taxes of $1,240,766
as compared to $2,116,891 for 2009 To Date, a decrease of $876,125 or
41%. Salaries, commission and related taxes consisted of the
following:




For
      the Six Months
                      Ended
      June 30,2010
                    
                    
                    2009Salaries,
      wages and bonuses
                    
                    $
                    1,013,247
                    
                    
                    $
                    1,247,579Share
      based employee and director compensation
                    
                    
                    7,200
                    
                    
                    
                    310,691Commissions
      to employees
                    
                    
                    30,426
                    
                    
                    
                    25,454Employee
      benefits
                    
                    
                    62,488
                    
                    
                    
                    53,579Payroll
      taxes
                    
                    
                    75,308
                    
                    
                    
                    81,553Severance
      and other compensation
                    
                    
                    10,464
                    
                    
                    
                    353,206Directors’
      compensation
                    
                    
                    41,633
                    
                    
                    
                    44,829Total
                    
                    $
                    1,240,766
                    
                    
                    $
                    2,116,891





·
            Salaries,
      wages and bonuses were $1,013,247 in 2010 To Date as compared to
      $1,247,579 in 2009 To Date, a decrease of $234,332 or 19%.  The
      decrease is the result the elimination of two senior executive positions,
      four human resource positions and an accounting position together with
      $150,000 of executive bonus compensation in 2009 To Date.  These
      reductions in corporate expenses were partially offset by increased
      staffing in InsPro’s sales and IT infrastructure
  areas.


Page
48





·
            Share
      based employee and director compensation expense was $7,200 in 2010 To
      Date as compared to $310,691 in 2009 To Date.  The decrease is
      attributable to vesting and expensing of all outstanding options as of the
      October 29, 2009 change of control on that date. Consequently the
      only expense incurred in 2010 pertains to options granted after October
      29, 2009.  Share based employee and director compensation
      consist of stock option and restricted stock grants, which are valued at
      fair-value at the date of the grant and expensed over the stock option’s
      vesting period or the duration of employment, whichever is
      shorter.





·
            Commissions
      to employees were $30,426 in 2010 To Date as compared to $25,454 in 2009
      To Date, an increase of $4,972 or 20%.  Commissions to employees
      increased as a result of increased commissionable revenue activity, which
      was paid to InsPro Technologies’ sales
  personnel.




·
            Employee
      benefits expense was $62,488 in 2010 To Date as compared to $53,579 in
      2009 To Date, an increase of $8,909 or 17%. The increase is primarily the
      result of increased employee group health insurance cost as a result of a
      change in the Company’s employee benefits program in 2010 to provide all
      employees with comparable employee benefits at comparable
      cost.  Prior to 2009 non InsPro employees paid proportionately
      more for their employee benefits than InsPro employees, which was
      partially offset by the elimination of corporate
  staff.




·
            Payroll
      taxes expense was $75,308 in 2010 To Date as compared to $81,553 in 2009
      To Date, a decrease of $6,245 or 8%.  The decrease is the result
      of the elimination of corporate
staff.




·
            Severance
      and other compensation was $10,464 in 2010 To Date as compared to $353,206
      in 2009 To Date. The decrease was the result of the accrual of severance
      expense as of March 31, 2009 as a result of the Separation of Employment
      and General Release Agreement with Mr.
Eissa.




Advertising
and other marketing in 2010 To Date was $83,403 as compared to $138,103 in 2009
To Date.  The decrease was the result of the completion in the second
quarter of 2009 the development of InsPro Technologies’ marketing strategy
including creating the corporate brand and message and redesign of all sales and
marketing material, company web site, brochures and sales
presentation.  Costs in 2009 To Date included the use of outside
agencies for services rendered in connection with the development of InsPro
Technologies’ marketing strategy.





Depreciation
and amortization expense consisted of the following:




For the Six Months
                    Ended June 30,2010
                  
                  
                  2009Amortization
      of intangibles acquired as a result of the InsPro
    acquisition
                  
                  $
                  234,039
                  
                  
                  $
                  234,039Amortization
      of software and website development for external marketing
                  
                  
                  43,574
                  
                  
                  
                  43,574Depreciation
      expense
                  
                  
                  195,871
                  
                  
                  
                  153,710Total
                  
                  $
                  473,484
                  
                  
                  $
                  431,323





·
            In
      2010 To Date we incurred amortization expense of $234,039 for the
      intangible assets acquired from InsPro Technologies (formerly Atiam
      Technologies, L.P.) on October 1, 2007.  Intangible assets
      acquired from InsPro Technologies 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




Page
49




·
            value
      of purchased software for sale and licensing value with an assigned value
      of $644,449 amortized straight line over five
  years




·
            employment
      and non-compete agreements acquired with an assigned value of $364,000
      amortized straight line over three
years.




·
            In
      2010 To Date we incurred amortization expense of $43,574 for software
      development cost for external marketing pertaining to InsPro Technologies’
      InsPro system.




·
            In
      2010 To Date we incurred depreciation expense of $195,871 as compared to
      $153,710 in 2009 To Date. The increase was due to assets acquired by
      InsPro Technologies subsequent to June 30,
2009.




In 2010
To Date we incurred rent, utilities, telephone and communications expense of
$176,002 as compared to $288,434 in 2009 To Date, a decrease of $112,432 or
39%.  The decrease is primarily due to reductions in telephone and
communications expenses as a result of corporate staffing reductions and cost
containment actions.




In 2010
To Date we incurred professional fees of $451,611 as compared to $457,184 in
2009 To Date, a decrease of $5,573 or 1%.  Professional fees consisted
of the following:




For the Six Months
                    Ended June 30,2010
                  
                  
                  2009Accounting
      and auditing
                  
                  $
                  126,151
                  
                  
                  $
                  131,914Legal
                  
                  
                  240,988
                  
                  
                  
                  206,700Technology
                  
                  
                  10,656
                  
                  
                  
                  12,422All
      other
                  
                  
                  73,816
                  
                  
                  
                  106,148$
                  451,611
                  
                  
                  $
                  457,184





·
            In
      2010 To Date we had an increase in legal fees as compared to 2009 To Date,
      which was primarily due to legal costs incurred in connection with
      litigation with certain shareholders, which commenced on March 24, 2009,
      and legal costs incurred in connection with the Company’s filings with the
      SEC.




·
            In
      2010 To Date we had a decrease in all other professional fees as a result
      of lower corporate recruiting and shareholder relations
    costs.




In 2010
To Date we incurred other general and administrative expenses of $256,528 as
compared to $321,813 in 2009 To Date, a decrease of $65,285 or
20%.  The decrease is a result of non recurring telephone system
costs, which were incurred by InsPro in 2009





Loss
from operations





As a
result of the aforementioned factors, we reported a loss from operations of
$3,366,489 or $0.08 per share in 2010 To Date as compared to a loss from
operations of $3,617,799 or $0.09 per share in 2009 To Date.


Page
50





Gain
(loss) on discontinued operations





Results
from discontinued operations were as follows:




For the Six Months
                    Ended June 30,2010
                  
                  
                  2009Revenues:Commission
      and other revenue from carriers
                  
                  $
                  262,741
                  
                  
                  $
                  1,721,155Gain
      recognized upon the execution of the Agreement
                  
                  
                  -
                  
                  
                  
                  2,664,794Transition
      policy commission pursuant to the Agreement
                  
                  
                  668,056
                  
                  
                  
                  776,855Gain
      on the sale of Insurint
                  
                  
                  578,569
                  
                  
                  
                  -Gain
      on disposal of property and equipment
                  
                  
                  6,530
                  
                  
                  
                  12,669Lead
      sale revenue
                  
                  
                  103
                  
                  
                  
                  -Insurint
      revenue
                  
                  
                  53,340
                  
                  
                  
                  86,496Sub-lease
      revenue
                  
                  
                  592,892
                  
                  
                  
                  681,5052,162,231
                  
                  
                  
                  5,943,474Operating
      expenses:Salaries,
      commission and related taxes
                  
                  
                  197,839
                  
                  
                  
                  1,312,151Lead,
      advertising and other marketing
                  
                  
                  -
                  
                  
                  
                  128,357Depreciation
      and amortization
                  
                  
                  -
                  
                  
                  
                  229,703Rent,
      utilities, telephone and communications
                  
                  
                  (105,500
                  )
                  
                  
                  3,010,688Professional
      fees
                  
                  
                  170,014
                  
                  
                  
                  503,593Loss
      on impairment of property and equipment
                  
                  
                  -
                  
                  
                  
                  416,764Loss
      on impairment of intangible assets
                  
                  
                  -
                  
                  
                  
                  1,222,817Other
      general and administrative
                  
                  
                  168,519
                  
                  
                  
                  314,925430,872
                  
                  
                  
                  7,138,998Gain
      (loss) from discontinued operations
                  
                  $
                  1,731,359
                  
                  
                  $
                  (1,195,524
                  )





For 2010
To Date we earned revenues in discontinued operations of $2,162,231 compared to
$5,943,474 in the 2009 To Date, a decrease of $3,781,243 or
64%.  Revenues include the following:




·
            Commission
      and other revenue from carriers of $262,741 in 2010 To Date as
      compared to $1,721,155 in 2009 To Date.  The decrease is
      primarily the result of the execution of the Agreement whereby we no
      longer receive commission revenue on Transferred Policies effective on or
      about February 1, 2009. We continue to receive commissions from carriers
      other than Specified Carriers and commissions on policies other than
      Transferred Policies.




Page
51




·
            Gain
      recognized upon the execution of the Agreement of $2,664,794 in the
      first quarter of 2009, which is the sum of the aggregate initial amount of
      consideration paid by eHealth and eHealth’s assumption of certain
      liabilities relating to historical commission advances on the Transferred
      Policies.




·
            Transition
      policy commission pursuant to the Agreement of $668,056 in 2010 To Date as
      compared to $776,855 in the 2009 To Date.  The decrease is due
      to lapsation of our Telesales call center produced agency
      business.




·
            During
      the first quarter of 2010 we recognized a $578,569 gain on the sale
      of Insurint effective upon the March 31, 2010 execution of an asset
      purchase agreement (“Insurint Sale Agreement”) with an unaffiliated third
      party.




o
            Pursuant
      to the terms of the Insurint Sale Agreement we sold substantially all of
      Insurint’s assets used in Insurint’s business including the Insurint
      software, www.insurint.com web site, other intellectual property specific
      to Insurint including but not limited to the customer base and all future
      revenue pertaining to Insurint.  The buyer agreed to assume
      future Insurint commitments and expenses subsequent to March 31,
      2010.




o
            Pursuant
      to the Insurint Sale Agreement we will receive in aggregate $625,000 in
      cash from the buyer of Insurint, of which $312,500 was received on April
      1, 2010 and the $312,500 balance will be received over twenty three equal
      monthly installments in the amount of $13,020.83, with the first monthly
      payment due on May 1, 2010, and the last monthly payment in the amount of
      $13,020.91 due on April 1, 2012.




o
            We
      incurred $21,829 of legal costs pertaining to the Insurint Sale
      Agreement.




·
            Insurint
      revenue was $53,340 in 2010 To Date and $86,496 in 2009 To
      Date.  Insurint revenue ceased effective March 31, 2010 as a
      result of the Insurint Sale
Agreement.




·
            In
      2010 To Date we earned sub-lease revenue of $592,892 as compared to
      $681,505 in 2009 To Date relating to the sub-lease of a portion of our
      Florida office and our former New York sales office. The decline in
      Sub-lease revenue is the result of lower sub-lease revenue from both our
      former New York sales office and Deerfield Beach
      office.  Sub-lease revenue includes base rent, additional rent
      pertaining to utilities and occupancy costs and certain telephony,
      technology and facility services provided by us to certain of our
      sub-tenants.




Total
operating expenses of discontinued operations for 2010 To Date was $430,872 as
compared to $7,138,998 for 2009 To Date for a decrease of $6,708,126 or 94% as
compared to 2009 To Date.  The primary reason for the decrease is
attributable to lower expenses associated with our accrual for abandoned lease
expenses, which is recorded in rent, utilities and communications expenses,
impairment expense in 2009, and to a lesser extent the elimination of Insurint’s
expenses effective March 31, 2010 as a result of the Insurint Sale
Agreement.




Gain
from discontinued operations





As a
result of the aforementioned factors, we reported a gain from discontinued
operations of $1,731,359 or $0.04 per share in 2010 To Date as compared to a
loss from discontinued operations of $1,195,524 or $0.03 per share in 2009 To
Date.


Page
52





Other
income (expenses)





Interest
income is attributable to interest-bearing cash deposits.  The
decrease in interest income is the result of a decline in interest rates and a
decline in cash balances.





Interest expense of $96,311 in 2010 To
Date includes $53,095 of accrued interest and $17,783 amortization of deferred
loan costs on the Note, which originated in December of 2009 and was amended on
June 15, 2010, together with imputed interest on certain employee
obligations.





In 2010
To Date we recognized a loss on change in fair value of warrants liabilities of
$43,913.  The loss in 2010 To Date represents the mark to market
adjustments for the change in fair value of warrants, which contain provisions
that adjust the exercise price of these warrants in the event we issue our
common stock or other securities convertible into our common stock at price
lower than the exercise price of these warrants.





Net
loss





As a
result of these factors discussed above, we reported a net loss of $1,767,889 or
$0. 04 per share in 2010 To Date as compared to a net loss of $4,835,048 or
$0.12 per share in 2009 To Date.





LIQUIDITY
AND CAPITAL RESOURCES





At June
30, 2010, we had a cash balance of $586,049 and negative working capital of
$(1,220,138).





At June
30, 2010, we had a restricted cash balance of $1,152,206, which represents money
market account balances with a restricted balance pertaining to two letters of
credit for the benefit of the landlords of our Florida and New York
offices.  The money market accounts are on deposit with the issuer of
the letters of credit.  We receive the interest on the money market
accounts.





Net cash
used by operations was $2,903,047 in 2010 To Date as compared to net cash used
by operations of $3,594,014 in 2009 To date.  In 2010 we used cash to
fund our net loss of $1,767,889 and:





·
            Decreases
      in net liabilities of discontinued operations of $1,836,004, which is
      primarily the result of:




o
            Our
      $783,849 payment to our landlord of our Deerfield Beach office associated
      with our notification of our desire to terminate our Deerfield Beach lease
      on March 14, 2011, which was $327,513 lower than our previous accrual,
      together with other lease payments pertaining to our abandoned
      leases.




o
            Recording
      a $265,955 receivable from the buyer of Insurint as of June 30, 2010,
      which is included in net liabilities of discontinued operations, and to a
      lesser extent the lease payments pertaining to abandoned
      leases.




Page
53




In
addition to cash used in operating activities we incurred the following non cash
gain and expenses in 2010 to Date, which were included in our net loss,
including:




·
            Recorded
      depreciation and amortization expense of $473,484 and $431,323 in 2010 To
      Date and 2009 To Date,
respectively.




·
            Recorded
      stock-based compensation and consulting expense of $7,200 and $310,691 in
      2010 To Date and 2009 To Date,
respectively.




·
            Recognized
      a loss on change in fair value of warrants liabilities of $43,913 in
      2010 To Date.




·
            In
      the first quarter of 2009 we recorded $1,639,581 pertaining to the
      impairment of certain long lived assets of our discontinued
      operations.




·
            We
      recorded a gain of $6,520 and a loss of $10,228 on the disposal of
      property and equipment of discontinued operations in 2010 To Date and 2009
      To Date, respectively.




Net cash
used by investing activities in 2010 To Date was $169,172 as compared to
$277,435 in 2009 To Date.  Investing activities pertain to the
purchase of property and equipment supporting current and future
operations.




Net cash
provided by financing activities in 2010 To Date was $2,254,615 as compared to
$4,113,799 in 2009 To Date.




·
            During
      the first quarter of 2010 we received $1,107,000 in gross proceeds as a
      result of the exercise of subscription units pertaining to our rights
      offering, which was completed on March 26,
2010.




o
            On
      January 14, 2010 we filed a prospectus for a rights offering on Form
      S-1/A, which the SEC declared effective on January 22, 2010, to distribute
      to shareholders at no charge, one non-transferable subscription right for
      each 12,256 shares of our common stock and 613 shares of our preferred
      stock owned as of January 1, 2010, the record date, either as a holder of
      record or, in the case of shares held of record by brokers, dealers,
      custodian banks or other nominees on shareholders’ behalf, as a beneficial
      owner of such shares.  This rights offering was designed to give
      all of the holders of the Company’s common stock the opportunity to
      participate in an equity investment in the Company on the same economic
      terms as the 2009 Private
Placement.





o
            The
      basic subscription right entitled the holder to purchase one unit
      (“Subscription Unit”) at a subscription price of $1,000. A Subscription
      Unit consisted of 250 shares of Preferred Stock and a five-year warrant to
      purchase 5,000 shares of common stock at an exercise price of $0.20 per
      share.  In the event that a holder of a Subscription Unit
      purchased all of the basic Subscription Units available to the holder then
      pursuant to their basic subscription right, the holder had the option to
      choose to subscribe for a portion of any Subscription Units that were not
      purchased by all other holders of Subscription Units through the exercise
      of their basic subscription rights.





o
            Effective
      with the expiration of the subscription rights, which occurred on March
      26, 2010, holders of subscription rights exercised in aggregate 1,061
      basic subscription rights and 46 over subscription rights for a total
      1,107 Subscription Units.  As a result of the exercise of 1,107
      Subscription Units we issued effective on March 26, 2010 in aggregate
      276,750 shares of Preferred Stock and five-year warrants to purchase in
      aggregate 5,535,000 shares of common stock at an exercise price of $0.20
      per share. The Preferred Stock issued in 2010 have the same terms as the
      Preferred Stock issued in 2009.


Page
54




o
            Of
      the 1,107 Subscription Units exercised the Co-Investment Fund II, L.P., a
      Delaware limited partnership (“Co-Investment”) exercised 1,000 basic
      subscription rights for $1,000,000 and on March 26, 2010, the Company
      issued to Co-Investment 250,000 shares of Preferred Stock and five-year
      warrants to purchase in aggregate 5,000,000 shares of Common Stock at an
      exercise price of $0.20 per share.





o
            Effective
      with the expiration of the subscription rights all unexercised
      subscription rights expired.





·
            During
      the second quarter of 2010 we received $1,000,000 in gross proceeds as a
      result of the modification of the terms of the Loan Agreement and
      Note.




o
            On
      June 15, 2010, the Company and Co-Investment agreed to modify the terms of
      the loan agreement (the “Loan Agreement”) and the Note between the parties
      to; (i) increase the loan from $1,250,000 to $2,250,000 on June 15, 2010
      and ii) allow Co-Investment to demand the Company to repay to
      Co-Investment an amount not to exceed the loan balance plus accrued
      interest in the form of the Company’s equity securities at the conversion
      price and terms identical to the price and terms of the Company’s next
      issuance of common or preferred stock issued for cash consideration
      occurring after June 15, 2010 (“Equity
      Issuance”) if and when such Equity Issuance occurs.  The
      Company and Co-Investment agreed in the event that the Company does not
      have a sufficient number of authorized shares of its equity securities to
      issue to Co-Investment the Company and Co-Investment will jointly
      cooperate with one another in obtaining the necessary shareholder approval
      to increase the number of authorized shares of the Company’s equity
      securities and the effective date of the issuance and repayment will be
      the date of the Company’s shareholder
approval.




o
            The
      Company incurred $18,389 of costs associated with the Loan Agreement and
      Note in the second quarter of 2010.




·
            In
      First Quarter 2009 we completed a private placement (the “2009 Private
      Placement”) with Co-Investment and issued 1,000,000 shares of our Series A
      Preferred Stock and warrants to purchase 1,000,000 shares of our Series A
      Preferred Stock.  Our gross proceeds were $4,000,000 and we paid
      $15,617 of legal and other expenses in connection with the 2009 Private
      Placement.




·
            InsPro
      technologies has entered into various capital lease obligations to
      purchase equipment used for
operations.




Liquidity
Considerations





During
the six months ended June 30, 2010 we used $2,903,047 of cash to fund operations
and $169,172 of cash to fund investing activities.  As of June 30,
2010, we have funded our operating activities from the proceeds of the sale of
shares of our stock and proceeds from the Loan Agreement and Note; however,
based on our most recent financial projections, we believe that our current
level of liquid assets and our expected cash flows from operations may not be
sufficient to finance our operations and financial commitments in the
future.


Page
55




In the
near term, we expect to either seek additional financing or explore other
strategic alternatives for the business. While we have been successful in
raising equity capital in the past, there is no assurance that we will be
successful in the future.  Although we believe that opportunities exist for
us to raise capital, no assurances can be given that we will be able to raise
sufficient capital to both fund working capital and repay our obligations as
they become due.  In addition, should we successfully raise capital, such a
financing is likely to be highly dilutive to current shareholders and there is
no assurance that financing options will be available at or near our current
share price or at levels achieved in previous financings. Should we prove
unsuccessful in raising additional capital, we may be unable to fund our
financial obligations, both short-term and long-term.





Off-Balance
Sheet Arrangements





We do not
currently have any relationships with unconsolidated entities or financial
partnerships, such as entities referred to as structured finance or special
purpose entities, which would have been established for the purpose of
facilitating off-balance sheet or other contractually narrow or limited
purposes.





The
letters of credit pertaining to the lease for our Florida office and our New
York office were collateralized in the form of a money market account and
certificate of deposit, which as of June 30, 2010, in aggregate had a balance of
$1,152,206.  These accounts are on deposit with the issuer of the
letters of credit and are classified as restricted cash on our balance
sheet.  The terms of the money market account allow us to receive
interest on the principal but prohibits us from withdrawing the principal for
the life of the letters of credit.




Page
56





Item
4T. Controls and Procedures





(a) Evaluation of
Disclosure Controls and Procedures.





Our management is responsible for
establishing and maintaining adequate internal control over financial reporting
for the Company.  Under the supervision of our Chief Executive Officer
and Chief Financial Officer, our management conducted an assessment of the
effectiveness of our disclosure controls and procedures (as such term is defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended) as of the end of the period covered by this report. Based on the
results of such assessment, management have concluded that the our disclosure
controls and procedures as of the end of the period covered by this report have
been designed and are functioning effectively to provide reasonable assurance
that the information required to be disclosed by us in reports filed under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission’s rules and is accumulated and communicated to management, including
our principal executive and principal financial officers, or person performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.





A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected. The design of any system of controls also
is based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions; over time, control may
become inadequate because of changes in conditions, or the degree of compliance
with the policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.





(b)
Change in Internal Control over Financial Reporting.





There have not been any changes in our
internal control over financial reporting during our most recent fiscal quarter
that have materially affected, or are reasonably likely to materially affect,
the Company’s internal control over financial reporting.





PART II.


OTHER
INFORMATION




Item 1.  Legal Proceedings




On August
28, 2008, one of our former employees, the plaintiff, filed a national class
action complaint in the Seventeenth Judicial Circuit of Florida, Broward County,
case no. 062008 CA 042798 XXX CE, alleging that we breached a contract with
employees by failing to provide certain commissions and/or bonuses. The
complaint also contained claims for an accounting and for declaratory relief
relating to the alleged compensation agreement.  The plaintiff purported to
bring these claims on behalf of a class of current and former insurance sales
agents.  We filed a motion to dismiss the complaint.  In response, at
the hearing on our Motion to Dismiss, the plaintiff stated that he would amend
the complaint.  The amended complaint was no longer pled as a class action
but, instead, includes 64 named plaintiffs.  On April 21, 2010, the Company
and the plaintiffs entered into a memorandum of understanding whereby the
Company agreed to; pay $23,500 to settle the case and the Company and the
plaintiffs agreed to; stay all discovery, mutual releases, no admission of
wrongdoing, no further litigation, confidentiality by the plaintiffs and non
disparagement by the plaintiffs.  The Company and the plaintiffs have
entered into definitive settlement agreements and the court issued an order
dismissing all claims in this case.


Page
57




We are also involved in various
investigations, claims and lawsuits arising in the normal conduct of our
business, none of which, in our opinion, will harm our business. We cannot
assure that we will prevail in any litigation. Regardless of the outcome, any
litigation may require us to incur significant litigation expense and may result
in significant diversion of our attention.  We have also been involved
in litigation as described in our Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 2010.




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
58


SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.




Date:
      August 16, 2010
                HEALTH
      BENEFITS DIRECT CORPORATIONBy:
                /s/
      ANTHONY R. VERDIAnthony
      R. VerdiChief
      Financial Officer and Chief Operating Officer(Principal
      Executive and Financial
Officer)




Page
59




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
60