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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 Form 10-QSB
  þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2006
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
 For the transition period from  to
 Commission File Number: 333-123081
 HEALTH BENEFITS DIRECT CORPORATION
  Delaware
    
    98-0438502(State or Other Jurisdiction of
Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)
 Radnor, Pennsylvania 19087
 (610) 971-6197
 N/A
 þ o
 o þ
  o þ




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PagePART I  FINANCIAL INFORMATIONItem 1  Consolidated Financial StatementsConsolidated Balance Sheet As of March 31, 2006 (Unaudited)
    
    
    3Consolidated Statements of Operations (Unaudited) For the Three Months Ended March 31, 2006 and 2005
    
    
    4Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, 2006 and 2005
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2
 Managements Discussion and Analysis or Plan of Operation
    
    
    19Item 3  Controls and Procedures
    
    
    24PART II  OTHER INFORMATIONItem 6
 Exhibits
    
    
    25Signatures
    
    
    26RULE 13a-14(a) CERTIFICATION OF CEORULE 13a-14(a) CERTIFICATION BY CFORULE 13a-14(b) CERTIFICATION OF CEORULE 13a-14(b) CERTIFICATION BY CFO
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HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEET
 March 31, 2006(Unaudited)ASSETSCURRENT ASSETS:Cash
    
    $
    10,264,834Accounts receivable, less allowance for doubtful accounts of $15,747
    
    
    207,517Deferred compensation advances
    
    
    280,704Prepaid expenses
    
    
    392,385Total current assets
    
    
    11,145,440Property and equipment, net
    
    
    777,170Intangibles, net
    
    
    166,466Other assets
    
    
    64,105Total Assets
    
    $
    12,153,181LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Line of credit
    
    $
    399,630Accounts payable
    
    
    488,957Accrued expenses
    
    
    439,108Due to related parties
    
    
    198,756Unearned commission advances
    
    
    1,403,518Total current liabilities
    
    
    2,929,969SHAREHOLDERS EQUITY:Preferred stock ($.001 Par value; 10,000,000 share authorized;
no shares issued and outstanding)
    
    
    Common stock ($.001 Par value; 90,000,000 share authorized;
26,691,471 shares issued and outstanding at
March 31, 2006)
    
    
    26,691Additional paid-in capital
    
    
    16,606,299Accumulated deficit
    
    
    (6,310,793
    )Less: deferred compensation
    
    
    (1,098,985
    )Total shareholders equity
    
    
    9,223,212Total liabilities and shareholders equity
    
    $
    12,153,181
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HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three Months EndedMarch 31,2006
    
    
    2005(Unaudited)
    
    
    (Unaudited)Revenues, net
    
    $
    1,268,307
    
    
    $
    465,069Cost of revenues
    
    
    601,205
    
    
    
    104,382Gross profit
    
    
    667,102
    
    
    
    360,687Operating Expenses:Salaries, commission and related taxes
    
    
    1,819,951
    
    
    
    536,937Depreciation and amortization
    
    
    54,143
    
    
    
    18,151Professional fees
    
    
    314,960
    
    
    
    8,460Management salaries  related parties
    
    
    
    
    
    
    157,500Other general and administrative
    
    
    657,529
    
    
    
    207,3822,846,583
    
    
    
    928,430Loss from operations
    
    
    (2,179,481
    )
    
    
    (567,743
    )Other income (expense):Registration rights penalty
    
    
    60,537
    
    
    
    Interest income
    
    
    112,278
    
    
    
    Interest expense
    
    
    (5,693
    )
    
    
    (3,121
    )Total other income (expense)
    
    
    167,122
    
    
    
    (3,121
    )Net loss
    
    $
    (2,012,359
    )
    
    $
    (570,864
    )Net loss per common share:Net loss per common share  basic and diluted
    
    $
    (0.08
    )
    
    $
    (0.07
    )Weighted average common shares outstanding  basic and diluted
    
    
    25,903,138
    
    
    
    7,800,000
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HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Three Months EndedMarch 31,2006
    
    
    2005(Unaudited)
    
    
    (Unaudited)Cash Flows From Operating Activities:Net loss
    
    $
    (2,012,359
    )
    
    $
    (570,864
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    69,270
    
    
    
    18,151Stock-based compensation and consulting
    
    
    125,997
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    (13,256
    )
    
    
    14,440Deferred compensation advances
    
    
    (107,008
    )
    
    
    Prepaid expenses and other current assets
    
    
    (392,385
    )
    
    
    (6,862
    )Other assets
    
    
    (41,447
    )
    
    
    6,933Accounts payable
    
    
    107,645
    
    
    
    27,065Accrued expenses
    
    
    28,585
    
    
    
    (35,747
    )Due to related parties
    
    
    (8,998
    )
    
    
    197,831Unearned commission advances
    
    
    516,579
    
    
    
    213,931Net cash used in operating activities
    
    
    (1,727,377
    )
    
    
    (135,122
    )Cash Flows From Investing Activities:Purchase of property and equipment
    
    
    (557,252
    )
    
    
    (15,929
    )Purchase of intangible assets and capitalization of software development
    
    
    (48,137
    )
    
    
    (22,666
    )Net cash used in investing activities
    
    
    (605,389
    )
    
    
    (38,595
    )Cash Flows From Financing Activities:Gross proceeds from sales of common stock
    
    
    6,450,000
    
    
    
    Placement and other fees paid in connection with offering
    
    
    (285,826
    )
    
    
    Proceeds from related party advances
    
    
    
    
    
    
    160,200Net cash provided by financing activities
    
    
    6,164,174
    
    
    
    160,200Net increase in cash
    
    
    3,831,408
    
    
    
    (13,517
    )Cash  beginning of year
    
    
    6,433,426
    
    
    
    13,517Cash  end of period
    
    $
    10,264,834
    
    
    $
    Supplemental Disclosures of Cash Flow InformationCash payments for interest
    
    $
    28,305
    
    
    $
    3,121Cash payments for income taxes
    
    $
    
    
    
    $
    
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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of presentation
   Organization
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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Organization (continued)
   Use of estimates
  Accounts receivable
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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Property and equipment
  Intangible assets
  Impairment of long-lived assets
  Loss per common share
  Options
    
    
    4,185,000Warrants
    
    
    8,525,00012,710,000
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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Revenue recognition
  Prepaid commissions
  Lead cost
  Concentrations of credit risk
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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Stock-based compensation
 Share Based Payment
 Accounting for Stock-Based Compensation
 Recent accounting pronouncements
   PROPERTY AND EQUIPMENT
  Useful Life (Years)Computer equipment and software
    
    3
    
    
    
    $
    234,218Office equipment
    
    5
    
    
    
    
    551,680Office furniture and fixtures
    
    7
    
    
    
    
    44,301Leasehold improvements
    
    10
    
    
    
    
    99,691929,890Less accumulated depreciation
    
    
    
    
    
    
    (152,720
    )$
    777,170
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INTANGIBLE ASSETS
  Useful Life(Years)Software development costs
    
    3
    
    
    
    $
    156,278Web properties
    
    3

    
    
    
    
    41,315197,593Less: accumulated amortization
    
    
    
    
    
    
    (31,127
    )$
    166,466
   Period ending March 31:2007
    
    $
    65,8642008
    
    
    65,8642009
    
    
    34,738$
    166,466
 RELATED PARTY TRANSACTIONS
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SHAREHOLDERS EQUITY
 Common Stock
  Stock Options
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SHAREHOLDERS EQUITY, (continued)
 Stock Options (continued)
    WeightedAverageExerciseShares
    
    
    PriceOutstanding at December 31, 2005
    
    
    3,935,000
    
    
    $
    1.89Granted
    
    
    675,000
    
    
    
    2.07Exercised
    
    
    
    
    
    
    Forfeited
    
    
    30,000
    
    
    
    2.50Outstanding at March 31, 2006
    
    
    4,580,000
    
    
    $
    1.91Options exercisable at end of period
    
    
    
    
    
    $
    Weighted-average fair value of options granted during the period
    
    
    
    
    
    $
    2.07
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SHAREHOLDERS EQUITY, (continued)
 Stock Options (continued)
  Options Outstanding
    
    
    Options ExercisableNumber ofShares
    
    
    WeightedUnderlying
    
    
    Average
    
    
    Weighted
    
    
    Number
    
    
    WeightedOptions at
    
    
    Remaining
    
    
    Average
    
    
    Exercisable at
    
    
    AverageExercise
    
    March 31,
    
    
    Contractual
    
    
    Exercise
    
    
    March 31,
    
    
    ExercisePrice
    
    2006
    
    
    Life
    
    
    Price
    
    
    2006
    
    
    Price$   1.00
    
    
    1,850,000
    
    
    4.60 years
    
    $
    1.00
    
    
    
    
    
    
    $
    2.50
    
    
    2,305,000
    
    
    2.50 years
    
    
    2.50
    
    
    
    
    
    
    
    2.70
    
    
    425,000
    
    
    2.95 years
    
    
    2.70
    
    
    
    
    
    
    
    4,580,000
    
    
    
    
    
    
    $
    1.91
    
    
    
    
    
    
    $
    
 Common Stock warrants
   WeightedAverageExerciseShares
    
    
    PriceOutstanding at December 31, 2005
    
    
    4,977,500
    
    
    $
    1.50Granted
    
    
    3,547,500
    
    
    
    1.50Exercised
    
    
    
    
    
    
    Outstanding at March 31, 2006
    
    
    8,525,000
    
    
    $
    1.50Warrants exercisable at end of period
    
    
    8,525,000
    
    
    $
    1.50Weighted-average fair value of warrants granted during the period
    
    
    
    
    
    $
    1.50
  Warrants Outstanding
    
    
    Warrants ExercisableWeightedNumber
    
    Average
    
    
    Weighted
    
    
    Number
    
    
    WeightedOutstanding at
    
    Remaining
    
    
    Average
    
    
    Exercisable at
    
    
    AverageMarch 31,
    
    Contractual
    
    
    Exercise
    
    
    March 31,
    
    
    Exercise2006
    
    Life (Years)
    
    
    Price
    
    
    2006
    
    
    Price8,525,000
    
    
    2.70
    
    
    
    1.50
    
    
    
    8,525,000
    
    
    
    1.508,525,000
    
    
    
    
    
    $
    1.50
    
    
    
    8,525,000
    
    
    $
    1.50
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COMMITMENTS AND CONTINGENCIES
    SUBSEQUENT EVENTS
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SUBSEQUENT EVENTS (continued)
     Administration
 Eligibility
 Types of Awards.
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SUBSEQUENT EVENTS (continued)
 Shares Subject to the Plan.
  Change of Control.
  Amendment and Termination of the Plan
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SUBSEQUENT EVENTS (continued)
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FORWARD LOOKING STATEMENTS
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
          
    
    Salaries, commission and related taxes  Salaries and benefits expense consists of
personnel cost and sales commissions expense. For the three months ended March 31, 2006,
salaries and benefits costs were $1,819,951 as compared to $536,937 for the 2005 period,
an increase of $1,283,014 or 239%. These increases were the result of the hiring of
additional personnel employed by the Company and an increase in sales that resulted in
higher sales commission expense.
    
    For the three months ended March 31, 2006, we recorded depreciation expense of $54,143
as compared to $18,151 for the 2005 period. In the fourth quarter of 2005 and in 2006, we
acquired telephone and switching equipment and computer equipment, which we began
amortizing in the fourth quarter of 2005.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
 
    
    For the three months ended March 31, 2006, we incurred professional fees of $314,960 as
compared to $8,460 for the 2005 period, an increase of $306,500 or 3,623%. During the
three months ended March 31, 2006, we incurred legal fees of $172,144 associated with SEC
filings, our compensation plans and restructuring of our board of directors, as well as
other corporate legal matters. Additionally, we incurred accounting fees of $36,871
related to the audit of our books and records and SEC filings, recruiting fees to attract
qualified employees of $31,007, public relations fees of $60,505 and other professional
fees.
    
    For the three months ended March 31, 2005, we incurred accrued salaries to our
management for services rendered of $157,500 as compared to $0 for the 2006 period. In
October and November of 2005, we entered into employment agreements with these executives
and paid compensation to them in 2006, which is included in salaries, commissions and
related taxes.
    
    For the three months ended March 31, 2006, we incurred other general and administrative
expenses of $657,529 as compared to $207,382 for the 2005 period, an increase of $450,147
or 217%. Other general and administrative expenses consisted of the following:
 For the Three MonthsEnded March 31,2006
    
    
    2005Licensing fees
    
    $
    129,148
    
    
    $
    23,064Rent
    
    
    80,109
    
    
    
    29,381Travel and entertainment
    
    
    73,612
    
    
    
    10,625Telephone
    
    
    83,690
    
    
    
    54,526Other
    
    
    290,970
    
    
    
    89,786Total
    
    $
    657,529
    
    
    $
    207,382
 
    
    Increases in licensing fees of $106,084 related to the increase in agents. We incur
licensing and appointment costs associated with the licensing of these agents. In 2006,
we had approximately 56 agents whom we have licensed or are in the process of licensing to
sell insurance.
    
    Increases in rent of $50,728 are attributable to the cost of facilities in New York and
California which we began occupying in mid 2005. Additionally, in March 2006, we
relocated our Florida office into a larger facility.
    
    During the three months ended March 31, 2006, we had an increase in travel and
entertainment expense of $62,987 compared to the 2005 period primarily related with
increased marketing activities with insurance carriers.
    
    During the three months ended March 31, 2006, we had an increase in telephone and
communications expense of $29,164 as compared to the 2005 period due to the increase in
the number of sales agents and other administrative employees.
    
    Other general and administrative expenses consisted of casual labor, insurance, office
expenses, utilities, maintenance, computer expenses, and office expenses. The increase for
the three months ended March 31, 2006 as compared to the 2005 period of $201,185 is
attributable to an increase in operational activities. Additionally, during the 2006
period, we incurred approximately $49,700 related to maintenance on our telephone system.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
            
    
    Increases in accounts receivable of $13,256 related to increased revenues;
    
    Increases in compensation advances made to our sale personnel of $107,008. We have
advanced commissions to employees relating to the advanced commissions the Company has
received from insurance carriers. The prepaid commissions are charged to expense in
proportion to the Companys recognition of unearned commissions as revenue;
    
    Increases in prepaid expenses and other current assets of $392,385 related to advances
made by us for an advertising campaign the establishment of a health insurance program for
our employees, and other prepaid items.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
    Payments Due By PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    More ThanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsDebt
    
    $
    399,630
    
    
    $
    399,630
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    $
    10,367,065
    
    
    $
    964,381
    
    
    $
    2,204,162
    
    
    $
    2,325,720
    
    
    $
    4,872,802
 
 ITEM 3. CONTROLS AND PROCEDURES
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PART II  OTHER INFORMATION
 
 Item 6. Exhibits
 Exhibit No
    
    Description10.1
    
    Employment Agreement dated January 12, 2006 by and between Alvin Clemens and
Health Benefits Direct Corporation (incorporated by reference to Health Benefits Direct Corporation's Current Report on Form 8-K
filed on January 13, 2006).10.2
    
    Lease dated February 17, 2006 between Health Benefits Direct Corporation and
FG2200, LLC, effective March 15, 2006 (incorporated by reference to Health Benefits
Direct Corporations Current Report on Form 8-K filed on March 6, 2006).10.3
    
    Health Benefits Direct Corporation Compensation Plan for Directors (incorporated
by reference to Health Benefits Direct Corporations Current Report on Form 8-K filed on
March 20, 2006).31.1
    
    Certificate of the Chief Executive Officer of Health Benefits Direct Corporation
required by rule 13a-14(a) under the Exchange Act.31.2
    
    Certificate of the Chief Financial Officer of Health Benefits Direct Corporation
required by rule 13a-14(a) under the Exchange Act.32.1
    
    Certificate of the Chief Executive Officer of Health Benefits Direct Corporation
required by rule 13a-14(b) under the Exchange Act.32.2
    
    Certificate of the Chief Financial Officer of Health Benefits Direct Corporation
required by rule 13a-14(b) under the Exchange Act.
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HEALTH BENEFITS DIRECT CORPORATIONDated: May 10, 2006
    
    
    
    By:
    
    /s/ SCOTT FROHMANScott FrohmanChief Executive OfficerDated: May 10, 2006
    
    
    
    By:
    
    /s/ ANTHONY R. VERDIAnthony R. VerdiChief Financial Officer and Financial andAccounting Officer
 -26-