##### Table of Contents



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




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##### 



PagePART I  FINANCIAL INFORMATIONItem 1  Consolidated Financial StatementsConsolidated Balance Sheet As of June 30, 2007 (Unaudited)
    
    
    3Consolidated Statements of Operations (Unaudited) For the Three and Six Months Ended June 30, 2007 and 2006
    
    
    4Consolidated Statements of Changes in Shareholders Equity (Unaudited) for the Six Months Ended June 30, 2007
    
    
    5Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended June 30, 2007 and 2006
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2  Managements Discussion and Analysis or Plan of Operation
    
    
    29Item 3  Controls and Procedures
    
    
    44PART II  OTHER INFORMATIONItem 6  Exhibits
    
    
    45Signatures
    
    
    46Certificate of the Chief Executive OfficerCertificate of the Chief Financial OfficerCertificate of the Chief Executive Officer required by rule 13a-14(b)Certificate of the Chief Financial Officer required by rule 13a-14(b)
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Part I. Financial Information
 
 Item 1. Financial Statements
 
 HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 2007
(Unaudited)
 ASSETSCURRENT ASSETS:Cash
    
    $
    11,037,198Accounts receivable, less allowance for doubtful accounts of $25,317
    
    
    1,317,323Deferred compensation advances
    
    
    861,138Prepaid expenses
    
    
    278,961Other current assets
    
    
    41,937Total current assets
    
    
    13,536,557Restricted cash
    
    
    1,150,000Property and equipment, net of accumulated depreciation of $797,804
    
    
    1,550,578Intangibles, net of accumulated amortization of $2,254,802
    
    
    3,542,431Other assets
    
    
    329,107Total assets
    
    $
    20,108,673LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    1,220,274Accrued expenses
    
    
    1,485,217Unearned commission advances
    
    
    7,384,312Total current liabilities
    
    
    10,089,803SHAREHOLDERS EQUITY:Preferred stock ($.001 par value; 10,000,000 shares authorized;
no shares issued and outstanding)
    
    
    Common stock ($.001 par value; 90,000,000 shares authorized;
34,098,971 shares issued and outstanding
    
    
    34,099Additional paid-in capital
    
    
    36,440,694Accumulated deficit
    
    
    (24,241,893
    )Deferred compensation
    
    
    (2,214,030
    )Total shareholders equity
    
    
    10,018,870Total liabilities and shareholders equity
    
    $
    20,108,673
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HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Revenues
    
    $
    5,143,393
    
    
    $
    2,591,672
    
    
    $
    9,656,408
    
    
    $
    3,859,979Operating Expenses:Salaries, commission and related taxes
    
    
    3,821,704
    
    
    
    3,706,808
    
    
    
    7,915,624
    
    
    
    5,538,358Lead, advertising and other marketing
    
    
    1,934,069
    
    
    
    969,284
    
    
    
    3,795,653
    
    
    
    1,571,557Depreciation and amortization
    
    
    561,978
    
    
    
    770,042
    
    
    
    1,113,084
    
    
    
    839,313Rent, utilities, telephone and communications
    
    
    613,713
    
    
    
    535,576
    
    
    
    1,264,452
    
    
    
    787,195Professional fees
    
    
    633,421
    
    
    
    419,954
    
    
    
    893,728
    
    
    
    788,262Other general and administrative
    
    
    402,015
    
    
    
    537,654
    
    
    
    806,136
    
    
    
    862,4217,966,900
    
    
    
    6,939,318
    
    
    
    15,788,677
    
    
    
    10,387,106Loss from operations
    
    
    (2,823,507
    )
    
    
    (4,347,646
    )
    
    
    (6,132,269
    )
    
    
    (6,527,127
    )Other income (expense):Registration rights penalty reversal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,537Interest income
    
    
    123,569
    
    
    
    91,304
    
    
    
    172,647
    
    
    
    203,582Interest expense
    
    
    (7,201
    )
    
    
    (8,144
    )
    
    
    (16,015
    )
    
    
    (13,837
    )Total other income (expense)
    
    
    116,368
    
    
    
    83,160
    
    
    
    156,632
    
    
    
    250,282Net loss
    
    $
    (2,707,139
    )
    
    $
    (4,264,486
    )
    
    $
    (5,975,637
    )
    
    $
    (6,276,845
    )Net loss per common share:Net loss per common share  basic and diluted
    
    $
    (0.08
    )
    
    $
    (0.15
    )
    
    $
    (0.19
    )
    
    $
    (0.23
    )Weighted average common shares outstanding 
basic and diluted
    
    
    34,084,273
    
    
    
    27,801,123
    
    
    
    31,504,662
    
    
    
    26,857,374
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HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
FOR SIX MONTHS ENDED JUNE 30, 2007
(Unaudited)
 Common Stock, $.001Par ValueAdditional
    
    
    
    
    
    
    
    
    
    
    TotalNumber of
    
    
    
    
    
    
    Paid-in
    
    
    Accumulated
    
    
    Deferred
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Compensation
    
    
    EquityBalance  December 31, 2006
    
    
    28,586,471
    
    
    $
    28,586
    
    
    $
    24,479,129
    
    
    
    ($18,266,256
    )
    
    
    ($1,810,677
    )
    
    $
    4,430,782Common stock issued in private
placement, net
    
    
    5,000,000
    
    
    
    5,000
    
    
    
    10,349,760
    
    
    
    
    
    
    
    
    
    
    
    10,354,760Issuance of restricted stock to employees
    
    
    250,000
    
    
    
    250
    
    
    
    749,750
    
    
    
    
    
    
    
    (750,000
    )
    
    
    Common stock issued upon exercise of
warrants
    
    
    262,500
    
    
    
    263
    
    
    
    393,487
    
    
    
    
    
    
    
    
    
    
    
    393,750Issuance of stock options
    
    
    
    
    
    
    
    
    
    
    468,568
    
    
    
    
    
    
    
    (396,341
    )
    
    
    72,227Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    742,988
    
    
    
    742,988Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,975,637
    )
    
    
    
    
    
    
    (5,975,637
    )Balance  June 30, 2007
    
    
    34,098,971
    
    
    $
    34,099
    
    
    $
    36,440,694
    
    
    
    ($24,241,893
    )
    
    
    ($2,214,030
    )
    
    $
    10,018,870
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HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Six Months EndedJune 30,2007
    
    
    2006(Unaudited)
    
    
    (Unaudited)Cash Flows From Operating Activities:Net loss
    
    $
    (5,975,637
    )
    
    $
    (6,276,845
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    1,113,084
    
    
    
    839,313Stock-based compensation and consulting
    
    
    835,688
    
    
    
    894,952Provision for bad debt
    
    
    620
    
    
    
    305Changes in assets and liabilities:Accounts receivable
    
    
    879,580
    
    
    
    (74,071
    )Deferred compensation advances
    
    
    (176,140
    )
    
    
    (534,791
    )Prepaid expenses
    
    
    (191,441
    )
    
    
    (228,823
    )Other current assets
    
    
    (30,926
    )
    
    
    (38,077
    )Other assets
    
    
    (147,205
    )
    
    
    (83,851
    )Accounts payable
    
    
    60,020
    
    
    
    295,024Accrued expenses
    
    
    57,589
    
    
    
    705,537Due to related parties
    
    
    (63,672
    )
    
    
    (56,516
    )Unearned commission advances
    
    
    2,229,195
    
    
    
    744,366Net cash used in operating activities
    
    
    (1,409,245
    )
    
    
    (3,813,477
    )Cash Flows From Investing Activities:Purchase of property and equipment
    
    
    (352,986
    )
    
    
    (958,340
    )Purchase of intangible assets and capitalization of software development
    
    
    (260,862
    )
    
    
    (1,308,924
    )Net cash used in investing activities
    
    
    (613,848
    )
    
    
    (2,267,264
    )Cash Flows From Financing Activities:Gross proceeds from sales of common stock
    
    
    11,250,000
    
    
    
    6,450,000Gross proceeds from exercise of warrants
    
    
    393,750
    
    
    
    Restricted cash in connection with letters of credit
    
    
    
    
    
    
    (1,150,000
    )Placement and other fees paid in connection with offering
    
    
    (895,240
    )
    
    
    (285,826
    )Payment on notes payable
    
    
    
    
    
    
    (399,630
    )Net cash provided by financing activities
    
    
    10,748,510
    
    
    
    4,614,544Net increase (decrease) in cash
    
    
    8,725,417
    
    
    
    (1,466,197
    )Cash  beginning of period
    
    
    2,311,781
    
    
    
    6,433,426Cash  end of period
    
    $
    11,037,198
    
    
    $
    4,967,229Supplemental Disclosures of Cash Flow Information
Cash payments for interest
    
    $
    
    
    
    $
    13,837
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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of presentation
     Organization
    Page 7




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




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




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
   Loss per common share
  Options
    
    
    5,008,517Warrants
    
    
    10,787,50015,796,017
 Revenue recognition
   Page 10




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
     Deferred compensation advances
  Lead, advertising and other marketing expense
  Concentrations of credit risk
  Page 11




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




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




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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
    ISG ACQUISITION
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ISG ACQUISITION (continued)
    Cash payment to seller
    
    $
    1,135,000Fair value of common stock issued to seller
    
    
    3,310,806Discounted value of future fixed payments of employment agreement
    
    
    225,212Fair value of stock option issued to seller
    
    
    425,381Estimated direct transaction fees and expenses
    
    
    57,930Estimated purchase price
    
    $
    5,154,329
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ISG ACQUISITION (continued)
  Cash
    
    $
    111,024Accounts receivable
    
    
    210,889Deferred compensation advances
    
    
    256,775Prepaid expenses and other assets
    
    
    957Property and equipment, net
    
    
    600Intangible assets
    
    
    4,964,330Accrued expenses
    
    
    (164,549
    )Unearned commission advances
    
    
    (225,697
    )$
    5,154,329
   For the Six MonthsEnded June 30,2007
    
    2006Revenues
    
    $
    9,656,408
    
    
    $
    4,294,692Net loss
    
    
    (5,975,637
    )
    
    
    (6,454,760
    )Net loss per common share  basic and diluted
    
    $
    (0.19
    )
    
    $
    (0.23
    )
 HEALTHPLAN CHOICE ASSET PURCHASE
   Page 16




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HEALTHPLAN CHOICE ASSET PURCHASE (continued)
 www.healthbenefitsdirect.com
 CONSULTING AGREEMENT WITH REAL IT GROUP LLC
   INTERNET DOMAIN NAME PURCHASE AND ASSIGNMENT AGREEMENT
 www.healthbenefitsdirect.com www.healthbenefitsdirect.com www.healthbenefitsdirect.com www.healthbenefitsdirect.com
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PROPERTY AND EQUIPMENT
  Useful Life (Years)Computer equipment and software
    
    
    3
    
    
    $
    685,133Phone equipment and software
    
    
    3
    
    
    
    726,535Office equipment
    
    
    5
    
    
    
    83,771Office furniture and fixtures
    
    
    7
    
    
    
    508,422Leasehold improvements
    
    
    10
    
    
    
    344,5212,348,382Less accumulated depreciation
    
    
    
    
    
    
    (797,804
    )$
    1,550,578
  INTANGIBLE ASSETS
  Useful Life(Years)Weighted averageISG intangible assets acquired
    
    
    4.5
    
    
    $
    4,964,338Software development costs
    
    
    1.8
    
    
    
    671,695Internet domain (www.healthbenefits.com)
    
    
    3.0
    
    
    
    161,2005,797,233Less: accumulated amortization
    
    
    
    
    
    
    (2,254,802
    )$
    3,542,431
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INTANGIBLE ASSETS (continued)
  2007
    
    $
    703,8762008
    
    
    1,110,6912009
    
    
    932,6102010
    
    
    651,3562011
    
    
    143,898$
    3,542,431
 LINE OF CREDIT
  UNEARNED COMMISSION ADVANCES
  RELATED PARTY TRANSACTIONS
  Page 19




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RELATED PARTY TRANSACTIONS (continued)
   SHAREHOLDERS EQUITY
 Common Stock
    Page 20




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SHAREHOLDERS EQUITY (continued)
     Stock Options
  Page 21




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SHAREHOLDERS EQUITY (continued)
       Number
    
    WeightedOf Shares
    
    AverageUnderlying
    
    ExerciseOptions
    
    PriceOutstanding at December 31, 2006
    
    
    4,881,268
    
    
    $
    2.22Outstanding and exercisable at December 31, 2006
    
    
    2,074,352
    
    
    
    1.90For the three month period ended June 30, 2007Granted
    
    
    170,550
    
    
    
    2.91Exercised
    
    
    Forfeited
    
    
    43,301
    
    
    
    2.50Outstanding at June 30, 2007
    
    
    5,008,517
    
    
    
    2.24Outstanding and exercisable at June 30, 2007
    
    
    2,994,709
    
    
    $
    1.96
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SHAREHOLDERS EQUITY (continued)
  Options Outstanding
    
    Options ExercisableWeightedNumber of Shares
    
    Average
    
    Weighted
    
    
    
    
    
    WeightedUnderlying
    
    Remaining
    
    Average
    
    Number
    
    AverageExercise
    
    Options at June 30,
    
    Contractual
    
    Exercise
    
    Exercisable at
    
    ExercisePrice
    
    2007
    
    Life
    
    Price
    
    June 30, 2007
    
    Price$1.00
    
    
    1,550,000
    
    
    
    8.4
    
    
    $
    1.00
    
    
    
    1,314,574
    
    
    $
    1.002.50
    
    
    1,980,467
    
    
    
    8.4
    
    
    
    2.50
    
    
    
    1,015,135
    
    
    
    2.502.55
    
    
    25,000
    
    
    
    4.0
    
    
    
    2.55
    
    
    
    
    
    
    
    2.62
    
    
    20,000
    
    
    
    4.5
    
    
    
    2.62
    
    
    
    
    
    
    
    2.70
    
    
    475,000
    
    
    
    3.8
    
    
    
    2.70
    
    
    
    425,000
    
    
    
    2.702.95
    
    
    45,000
    
    
    
    3.8
    
    
    
    2.95
    
    
    
    
    
    
    
    3.00
    
    
    115,550
    
    
    
    4.9
    
    
    
    3.00
    
    
    
    
    
    
    
    3.50
    
    
    150,000
    
    
    
    8.8
    
    
    
    3.50
    
    
    
    
    
    
    
    $3.60
    
    
    647,500
    
    
    
    3.8
    
    
    $
    3.60
    
    
    
    240,000
    
    
    $
    3.605,008,517
    
    
    
    
    
    
    
    
    
    
    
    2,994,709
  Common Stock warrants
   Page 23




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SHAREHOLDERS EQUITY (continued)
   WeightedCommon
    
    AverageStock
    
    ExerciseWarrants
    
    PriceOutstanding at December 31, 2006
    
    
    8,200,000
    
    
    $
    1.50For the six month period ended June 30, 2007Granted
    
    
    2,850,000
    
    
    $
    2.98Exercised
    
    
    262,500
    
    
    $
    1.50Outstanding at June 30, 2007
    
    
    10,787,500
    
    
    $
    1.87Exercisable at June 30, 2007
    
    
    10,787,500
    
    
    $
    1.87
  Registration Rights
  Page 24




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SHAREHOLDERS EQUITY (continued)
    RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES
 Employment and Separation Agreements
   Page 25




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RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
      Page 26




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RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
 Restricted Cash and Operating Leases
   License Agreement With Realtime Solutions Group
     Software License Agreement and Professional Services Agreement With Atiam Technologies L.P.
  Page 27




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RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
     SUBSEQUENT EVENTS
 Appointment of Frederick C. Tecce to the Companys Board of Directors
  Approval of Salary Increase for Alvin H. Clemens
  Page 28




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FORWARD LOOKING STATEMENTS
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
      Page 29




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
     Page 30




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
  Cash payment to seller
    
    $
    1,135,000Fair value of common stock issued to seller
    
    
    3,310,806payments to seller
    
    
    225,212Fair value of stock option issued to seller
    
    
    425,381Estimated direct transaction fees and expenses
    
    
    57,930$
    5,154,329
  Cash
    
    $
    111,024Accounts receivable
    
    
    210,889Deferred compensation advances
    
    
    256,775Prepaid expenses and other assets
    
    
    957Property and equipment, net
    
    
    600Intangible assets
    
    
    4,964,330Accrued expenses
    
    
    (164,549
    )Unearned commission advances
    
    
    (225,697
    )$
    5,154,329
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
     For the Three MonthsEnded June 30,2007
    
    
    2006Commission revenue from carriers excluding
periodic bonuses and ISG
    
    $
    4,123,839
    
    
    $
    1,885,196Periodic bonus revenue from carriers
    
    
    295,432
    
    
    
    ISG commission revenue
    
    
    460,812
    
    
    
    584,435Lead sale revenue
    
    
    263,310
    
    
    
    122,041Total
    
    $
    5,143,393
    
    
    $
    2,591,672
 
    
    In second quarter 2007 we earned revenues of $4,123,839 excluding revenue associated
with ISG and lead revenue as compared to $1,885,196 in second quarter 2006. The primary
reasons for the increase is the increase in number of licensed insurance agents employed by
the Company from 74 at June 30, 2006 to 96 at June 30, 2007 and the increase of the number
of insurance products being sold.
    
    In 2007 we earned periodic bonuses from carriers of $295,432 as compared to $0 in 2006.
The Company receives bonuses from certain carriers, which are based primarily on the
Companys sales performance and criteria established by carriers, which varies period to
period.
    
    In second quarter 2007 we earned revenues of $460,812 relating to ISG as compared to
$584,435 in second quarter 2006. We acquired ISG during the second quarter 2006.
    
    In second quarter 2007 we earned revenues of $263,310 relating to the sale of leads to
third parties as compared to $122,041 in second quarter 2006. We re-sell certain leads
purchased in order to recoup a portion of our lead cost. The primary reasons for the
increase is an increased emphasis on identifying leads suitable for sale and the increased
number of leads purchased.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
   
    
    In second quarter 2007 we incurred salaries, commission and related taxes of $3,821,704
as compared to $3,706,808 for second quarter 2006. Salaries, commission and related taxes
consisted of the following:
 For the Three MonthsEnded June 30,2007
    
    
    2006Salaries, wages and bonuses
    
    $
    2,339,549
    
    
    $
    1,990,570Share based employee and director compensation
    
    
    309,127
    
    
    
    743,954Commissions to employees
    
    
    674,961
    
    
    
    430,803Commissions to non-employees
    
    
    93,966
    
    
    
    144,251Employee benefits
    
    
    119,665
    
    
    
    109,676Payroll taxes
    
    
    202,392
    
    
    
    212,554Severance and other compensation
    
    
    49,211
    
    
    
    12,500Directors compensation
    
    
    32,833
    
    
    
    62,500Total
    
    $
    3,821,704
    
    
    $
    3,706,808
 
    
    Salaries and wages in second quarter 2007 were $2,339,549 as compared to $1,990,570 for
second quarter 2006, an increase of $348,979 or 18%. This increase is the result of the
hiring of additional executive and administrative personnel employed by the Company. The
Company had 220 and 202 employees at June 30, 2007 and 2006, respectively.
    
    Share based employee and director compensation expense was $309,127 in second quarter
2007 as compared to $743,954 in second quarter 2006. Share based employee and director
compensation consists of stock option and restricted stock grants, which are valued at
fair-value at the date of the grant and expensed over the stock options vesting period or
the duration of employment, whichever is shorter. The decrease in expense in second
quarter 2007 as compared to second quarter 2006 is the result of the vesting schedules of
stock options issued in 2005 and the first quarter of 2006.
    
    Commissions to employees were $674,961 in second quarter 2007 as compared to $430,803
in second quarter 2006. This increase was the result of an increase in sales that
resulted in higher sales commission expense.
    
    Commissions to non employees were $93,966 in second quarter 2007 as compared to
$144,251 in second quarter 2006. We pay commissions to non employee ISG agents. This
decrease was the result of an decrease in ISG sales that resulted in lower sales
commission expense.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
 
    
    Severance and other compensation expense was $49,211 in second quarter 2007 as compared
to $12,500 in second quarter 2006. The increase was the result of higher severance,
vehicle and equipment allowances.
    
    Lead, advertising and other marketing was $1,934,069 in second quarter 2007 as compared
to $969,284 in second quarter 2006, an increase of $964,785 or 100%.
 
    
    In second quarter 2007 we had an increase in lead expense of $864,104 as compared
to second quarter 2006. As we increase the number of licensed agents we employ, we
expect our lead expense to increase in the future in order to facilitate the flow of
quality leads to our sale agents.
    
    In second quarter 2007 we had an increase in advertising and other marketing of
$100,681 as compared to second quarter 2006. The increase is the result of direct
mail marketing activities in 2007.
 
    
    Depreciation and amortization expense was $561,978 in second quarter 2007 as compared
to $770,042 in second quarter 2006. Depreciation and amortization expense consisted of
the following:
 For the Three MonthsEnded June 30,2007
    
    
    2006Amortization of intangibles acquired as a
result of the ISG acquisition
    
    $
    319,807
    
    
    $
    480,136Amortization of intangibles acquired as a
result of the HealthPlan Choice Asset Purchase
    
    
    
    
    
    
    167,533Amortization of software and website development
    
    
    81,360
    
    
    
    18,351Amortization of Internet domain name
    
    
    13,434
    
    
    
    Depreciation expense
    
    
    147,377
    
    
    
    104,022Total
    
    $
    561,978
    
    
    $
    770,042
 
    
    In second quarter 2007 we incurred amortization expense of $319,807 as compared to
$480,136 for the intangible assets acquired from ISG. The reason for the decrease in
expense is the decline in the purchased commission override revenue due to lapsation and
aging of the underlying insurance book of business, which was anticipated in the
amortization implemented at the time of the Companys acquisition of ISG. The ISG
acquisition was effective April 3, 2006. The intangible assets acquired from ISG
represent the value of purchased commission override revenue with an assigned value of
$1,411,594 amortized over five years in proportion to expected future value, value of
acquired carrier contracts and agent relationships with an assigned value of $2,752,143
amortized straight line over the expected useful life of 5 years and value of employment
and non-compete agreement acquired with an assigned value of $800,593 amortized straight
line over a weighted average useful life of 3.1 years.
    
    In second quarter 2006 we recorded amortization expense of $167,533 for the intangible
assets acquired as a result of the HealthPlan Choice asset purchase, which was fully
amortized in second quarter 2006.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
 
    
    In second quarter 2007 we incurred amortization expense of $81,360 compared to $18,351
in second quarter 2006 for the software and website development. As of September 30,
2006, the Company determined that intangible assets pertaining to the Companys former
website were impaired. Expense in second quarter 2007 pertains to the Companys new web
site whereas second quarter 2006 expense pertains to the Companys old web site.
    
    In second quarter 2007 we incurred amortization expense of $13,434 pertaining to the
Companys July 17, 2006 purchase of the Internet domain name www.healthbenefitsdirect.com.
    
    In second quarter 2007 we incurred depreciation expense of $147,377 as compared to
$104,022 in second quarter 2006. The increase pertains to the depreciation of fixed
assets acquired subsequent to June 30, 2006.
    
    In second quarter 2007 we incurred rent, utilities, telephone and communications
expenses of $613,713 as compared to $535,576 in second quarter 2006, an increase of
$78,137 or 15%. Rent, utilities, telephone and communications expenses consisted of the
following:
 For the Three MonthsEnded June 30,2007
    
    
    2006Rent, utilities and other occupancy
    
    $
    433,017
    
    
    $
    385,349Telephone and communications
    
    
    180,696
    
    
    
    150,227Total
    
    $
    613,713
    
    
    $
    535,576
 
    
    In second quarter 2007 we had increases in rent, utilities and other occupancy as
compared to second quarter 2006 attributable to the cost of new and larger facilities. We
relocated our New York sales office to a larger office in the third quarter of 2006. In
November, 2006 we moved our corporate offices in Radnor to a new and larger office.
    
    In second quarter 2007 we had an increase in telephone and communications expense as
compared to second quarter 2006 due to the increase in the number of sales agents.
    
    In second quarter 2007 we incurred professional fees of $633,421 as compared to
$419,954 in second quarter 2006, an increase of $213,467. The increase was primarily
attributable to technology outsourcing fees, legal and recruiting fees.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
 
    
    In second quarter 2007 we incurred other general and administrative expenses of
$402,015 as compared to $537,654 in second quarter 2006, a decrease of $135,639 or 25%.
Other general and administrative expenses consisted of the following:
 For the Three MonthsEnded June 30,2007
    
    
    2006Licensing and permit fees
    
    $
    93,489
    
    
    $
    127,636Travel and entertainment
    
    
    88,917
    
    
    
    131,631Office expense
    
    
    170,568
    
    
    
    149,603Cost of integrating HealthPlan Choice Atlanta
office as a satellite sales office
    
    
    
    
    
    
    102,615Other
    
    
    49,041
    
    
    
    26,169Total
    
    $
    402,015
    
    
    $
    537,654
 
    
    We incur licensing and appointment costs associated with the licensing of our employee
insurance agents.
    
    During 2006 we incurred $102,615 pertaining to the cost of integrating HealthPlan
Choices office as our Atlanta satellite sales office, which we subsequently closed in the
fourth quarter of 2006.
    
    In second quarter 2007 we had an increase in office expense as compared to 2006 due to
increase in office space and operations.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
    For the Six MonthsEnded June 30,2007
    
    
    2006Commission revenue from carriers excluding
periodic bonuses and ISG
    
    $
    7,671,995
    
    
    $
    2,904,193Periodic bonus revenue from carriers
    
    
    512,613
    
    
    
    172,858ISG commission revenue
    
    
    975,863
    
    
    
    584,435Lead sale revenue
    
    
    495,937
    
    
    
    198,493Total
    
    $
    9,656,408
    
    
    $
    3,859,979
 
    
    In 2007 we earned commission revenue from carriers excluding periodic bonuses and ISG
revenues of $7,671,995 as compared to $2,904,193 in 2006. The primary reasons for the
increase is the increase in number of licensed insurance agents employed by the Company
from 74 at June 30, 2006 to 96 at June 30, 2007 and the increase of the number of insurance
products being sold.
    
    In 2007 we earned periodic bonuses from carriers of $512,613 as compared to $172,858 in
2006. The Company receives bonuses from certain carriers, which are based primarily on the
Companys sales performance and criteria established by carriers.
    
    In 2007 we earned revenue of $975,863 relating to ISG as compared to $584,435 in 2006.
We acquired ISG during the second quarter of 2006 and we only recognized ISG revenue in the
second quarter of 2006 whereas we recognized ISG revenue in first and second quarters of
2007.
    
    In 2007 we earned revenues of $495,937 relating to the sale of leads to third parties as
compared to $198,493 in 2006. We re-sell certain leads purchased in order to recoup a
portion of our lead cost. The primary reasons for the increase is an increased emphasis on
identifying leads suitable for sale and the increased number of leads purchased.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
   
    
    In 2007 we incurred salaries, commission and related taxes of $7,915,624 as compared to
$5,538,358 for 2006. Salaries, commission and related taxes consisted of the following:
 For the Six MonthsEnded June 30,2007
    
    
    2006Salaries, wages and bonuses
    
    $
    4,764,389
    
    
    $
    3,304,116Share based employee and director compensation
    
    
    815,213
    
    
    
    844,951Commissions to employees
    
    
    1,303,838
    
    
    
    664,241Commissions to non-employees
    
    
    209,638
    
    
    
    144,251Employee benefits
    
    
    218,207
    
    
    
    110,856Payroll taxes
    
    
    461,845
    
    
    
    374,109Severance and other compensation
    
    
    74,328
    
    
    
    12,500Directors compensation
    
    
    68,166
    
    
    
    83,334Total
    
    $
    7,915,624
    
    
    $
    5,538,358
 
    
    Salaries and wages were $4,764,389 as compared to $3,304,116 for 2006, an increase of
$1,460,273 or 44%. This increase is the result of $100,000 of management bonuses paid in
2007 and the hiring of additional executive and administrative personnel employed by the
Company. The Company had 221 and 212 employees at June 30, 2007 and 2006, respectively.
    
    Share based employee and director compensation expense was $815,213 in 2007 as compared
to $844,951 in 2006. Share based employee and director compensation consists of stock
option and restricted stock grants, which are valued at fair-value at the date of the
grant and expensed over the stock options vesting period or the duration of employment,
whichever is shorter. The decrease in expense in second quarter 2007 as compared to
second quarter 2006 is the result of the vesting schedules of stock options issued in 2005
and the first quarter of 2006.
    
    Commissions to employees were $1,303,838 in 2007 as compared to $664,241 in 2006. The
increase was the result of an increase in sales that resulted in higher sales commission
expense.
    
    Commissions to non employees were $209,638 in 2007 as compared to $144,251 in 2006. We
pay commissions to non employee ISG agents. We acquired ISG during the second quarter of
2006 and we only recognized commission expense to non employees in the second quarter of
2006 whereas we recognized commission expense to non employees in first and second quarter
of 2007.
    
    Employee benefits expense was $218,207 in 2007 as compared to $110,856 in 2006. The
Company implemented an expanded employee benefits package during 2006, which included
group medical, dental and life insurance coverage and further enhanced employee benefits
in 2007 with the addition of a 401(k) plan. The employee pays the majority of the cost of
group insurance coverage.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
 
    
    Payroll taxes expense was $461,845 in 2007 as compared to $374,109 in 2006. The
increase was the result of higher salaries, wages, bonuses and commissions to employees.
    
    Severance and other compensation expense was $74,328 in 2007 as compared to $12,500 in
2006. The increase was the result of higher severance, vehicle and equipment allowances.
    
    Lead, advertising and other marketing was $3,795,653 in 2007 as compared to $1,571,557
in 2006, an increase of $2,224,096 or 142%.
 
    
    In 2007 we had an increase in lead expense of $2,108,162 as compared to 2006. As
we increase the number of licensed agents we employ, we expect our lead expense to
increase in the future in order to facilitate the flow of quality leads to our sale
agents.
    
    In 2007 we had an increase in advertising and other marketing of $115,934 as
compared to 2006, which increased as a result of direct mail marketing activities in
2007.
 
    
    Depreciation and amortization expense was $1,113,084 in 2007 as compared to $839,313 in
2006. Depreciation and amortization expense consisted of the following:
 For the Six MonthsEnded June 30,2007
    
    
    2006Amortization of intangibles acquired as a result
of the ISG acquisition
    
    $
    663,900
    
    
    $
    480,136Amortization of intangibles acquired as a result
of the HealthPlan Choice Asset Purchase
    
    
    
    
    
    
    167,533Amortization of software and website development
    
    
    136,497
    
    
    
    33,478Amortization of Internet domain name
    
    
    26,867
    
    
    
    Depreciation expense
    
    
    285,820
    
    
    
    158,166Total
    
    $
    1,113,084
    
    
    $
    839,313
 
    
    In 2007 we incurred amortization expense of $663,900 as compared to $480,136 for the
intangible assets acquired from ISG. The ISG acquisition was effective April 3, 2006.
The intangible assets acquired from ISG represent the value of purchased commission
override revenue with an assigned value of $1,411,594 amortized over five years in
proportion to expected future value, value of acquired carrier contracts and agent
relationships with an assigned value of $2,752,143 amortized straight line over the
expected useful life of 5 years and value of employment and non-compete agreement acquired
with an assigned value of $800,593 amortized straight line over a weighted average useful
life of 3.1 years.
    
    In 2006 we recorded amortization expense of $167,533 for the intangible assets acquired
as a result of the HealthPlan Choice asset purchase, which was fully amortized in 2006.
    
    In 2007 we incurred amortization expense of $136,497 compared to $33,478 in 2006 for
the software and website development. As of September 30, 2006, the Company determined
that intangible assets pertaining to the Companys former website were impaired. Expense
in 2007 pertains to the Companys new web site whereas 2006 expense pertains to the
Companys old web site.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
 
    
    In 2007 we incurred amortization expense of $26,867 pertaining to the Companys July
17, 2006 purchase of the Internet domain name www.healthbenefitsdirect.com.
    
    In 2007 we incurred depreciation expense of $285,820 as compared to $158,166 in 2006
period. The increase pertains to the depreciation of fixed assets acquired subsequent to
June 30, 2006.
    
    In 2007 we incurred rent, utilities, telephone and communications expense of $1,264,452
as compared to $787,195 in 2006, an increase of $477,257 or 61%. Rent, utilities,
telephone and communications expenses consisted of the following:
 For the Six MonthsEnded June 30,2007
    
    
    2006Rent, utilities and other occupancy
    
    $
    879,091
    
    
    $
    553,278Telephone and communications
    
    
    385,361
    
    
    
    233,917Total
    
    $
    1,264,452
    
    
    $
    787,195
 
    
    In 2007 we had increases in rent, utilities and other occupancy as compared to 2006
attributable to the cost of new and larger facilities. We relocated our New York sales
office to a larger office in the third quarter of 2006. In November, 2006 we moved our
corporate offices in Radnor to a new and larger office.
    
    In 2007 we had an increase in telephone and communications expense as compared to 2006
due to the increase in the number of sales agents.
    
    In 2007 we incurred professional fees of $893,728 as compared to $788,262 in 2006, an
increase of $105,466 primarily attributable to technology outsourcing fees.
    
    In 2007 we incurred other general and administrative expenses of $806,136 as compared
to $862,421 in 2006, a decrease of $56,285 or 7%. Other general and administrative
expenses consisted of the following:
 For the Six MonthsEnded June 30,2007
    
    
    2006Licensing and permit fees
    
    $
    210,605
    
    
    $
    256,784Travel and entertainment
    
    
    166,710
    
    
    
    202,243Office expense
    
    
    367,183
    
    
    
    252,469Cost of integrating HealthPlan Choice Atlanta
office as a satellite sales office
    
    
    
    
    
    
    102,615Other
    
    
    61,638
    
    
    
    45,310Total
    
    $
    806,136
    
    
    $
    862,421
 
    
    We incur licensing and appointment costs associated with the licensing of our employee
insurance agents.
    
    During 2006 we incurred $102,615 pertaining to the cost of integrating HealthPlan
Choices office as our Atlanta satellite sales office, which we subsequently closed in the
fourth quarter of 2006.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
 
    
    In 2007 we had an increase in office expense as compared to 2007 due to increase in
office space and operations.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
    
    
    Decreases in accounts receivable of $879,580 related to the collection of bonus
commissions earned in the fourth quarter of 2006, increased unearned commission advances
and to a lesser extent increased earned revenues;
    
    Increases in deferred compensation advances of $176,140. We have advanced commissions
to employee and non employee agents, which are ultimately charged to expense in proportion
to the Companys recognition of unearned commissions as revenue;
    
    Increases in unearned commission advances of $2,229,195 relating to increased
commission payments from certain of the Companys insurance carriers that advance the
Company future commission revenue. The Company has agreements with certain of its
insurance carriers whereby the Companys insurance carriers advance the Company first year
premium commissions before the commissions are earned. The unearned portion of premium
commissions has been included in the consolidated balance sheet as a liability for
unearned commission advances. These advance agreements represent a material source of
cash to fund the Companys operations. The Companys advance agreement with its largest
insurance carrier cannot exceed $9,000,000, can be terminated by either party and in the
event of termination the Companys outstanding advance balance can be called by the
insurance carrier with 7 days written notice. As of June 30, 2007, the Companys
outstanding advance balance with this carrier was $5,305,305. The Companys advance
agreement with its second largest insurance carrier allows the insurance carrier to
terminate future advances and convert the outstanding advance balance into a promissory
note, which if not repaid within 30 days, would incur interest expense. As of June 30,
2007, the Companys outstanding advance balance with this carrier was $1,860,307.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
  
    
    Recorded $835,688 of stock-based compensation and consulting expense. Effective January
1, 2006, we adopted the provisions of SFAS No. 123(R), Share-Based Payment, under the
modified prospective method. SFAS No. 123(R) eliminates accounting for share-based
compensation transactions using the intrinsic value method prescribed under APB Opinion No.
25, Accounting for Stock Issued to Employees, and requires instead that such transactions
be accounted for using a fair-value-based method. Under the modified prospective method, we
are required to recognize compensation cost for share-based payments to employees based on
their grant-date fair value from the beginning of the fiscal period in which the
recognition provisions are first applied.
    
    On February 15, 2007, the Company granted 125,000 restricted shares of Common Stock to
each of Charles A. Eissa, the Companys President and Chief Operating Officer, and Ivan M.
Spinner, the Companys Senior Vice President, in accordance with the terms of the Companys
2006 Omnibus Equity Compensation Plan (the Plan). The shares granted to Messrs. Eissa
and Spinner were valued at $3.00 per share and will vest as follows: 50,000 shares on
February 15, 2008; 50,000 additional shares on February 15, 2009; 2,083 shares per month on
the 15th day of each month thereafter beginning on March 15, 2009 through January 15, 2010;
and 2,087 shares on February 15, 2010. The expense pertaining to these restricted stock
grants is included in the aforementioned stock based compensation and consulting expense.
   
    
    In 2007 we completed a private placement with certain institutional and individual
accredited investors and issued 5,000,000 shares of our Common Stock, par value $0.001 per
share and warrants to purchase 2,500,000 shares of our Common Stock. Gross proceeds were
$11,250,000 and placement and other fees paid in connection with the 2007 private placement
were $895,240.
    
    In 2007 certain holders of the Companys warrants exercised their warrants to purchase
in aggregate 262,500 shares of the Companys common stock at an exercise price of $1.50 per
share and the Company received $393,750.
    
    In 2006 the Company completed a private placement, which began in 2005. During the
first quarter of 2006 we received net proceeds from the sale of common stock of $6,164,174.
    
    During the second quarter of 2006 we disbursed $1,150,000 from cash and deposited this
amount into a certificate of deposit, which is reported as restricted cash. The
certificate of deposit, which was subsequently converted into an interest bearing money
market account, on deposit with the same bank that issued 2 letters of credit for the
benefit of the Companys landlords of our new Florida and New York offices.
    
    During the second quarter of 2006 we repaid our $399,630 outstanding balance of a line
of credit with Regions Bank dated August 2004. The Company has no further obligations
regarding this line of credit and this line of credit is not available for future
borrowing.
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ITEM 3. CONTROLS AND PROCEDURES
     Page 44




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PART II  OTHER INFORMATION
 
 Item 6. Exhibits
 Exhibit No
    
    Description31.1
    
    
    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:  August 14, 2007
    By:
    /s/ ALVIN H. CLEMENSAlvin H. ClemensChairman and Chief Executive Officer
(Principal Executive Officer)Dated:  August 14, 2007
    By:
    /s/ ANTHONY R. VERDIAnthony R. VerdiChief Financial Officer
(Principal Financial and Accounting Officer) Page 46