UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                      to
 Commission file number 333-123081
 
 HEALTH BENEFITS DIRECT CORPORATION
  Delaware
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    98-0438502
(I.R.S. Employer
Identification No.)
 150 North Radnor-Chester Rd.
Radnor Financial Center, Suite B101
Radnor, Pennsylvania 19087
  (484) 654-2200
  þ o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ o þ




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##### 



HEALTH BENEFITS DIRECT CORPORATION
Form 10-Q Quarterly Report
INDEX
 PART I
FINANCIAL INFORMATIONItem 1
    
    Financial StatementsConsolidated Balance Sheets as of September 30, 2008 (UNAUDITED) and December 31,
2007
    
    
    3Consolidated Statements of Operations (UNAUDITED) for the three and nine months
ended September 30, 2008 and 2007
    
    
    4Consolidated Statements of Changes in Shareholders Equity (UNAUDITED)
for the nine months ended September 30, 2008
    
    
    5Consolidated Statements of Cash Flows (UNAUDITED) for the nine months ended
September 30, 2008 and 2007
    
    
    6Notes to Consolidated UNAUDITED Financial Statements
    
    
    7Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    37Item 4T
    
    Controls and Procedures
    
    
    65PART II
OTHER INFORMATIONItem 1
    
    Legal Proceedings
    
    
    66Item 6
    
    Exhibits
    
    
    66Signatures
    
    
    67
 Page 2




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##### 



PART I.
FINANCIAL INFORMATION
 Item 1. Financial Statements
 HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
 September 30, 2008
    
    
    December 31, 2007(Unaudited)
    
    
    (1)ASSETSCURRENT ASSETS:Cash
    
    $
    2,329,206
    
    
    $
    5,787,585Accounts receivable, less allowance for doubtful accounts $0 and $59,106
    
    
    1,167,669
    
    
    
    1,720,014Tax receivable
    
    
    31,290
    
    
    
    Deferred compensation advances
    
    
    116,246
    
    
    
    578,372Prepaid expenses
    
    
    241,848
    
    
    
    182,087Other current assets
    
    
    10,444
    
    
    
    22,285Total current assets
    
    
    3,896,703
    
    
    
    8,290,343Restricted cash
    
    
    1,150,000
    
    
    
    1,150,000Property and equipment, net of accumulated depreciation $1,458,982 and $1,115,562
    
    
    1,206,668
    
    
    
    1,592,480Intangibles, net of accumulated amortization $4,310,793 and $3,108,771
    
    
    3,725,003
    
    
    
    5,095,960Other assets
    
    
    185,514
    
    
    
    165,871Total assets
    
    $
    10,163,888
    
    
    $
    16,294,654LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    704,735
    
    
    $
    1,483,064Accrued expenses
    
    
    1,375,049
    
    
    
    1,406,641Current portion of capital lease obligations
    
    
    60,869
    
    
    
    14,707Sub-tenant security deposit
    
    
    7,301
    
    
    
    Due to related parties
    
    
    
    
    
    
    28,500Unearned commission advances
    
    
    4,216,917
    
    
    
    8,450,585Deferred revenue
    
    
    60,000
    
    
    
    209,125Income tax payable
    
    
    
    
    
    
    157,288Total current liabilities
    
    
    6,424,871
    
    
    
    11,749,910LONG TERM LIABILITIES:Capital lease obligations
    
    
    167,597
    
    
    
    44,241Total long term liabilities
    
    
    167,597
    
    
    
    44,241SHAREHOLDERS EQUITY:Preferred stock ($.001 par value; 10,000,000 shares authorized;
no shares issued and outstanding)
    
    
    
    
    
    
    Common stock ($.001 par value; 90,000,000 shares authorized;
41,354,645 and 34,951,384 shares issued and outstanding
    
    
    41,354
    
    
    
    34,951Additional paid-in capital
    
    
    43,335,620
    
    
    
    36,868,409Accumulated deficit
    
    
    (39,805,554
    )
    
    
    (32,402,857
    )Total shareholders equity
    
    
    3,571,420
    
    
    
    4,500,503Total liabilities and shareholders equity
    
    $
    10,163,888
    
    
    $
    16,294,654
 
 (1)
    
    Derived from audited financial statements.  Page 3




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##### 



HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Revenues
    
    $
    5,716,019
    
    
    $
    5,048,139
    
    
    $
    18,498,476
    
    
    $
    14,704,547Operating expenses:Salaries, commission and related taxes
    
    
    4,048,406
    
    
    
    4,413,794
    
    
    
    14,004,106
    
    
    
    12,329,418Lead, advertising and other marketing
    
    
    838,298
    
    
    
    2,177,789
    
    
    
    3,907,796
    
    
    
    5,973,442Depreciation and amortization
    
    
    628,221
    
    
    
    518,098
    
    
    
    1,951,651
    
    
    
    1,631,182Rent, utilities, telephone and communications
    
    
    636,058
    
    
    
    669,847
    
    
    
    2,137,737
    
    
    
    1,934,299Professional fees
    
    
    762,892
    
    
    
    383,617
    
    
    
    1,960,000
    
    
    
    1,277,345Loss on impairment of property and equipment
    
    
    
    
    
    
    
    
    
    
    88,922
    
    
    
    Loss on impairment of intangible asset
    
    
    
    
    
    
    
    
    
    
    295,633
    
    
    
    Other general and administrative
    
    
    451,467
    
    
    
    476,990
    
    
    
    1,502,163
    
    
    
    1,283,1267,365,342
    
    
    
    8,640,135
    
    
    
    25,848,008
    
    
    
    24,428,812Loss from operations
    
    
    (1,649,323
    )
    
    
    (3,591,996
    )
    
    
    (7,349,532
    )
    
    
    (9,724,265
    )Other income (expense):Loss on disposal of property
and equipment
    
    
    (92,374
    )
    
    
    (2,592
    )
    
    
    (92,374
    )
    
    
    (2,592
    )Interest income
    
    
    14,384
    
    
    
    107,317
    
    
    
    67,119
    
    
    
    279,964Interest expense
    
    
    (11,699
    )
    
    
    (5,810
    )
    
    
    (27,910
    )
    
    
    (21,825
    )Total other income (expense)
    
    
    (89,689
    )
    
    
    98,915
    
    
    
    (53,165
    )
    
    
    255,547Net loss
    
    $
    (1,739,012
    )
    
    $
    (3,493,081
    )
    
    $
    (7,402,697
    )
    
    $
    (9,468,718
    )Net loss per common share:Net loss per common share  basic and diluted
    
    $
    (0.04
    )
    
    $
    (0.10
    )
    
    $
    (0.19
    )
    
    $
    (0.29
    )Weighted average common shares outstanding  basic and diluted
    
    
    41,354,645
    
    
    
    34,098,971
    
    
    
    39,248,333
    
    
    
    32,378,934
  Page 4




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##### 



HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FOR NINE MONTHS ENDED SEPTEMBER 30, 2008
(Unaudited)
 Common Stock, $.001Par Value
    
    
    
    
    
    
    
    
    
    TotalNumber of
    
    
    
    
    
    Additional
    
    Accumulated
    
    ShareholdersShares
    
    Amount
    
    Paid-in Capital
    
    Deficit
    
    EquityBalance  December 31, 2007
    
    
    34,951,384
    
    
    $
    34,951
    
    
    $
    36,868,409
    
    
    $
    (32,402,857
    )
    
    $
    4,500,503Common stock issued in
private placement
    
    
    6,250,000
    
    
    
    6,250
    
    
    
    4,923,512
    
    
    
    
    
    
    
    4,929,762Common stock issued to
directors as compensation
    
    
    174,010
    
    
    
    174
    
    
    
    167,814
    
    
    
    
    
    
    
    167,988Return of restricted stock
from employees in payment
of withholding tax
    
    
    (20,749
    )
    
    
    (21
    )
    
    
    (27,368
    )
    
    
    
    
    
    
    (27,389
    )Amortization of deferred
compensation
    
    
    
    
    
    
    
    
    
    
    1,403,253
    
    
    
    
    
    
    
    1,403,253Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,402,697
    )
    
    
    (7,402,697
    )Balance  September 30, 2008
    
    
    41,354,645
    
    
    $
    41,354
    
    
    $
    43,335,620
    
    
    $
    (39,805,554
    )
    
    $
    3,571,420
  Page 5




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##### 



HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Nine Months EndedSeptember 30,2008
    
    
    2007(Unaudited)
    
    
    (Unaudited)Cash Flows From Operating Activities:Net loss
    
    $
    (7,402,697
    )
    
    $
    (9,468,718
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    1,951,651
    
    
    
    1,631,182Stock-based compensation and consulting
    
    
    1,571,243
    
    
    
    1,144,845Loss on impairment of property and equipment
    
    
    88,922
    
    
    
    Loss on impairment of intangible assets
    
    
    295,633
    
    
    
    Loss on disposal of property and equipment
    
    
    92,374
    
    
    
    Provision for bad debt
    
    
    63,851
    
    
    
    (9,026
    )Changes in assets and liabilities:Accounts receivable
    
    
    488,490
    
    
    
    227,675Tax receivable
    
    
    (31,290
    )
    
    
    Deferred compensation advances
    
    
    462,126
    
    
    
    (90,122
    )Prepaid expenses
    
    
    (59,761
    )
    
    
    (131,428
    )Other current assets
    
    
    11,841
    
    
    
    (11,398
    )Other assets
    
    
    (19,643
    )
    
    
    (29,019
    )Accounts payable
    
    
    (778,329
    )
    
    
    116,833Accrued expenses
    
    
    (56,592
    )
    
    
    (83,224
    )Sub-tenant security deposit
    
    
    7,301
    
    
    
    Due to related parties
    
    
    (28,500
    )
    
    
    (63,672
    )Unearned commission advances
    
    
    (4,233,668
    )
    
    
    3,619,793Deferred revenue
    
    
    (149,125
    )
    
    
    Income tax payable
    
    
    (157,288
    )
    
    
    Net cash used in operating activities
    
    
    (7,883,461
    )
    
    
    (3,146,279
    )Cash Flows From Investing Activities:Purchase of property and equipment
    
    
    (409,352
    )
    
    
    (451,147
    )Proceeds from the sale of property and equipment
    
    
    27,000
    
    
    
    Purchase of intangible assets and capitalization of
software development
    
    
    (291,847
    )
    
    
    (593,875
    )Net cash used in investing activities
    
    
    (674,199
    )
    
    
    (1,045,022
    )Cash Flows From Financing Activities:Gross proceeds from capital leases
    
    
    193,498
    
    
    
    Payments on capital leases
    
    
    (23,979
    )
    
    
    Gross proceeds from sales of common stock
    
    
    5,000,000
    
    
    
    11,250,000Gross proceeds from exercise of warrants
    
    
    
    
    
    
    393,750Placement and other fees paid in connection with offering
    
    
    (70,238
    )
    
    
    (895,240
    )Net cash provided by financing activities
    
    
    5,099,281
    
    
    
    10,748,510Net increase (decrease) in cash
    
    
    (3,458,379
    )
    
    
    6,557,209Cash  beginning of the year
    
    
    5,787,585
    
    
    
    2,311,781Cash  end of the period
    
    $
    2,329,206
    
    
    $
    8,868,990Supplemental Disclosures of Cash Flow Information
Cash payments for income taxes
    
    $
    188,578
    
    
    $
    
  Page 6




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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
  Cash and cash equivalents
  Restricted cash
  Accounts receivable
   Page 8




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##### 



BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Fair value of financial instruments
  Property and equipment
  Intangible assets
    Page 9




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##### 



BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed.
 Impairment of long-lived assets
    Page 10




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##### 



BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Income taxes
  Loss per common share
  Options
    
    
    5,026,500Warrants
    
    
    17,524,18622,550,686
 Revenue recognition
  Telesales segment revenue recognition
  Page 11




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




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##### 



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




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##### 



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




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##### 



BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
  Recent accounting pronouncements
   
    
    Recognizes and measures in its financial statements the identifiable assets acquired,
the liabilities assumed, and any noncontrolling interest in the acquiree;
    
    Recognizes and measures the goodwill acquired in the business combination or a gain from
a bargain purchase; and
    
    Determines what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination.
  
    
    The ownership interests in subsidiaries held by parties other than the parent be clearly
identified, labeled, and presented in the consolidated statement of financial position
within equity, but separate from the parents equity.
    
    The amount of consolidated net income attributable to the parent and to the
noncontrolling interest be clearly identified and presented on the face of the consolidated
statement of income.
 Page 15




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##### 



BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
    
    Changes in a parents ownership interest while the parent retains its controlling
financial interest in its subsidiary be accounted for consistently. A parents ownership
interest in a subsidiary changes if the parent purchases additional ownership interests in
its subsidiary or if the parent sells some of its ownership interests in its subsidiary. It
also changes if the subsidiary reacquires some of its ownership interests or the subsidiary
issues additional ownership interests. All of those transactions are economically similar,
and this Statement requires that they be accounted for similarly, as equity transactions.
    
    When a subsidiary is deconsolidated, any retained noncontrolling equity investment in
the former subsidiary be initially measured at fair value. The gain or loss on the
deconsolidation of the subsidiary is measured using the fair value of any noncontrolling
equity investment rather than the carrying amount of that retained investment.
    
    Entities provide sufficient disclosures that clearly identify and distinguish between
the interests of the parent and the interests of the noncontrolling owners.
   The Hierarchy of Generally Accepted Accounting Principles
(SFAS 162) Accounting Changes and Error Corrections The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.
  Page 16




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##### 



BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
   ISG ACQUISITION
   Cash payment to seller
    
    $
    1,135,000Fair value of common stock issued to seller
    
    
    3,310,806Discounted value of future fixed payments of employment agreement
    
    
    225,212Fair value of stock option issued to seller
    
    
    425,381Estimated direct transaction fees and expenses
    
    
    57,930Estimated purchase price
    
    $
    5,154,329
 Page 17




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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
  ACQUISITION OF ATIAM
   Page 18




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##### 



ACQUISITION OF ATIAM
     Cash payments to sellers
    
    $
    1,350,000Fair value of common stock issued to sellers
    
    
    1,650,006Estimated direct transaction fees and expenses
    
    
    80,738Estimated purchase price
    
    $
    3,080,744
 Page 19




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##### 



ACQUISITION OF ATIAM (continued)
  Cash
    
    $
    608,534Accounts receivable
    
    
    643,017Prepaid expenses & other assets
    
    
    22,623Property and equipment, net
    
    
    158,819Other assets
    
    
    3,401Intangible assets
    
    
    2,097,672Accounts payable
    
    
    (34,278
    )Accrued expenses
    
    
    (122,675
    )Income taxes payable
    
    
    (157,288
    )Deferred revenue
    
    
    (120,000
    )Long and short term capital lease obligations
    
    
    (19,081
    )$
    3,080,744
    For the NineMonths EndedSeptember 30,2007Revenues, net
    
    $
    17,704,858Net loss
    
    
    (9,357,532
    )Net loss per common share  basic and diluted
    
    $
    (0.28
    )
 Page 20




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##### 



ACQUISITION OF ATIAM (continued)
  PROPERTY AND EQUIPMENT
  Useful Life
    
    At September 30,
    
    
    At December 31,(Years)
    
    2008
    
    
    2007Computer equipment and
software
    
    3
    
    $
    1,282,878
    
    
    $
    967,347Phone equipment and software
    
    3
    
    
    726,535
    
    
    
    726,535Office equipment
    
    4.6
    
    
    57,066
    
    
    
    89,485Office furniture and fixtures
    
    6.7
    
    
    388,934
    
    
    
    575,450Leasehold improvements
    
    9.8
    
    
    210,237
    
    
    
    349,2252,665,650
    
    
    
    2,708,042Less accumulated depreciation
    
    
    
    
    (1,458,982
    )
    
    
    (1,115,562
    )$
    1,206,668
    
    
    $
    1,592,480
  Page 21




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##### 



INTANGIBLE ASSETS
  Useful Life(Years)
    
    At September 30,
    
    At December 31,Weighted average
    
    2008
    
    2007ISG intangible assets acquired
    
    
    4.7
    
    
    $
    4,964,337
    
    
    $
    4,964,338Atiam intangible assets acquired
    
    
    4.7
    
    
    
    2,097,672
    
    
    
    2,097,672Software development costs for internal use
    
    
    2.6
    
    
    
    638,291
    
    
    
    981,521Software development costs for external
marketing
    
    
    2.0
    
    
    
    174,296
    
    
    
    Internet domain
    
    
    3.0
    
    
    
    161,200
    
    
    
    161,200(www.healthbenefitsdirect.com)8,035,796
    
    
    
    8,204,731Less: accumulated amortization
    
    
    
    
    
    
    (4,310,793
    )
    
    
    (3,108,771
    )$
    3,725,003
    
    
    $
    5,095,960
   2008
    
    $
    441,5182009
    
    
    1,541,5312010
    
    
    1,028,6462011
    
    
    453,2582012
    
    
    260,050$
    3,725,003
 Page 22




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##### 



UNEARNED COMMISSION ADVANCES
  RELATED PARTY TRANSACTIONS
   
    
    Keystone Equities Group, L.P provided the Company investment advisory services in 2007
at a cost of $53,572. John Harrison, a director of the Company, is associated with
Keystone Equities Group, L.P. The Company paid Keystone Equities Group, L.P $28,572 in
2007, recorded a related party liability of $25,000 as of December 31, 2007, which was
subsequently paid in 2008.
    
    SendTec, Inc. (SendTec) provided certain marketing and advertising services in 2007 at
a cost of $14,950. Paul Soltoff, a director of the Company, is the Chief Executive Officer
of SendTec. The Company paid SendTec $32,741 in 2007 and recorded a related party
liability of $3,500 as of December 31, 2007, which was subsequently paid in 2008.
 Page 23




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##### 



SHAREHOLDERS EQUITY
 Common Stock
 2007
        Page 24




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##### 



SHAREHOLDERS EQUITY (continued)
 2008
     Stock Options
  Page 25




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##### 



SHAREHOLDERS EQUITY (continued)
      Number
    
    
    WeightedOf Shares
    
    
    Average
    
    
    WeightedUnderlying
    
    
    Exercise
    
    
    AverageOptions
    
    
    Price
    
    
    Fair ValueOutstanding at December 31, 2007
    
    
    4,832,000
    
    
    $
    2.23
    
    
    $
    0.89For the period ended September 30, 2008Granted
    
    
    570,000
    
    
    
    1.01
    
    
    
    0.57Exercised
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    375,500
    
    
    
    3.28
    
    
    
    1.90Outstanding at September 30, 2008
    
    
    5,026,500
    
    
    
    2.02
    
    
    
    0.78Outstanding and exercisable at September 30, 2008
    
    
    4,508,131
    
    
    $
    1.97
    
    
    $
    0.64
 Page 26




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##### 



SHAREHOLDERS EQUITY (continued)
  Expected volatility
    
    
    67
    %Risk-free interest rate
    
    
    1.42
    %Expected life in years
    
    
    5Assumed dividend yield
    
    
    0
    %
  Options Outstanding
    
    Options ExercisableWeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageExercise
    
    Number of Shares
    
    Contractual
    
    Exercise
    
    
    
    
    
    ExercisePrice
    
    Underlying Options
    
    Life
    
    Price
    
    Number Exercisable
    
    Price$
    0.78
    
    
    
    10,000
    
    
    
    4.8
    
    
    $
    0.78
    
    
    
    
    
    
    $
    1.00
    
    
    
    1,550,000
    
    
    
    7.4
    
    
    
    1.00
    
    
    
    1,550,000
    
    
    
    1.001.01
    
    
    
    550,000
    
    
    
    9.8
    
    
    
    1.01
    
    
    
    404,165
    
    
    
    1.011.05
    
    
    
    10,000
    
    
    
    3.7
    
    
    
    1.05
    
    
    
    
    
    
    
    2.13
    
    
    
    15,000
    
    
    
    4.4
    
    
    
    2.13
    
    
    
    
    
    
    
    2.30
    
    
    
    5,000
    
    
    
    4.1
    
    
    
    2.30
    
    
    
    
    
    
    
    2.50
    
    
    
    1,689,500
    
    
    
    4.0
    
    
    
    2.50
    
    
    
    1,655,231
    
    
    
    2.502.55
    
    
    
    25,000
    
    
    
    3.0
    
    
    
    2.55
    
    
    
    8,250
    
    
    
    2.552.62
    
    
    
    20,000
    
    
    
    3.5
    
    
    
    2.62
    
    
    
    6,600
    
    
    
    2.622.70
    
    
    
    475,000
    
    
    
    2.8
    
    
    
    2.70
    
    
    
    441,500
    
    
    
    2.702.95
    
    
    
    45,000
    
    
    
    2.8
    
    
    
    2.95
    
    
    
    29,700
    
    
    
    2.953.00
    
    
    
    82,000
    
    
    
    3.9
    
    
    
    3.00
    
    
    
    27,060
    
    
    
    3.003.50
    
    
    
    150,000
    
    
    
    7.8
    
    
    
    3.50
    
    
    
    90,625
    
    
    
    3.50$
    3.60
    
    
    
    400,000
    
    
    
    2.8
    
    
    $
    3.60
    
    
    
    295,000
    
    
    $
    3.605,026,500
    
    
    
    
    
    
    
    
    
    
    
    4,508,131
   Page 27




---



##### 



SHAREHOLDERS EQUITY (continued)
 Common Stock warrants
    WeightedCommon
    
    
    AverageStock
    
    
    ExerciseWarrants
    
    
    PriceOutstanding at December 31, 2007
    
    
    10,750,000
    
    
    $
    1.89For the period ended September 30, 2008
Granted
    
    
    6,250,000
    
    
    
    0.80Adjustment to warrants issued in 2007
for the issuance of warrants in 2008
    
    
    524,186
    
    
    
    2.48Exercised
    
    
    
    
    
    
    Outstanding at September 30, 2008
    
    
    17,524,186
    
    
    $
    1.45Exercisable at September 30, 2008
    
    
    17,524,186
    
    
    $
    1.45
 Page 28




---



##### 



SHAREHOLDERS EQUITY (continued)
  CommonStock
    
    Exercise
    
    Year ofWarrants
    
    Price
    
    Expiration3,887,500
    
    
    $
    1.50
    
    
    
    20083,937,500
    
    
    
    1.50
    
    
    
    200975,000
    
    
    
    1.50
    
    
    
    20103,024,186
    
    
    
    2.48
    
    
    
    2012350,000
    
    
    
    2.80
    
    
    
    20106,250,000
    
    
    $
    0.80
    
    
    
    201317,524,186
  Registration Rights
    Page 29




---



##### 



CAPITAL LEASE OBLIGATIONS
   Useful Life (Years)Computer equipment and software
    
    
    3
    
    
    $
    238,899Phone System
    
    
    3
    
    
    
    15,011253,910Less accumulated depreciation
    
    
    
    
    
    
    (44,398
    )$
    209,512
  2008
    
    $
    21,8082009
    
    
    84,1712010
    
    
    83,8132011
    
    
    64,6842012
    
    
    23,965Total future payments
    
    
    278,441Less amount representing interest
    
    
    49,975Present value of future minimum payments
    
    
    228,466Less current portion
    
    
    60,869Long-term portion
    
    $
    167,597
 Page 30




---



##### 



DEFINED CONTRIBUTION 401(k) PLAN
  RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES
 Employment and Separation Agreements
    Page 31




---



##### 



RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
       Page 32




---



##### 



Restricted Cash and Operating Leases
  RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
   Litigation
  Page 33




---



##### 



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




---



##### 



SEGMENT INFORMATION (continued)
  For the Nine Months
    
    For the Nine MonthsEnded September 30, 2008
    
    Ended September 30, 2007Telesales
    
    Atiam
    
    Total
    
    Telesales
    
    Atiam
    
    TotalRevenue
    
    $
    14,460,846
    
    
    $
    4,037,630
    
    
    $
    18,498,476
    
    
    $
    14,704,547
    
    
    
    
    
    
    $
    14,704,547Gain (loss) from operations
    
    $
    (6,851,725
    )
    
    $
    (497,807
    )
    
    $
    (7,349,532
    )
    
    $
    (9,724,265
    )
    
    
    
    
    
    $
    (9,724,265
    )September 30, 2008
    
    December 31, 2007Total assets
    
    $
    6,439,869
    
    
    $
    3,724,019
    
    
    $
    10,163,888
    
    
    $
    12,492,537
    
    
    
    3,802,117
    
    
    $
    16,294,654
 SUBSEQUENT EVENTS
 Reduction in Staffing
  Subleasing of Company Office Space
  Shareholder Approval of the Amendment and Restatement of the 2008 Equity Compensation Plan
  Page 35




---



##### 



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
    Page 36




---



##### 



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




---



##### 



Software
Revenue Recognition
   Page 38




---



##### 



Results of Operations for the Telesales and Atiam Business Segments
  Page 39




---



##### 



Revenues
  For the Three MonthsEnded September 30,2008
    
    
    2007Commission revenue from carriers excluding periodic bonuses and ISG
    
    $
    3,759,924
    
    
    $
    4,064,572Periodic bonus revenue from carriers
    
    
    12,341
    
    
    
    340,864ISG commission revenue
    
    
    327,893
    
    
    
    432,714Lead sale revenue
    
    
    103,798
    
    
    
    209,989Insurint technology fees
    
    
    33,320
    
    
    
    Sub-lease and other revenue
    
    
    85,903
    
    
    
    Telesales business segment
    
    
    4,323,179
    
    
    
    5,048,139Consulting and implementation services
    
    
    988,564
    
    
    
    ASP revenue
    
    
    287,276
    
    
    
    Maintenance revenue
    
    
    117,000
    
    
    
    Atiam business segment
    
    
    1,392,840
    
    
    
    Total
    
    $
    5,716,019
    
    
    $
    5,048,139
 Page 40




---



##### 




    
    In Third Quarter 2008 we earned commission revenue from carriers excluding periodic
bonuses and ISG revenues of $3,759,924 as compared to $4,064,572 in Third Quarter 2007.
The primary reasons for the decrease in revenues are decreased marketing and selling
activity, which resulted in lower commission revenue from carriers and lower periodic
bonuses from carriers.
 
    
    We had 66 licensed insurance agent employees at September 30, 2008 as
compared to 111 at September 30, 2007 and 118 at December 31, 2007. In early March
of 2008 we closed our New York sales office, which accounted for approximately 20%
of the Companys sales activity for the year ended December 31, 2007. We also
reduced sales and sales support staff in our Florida office. Management believes
the closure of the New York sales office and the other staff reductions in Florida
will result in the reduced expenses in excess of reduced revenue. As a result of
the closure, we terminated 34 licensed sales agents and eliminated eight open
licensed sales positions, which were vacated subsequent to December 31, 2007.
 
    
    In Third Quarter 2008 we earned periodic bonuses from carriers of $12,341 as compared to
$340,864 in Third Quarter 2007. The Telesales segment receives bonuses from certain
carriers, which are based primarily on the Telesales segments sales performance and
criteria established by carriers and generally do not extend beyond the current calendar
year. Accordingly we cannot determine what criteria, if any, may be offered by its
carriers pertaining to bonuses beyond the current calendar year.
    
    In Third Quarter 2008 we earned revenue of $327,893 relating to ISG as compared to
$432,714 in Third Quarter 2007. ISG revenue declined as a result of both reduced new sales
and the lapse of inforce business and reduced commission overrides earned on the Telesales
segment on new and inforce business.
    
    In Third Quarter 2008 we earned revenue of $103,798 relating to the sale of leads to
third parties as compared to $209,989 in Third Quarter 2007. We re-sell certain leads
purchased in order to recoup a portion of our lead cost. The primary reason for the
decrease in lead sales revenue is a decrease in lead cost spending, which results in a
reduced number of leads available for sale.
    
    In Third Quarter 2008 we earned revenue of $33,320 relating to Insurint technology fees.
The Companys Insurint subsidiary provides a proprietary, professional-grade, web based
agent portal to support and assist insurance agents in the business of marketing and
selling health insurance and related products. Insurints technology fees commenced in
Second Quarter 2008.
    
    In Third Quarter 2008 we earned revenue of $85,903 relating to the sub-lease of a
portion of our Florida office and our former New York sales office.
 Page 41




---



##### 



Total Operating Expenses
  For the Three MonthsEnded September 30,2008
    
    
    2007Telesales business segment
    
    $
    5,635,850
    
    
    $
    8,640,135Atiam business segment
    
    
    1,729,492
    
    
    
    Total
    
    $
    7,365,342
    
    
    $
    8,640,135
  For the Three MonthsEnded September 30,2008
    
    
    2007Salaries, commission and related taxes
    
    $
    3,142,958
    
    
    $
    4,413,794Lead, advertising and other marketing
    
    
    834,335
    
    
    
    2,177,789Depreciation and amortization
    
    
    449,346
    
    
    
    518,098Rent, utilities, telephone and communications
    
    
    594,043
    
    
    
    669,847Professional fees
    
    
    358,566
    
    
    
    383,617Other general and administrative
    
    
    256,602
    
    
    
    476,990Total
    
    $
    5,635,850
    
    
    $
    8,640,135
 
    
    In early March 2008 we closed our New York sales office, which accounted for
approximately 20% of the Companys sales activity for the year ended December 31, 2007. We
also reduced sales and sales support staff in our Florida office. Management believes the
closure of the New York sales office and the other staff reductions in Florida will result
in the reduced expenses in excess of reduced revenue. As a result of the closure, we
terminated 47 employees and eliminated 16 open positions, which were vacated subsequent to
December 31, 2007.
    
    Lead, advertising and other marketing cost decreased as a result of reductions in sales
staff and to a lesser extent marketing and sales efficiency improvements.
 Page 42




---



##### 



For the Three MonthsEnded September 30,2008
    
    
    2007Salaries, commission and related taxes
    
    $
    905,448
    
    
    $
    Lead, advertising and other marketing
    
    
    3,963
    
    
    
    Depreciation and amortization
    
    
    178,875
    
    
    
    Rent, utilities, telephone and communications
    
    
    42,015
    
    
    
    Professional fees
    
    
    404,326
    
    
    
    Other general and administrative
    
    
    194,865
    
    
    
    Total
    
    $
    1,729,492
    
    
    $
    
 Other income (expenses)
    Net loss
  Page 43




---



##### 



Results of Operations for Telesales Business Segment
 Revenues
  For the Three MonthsEnded September 30,2008
    
    
    2007Commission revenue from carriers excluding periodic bonuses and ISG
    
    $
    3,759,924
    
    
    $
    4,064,572Periodic bonus revenue from carriers
    
    
    12,341
    
    
    
    340,864ISG commission revenue
    
    
    327,893
    
    
    
    432,714Lead sale revenue
    
    
    103,798
    
    
    
    209,989Insurint technology fees
    
    
    33,320
    
    
    
    Sub-lease and other revenue
    
    
    85,903
    
    
    
    Total
    
    $
    4,323,179
    
    
    $
    5,048,139
 
    
    In Third Quarter 2008 we earned commission revenue from carriers excluding periodic
bonuses and ISG revenues of $3,759,924 as compared to $4,064,572 in Third Quarter 2007.
 
    
    We had 66 licensed insurance agent employees at September 30, 2008 as
compared to 111 at September 30, 2007. In early March 2008 we closed our New York
sales office, which accounted for approximately 20% of the Companys sales activity
for the year ended December 31, 2007. We also reduced sales and sales support staff
in our Florida office. Management believes the closure of the New York sales office
and the other staff reductions in Florida will result in the reduced expenses in
excess of reduced revenue. As a result of the closure, we terminated 34 licensed
sales agents and eliminated eight open licensed sales positions, which were vacated
subsequent to December 31, 2007.
 
    
    In Third Quarter 2008 we earned periodic bonuses from carriers of $12,341 as compared to
$340,864 in Third Quarter 2007. The Telesales segment receives bonuses from certain
carriers, which are based primarily on the Telesales segments sales performance and
criteria established by carriers and generally do not extend beyond the current calendar
year. Accordingly we cannot determine what criteria, if any, may be offered by its
carriers pertaining to bonuses beyond the current calendar year.
    
    In Third Quarter 2008 we earned revenue of $327,893 relating to ISG as compared to
$432,714 in Third Quarter 2007. ISG revenue declined as a result of reduced new sales and
the lapse of inforce business and reduced commission overrides earned on the Telesales
segment on new and inforce business.
 Page 44




---



##### 




    
    In Third Quarter 2008 we earned revenue of $103,798 relating to the sale of leads to
third parties as compared to $209,989 in Third Quarter 2007. We re-sell certain leads
purchased in order to recoup a portion of our lead cost. The primary reason for the
decrease in lead sales revenue is a decrease in lead cost spending, which results in a
reduced number of leads available for sale.
    
    In Third Quarter 2008 we earned revenue of $33,320 relating to Insurint technology fees.
The Companys Insurint subsidiary provides a proprietary, professional-grade, web based
agent portal to support and assist insurance agents in the business of marketing and
selling health insurance and related products. Insurints technology fees commenced in
Second Quarter 2008.
    
    In Third Quarter 2008 we earned revenue of $85,903 relating to the sub-lease of a
portion of our Florida office and our former New York sales office.
 Total Operating Expenses
  
    
    Salaries, commission and related taxes consisted of the following:
 For the Three MonthsEnded September 30,2008
    
    
    2007Salaries, wages and bonuses
    
    $
    2,051,492
    
    
    $
    2,806,818Share based employee and director compensation
    
    
    199,611
    
    
    
    309,157Commissions to employees
    
    
    529,338
    
    
    
    653,774Commissions to non-employees
    
    
    82,778
    
    
    
    62,878Employee benefits
    
    
    70,180
    
    
    
    104,321Payroll taxes
    
    
    159,518
    
    
    
    221,448Severance and other compensation
    
    
    33,576
    
    
    
    231,397Directors compensation
    
    
    16,465
    
    
    
    24,001Total
    
    $
    3,142,958
    
    
    $
    4,413,794
 
    
    Salaries and wages were $2,051,492 in Third Quarter 2008 as compared to
$2,806,818 in Third Quarter 2007, a decrease of $755,326 or 27%. This decrease is
the result of the reduced personnel employed by the Telesales segment.
 
    
    The Telesales segment had 153 employees at September 30, 2008 as compared
to 263 at September 30, 2007.
    
    In early March of 2008 we closed our New York sales office, which
accounted for approximately 20% of the Companys sales activity for the year
ended December 31, 2007. We also reduced sales and sales support staff in
our Florida office. Management believes the closure of the New York sales
office and the other staff reductions in Florida will result in the reduced
expenses in excess of reduced revenue. As a result of the closure, we
terminated 47 employees and eliminated 16 open positions, which were vacated
subsequent to December 31, 2007.
 Page 45




---



##### 




    
    Share based employee and director compensation expense was $199,611 in Third
Quarter 2008 as compared to $309,157 in Third Quarter 2007. Share based employee
and director compensation consists of stock option and restricted stock grants,
which are valued at fair-value at the date of the grant and expensed over the stock
options vesting period or the duration of employment, whichever is shorter.
    
    Commissions to employees were $529,338 in Third Quarter 2008 as compared to
$653,774 in Third Quarter 2007. This decrease was the result of a decrease in sales
that resulted in lower sales commission expense.
    
    Commissions to non employees were $82,778 in Third Quarter 2008 as compared to
$62,878 in Third Quarter 2007. We pay commissions to non employee ISG agents.
    
    Employee benefits expense was $70,180 in Third Quarter 2008 as compared to
$104,321 in Third Quarter 2007. This decrease is the result of the reduced
personnel employed by the Telesales segment. The Companys employee benefit cost
consists of the company paid portion of group medical, dental and life insurance
coverage and partial Company matching of employee contributions to a 401(k) plan.
    
    Payroll taxes expense was $159,518 in Third Quarter 2008 as compared to $221,448
in Third Quarter 2007. The decrease was the result of lower salaries, wages,
bonuses and commissions to employees.
 
    
    Lead, advertising and other marketing was $834,335 in Third Quarter 2008 as compared to
$2,177,789 in Third Quarter 2007, a decrease of $1,343,454 or 62% due primarily to
decrease in the number of licensed sales agents, which resulted in fewer leads purchased
in Third Quarter 2008 compared to Third Quarter 2007.
    
    Depreciation and amortization expense consisted of the following:
 For the Three MonthsEnded September 30,2008
    
    
    2007Amortization of intangibles acquired as a
result of the ISG acquisition
    
    $
    245,587
    
    
    $
    302,515Amortization of software and website development
    
    
    55,797
    
    
    
    49,543Amortization of internet domain name
    
    
    13,433
    
    
    
    13,433Depreciation expense
    
    
    134,529
    
    
    
    152,607Total
    
    $
    449,346
    
    
    $
    518,098
 
    
    In Third Quarter 2008 we incurred amortization expense of $245,587 as compared to
$302,515 for the intangible assets acquired from ISG. The intangible assets acquired
from ISG represent the value of purchased commission override revenue with an assigned
value of $1,411,594 amortized over five years in proportion to expected future value,
value of acquired carrier contracts and agent relationships with an assigned value of
$2,752,143 amortized over five years in proportion to expected future value and value of
employment and non-compete agreement acquired with an assigned value of $800,593
amortized straight line over a weighted average useful life of 3.1 years.
    
    In Third Quarter 2008 we incurred amortization expense of $55,797 compared to $49,543
in Third Quarter 2007 for software and website development.
 Page 46




---



##### 




    
    In Third Quarter 2008 we incurred depreciation expense of $134,529 as compared to
$152,607 in the Third Quarter 2007 period. The decrease pertains to the depreciation of
fixed assets of the New York Office.
 
    
    Rent, utilities, telephone and communications expenses consisted of the following:
 For the Three MonthsEnded September 30,2008
    
    
    2007Rent, utilities and other occupancy
    
    $
    427,918
    
    
    $
    469,427Telephone and communications
    
    
    166,125
    
    
    
    200,420Total
    
    $
    594,043
    
    
    $
    669,847
 
    
    In Third Quarter 2008 we had decrease in rent, utilities and other occupancy as
compared to Third Quarter 2007 as a result of lower utility and other occupancy
costs.
    
    In Third Quarter 2008 we had a decrease in telephone and communications expense
as compared to Third Quarter 2007 due to the decrease in the number of sales agents.
 
    
    In Third Quarter 2008 we incurred professional fees of $358,566 as compared to $383,617
in Third Quarter 2007. The decrease was primarily attributable to lower legal, technology
outsourcing fees and recruiting costs.
    
    Other general and administrative expenses consisted of the following:
 For the Three MonthsEnded September 30,2008
    
    
    2007Licensing and appointment fees
    
    $
    72,342
    
    
    $
    115,227Travel and entertainment
    
    
    18,126
    
    
    
    83,993Office expense
    
    
    165,511
    
    
    
    212,496Other
    
    
    623
    
    
    
    65,274Total
    
    $
    256,602
    
    
    $
    476,990
 
    
    We incur licensing and appointment costs associated with the licensing of our
employee insurance agents. The reduction in licensing cost is the result of the
reduction in licensed employees.
    
    In Third Quarter 2008 we had a decrease in travel and entertainment, office
expense and other expenses as compared to Third Quarter 2007 due to the closing of
the New York sales office.
 Loss from operations
  Page 47




---



##### 



Results of Operations for the Atiam Business Segment
 Revenues
  For the Three MonthsEnded September 30,2008
    
    
    2007Consulting and implementation services
    
    $
    988,564
    
    
    $
    ASP revenue
    
    
    287,276
    
    
    
    Maintenance revenue
    
    
    117,000
    
    
    
    Total
    
    $
    1,392,840
    
    
    $
    
 
    
    Consulting and implementation services are from six InsPro clients. Implementation
services provided to these clients included assisting clients in setting up their insurance
products in InsPro, providing modifications to InsPros functionality to support the
clients business, interfacing InsPro with the clients other systems, automation of client
correspondence to their customers and data conversion from the clients existing systems to
InsPro.
    
    In Third Quarter 2008 we earned ASP revenue from five InsPro clients. 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 Atiam owned
servers located at Atiams offices or at a third partys site.
    
    In Third Quarter 2008 we earned maintenance revenues from four clients.
 Total Operating Expenses
  
    
    Salaries, commission and related taxes consisted of the following:
 For the Three MonthsEnded September 30,2008
    
    
    2007Salaries, wages and bonuses
    
    $
    807,806
    
    
    $
    Employee benefits
    
    
    49,413
    
    
    
    Payroll taxes
    
    
    48,229
    
    
    
    Total
    
    $
    905,448
    
    
    $
    
 
    
    The Atiam business segment had 27 employees at September 30, 2008.
    
    Effective in First Quarter 2008 Atiam business segment employees are covered by
our employee benefit program.
 
    
    Lead, advertising and other marketing was $3,963 in the Third Quarter 2008 and
consisted of marketing and conference fees.
 Page 48




---



##### 




    
    Depreciation and amortization expense consisted of the following:
 For the Three MonthsEnded September 30,2008
    
    
    2007Amortization of intangibles acquired as a
result of the Atiam acquisition
    
    $
    117,020
    
    
    $
    Software
development costs for external marketing
    
    
    21,787Depreciation expense
    
    
    40,068
    
    
    
    Total
    
    $
    178,875
    
    
    $
    
 
    
    In Third Quarter 2008 we incurred amortization expense of $117,020 for the
intangible assets acquired from Atiam. The Atiam acquisition was effective October 1,
2007. Intangible assets acquired from Atiam were assigned the following values:
 
    
    value of client contracts and relationships other than license with an
assigned value of $1,089,223 amortized straight line over five years
    
    value of purchased software for sale and licensing value with an assigned
value of $644,449 amortized straight line over five years
    
    employment and non-compete agreements acquired with an assigned value of
$364,000 amortized straight line over three years.
 
    
    In Third Quarter 2008 we incurred amortization expense of $21,787 for software
development cost for external marketing.
    
    In Third Quarter 2008 we incurred rent, utilities, telephone and communications
expense, which consisted of the following:
 For the Three MonthsEnded September 30,2008
    
    
    2007Rent, utilities and other occupancy
    
    $
    26,601
    
    
    $
    Telephone and communications
    
    
    15,414
    
    
    
    Total
    
    $
    42,015
    
    
    $
    
 
    
    In Third Quarter 2008 we incurred professional fees of $404,326 which pertains
primarily to outsourced system development costs and to a lesser extent employee
recruiting services.
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##### 




    
    In Third Quarter 2008 we incurred other general and administrative expenses, which
consisted of the following:
 For the Three Months EndedSeptember 30,2008
    
    
    2007Office expenses
    
    $
    6,134
    
    
    $
    Travel and entertainment
    
    
    25,422
    
    
    
    Computer processing, hardware, software and
other
    
    
    163,309
    
    
    
    Total
    
    $
    194,865
    
    
    $
    
 
    
    We incur travel and entertainment expense in connection with marketing, sales and
implementation of InsPro at client locations.
    
    We incur computer processing fees associated with ASP hosting services. Atiam has a
hosting services contract with a third party, which can be terminated with notice and
payment of a termination fee. This third party provides Atiam with hosting services for
our clients ASP production and test environments.
 Loss from operations
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##### 



Revenues
  For the Nine MonthsEnded September 30,2008
    
    
    2007Commission revenue from carriers excluding periodic bonuses and ISG
    
    $
    12,633,531
    
    
    $
    11,736,573Periodic bonus revenue from carriers
    
    
    94,798
    
    
    
    853,477ISG commission revenue
    
    
    1,118,964
    
    
    
    1,408,571Lead sale revenue
    
    
    391,293
    
    
    
    705,926Insurint technology fees
    
    
    83,320
    
    
    
    Sub-lease and other revenue
    
    
    138,940
    
    
    
    Telesales business segment
    
    
    14,460,846
    
    
    
    14,704,547Consulting and implementation services
    
    
    2,787,385
    
    
    
    ASP revenue
    
    
    829,245
    
    
    
    Sales of software licenses
    
    
    115,000
    
    
    
    Maintenance revenue
    
    
    306,000
    
    
    
    Atiam business segment
    
    
    4,037,630
    
    
    
    Total
    
    $
    18,498,476
    
    
    $
    14,704,547
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##### 




    
    In 2008 we earned commission revenue from carriers excluding periodic bonuses and ISG
revenues of $12,633,531 as compared to $11,736,573 in 2007. Commission revenues increased
as a result of higher sales activity in the first half of 2008 as compared to the first
half of 2007.
 
    
    We had 66 licensed insurance agent employees at September 30, 2008 as
compared to 111 at September 30, 2007 and 118 at December 31, 2007. In early March
2008 we closed our New York sales office, which accounted for approximately 20% of
the Companys sales activity for the year ended December 31, 2007. We also reduced
sales and sales support staff in our Florida office. Management believes the
closure of the New York sales office and the other staff reductions in Florida will
result in the reduced expenses in excess of reduced revenue. As a result of the
closure, we terminated 34 licensed sales agents and eliminated eight open licensed
sales positions, which were vacated subsequent to December 31, 2007.
 
    
    In 2008 we earned periodic bonuses from carriers of $94,798 as compared to $853,477 in
2007. The Telesales segment receives bonuses from certain carriers, which are based
primarily on the Telesales segments sales performance and criteria established by carriers
and generally do not extend beyond the current calendar year. Accordingly we cannot
determine what criteria, if any, may be offered by its carriers pertaining to bonuses
beyond the current calendar year.
    
    In 2008 we earned revenue of $1,118,964 relating to ISG as compared to $1,408,571 in
2007. ISG revenue declined as a result of reduced new sales and the lapse of inforce
business and reduced commission overrides earned on the Telesales segment on new and
inforce business.
    
    In 2008 we earned revenues of $391,293 relating to the sale of leads to third parties as
compared to $705,926 in 2007. We re-sell certain leads purchased in order to recoup a
portion of our lead cost. The primary reason for the decrease in lead sales revenue is a
decrease in lead cost spending, which results in a reduced number of leads available for
sale.
    
    In 2008 we earned revenues of $83,320 relating to Insurint technology fees. The
Companys Insurint subsidiary provides a proprietary, professional-grade, web based agent
portal to support and assist insurance agents in the business of marketing and selling
health insurance and related products. Insurints technology fees commenced in Second
Quarter 2008.
    
    In 2008 we earned revenue of $138,940 relating to the sub-lease of a portion of our
Florida office and our former New York sales office.
 Total Operating Expenses
  For the Nine MonthsEnded September 30,2008
    
    
    2007Telesales business segment
    
    $
    21,312,571
    
    
    $
    24,428,812Atiam business segment
    
    
    4,535,437
    
    
    
    Total
    
    $
    25,848,008
    
    
    $
    24,428,812
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##### 



For the Nine MonthsEnded September 30,2008
    
    
    2007Salaries, commission and related taxes
    
    $
    11,461,666
    
    
    $
    12,329,418Lead, advertising and other marketing
    
    
    3,895,305
    
    
    
    5,973,442Depreciation and amortization
    
    
    1,491,215
    
    
    
    1,631,182Rent, utilities, telephone and communications
    
    
    1,996,559
    
    
    
    1,934,299Professional fees
    
    
    1,105,308
    
    
    
    1,277,345Loss on impairment of property and equipment
    
    
    88,922
    
    
    
    Loss on impairment of intangible asset
    
    
    295,633
    
    
    
    Other general and administrative
    
    
    977,963
    
    
    
    1,283,126Total
    
    $
    21,312,571
    
    
    $
    24,428,812
 
    
    Salaries, commissions and related taxes in 2008 included approximately $1.6 million of
non-recurring charges pertaining to the departure of certain executives and a director,
together with expenses related to the Companys closing of its New York office.
    
    During the first quarter of 2008 Telesales closed its sales office located in New York.
As of March 31, 2008, we determined that all furniture and lease-hold improvements located
at the New York sales office were impaired as a result of the office closure. During the
first quarter of 2008 the Company recorded $88,922 expense to write-down the value of these
assets to their net realizable value.
    
    During the first quarter of 2008 we determined that the portion of license fee paid by
Telesales for a commission system together with capitalized costs incurred to implement the
commission system was impaired as a result of the absence of definitive plans to implement
this system for internal use in Telesales. The Company recorded a $295,633 expense in the
first quarter of 2008 to write-off the value of this asset.
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##### 



For the Nine MonthsEnded September 30,2008
    
    
    2007Salaries, commission and related taxes
    
    $
    2,542,440
    
    
    $
    Lead, advertising and other marketing
    
    
    12,491
    
    
    
    Depreciation and amortization
    
    
    460,436
    
    
    
    Rent, utilities, telephone and communications
    
    
    141,178
    
    
    
    Professional fees
    
    
    854,692
    
    
    
    Other general and administrative
    
    
    524,200
    
    
    
    Total
    
    $
    4,535,437
    
    
    $
    
 Other income (expenses)
   Net loss
  Page 54




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##### 



Results of Operations for Telesales Business Segment
 Revenues
  For the Nine MonthsEnded September 30,2008
    
    
    2007Commission revenue from carriers excluding periodic bonuses and ISG
    
    $
    12,633,531
    
    
    $
    11,736,573Periodic bonus revenue from carriers
    
    
    94,798
    
    
    
    853,477ISG commission revenue
    
    
    1,118,964
    
    
    
    1,408,571Lead sale revenue
    
    
    391,293
    
    
    
    705,926Insurint technology fees
    
    
    83,320
    
    
    
    Sub-lease and other revenue
    
    
    138,940
    
    
    
    Total
    
    $
    14,460,846
    
    
    $
    14,704,547
 
    
    In 2008 we earned commission revenue from carriers excluding periodic bonuses and ISG
revenues of $12,633,531 as compared to $11,736,573 in 2007. Commission revenues increased
as a result of higher sales activity in the first half of 2008 as compared to the first
half of 2007.
 
    
    We had 66 licensed insurance agent employees at September 30, 2008 as
compared to 111 at September 30, 2007 and 118 at December 31, 2007. In early March
2008 we closed our New York sales office, which accounted for approximately 20% of
the Companys sales activity for the year ended December 31, 2007. We also reduced
sales and sales support staff in our Florida office. Management believes the
closure of the New York sales office and the other staff reductions in Florida will
result in the reduced expenses in excess of reduced revenue. As a result of the
closure, we terminated 34 licensed sales agents and eliminated eight open licensed
sales positions, which were vacated subsequent to December 31, 2007.
 
    
    In 2008 we earned periodic bonuses from carriers of $94,798 as compared to $853,477 in
2007. The decline was due to lower marketing and selling activity. The Telesales segment
receives bonuses from certain carriers, which are based primarily on the Telesales
segments sales performance and criteria established by carriers and generally do not
extend beyond the current calendar year. Accordingly we cannot determine what criteria, if
any, may be offered by its carriers pertaining to bonuses beyond the current calendar year.
    
    In 2008 we earned revenue of $1,118,964 relating to ISG as compared to $1,408,571 in
2007. ISG revenue declined as a result of reduced new sales and the lapse of inforce
business and reduced commission overrides earned on the Telesales segment on new and
inforce business.
    
    In 2008 we earned revenues of $391,293 relating to the sale of leads to third parties as
compared to $705,926 in 2007. We re-sell certain leads purchased in order to recoup a
portion of our lead cost. The primary reason for the decrease in lead sales revenue is a
decrease in lead cost spending, which results in a reduced number of leads available for
sale.
 
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##### 




    
    In 2008 we earned revenues of $83,320 relating to Insurint technology fees. The
Companys Insurint subsidiary provides a proprietary, professional-grade, web based agent
portal to support and assist insurance agents in the business of marketing and selling
health insurance and related products. Insurints technology fees commenced in Second
Quarter 2008.
    
    In 2008 we earned revenue of $138,940 relating to the sub-lease of a portion of our
Florida office and our former New York sales office
 Total Operating Expenses
  
    
    Salaries, commission and related taxes consisted of the following:
 For the Nine Months EndedSeptember 30,2008
    
    
    2007Salaries, wages and bonuses
    
    $
    6,617,855
    
    
    $
    7,571,207Share based employee and director compensation
    
    
    1,571,243
    
    
    
    1,124,370Commissions to employees
    
    
    1,647,643
    
    
    
    1,957,612Commissions to non-employees
    
    
    284,594
    
    
    
    272,516Employee benefits
    
    
    263,586
    
    
    
    322,528Payroll taxes
    
    
    608,910
    
    
    
    683,293Severance and other compensation
    
    
    407,585
    
    
    
    305,725Directors compensation
    
    
    60,250
    
    
    
    92,167Total
    
    $
    11,461,666
    
    
    $
    12,329,418
 
    
    Salaries and wages were $6,617,855 in 2008 as compared to $7,571,207 in 2007, a
decrease of $953,352 or 13%.
 
    
    This decrease is the result of the reduced personnel employed by the
Telesales segment.
    
    The Telesales segment had 164 employees at September 30, 2008 as compared
to 263 at September 30, 2007 and 253 at December 31, 2007.
    
    In early March of 2008 we closed our New York sales office, which
accounted for approximately 20% of the Companys sales activity for the year
ended December 31, 2007. We also reduced sales and sales support staff in
our Florida office. Management believes the closure of the New York sales
office and the other staff reductions in Florida will result in the reduced
expenses in excess of reduced revenue. As a result of the closure, we
terminated 47 employees and eliminated 16 open positions, which were vacated
subsequent to December 31, 2007.
 
    
    Share based employee and director compensation expense was $1,571,243 in 2008 as
compared to $1,124,370 in 2007.
 
    
    The increase in 2008 as compared to 2007 was the result of an option grant
to Mr. Clemens and to a lesser extent stock granted to directors.
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##### 




    
    Share based employee and director compensation consists of stock option
and restricted stock grants, which are valued at fair-value at the date of
the grant and expensed over the stock options vesting period or the duration
of employment, whichever is shorter.
 
    
    Commissions to employees were $1,647,643 in 2008 as compared to $1,957,612 in
2007. This decrease was the result of a decrease in sales that resulted in lower
sales commission expense.
    
    Commissions to non employees were $284,594 in 2008 as compared to $272,516 in
2007. We pay commissions to non employee ISG agents.
    
    Employee benefits expense was $263,586 in 2008 as compared to $322,528 in 2007.
This decrease is the result of the reduced personnel employed by the Telesales
segment. The Companys employee benefit cost consists of the company paid portion
of group medical, dental and life insurance coverage and partial Company matching of
employee contributions to a 401(k) plan.
    
    Payroll taxes expense was $608,910 in 2008 as compared to $683,293 in 2007. The
decrease was the result of lower salaries, wages, bonuses and commissions to
employees
    
    Severance and other compensation expense was $407,585 in 2008 as compared to
$305,725 in 2007.
 
    
    Lead, advertising and other marketing was $3,895,305 in 2008 as compared to $5,973,442
in 2007, a decrease of $2,078,137 or 35% due to decrease in the number of leads purchased
in 2008 compared to 2007.
    
    Depreciation and amortization expense consisted of the following:
 For the Nine MonthsEnded September 30,2008
    
    
    2007Amortization of intangibles acquired as a
result of the ISG acquisition
    
    $
    811,639
    
    
    $
    966,425Amortization of software and website development
    
    
    142,383
    
    
    
    186,040Amortization of internet domain name
    
    
    40,300
    
    
    
    40,300Depreciation expense
    
    
    496,893
    
    
    
    438,417Total
    
    $
    1,491,215
    
    
    $
    1,631,182
 
    
    In 2008 we incurred amortization expense of $811,639 as compared to $966,425 for the
intangible assets acquired from ISG. The intangible assets acquired from ISG represent
the value of purchased commission override revenue with an assigned value of $1,411,594
amortized over five years in proportion to expected future value, value of acquired
carrier contracts and agent relationships with an assigned value of $2,752,143 amortized
over five years in proportion to expected future value and value of employment and
non-compete agreement acquired with an assigned value of $800,593 amortized straight line
over a weighted average useful life of 3.2 years.
    
    In 2008 we incurred depreciation expense of $496,893 as compared to $438,417 in 2007.
The increase pertains to the impairment of furniture and equipment located at the
Companys former New York sales office.
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##### 




    
    Rent, utilities, telephone and communications expenses consisted of the following:
 For the Nine Months EndedSeptember 30,2008
    
    
    2007Rent, utilities and other occupancy
    
    $
    1,473,765
    
    
    $
    1,348,518Telephone and communications
    
    
    522,794
    
    
    
    585,781Total
    
    $
    1,996,559
    
    
    $
    1,934,299
 
    
    In 2008 we incurred professional fees of $1,105,308 as compared to $1,277,345 in 2007.
The decrease was primarily attributable to lower legal fees, technology outsourcing fees
and recruiting fees.
    
    During the first quarter of 2008 Telesales closed its sales office located in New York.
As of March 31, 2008, we determined that all furniture and lease-hold improvements
located at the New York sales office were impaired as a result of the office closure.
During the first quarter of 2008 the Company recorded $88,922 expense to write-down the
value of these assets to their net realizable value.
    
    During the first quarter of 2008 we determined that the portion of license fee paid by
Telesales for a commission system together with capitalized costs incurred to implement
the commission system was impaired as a result of the absence of definitive plans to
implement this system for internal use in Telesales. The Company recorded a $295,633
expense in the first quarter of 2008 to write-off the value of this asset.
    
    Other general and administrative expenses consisted of the following:
 For the Nine Months EndedSeptember 30,2008
    
    
    2007Licensing and appointment fees
    
    $
    259,960
    
    
    $
    325,832Travel and entertainment
    
    
    96,747
    
    
    
    250,703Office expense
    
    
    501,370
    
    
    
    579,678Other
    
    
    119,886
    
    
    
    126,913Total
    
    $
    977,963
    
    
    $
    1,283,126
 
    
    We incur licensing and appointment costs associated with the licensing of our employee
insurance agents. The reduction in licensing cost is the result of the reduction in
licensed employees.
    
    In 2008 we had a decrease in travel and entertainment and office expense as compared to
2007 due to the closing of the New York sales office.
 Loss from operations
  Page 58




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##### 



Results of Operations for the Atiam Business Segment
 Revenues
  For the Nine MonthsEnded September 30,2008
    
    
    2007Consulting and implementation services
    
    $
    2,787,385
    
    
    $
    ASP revenue
    
    
    829,245
    
    
    
    Sales of software licenses
    
    
    115,000
    
    
    
    Maintenance revenue
    
    
    306,000
    
    
    
    Total
    
    $
    4,037,630
    
    
    $
    
  For the Nine MonthsEnded September 30,2008
    
    
    2007Client 1
    
    $
    1,937,093
    
    
    $
    Client 2
    
    
    562,562
    
    
    
    Client 3
    
    
    501,944
    
    
    
    Client 4
    
    
    478,138
    
    
    
    Clients 5, 6, 7
    
    
    557,893
    
    
    
    $
    4,037,630
    
    
    $
    
 
    
    Consulting and implementation services are from seven InsPro clients. Implementation
services provided to these clients included assisting clients in setting up their insurance
products in InsPro, providing modifications to InsPros functionality to support the
clients business, interfacing InsPro with the clients other systems, automation of client
correspondence to their customers and data conversion from the clients existing systems to
InsPro.
    
    In 2008 we earned ASP revenue from five InsPro clients. 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 Atiam owned servers located at
Atiams offices or at a third partys site.
    
    In 2008 we earned software license revenue from a single InsPro client.
    
    In 2008 we earned maintenance revenues from four clients.
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##### 



Total Operating Expenses
  
    
    Salaries, commission and related taxes consisted of the following:
 For the Nine Months EndedSeptember 30,2008
    
    
    2007Salaries, wages and bonuses
    
    $
    2,241,136
    
    
    $
    Employee benefits
    
    
    141,103
    
    
    
    Payroll taxes
    
    
    160,201
    
    
    
    Total
    
    $
    2,542,440
    
    
    $
    
 
    
    The Atiam business segment had 27 employees at September 30, 2008.
 
    
    Lead, advertising and other marketing was $12,491 in 2008 and consisted of marketing
and conference fees.
    
    Depreciation and amortization expense consisted of the following:
 For the Nine Months EndedSeptember 30,2008
    
    
    2007Amortization of intangibles acquired as a
result of the Atiam acquisition
    
    $
    351,061
    
    
    $
    Software development costs for external marketing
    
    
    21,787Depreciation expense
    
    
    87,588
    
    
    
    Total
    
    $
    460,436
    
    
    $
    
 
    
    In 2008 we incurred amortization expense of $351,061 for the intangible assets
acquired from Atiam. The Atiam acquisition was effective October 1, 2007.
Intangible assets acquired from Atiam were assigned the following values:
 
    
    value of client contracts and relationships other than license with an
assigned value of $1,089,223 amortized straight line over five years
    
    value of purchased software for sale and licensing value with an assigned
value of $644,449 amortized straight line over five years
    
    employment and non-compete agreements acquired with an assigned value of
$364,000 amortized straight line over three years.
 
    
    In 2008 we incurred amortization expense of $21,787 for software development cost
for external marketing.
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---



##### 




    
    In 2008 we incurred rent, utilities, telephone and communications expense, which
consisted of the following:
 For the Nine Months EndedSeptember 30,2008
    
    
    2007Rent, utilities and other occupancy
    
    $
    93,618
    
    
    $
    Telephone and communications
    
    
    47,560
    
    
    
    Total
    
    $
    141,178
    
    
    $
    
 
    
    In 2008 we incurred professional fees of $854,692 which pertains primarily to
outsourced system development costs and to a lesser extent employee recruiting services.
    
    In 2008 we incurred other general and administrative expenses, which consisted of the
following:
 For the Nine MonthsEnded September 30,2008
    
    
    2007Office expenses
    
    $
    18,341
    
    
    $
    Travel and entertainment
    
    
    92,757
    
    
    
    Computer
processing, hardware, software and other
    
    
    413,102
    
    
    
    Total
    
    $
    524,200
    
    
    $
    
 
    
    We incur travel and entertainment expense in connection with marketing, sales and
implementation of InsPro at client locations.
    
    We incur computer processing fees associated with ASP hosting services. Atiam
has a hosting services contract with a third party, which can be terminated with
notice and payment of a termination fee. This third party provides Atiam with
hosting services for our clients ASP production and test environments.
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##### 



Loss From Operations
       
    
    Decreases in unearned commission advances of $4,233,668 relating to decreased
commission payments from certain of the Companys insurance carriers that advance the
Company future commission revenue. The Company has agreements with certain of its
insurance carriers whereby the Companys insurance carriers advance the Company first year
premium commissions before the commissions are earned. The unearned portion of premium
commissions has been included in the consolidated balance sheet as a liability for
unearned commission advances. Unearned commission advances are recognized as commission
revenue after we receive notice that the insurance company has received payment of the
related premium. In the event that the insurance company does not receive payment of the
related premium pertaining to a commission advance the insurance company generally deducts
the unearned commission advance from its commission payments to the Company. 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 is contractually
limited to a maximum of $9,000,000, can be terminated by either party at any time, and in
the event of termination the Companys outstanding advance balance (including interest, if
any) can be called by the insurance carrier with seven days written notice. As of
September 30, 2008 the Companys outstanding advance balance with this carrier was
$3,427,075. The Companys advance agreement with its second largest insurance carrier
allows the insurance carrier to terminate future advances and convert the outstanding
advance balance into a promissory note, which if not repaid within 30 days, would incur
interest expense. As of September 30, 2008 the Companys outstanding advance balance with
this carrier was $388,793. During the third quarter of 2007, the Company began receiving
advances of first year premium commissions before the commissions are earned from its
third largest insurance carrier. Effective October 1, 2008 this carrier amended its
commisison advance agreement with the Company whereby the Company will receive advances on
policies issued and effective on or after October 1, 2008. However the insurance carrier
will deduct the unearned commission advance balance as of September 30, 2008, which was
$243,462, from its commission payments to the Company during the fourth quarter of 2008.
    
    Payment of $157,288 of income tax liabilities assumed as a result of our acquisition of
Atiam in 2007.
    
    Decreases in accounts payable of $778,329 in 2008, which is primarily the result of the
payment of lead and marketing costs.
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##### 




    
    Decreases in accounts receivable of $488,494 in 2008, which is the result of decreased
commission payments from certain of the Companys insurance carriers that advance the
Company future commission revenue.
  
    
    Recorded stock-based compensation and consulting expense of $1,571,243 and $1,144,845 in
2008 and 2007, respectively.
    
    Recorded depreciation and amortization expense of $1,951,701 and $1,631,182 in 2008 and
2007, respectively.
    
    We recorded $88,922 and $92,374 of expense pertaining to furniture and lease-hold
improvements located at our former New York sales office.
    
    We recorded $295,633 of expense in 2008 to write-off the value of license fee and
capitalized costs incurred to implement a commission system.
   
    
    In first quarter 2008 we completed a private placement with certain institutional
accredited investors and issued 6,250,000 shares of our common stock and warrants to
purchase 6,250,000 shares of our Common Stock. Our gross proceeds were $5,000,000 and we
incurred $70,238 of legal and other expenses in connection with the 2008 Private Placement.
    
    In first quarter 2007 we completed a private placement with certain institutional and
individual accredited investors and issued 5,000,000 shares of our Common Stock, par value
$0.001 per share and warrants to purchase 2,500,000 shares of our Common Stock. Gross
proceeds were $11,250,000 and placement and other fees paid in connection with the 2007
private placement were $895,240.
    
    In 2008 the Companys Atiam business segment has entered into several capital lease
obligations to purchase equipment used for operations.
 Liquidity Considerations
   Page 63




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##### 



Off-Balance Sheet Arrangements
   License Agreement With Realtime Solutions Group
     Page 64




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Item 4T. Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures
   (b) Change in Internal Control over Financial Reporting.
  Page 65




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PART II.
OTHER INFORMATION
 Item 1. Legal Proceedings
  Item 6. Exhibits
 Exhibit No.
    
    Description31.1
    
    Chief Executive Officers Rule 13a-14(a)/15d-14(a) Certification *31.2
    
    Chief Financial Officers Rule 13a-14(a)/15d-14(a) Certification *32.1
    
    Chief Executive Officers Section 1350 Certification 32.2
    
    Chief Financial Officers Section 1350 Certification 
 
 *
    
    Filed herewith.
    
    Furnished herewith. Page 66




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SIGNATURES
  Date: November 19, 2008
    HEALTH BENEFITS DIRECT CORPORATIONBy:
    /s/ ANTHONY R. VERDIAnthony R. VerdiChief Financial Officer and Chief Operating Officer
(Principal Executive and Financial Officer) Page 67




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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 68