As filed with the Securities and Exchange Commission on December __, 2009
Registration
No. 333-162712
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 1
to
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
HEALTH BENEFITS DIRECT CORPORATION
(Name of Small Business Issuer in Its Charter)
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Delaware
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6411
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98-0438502
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(State or Other Jurisdiction of
Incorporation or Organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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150 N. Radnor-Chester Road
Suite B-101
Radnor, Pennsylvania 19087
(484) 654-2200
(Address and Telephone Number of Registrants Principal Executive Offices)
Anthony R. Verdi
Chief Financial Officer and Chief Operating Officer
Health Benefits Direct Corporation
150 N. Radnor-Chester Road
Suite B-101
Radnor, Pennsylvania 19087
(484) 654-2200
(Name, Address and Telephone Number of Agent for Service)
Copy to:
James W. McKenzie, Jr., Esq.
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
(215) 963-5000
Approximate Date of Proposed Sale to the Public:
As soon as practicable after the effective
date of this registration statement.
If any Securities being registered on this Form are to be offered on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.
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If this Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering.
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If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
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If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one)
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Large Accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum
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Proposed Maximum
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Amount to be
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Offering Price Per
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Aggregate Offering
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Amount of
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Title of Each Class of Securities To Be Registered
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Registered
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Unit
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Price ($)
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Registration Fee ($)
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Series A Convertible Preferred Stock, par value $0.001 per share
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(1)
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Warrants to Purchase 5,000 Shares of Common Stock
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(2)
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Common Stock issuable upon exercise of the Warrants
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(3)
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Common Stock issuable upon the conversion of the Series A Convertible Preferred Stock
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(4)
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Total Registration Fee:
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$
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5,000,000
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$
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279.00
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(1)
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Estimated solely for purposes of calculating the registration fee in accordance with Rule
457(i) under the Securities Act of 1933, as amended.
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(2)
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Pursuant to Rule 457(g), no separate registration fee is required for the warrants offered
hereby because they are being registered on the same registration statement as the common stock
underlying the warrants.
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(3)
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Pursuant to Rule 416, the securities being registered hereunder include such indeterminate
number of additional shares of common stock as may be issuable upon exercise of warrants registered
hereunder as a result of stock splits, stock dividends, or similar transactions.
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(4)
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Pursuant to Rule 457(i), no separate registration fee is required for the common stock
underlying the convertible preferred stock because the common stock is being registered on the same
registration statement as the convertible preferred stock.
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Pursuant to Rule 429 under the Securities Act of 1933, the prospectus included in this Registration
Statement is a combined prospectus and also relates to (i) 33,550,000 shares of common stock
previously registered under the Registrants Registration Statement on Form
SB-2 (File No. 333-133182); (ii) 6,050,000 shares
of common stock previously registered under the Registrants Registration Statement on Form SB-2 (File No. 333-142556)
and (iii) 1,089,913 shares of common stock previously registered under the
Registrants Registration Statement on Form SB-2 on Form S-1 (File No. 333-149015). Accordingly,
this Registration Statement, which is a new registration statement, also constitutes Post-Effective
Amendment No. 1 to Registration Statement No. 333-133182, Post-Effective Amendment No. 1
to
Registration Statement No. 333-142556 and Post-Effective Amendment No. 1 to Registration Statement
No. 333-149015, which post-effective amendments shall hereafter become effective concurrently with
the effectiveness of this Registration Statement and in accordance with Section 8(c) of the
Securities Act of 1933. If securities previously registered under Registration Statement No.
333-133182, Registration Statement No. 333-142556 and Registration Statement No. 333-149015 are
offered and sold before the effective date of this Registration Statement, the amount of previously
registered securities so sold will not be included in the prospectus hereunder.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary
to delay its effective date until the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become effective in accordance with
section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to section 8(a), may determine.
Explanatory Note
Health Benefits Direct Corporation (the Company) previously filed a Registration Statement
on Form SB-2 (File No. 333-133182) with the U.S. Securities and Exchange Commission (the SEC) on
April 10, 2006, which was declared effective on July 7, 2006 (the 2006 Prior Registration
Statement). The 2006 Prior Registration Statement registered up to 33,550,000 shares of our common
stock for resale by the selling stockholders named therein, including 8,650,000 shares of our
common stock issuable upon the exercise of warrants held by such selling stockholders.
The Company previously filed a Registration Statement on Form SB-2 (File No. 333-142556) with
the SEC on May 2, 2007, which was declared effective on June 1, 2007 (the 2007 Prior Registration
Statement). The 2007 Prior Registration Statement registered up to 6,050,000 shares of our common
stock for resale by the selling stockholders named therein, including 2,000,000 shares of our
common stock issuable upon the exercise of warrants held by such selling stockholders.
The Company previously filed a Registration Statement on Form SB-2 on Form S-1 (File No.
333-149015) with the SEC on February 1, 2008, which was declared effective on April 22, 2008 (the
2008 Prior Registration Statement, and together with the 2006 Prior Registration Statement and
2007 Prior Registration Statement, the Prior Registration Statements). The 2008 Prior
Registration Statement registered up to 739,913 shares of our common stock for resale by the
selling stockholders named therein, including 350,000 shares of our common stock issuable upon the
exercise of warrants held by such selling stockholders.
Pursuant to Rule 429 under the Securities Act of 1933, the prospectus included in this
Registration Statement is a combined prospectus and also relates to
33,550,000 shares of common stock
registered under the 2006 Prior Registration
Statement, 6,050,000 shares of
common stock registered under the 2007 Prior Registration Statement and
1,089,913 shares
of common stock registered under the 2008 Prior Registration
Statement. Accordingly, this Registration Statement, which is a new registration statement, also
constitutes Post-Effective Amendment No. 1 to the 2006 Prior Registration Statement, Post-Effective
Amendment No. 1 to the 2007 Prior Registration Statement and Post-Effective Amendment No. 1 to the
2008 Prior Registration Statement and is being filed to, among other things: (i) include audited
financial statements for our fiscal year ended December 31, 2008 and to reflect additional
information disclosed in our Annual Report on Form 10-K (the Annual Report) for our fiscal year
ended December 31, 2008, filed with the SEC on March 31, 2009; (ii) include
unaudited interim financial statements for our three and
nine months ended September 30, 2009 and to reflect additional information disclosed in our
Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K filed with the SEC subsequent to
our Annual Report; (iii) convert the Prior Registration Statements from Registration Statements on
Form SB-2 to Registration Statements on Form S-1.
Accordingly, this Registration Statement on Form S-1 (i) carries forward from the Prior
Registration Statements an aggregate of
40,689,913
shares of our common stock, which includes 11,000,000 shares of our common stock issuable upon the exercise of warrants, held by certain of
the named
selling stockholders and (ii) registers an additional 1,250,000 shares of our preferred stock and
warrants to purchase 25,000,000 shares of our common stock which have not previously been
registered. All filing fees payable in connection with the initial filing of the Prior Registration
Statements were previously paid at the time of the initial filing of the Prior Registration
Statements. A registration fee of $279.00 in respect of the 1,250,000 shares of our preferred stock
and warrants to purchase 25,000,000 shares of our common stock being registered in this
Registration Statement on Form S-1 is being paid concurrently with the filing of this Registration
Statement on Form S-1.
The information in this prospectus is not complete and may be changed. We may not sell these
securities until the registration statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where the offer or sale is not permitted
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PRELIMINARY PROSPECTUS
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Subject to Completion
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December ___, 2009
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HEALTH BENEFITS DIRECT CORPORATION
Up to 1,250,000 Shares of Preferred Stock and
Warrants to Purchase 25,000,000 Shares of Common Stock
Issuable Upon Exercise of Rights to Subscribe for such Shares and Warrants
We are distributing, at no charge to the holders of our common stock and preferred stock, non-transferable
subscription rights to subscribe for units, which we refer to throughout this prospectus as Units,
consisting of 250 shares of our Series A preferred stock and a
five-year warrant to purchase 5,000 additional shares of our common stock at an exercise price of
$0.20 per share. Our stockholders will receive one subscription right
for every 12,256 shares of our
common stock and 613 shares of our preferred stock held of record as of 5:00 p.m., New York City time, on December ___, 2009, the record
date. Pursuant to the terms of this offering, the rights may only be exercised for a maximum of
5,000 Units, or $5 million of gross subscription proceeds.
Each subscription right entitles the holder to subscribe for one Unit at the subscription
price of $1,000 per Unit, which we refer to as the basic subscription right. In addition, rights
holders who fully exercise their basic subscription rights will be entitled, subject to
limitations, to subscribe for additional Units that remain unsubscribed as a result of any
unexercised basic subscription rights, which we refer to as the over-subscription right, at the
subscription price of $1,000 per Unit.
There is no minimum number of Units you must purchase, but you may not purchase fractional
Units. When determining the number of subscription rights you will receive, divide the number of
shares of our common stock you own by 12,256 and the number of shares
of preferred stock you own by 613, and round down to the next whole number. For example,
if you own 30,000 shares of our common stock, you will receive two (2) subscription rights
(30,000 shares divided by 12,256 = 2.45, rounded down to two (2) subscription
right, the next
whole number), which will entitle you to subscribe for up to two (2) Units under your basic
subscription privilege.
This rights offering was designed to give all of the holders of our common stock the
opportunity to participate in an equity investment in Health Benefits Direct Corporation on
substantially the same economic terms as our last private placement in January
2009.
The subscription rights will expire if they are not exercised by 5:00 p.m., New York City
time, on February 15, 2010, unless we extend the rights offering period. Our board of
directors may cancel the rights offering at any time prior to the expiration of the rights offering
for any reason and may extend or amend the rights offering for any reason. In the event we cancel
the rights offering, all subscription payments received by us will be returned, without interest or
penalty, as soon as practicable.
The subscription rights nay not be sold, transferred or assigned, and will not be listed for
trading on any stock exchange or on the Over-the-Counter Bulletin Board, the OTCBB.
You should carefully consider whether to exercise your subscription rights before the
expiration date. All exercises of subscription rights are irrevocable. This is not an
underwritten offering. The Units are being offered directly by us without the services of an
underwriter or selling agent. Our board of directors is making no recommendation regarding your
exercise of the subscription rights.
Our common stock is quoted on the OTCBB under the symbol HBDT.OB.
The
average of the bid and asked prices of our common stock on the OTCBB
on December ___, 2009
was
$
per share.
INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD READ THIS ENTIRE PROSPECTUS
CAREFULLY, INCLUDING THE SECTION ENTITLED RISK FACTORS BEGINNING ON PAGE 18.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is , 2009
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TABLE OF CONTENTS
You should rely only on the information contained in this prospectus. We have not authorized
anyone to provide you with information different from the information contained in this prospectus.
We will not make an offer to sell these securities in any jurisdiction where offers and sales are
not permitted. The information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of when this prospectus is delivered or when any sale of our common stock
occurs. All dollar amounts in this prospectus are in U.S. dollars unless otherwise stated.
In this prospectus, unless the context specifically indicates otherwise, all references to
the Company, we, us, and our refer to Health Benefits Direct Corporation and its
subsidiaries.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this prospectus, including in the sections entitled
Questions and Answers About the Rights Offering, Prospectus Summary, Managements Discussion
and Analysis of Financial Condition and Results of Operations, Business and elsewhere in this
report are forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements are based on managements current expectations and are subject to uncertainty and
changes in circumstances. Actual results may vary materially from the expectations contained in the
forward-looking statements. The forward-looking statements herein include, among others, statements
addressing managements views with respect to future financial and operating results and costs
associated with the Companys operations and other similar statements. Various factors, including
competitive pressures, market interest rates, changes in insurance carrier mix, regulatory changes,
customer and insurance carrier defaults or insolvencies, litigation, acquisition of businesses that
do not perform as we expect or that are difficult for us to integrate or control, adverse
resolution of any contract or other disputes with customers and insurance carriers, or the loss of
one or more key insurance carrier relationships, could cause actual outcomes and results to differ
materially from those described in forward-looking statements.
The words may, will, expect, intend, anticipate, estimate, believe, continue
and similar expressions may identify forward-looking statements, but the absence of these words
does not necessarily mean that a statement is not forward-looking. While we believe that we have a
reasonable basis for each forward-looking statement contained in this prospectus, we caution you
that these statements are based on a combination of facts and factors currently known by us and
projections of the future about which we cannot be certain. Many factors, including general
business and economic conditions, affect our ability to achieve our objectives. As a result of
these factors, we cannot assure you that the forward-looking statements in this prospectus will
prove to be accurate. In addition, if our forward-looking statements prove to be inaccurate, the
inaccuracy may be material. In light of the significant uncertainties in these forward-looking
statements, you should not regard these statements as a representation or warranty by us or any
other person that we will achieve our objectives and plans in any specified time frame, if at all.
We may not update these forward-looking statements, even though our situation may change in the
future.
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QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING
The following are examples of what we anticipate will be common questions about the rights
offering. The answers are based on selected information included elsewhere in this prospectus.
The following questions and answers do not contain all of the information that may be important to
you and may not address all of the questions that you may have about the rights offering. This
prospectus contains more detailed descriptions of the terms and conditions of the rights offering
and provides additional information about us and our business, including potential risks related to
the rights offering, the Units, and our business.
What is the rights offering?
We are distributing, at no charge, to holders of our shares of common stock and preferred stock, non-transferable
subscription rights to subscribe for Units consisting of 250 shares
of our Series A preferred stock and a five-year warrant to purchase 5,000 additional shares of our
common stock at an exercise price of $0.20 per share. You will receive one subscription right for
every 12,256 shares of our common stock and are right for every 613 shares of our preferred stock held of record by you as of 5:00 p.m., New York City time,
on December ___, 2009, the record date. Each subscription right entitles the holder to a basic
subscription right and an over-subscription privilege, which are described below. The shares of
preferred stock and the warrant to be issued as components of the Units in the rights offering do
not currently trade on the OTCBB or on any other exchange, and are only transferable to the extent
permitted in the instruments governing such securities.
What is the basic subscription right?
The basic subscription right gives our stockholders the opportunity to purchase Units at a
subscription price of $1,000 per Unit for each 12,256 shares of common
stock or 613 shares of preferred stock you own. We have
granted to you, as a stockholder of record on the record date, one subscription right for each
12,256 shares of our common stock and each 613 shares of preferred stock you owned at that time.
There is no minimum number of Units you must purchase, but you may not purchase fractional
Units. When determining the number of subscription rights you will receive, divide the number of
shares of our common stock you own by 12,256 and the number of shares
of preferred stock you own by 613, and round down to the next whole number. For example,
if you own 30,000 shares of our common stock, you will receive two (2) subscription rights
(30,000 shares divided by 12,256 = 2.45, rounded down to two (2) subscription
rights, the next
whole number), which will entitle you to subscribe for up to two (2) Units under your basic
subscription privilege.
You may exercise all or a portion of your basic subscription right, or you may choose not to
exercise any subscription rights at all. However, if you exercise less than your full basic
subscription right, you will not be entitled to purchase shares under your over-subscription
privilege.
If you hold a Health Benefits Direct Corporation stock certificate, the number of Units you
may purchase pursuant to your basic subscription right is indicated on the enclosed rights
certificate. If you hold your shares of common stock in the name of a broker, dealer, custodian bank, or other
nominee who uses the services of the Depository Trust Company (DTC), you will not receive a rights
certificate. Instead, DTC will issue one subscription right to your nominee record holder for each
12,256 shares of our common stock that you own at the record date. If you are not contacted by your
nominee, you should contact your nominee as soon as possible.
What is the over-subscription privilege?
In the event that you purchase all of the Units available to you pursuant to your basic
subscription right, you may also choose to purchase any Units that are not purchased by our other
stockholders through the exercise of their basic subscription rights. You should indicate on your
rights certificate, or the form provided by your nominee if your shares are held in the name of a
nominee, how many additional Units you would like to purchase pursuant to your over-subscription
privilege.
If sufficient Units are available, we will seek to honor your over-subscription request in
full. If, however, over-subscription requests exceed the number of Units available, we will
allocate the available Units pro rata among the stockholders exercising the over-subscription
privilege in proportion to the number of shares of common stock and preferred stock owned by such stockholder on the
record date, relative to the number of shares owned on the record date by all stockholders
exercising the over-subscription privilege. If this pro rata allocation results in any stockholder
receiving a greater number of Units than the stockholder subscribed for pursuant to the exercise
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of the over-subscription privilege, then such stockholder will be allocated only that number of
Units for which the stockholder oversubscribed, and the remaining Units will be allocated among all
other stockholders exercising the over-subscription privilege on the same pro rata basis described
above. The proration process will be repeated until all Units have been allocated.
In order to properly exercise your over-subscription privilege, you must deliver the
subscription payment related to your over-subscription privilege prior to the expiration of the
rights offering. Because we will not know the total number of unsubscribed Units prior to the
expiration of the rights offering, if you wish to maximize the number of Units you purchase
pursuant to your over-subscription privilege, you will need to deliver payment in an amount equal
to the aggregate subscription price for the maximum number of Units that may be available to you
(i.e., for the maximum number of Units available to you, assuming you exercise all of your basic
subscription rights and are allotted the full amount of your over-subscription). See The Rights
Offering The Subscription Rights Over-Subscription Privilege.
Any excess subscription payments received by us will be returned, without interest or penalty,
as soon as practicable.
Why are we conducting the rights offering?
We are conducting the rights offering for the primary purpose of raising equity capital to
improve our capital position, to inject additional capital into Health Benefits Direct Corporation
and to retain the remainder of any proceeds at Health Benefits Direct Corporation for general
corporate purposes. See Use of Proceeds.
This rights offering, including the composition and price of the Unit, was designed to give
all of the holders of our common stock the opportunity to participate in an equity investment in
Health Benefits Direct Corporation on substantially the same economic terms as our last private
placement in January 2009.
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Are we pursuing other initiatives to improve our capital position?
Yes. We have undertaken several initiatives to improve our capital position. These initiatives
include, but are not limited to, the cessation of the direct marketing and sale of health and life
insurance in our Telesales call center, the sale of our Telesales call center produced agency
business to an unaffiliated third party, the sublease of unused office space and a reduction in our
staff by approximately 72%. We intend to continue to explore additional initiatives to improve our
capital position in light of the turbulent economic environment and our desire to preserve capital.
How was the $1,000 per Unit subscription price determined?
The $1,000 per Unit subscription price was determined by our board of directors based on the
per share value of the preferred stock and warrants (considered in the aggregate)
purchased by investors in our last private placement in January 2009. In January 2009, we sold units, consisting of one share of our
Series A preferred stock (each share of which is convertible, at the sole option of the holder,
into twenty shares of our common stock) and one five-year warrant to purchase 20 shares of our
common stock, at a per unit price of $4.00. We sold a total of 1,000,000 units for an aggregate purchase price of $4,000,000.
In determining the subscription price, our board of directors considered the overall economic
value offered to investors in Health Benefits Direct Corporation in
this last private
placement. If an investor had invested in this last private placement
, for every $1,000
invested, such investor would have received 250 shares of Series A
preferred stock and warrants to purchase 5,000 additional shares of our common stock at an exercise
price of $0.20 per share. As a result, the Units offered in this
rights offering consist of 250 shares of our Series A preferred stock and a warrant to purchase
5,000 shares of our common stock at a price per Unit of $1,000.
We did not seek or obtain an opinion of financial advisors in establishing the subscription
price. The subscription price will not necessarily be related to our book value, tangible book
value, net worth or any other established criteria of fair value.
What are the material terms of the Series A preferred stock offered in this rights offering?
Each share of Series A preferred stock offered in this rights offering is convertible, at the
sole discretion of each holder of preferred stock, into 20 shares of common stock, subject to
certain adjustments. The holders of shares of our Series A preferred stock are entitled to vote,
with respect to any question upon which holders of our common stock are entitled to vote, together
with the holders of common stock as one class on an as-converted basis. At such time, if any, as
our board of directors declares a dividend or distribution on the common stock, the holders of
preferred stock shall be entitled to receive, for each share of Series A preferred stock held by
them, a dividend or distribution in an amount equal to what such holder of preferred stock would
receive if their shares were converted into shares of common stock. We do not currently intend to
pay any cash dividends to the holders of shares of our common stock.
In addition, upon the liquidation, sale or merger of Health Benefits Direct Corporation, each
share of our Series A preferred stock is entitled to receive an amount equal to the greater of (A)
a liquidation preference equal to two and a half (2.5) times the Series A preferred stock original
issue price, subject to certain customary adjustments, or (ii) the amount such preferred stock
would receive if it participated
pari passu
with the holders of our common stock on an as-converted
basis. For so long as any shares of Series A preferred stock are outstanding, the vote or consent
of the holders of at least two-thirds of the shares of preferred stock is required to approve (Y)
any amendment to our certificate of incorporation or bylaws that would adversely alter the voting
powers, preferences or special rights of the Series A preferred stock or (Z) any amendment to our
certificate of incorporation to create any shares of capital stock that rank senior to the Series A
preferred stock. In addition to the voting rights described above, for so long as 1,000,000 shares
of Series A preferred stock are outstanding, the vote or consent of the holders of at least
two-thirds of the preferred stock is required to
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effect or validate any merger, sale of substantially all of the assets of Health Benefits Direct
Corporation or other fundamental transaction, unless such transaction, when consummated, will
provide the holders of preferred stock with an amount per share equal to two and a half (2.5) times
the Series A preferred stock original issue price.
In the event of (a) the sale of all or substantially all of the assets of Health Benefits
Direct Corporation, (b) any tender offer or exchange pursuant to which the holders of a majority of
common stock exchange such shares for other securities, cash or property or (c) any
reclassification of the common stock pursuant to which the shares of common stock are effectively
converted or exchanges for other securities, cash or property, if we do not effect a dissolution
within ninety (90) days after such event, the holder of a majority of the shares of Series A
preferred stock may require us, within 120 days of such event, to redeem all outstanding shares of
Series A preferred stock at a price per share equal to two and a half (2.5) times the Series A
preferred stock original issue price, subject to certain customary adjustments.
What are the material terms of the warrants offered in this rights offering?
The warrants that we are offering in this rights offering are in substantially similar form to
those warrants purchased by investors in the last private placement in January
2009. Each warrant issued as a component of the Units will be a five-year warrant to purchase
5,000 shares of our common stock at an exercise price of $0.20 per share, subject to our right to
call the warrant under certain conditions. The warrants include full ratchet anti-dilution
adjustment provisions for issuances of securities below $0.20 per share during the first two years
following the date of issuance of the warrants, subject to customary exceptions.
Am I required to exercise all of the subscription rights I receive in the rights offering?
No. You may exercise any number of your subscription rights, or you may choose not to exercise
any subscription rights. If you do not exercise any subscription rights, the number of shares of
our common stock or preferred stock you own will not change. However, if you choose not to exercise your subscription
rights, your ownership interest in Health Benefits Direct Corporation may be diluted by other
stockholder purchases (to the extent we receive any subscriptions in this rights offering). In
addition, if you do not exercise your basic subscription right in full, you will not be entitled to
participate in the over-subscription privilege. See Risk Factors If you do not exercise your
subscription rights, your percentage ownership in Health Benefits Direct Corporation will be
diluted.
How soon must I act to exercise my subscription rights?
If you received a rights certificate and elect to exercise any or all of your subscription
rights, we must receive your completed and signed rights certificate and payments prior to the
expiration of the rights offering, which is February 15, 2010, at 5:00 p.m., Eastern Time. If you hold
your shares in the name of a broker, dealer, custodian bank or other nominee, your nominee may
establish a deadline prior to 5:00 p.m. Eastern Time, on
February 15, 2010 by which you must
provide it with your instructions to exercise your subscription rights. Although our board of
directors may, in its discretion, extend the expiration of the rights offering, we currently do not
intend to do so. Our board of directors may cancel or amend the rights offering at any time. In
the event that the rights offering is cancelled, all subscription payments received will be
returned, without interest or penalty, as soon as practicable.
Although we will make reasonable attempts to provide this prospectus to our stockholders, the
rights offering and all subscription rights will expire at 5:00 p.m., Eastern Time on February 15,
2010, whether or not we have been able to locate each person entitled to subscription rights.
May I transfer my subscription rights?
No. You may not sell, transfer or assign your subscription rights to anyone. Subscription
rights will not be listed for trading on the OTCBB or any other stock exchange or market. Rights
certificates may only be completed by the stockholder who receives the certificate.
Are we requiring a minimum subscription to complete the rights offering?
No. There is no individual minimum purchase requirement in the rights offering and we are not
requiring a minimum subscription to complete the rights offering. However, because we are not
issuing fractional Units, you must own at least 12,256 shares of our
common stock or 613 shares of our preferred stock as of the record
date in order to subscribe for one Unit in the rights offering.
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In addition, our board of directors reserves the right to cancel the rights offering for any
reason, including if we do not receive aggregate subscriptions that we believe will satisfy our
capital plans.
Can the board of directors cancel, amend or extend the rights offering?
Yes. Our board of directors may decide to cancel, amend or terminate the rights offering at
any time before the expiration of the rights offering and for any reason. If our board of directors
cancels or terminates the rights offering, any money received from subscribing stockholders will be
returned, without interest or penalty, as soon as practicable. We also reserve the right to amend
or modify the terms of the rights offering. We further have the right to extend the rights offering
and the time for exercising your subscription rights, although we do not presently intend to do so.
Has our board of directors made a recommendation to our stockholders regarding the rights offering?
No. Our board of directors is making no recommendation regarding your exercise of the
subscription rights. Stockholders who exercise subscription rights risk investment loss on new
money invested. There is currently no public market for our shares of Series A preferred stock.
You are urged to make your decision based on your own
assessment of our business and financial condition, our prospects for the future, the terms of the
rights offering and the information contained in, or incorporated by reference into, this
prospectus. See Risk Factors for a discussion of some of the risks involved in investing in our
common stock.
How do I exercise my subscription rights if I own shares in certificate form?
If you hold a Health Benefits Direct stock certificate and you wish to participate in the
rights offering, you must take the following steps:
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deliver payment to us before 5:00 p.m., Eastern Time, on
February 15, 2010; and
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deliver a properly completed and signed rights certificate to us before 5:00 p.m.,
Eastern Time, on February 15, 2010.
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In certain cases, you may be required to provide additional documentation or signature guarantees.
Please follow the delivery instructions on the rights certificate. You are solely responsible
for completing delivery to us of your subscription documents, rights certificate and payment. We
urge you to allow sufficient time for delivery of your subscription materials to us so that they
are received by us by 5:00 p.m., Eastern Time, on February 15,
2010.
WE WILL NOT ACCEPT ANY
SUBSCRIPTIONS THAT WE RECEIVE AFTER THIS TIME.
If you send a payment that is insufficient to purchase the number of Units you request, or if
the number of Units you request is not specified in the forms, the payment received will be applied
to exercise your subscription rights to the fullest extent possible
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based on the amount of the payment received, subject to the availability of Units under the
over-subscription privilege and the elimination of fractional Units.
What should I do if I want to participate in the rights offering, but my shares are held in the
name of a broker, dealer, custodian bank or other nominee?
If you hold your shares of common stock through a broker, dealer, custodian bank or other
nominee, then your nominee is the record holder of the shares you own. The record holder must
exercise the subscription rights on your behalf. If you wish to purchase Units through the rights
offering, you should contact your broker, dealer, custodian bank or nominee as soon as possible.
Please follow the instructions of your nominee. Your nominee may establish a deadline that may be
before the expiration date that we have established for the rights offering.
When will I receive my new shares and warrants?
If you purchase Units in the rights offering you will receive your new shares and warrants as
soon as practicable after the closing of the rights offering.
After I send in my payment and rights certificate, may I cancel my exercise of subscription rights?
No. All exercises of subscription rights are irrevocable unless the rights offering is
terminated, even if you later learn information that you consider to be unfavorable to the exercise
of your subscription rights. You should not exercise your subscription rights unless you are
certain that you wish to purchase Units in the rights offering.
Are there any conditions to completing the rights offering?
No, there are no conditions to completion of the rights offering.
What effects will the rights offering have on our outstanding preferred stock and
warrants?
As
of December ___, 2009, we had 1,000,000 shares of
Series A preferred stock and 51,566,887 warrants to purchase shares of common stock issued and
outstanding. The number of shares of our preferred stock and warrants that we will
issue in this rights offering through the exercise of subscription rights will depend on the number
of Units that are subscribed for in the rights offering. We could, depending on the number of Units that are subscribed
for in the offering, have a maximum of 2,250,000 shares of
preferred stock and warrants to purchase 76,566,887 shares of our common stock outstanding after
completion of the rights offering.
The issuance of Units in the rights offering will dilute, and thereby reduce, your
proportionate ownership in Health Benefits Direct Corporation. If you fully exercise your basic
subscription right and a certain level of your over-subscription privilege, your ownership interest
will be diluted to a lesser extent.
How much will Health Benefits Direct Corporation receive from the rights offering?
If all of the
subscription rights (including all over-subscription privileges) are exercised
in full by our stockholders, we expect the gross proceeds from the rights offering to be
approximately $5 million.
If no subscription rights are exercised by our stockholders, we
would receive no proceeds from the offering.
We are offering shares in the rights offering to
stockholders with no individual minimum purchase requirement.
Are there risks in exercising my subscription rights?
Yes. The exercise of your subscription rights involves risks. Exercising your subscription
rights involves the purchase of additional shares of our preferred stock and warrants
to purchase our common stock and should be considered as carefully as you would consider any other
equity investment. Among other things, you should carefully consider the risks described under the
heading Risk Factors in this prospectus and in the documents incorporated by reference in this
prospectus.
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If the rights offering is not completed, will my subscription payment be refunded to me?
Yes. We will hold all funds we receive in a segregated bank account until completion of the rights offering. If the rights offering is not completed, all subscription payments received by us will be returned, without interest or penalty, as soon as practicable. If you own shares in
street name, it may take longer for you to receive your subscription payment because we will return payments through the record
holder of your shares.
What fees or charges apply if I purchase Units in the rights offering?
We are not charging any fee or sales commission to issue subscription rights to you or to issue shares or warrants to you if you exercise your subscription rights. If you exercise your subscription rights through a broker, dealer, custodian bank or other nominee, you are responsible
for paying any fees your record holder may charge you.
What are the material U.S. federal income tax consequences of exercising my subscription rights?
For U.S. federal income tax purposes, you should not recognize income or loss in connection with the receipt or exercise of subscription rights in the rights offering. You should consult your tax advisor as to your particular tax consequences resulting from the rights offering. For
a detailed discussion, see Material U.S. Federal Income Tax Considerations.
To whom should I send my forms and payment?
If your shares are held in the name of a broker, dealer or other nominee, then you should send your subscription documents, rights certificate and subscription payment to that record holder. If you are the record holder, then you should send your subscription documents, rights certificate
and subscription payment by hand delivery, first class mail or courier service to:
Health Benefits Direct Corporation
150 N. Radnor-Chester Road
Suite B-101
Radnor, Pennsylvania 19087
Attn: Francis L. Gillan III
You are solely responsible for completing delivery to us of your subscription documents, rights certificate and payment. We urge you to allow sufficient time for delivery of your subscription materials to us.
Whom should I contact if I have other questions?
If
you have any questions regarding Health Benefits Direct Corporation
or the rights offering, please contact Francis L. Gillan III at (484)
654-2200. You may also contact us with questions by electronic mail
at rightsoffering@HBDC.com.
If
you have any questions regarding completing a rights certificate or
submitting payment in the rights offering, please contact Francis L.
Gillan III at (484) 654-2200 or by electronic
mail at rightsoffering@HBDC.com.
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this prospectus. This
summary is not complete and does not contain all of the information that you should consider before
investing in our securities. You should read the entire prospectus carefully, including the Risk
Factors section, before making a decision to invest in our securities.
Our Business
We are a technology company that provides software applications for use by insurance agents
and insurance administrators in the health insurance industry. Our business focuses on two primary
software products: our Insurint product and our InsPro software application.
Insurint is a proprietary, professional-grade, web-based agent portal that aggregates
real-time quotes and underwriting information from multiple highly-rated carriers of health and
life insurance and related products. We market Insurint using a Software as a Service (SaaS) model
instead of software licensing model, which offers easy web-based distribution and pay-as-you-go
pricing. We market Insurint primarily to insurance agents, agencies, and other organizations
selling health insurance products to families and individuals. Unlike existing health insurance
quote engines, Insurint also enables an agent to input responses to a set of questions about the
health of proposed insureds, which enables the agent to place an insurance policy faster and more
accurately. In addition, Insurint offers a suite of sales tools that agents can use to increase
their overall sales production.
InsPro is a comprehensive, web-based insurance administration software application. InsPro
was introduced by Atiam Technologies, L.P. (now our InsPro Technologies, LLC subsidiary) in 2004.
InsPro clients include health insurance carriers and third party administrators. Unlike our
Insurint platform, we market InsPro as a licensed software application, and we realizes revenue
from the sale of the software licenses, application service provider fees, software maintenance
fees and consulting and implementation services.
Our common stock is currently publicly traded under the symbol HBDT.OB on the OTCBB.
Summary of this Rights Offering
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Securities Offered
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We are distributing to you, at no charge, one non-transferable subscription right for
each 12,256 shares of our common stock and 613 shares of our
preferred stock that you owned as of 5:00 p.m., Eastern Time, on
December ___, 2009, the record date, either as a holder of record or, in the case of shares
held of record by brokers, dealers, custodian banks, or other nominees on your behalf, as
a beneficial owner of such shares. If the rights offering is fully subscribed, we expect
the gross proceeds from the rights offering to be approximately $5 million. This rights
offering was designed to give all of the holders of our common stock the opportunity to
participate in an equity investment in Health Benefits Direct Corporation on the same
economic terms as the investment made by investors in our last private placement in January 2009.
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Basic Subscription Right
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The basic subscription right will entitle you to purchase one unit at a subscription
price of $1,000. A unit consists of 250 shares of our
Series A preferred stock and a five-year warrant to purchase an additional 5,000 shares
of our common stock at an exercise price of $0.20 per share. We refer to these units
throughout this prospectus as Units.
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There is no minimum number of Units you must purchase, but you may not purchase
fractional Units. When determining the number of subscription rights you will receive,
divide the number of shares of our common stock you own by 12,256 and
the number of shares of our preferred stock you own by 613, and round down to the
next whole number. For example, if you own 30,000 shares of our common stock, you will
receive two (2) subscription rights (30,000 shares divided by
12,256 = 2.45, rounded
down to two (2) subscription rights, the next whole number), which will entitle you to
subscribe for up to two (2) Units under your basic subscription privilege.
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Over-Subscription Privilege
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In the event that you purchase all of the Units available to you pursuant to your basic
subscription right, you may also choose to subscribe for a portion of any Units that are
not purchased by our stockholders through the exercise of their basic subscription
rights. You may subscribe for these Units pursuant to your over-subscription privilege,
subject to the limitations described below.
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Subscription Price
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$1,000 per Unit, payable in cash. To be effective, any payment related to the exercise of
a subscription right must clear prior to the expiration of the rights offering.
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Record Date
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5:00 p.m., Eastern Time, on
December ___, 2009.
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Expiration of the Rights Offering
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5:00 p.m., Eastern Time, on
February 15, 2010.
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Use of Proceeds
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We intend to use the proceeds of the rights offering to improve our capital position and
for general corporate purposes.
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Non-Transferability of Rights
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The subscription rights may not be sold, transferred or assigned and will not be listed
for trading on the Over-the-Counter Bulletin Board or on any other stock exchange or
market.
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No Revocation
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All exercises of subscription rights are irrevocable, even if you later learn of
information that you consider to be unfavorable to the exercise of your subscription
rights. You should not exercise your subscription rights unless you are certain that you
wish to purchase additional Units at a subscription price of $1,000 per full Unit.
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Material U.S. Federal Income Tax Consequences
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For U.S. federal income tax purposes, you should not recognize income or loss upon
receipt or exercise of a subscription right. You should consult your own tax advisor as
to the tax consequences to you of the receipt, exercise or lapse of the subscription
rights in light of your particular circumstances.
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Extension, Cancellation and Amendment
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Although we do not presently intend to do so, we have the option to extend the rights
offering and the period for exercising your subscription rights. Our board of directors
may cancel the rights offering at any time prior to the expiration date of the rights
offering for any reason. In the event that the rights offering is cancelled, all
subscription payments received by us will be returned, without interest or penalty, as
soon as practicable. We also reserve the right to amend or modify the terms of the rights
offering at any time.
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Procedures for Exercising Rights
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To exercise your subscription rights, you must take the following steps:
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If you are a registered holder of our common stock or our preferred stock, you
must deliver payment and a properly completed rights
certificate to us so that we receive these items before
5:00 p.m., Eastern Time, on February 15, 2010. You may deliver
the documents and payments by hand delivery, first class
mail or courier service. If first class mail is used for
this purpose, we recommend using registered mail, properly
insured, with return receipt requested.
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If you are a beneficial owner of shares that are
registered in the name of a broker, dealer, custodian bank
or other nominee, or if you would rather an institution
conduct the transaction on your behalf, you should
instruct your broker, dealer, custodian bank or other
nominee to exercise your subscription rights on your
behalf. Please follow the instructions of your nominee,
who may require that you meet a deadline earlier than 5:00
p.m., Eastern Time, on February 15, 2010.
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Shares Outstanding Before the Rights Offering
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1,000,000 shares of our Series A preferred stock
and warrants to purchase 51,566,887 shares of our common stock were outstanding as of
December ___, 2009.
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Shares Outstanding After Completion of the Rights Offering
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Assuming all units are sold in the
rights offering, we expect approximately 2,250,000 shares of our Series A preferred stock and
warrants to purchase 76,566,887 shares of our common stock will be outstanding
immediately after completion of the rights offering
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Fees and Expenses
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We will pay the expenses related to the rights offering.
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The Over-the-Counter Bulletin Board
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Our shares of common stock are currently listed for trading on the Over-the-Counter
Bulletin Board under the ticker symbol HBDT.OB.
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Risk Factors
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Before you exercise your subscription rights to purchase our securities,
you should carefully consider risks described in the section entitled Risk Factors,
beginning on page 18 of this prospectus.
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Our Corporate Information
Our principal executive offices are located at 150 N. Radnor-Chester Road, Suite B-101,
Radnor, Pennsylvania 19087. The principal executive offices of our wholly-owned subsidiary, HBDC
II, Inc., are located at 2200 S.W. 10th Street, Deerfield Beach, Florida 33442. The principal
executive offices of our wholly-owned subsidiary, InsPro Technologies, LLC, are located at 350
Baldwin Tower, Eddystone, PA 19022. Our telephone number is (484) 654-2200. Our website address is
www.healthbenefitsdirect.com. The information contained on our website is not incorporated by
reference into, and does not form any part of, this prospectus.
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RISK FACTORS
Investing in our securities involves significant risks. In addition to all of the other
information contained in this prospectus, you should carefully consider the risks and uncertainties
described below before deciding to invest in our common stock and preferred stock. If any of the
following risks actually occur, they may materially harm our business, our financial condition or
our results of operations. In this event, the market price of our securities could decline and you
could lose all or part of your investment.
Risks Related to the Rights Offering
If you do not exercise your subscription rights, your percentage ownership in Health Benefits
Direct Corporation will be diluted.
Stockholders who do not fully exercise their subscription rights should expect that they will,
at the completion of this offering, own a smaller proportional interest in our company than would
otherwise be the case had they fully exercised their basic subscription and over-subscription
rights. In addition, the shares issuable upon the exercise of the warrants to be issued pursuant
to this rights offering will dilute the ownership interest of stockholders not participating in
this offering or holders of warrants issued pursuant to this offering who have not exercised them.
The subscription rights are not transferable, and there is no market for the subscription rights.
You may not sell, give away or otherwise transfer your subscription rights. The subscription
rights are only transferable by operation of law. Because the subscription rights are
non-transferable, there is no market or other means for you to directly realize any value
associated with the subscription rights.
If we terminate this offering for any reason, we will have no obligation other than to return
subscription monies as soon as practicable.
We may decide, in our sole discretion and for any reason, to cancel or terminate the rights
offering at any time prior to the expiration date. If this offering is cancelled or terminated, we
will have no obligation with respect to subscription rights that have been exercised except to
return as soon as practicable, without interest, the subscription payments deposited with us. If
we terminate this offering and you have not exercised any subscription rights, such subscription
rights will expire worthless.
The subscription price determined for this offering is not an indication of the fair value of our
common stock.
In determining the subscription price, our board of directors considered the overall economic
value offered to investors in Health Benefits Direct Corporation in our last private placement
in January 2009. If an investor had invested in this last private placement
for every $1,000 invested, such investor would have received 250 shares
of Series A preferred stock and warrants to purchase 5,000 additional shares of our common stock at
an exercise price of $0.20 per share. As a result, the Units offered in this rights offering
consist of 250 shares of our Series A preferred stock and a warrant
to purchase 5,000 shares of our common stock at a price per Unit of $1,000.
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We did not seek or obtain an opinion of financial advisors in establishing the subscription
price. The subscription price will not necessarily be related to our book value, tangible book
value, net worth or any other established criteria of fair value.
We will have broad discretion in the use of the net proceeds from this offering and may not use the
proceeds effectively.
Although we plan to use the proceeds of this offering for general corporate purposes,
including working capital, we will not be restricted to such use and will have broad discretion in
determining how the proceeds of this offering will be used. Our discretion is not substantially
limited by the uses set forth in this prospectus in the section entitled Use of Proceeds. While
our board of directors believes the flexibility in application of the net proceeds is prudent, the
broad discretion it affords entails increased risks to the investors in this offering. Investors
in this offering have no current basis to evaluate the possible merits or risks of any application
of the net proceeds of this offering. Our stockholders may not agree with the manner in which we
choose to allocate and spend the net proceeds.
If you do not act on a timely basis and follow subscription instructions, your exercise of
subscription rights may be rejected.
Holders of subscription rights who desire to purchase Units in this offering must act on a
timely basis to ensure that all required forms and payments are actually received by us prior to
5:00 p.m., New York City time, on the expiration date, unless extended, unless delivery of the
subscription rights certificate is effected pursuant to the guaranteed delivery procedures as
described below. If you are a beneficial owner of shares of common stock or preferred stock and you wish to exercise
your subscription rights, you must act promptly to ensure that your broker, dealer, custodian bank,
trustee or other nominee acts for you and that all required forms and payments are actually
received by your broker, dealer, custodian bank, trustee or other nominee in sufficient time to
deliver such forms and payments to us to exercise the subscription rights granted in this offering
that you beneficially own prior to 5:00 p.m., New York City time on the expiration date, as may be
extended, unless delivery of the subscription rights certificate is effected pursuant to the
guaranteed delivery procedures as described below. We will not be responsible if your broker,
dealer, custodian bank, trustee or other nominee fails to ensure that all required forms and
payments are actually received by us prior to 5:00 p.m., New York City time, on the expiration
date.
If you fail to complete and sign the required subscription forms, send an incorrect payment
amount, or otherwise fail to follow the subscription procedures that apply to your exercise in this
rights offering, we may, depending on the circumstances, reject your subscription or accept it only
to the extent of the payment received. We do not undertake to contact you concerning an incomplete
or incorrect subscription form or payment, nor are we under any obligation to correct such forms or
payment. We have the sole discretion to determine whether a subscription exercise properly follows
the subscription procedures.
You may not receive all of the Units for which you subscribe pursuant to the over-subscription
privilege.
Holders who fully exercise their basic subscription rights will be entitled to subscribe for
an additional amount of Units that are not purchased by our other holders through the exercise of
their basic subscription rights. Over-subscription rights will be allocated pro-rata among
subscription rights holders who over-subscribed, based on the number of shares of common stock and preferred stock
owned by such holders on the record date, relative to the number of shares owned on the record date
by all stockholders exercising the over-subscription privilege. You may not receive any or all of
the amount of Units for which you over-subscribed. If the pro rated amount of Units allocated to
you in connection with your over-subscription right is less than your over-subscription request,
then the excess funds held by us on your behalf will be returned to you, without interest, as soon
as practicable after the rights offering has expired and all prorating calculations and reductions
contemplated by the terms of the rights offering have been effected, and we will have no further
obligations to you.
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If you make payment of the subscription price by uncertified check, your check may not clear in
sufficient time to enable you to purchase Units in this rights offering.
Any uncertified check used to pay for Units to be issued in this rights offering must clear
prior to the expiration date of this rights offering, and the clearing process may require five or
more business days. If you choose to exercise your subscription rights, in whole or in part, and
to pay for Units by uncertified check and your check has not cleared prior to the expiration date
of this rights offering, you will not have satisfied the conditions to exercise your subscription
rights and will not receive the Units you wish to purchase.
The receipt of subscription rights may be treated as a taxable distribution to you.
The distribution of the subscription rights in this rights offering should be a non-taxable
distribution under Section 305(a) of the Internal Revenue Code of 1986, as amended, or the Code.
Please see the discussion on the Material U.S. Federal Income Tax Considerations below. This
position is not binding on the IRS, or the courts, however. If this rights offering is deemed to
be part of a disproportionate distribution under Section 305(b)(2) of the Code (or otherwise to
be within one of the exceptions to Section 305(a) of the Code set forth in Section 305(b) of the
Code), your receipt of subscription rights in this offering may be treated as the receipt of a
taxable distribution to you equal to the fair market value of the subscription rights. Any such
distribution would be treated as dividend income to the extent of our current and accumulated
earnings and profits, if any, with any excess being treated as a return of capital to the extent
thereof and then as capital gain. Each holder of common stock and preferred stock is urged to consult his, her or its
own tax advisor with respect to the particular tax consequences of this rights offering.
Absence of a public trading market for the warrants and shares of Series A preferred stock may
limit the ability of a purchaser to resell the warrants.
There is no established trading market for the warrants or the shares of our Series A
preferred stock to be issued pursuant to this offering, and such securities may not be widely
distributed. There can be no assurance that a market will develop for the warrants or the shares
of Series A preferred stock. Even if a market for these securities does develop, the price of the
warrants and the Series A preferred stock may fluctuate and liquidity may be limited. If a market
for these securities does not develop, then purchasers of the warrants and the shares of Series A
preferred stock may be unable to resell the securities or sell them only at an unfavorable price
for an extended period of time, if at all. Future trading prices of the warrants and shares of
Series A preferred stock will depend on many factors, including:
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our operating performance and financial condition;
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our ability to continue the effectiveness of the registration statement, of which this
prospectus is a part, covering the warrants and shares of Series A preferred stock and the
common stock issuable upon exercise or conversion of these securities;
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the interest of securities dealers in making a market; and
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the market for similar securities.
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The market price of our common stock may never exceed the exercise price of the warrants issued in
connection with this offering.
The warrants being issued in connection with this offering become exercisable on their date of
issuance and will expire five years thereafter. We cannot provide you any assurance that the
market price of our common stock will ever exceed the exercise price of these warrants prior to
their date of expiration. Any warrants not exercised by their date of expiration will expire
worthless and we will be under no further obligation to the warrant holder.
Since the warrants are executory contracts, they may have no value in a bankruptcy or
reorganization proceeding.
In the event a bankruptcy or reorganization proceeding is commenced by or against us, a
bankruptcy court may hold that any unexercised warrants are executory contracts that are subject to
rejection by us with the approval of the bankruptcy court. As a result, holders of the warrants
may, even if we have sufficient funds, not be entitled to receive any consideration for their
warrants or may
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receive an amount less than they would be entitled to if they had exercised their warrants
prior to the commencement of any such bankruptcy or reorganization proceeding.
Your ability to resell the securities you acquire in the rights offering may be limited by state
securities laws.
If you purchase securities in the rights offering, you may not be able to resell the
securities to other persons unless the securities are registered under the securities laws of the
states in which the potential purchasers reside or exemptions from registration requirements are
available in such states. We do not intend to register any of the securities for resale in any
states or jurisdictions. Consequently, you may only be able to sell the securities in those states
where exemptions are available, such as an exemption for sales to institutional investors. In
addition, in the event that the warrants to be issued in this rights offering are sold to another
person, the purchaser may not be able to exercise the warrants unless an exemption is available in
the purchasers state of residence for the issuance of common stock upon the exercise of warrants.
Risks Relating to our Company and Industry
We have a limited operating history and have incurred significant operating losses since our
inception, which we anticipate will continue for the foreseeable future.
We are an early stage company with a limited operating history, which makes it difficult for
investors to evaluate our business and prospects. Investors in our securities must consider our
prospects in light of the risks, expenses and difficulties that we face as an early stage company
operating that has recently eliminated a significant portion of it original business line through
the sale of our Telesales call center. There can be no assurance that we will successfully
overcome these difficulties.
Since
our inception, we have incurred significant operating losses. As of
September 30, 2009, we
had an accumulated deficit of approximately $47.7 million. We incurred operating losses of
approximately $6.3 million for the nine months ended
September 30, 2009, $9.0 for the year ended December
31, 2008, $14.3 million for the year ended December 31, 2007, $14 million for the year ended
December 31, 2006, $3.2 million for the year ended December 31, 2005 and approximately $1.1 million
for the period from our inception on January 27, 2004 through December 31, 2004. We expect to incur
significant and increasing operating expenses and capital expenditures relating to the development
of our software-related business, particularly as we pursue growth both internally and through
potential strategic acquisitions, expand our marketing efforts, and further the development of our
technologies. In addition, we will continue to incur significant legal, accounting and other
expenses associated with our status as a reporting company under the Securities Exchange Act of
1934, as amended, or the Exchange Act. As a result, we will need to generate significant revenues
to achieve profitability. Even if we achieve profitability, we may be unable to maintain or
increase profitability on a quarterly or annual basis. If we are unable to achieve and then
maintain profitability, the market value of our common stock will decline.
If we fail to increase our brand recognition, we may face difficulty in attracting new customers
and insurance carrier partners.
We believe that establishing, maintaining and enhancing our brand in a cost-effective manner
is critical to achieving widespread acceptance of our current and future products and services and
is an important element in our efforts to maintain and expand our relationships with insurance
carriers and to grow our customer base, particularly in light of the competitive nature of our
business. We believe that the importance of brand recognition will increase as competition in our
market develops. Some of our competitors already have well-established brands in the individual
health and life insurance market. Successful promotion of our brand will depend largely on our
ability to maintain a sizeable and active customer base, the success of our marketing efforts and
our ability to provide high quality products and reliable and useful service to our customers.
There can be no assurance that brand promotion activities will yield increased revenue, and even if
they do, any increased revenue may not offset the expenses we incur in building our brand. If we
fail to successfully promote and maintain our brand, or if we incur substantial expenses in an
unsuccessful attempt to promote and maintain our brand, we may fail to attract enough new customers
or retain our existing customers to the extent necessary to realize a sufficient return on our
brand-building efforts, in which case our business, financial condition and results of operations
could be materially harmed.
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We may be unable to obtain additional capital when necessary or on terms that are acceptable to us,
if at all.
Since our inception, we have used significant amounts of cash in our operations and in
investing activities. As of September 30, 2009, we had a cash
balance of approximately $0.6 million. We
used cash in operations of approximately $5.0 million for the
9 months ended September 30, 2009, $8.4
million for the year ended December 31, 2008, $5.5 million for the year ended December 31, 2007,
approximately $6.5 million for the year ended December 31, 2006, $1.2 million for the year ended
December 31, 2005 and approximately $0.5 million for the period from our inception on January 27,
2004 through December 31, 2004. We used cash in investing of approximately $0.3 million for the
9 months ended September 30, 2009, $0.8 million for the year ended December 31, 2008, $1.9 million for
the year ended December 31, 2007, approximately $3.2 million for the year ended December 31, 2006,
$0.3 million for the year ended December 31, 2005 and approximately $0.2 million for the period
from our inception on January 27, 2004 through December 31, 2004.
We expect that we will need significant additional cash resources to operate and expand our
business in the future. Our future capital requirements will depend on many factors, including our
ability to maintain our existing cost structure and return on sales, fund obligations for
additional capital and repayment of our $1,250,000 secured promissory note and execute our business and strategic plans as currently conceived. If these
resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity
or debt securities or obtain a credit facility. The sale of additional equity securities would
result in additional dilution to our stockholders. Additional indebtedness would result in debt
service obligations and could result in operating and financing covenants that would restrict our
operations. In addition, financing might be unavailable in amounts or on terms acceptable to us, if
at all.
We are substantially dependent on our InsPro software application.
We derive a significant portion of our revenue from software license and maintenance revenue
attributable to our InsPro software application. Accordingly, our future results depend on
continued market acceptance of InsPro, and any factor adversely affecting the market for InsPro
could have a material adverse effect on our business, financial condition and operating results.
We may be unsuccessful in attracting or retaining key sales, marketing and other personnel or in
retaining the members of our senior management team.
The success of our business is dependent on our ability to attract and retain highly skilled
managers and sales and marketing personnel and to retain the members of our senior management team.
In particular, there is intense competition for qualified sales and marketing personnel in the
health and life insurance market, and we may be unable to attract, assimilate and retain qualified
sales and marketing personnel on a timely basis. Our inability to retain key personnel and attract
additional qualified personnel could harm our development and results of operations.
Our management team has limited experience managing a public company and regulatory compliance
could divert its attention from the day-to-day management of our business.
Prior to completing the merger transaction that resulted in our current public company
structure in November 2005, our management team operated our business as a private company. Certain
members of our current management team have little or no experience managing a public company or
complying with the increasingly complex laws pertaining to public companies. There can be no
assurance that our management team will continue to successfully or efficiently manage our
operations as a public company subject to significant regulatory oversight and reporting
obligations under the federal securities laws. In particular, our obligations as a public company
will continue to require substantial attention from our senior management and could divert its
attention away from the day-to-day management of our business, which could materially and adversely
impact our business and results of operations.
We may be unable to sufficiently protect our intellectual property.
Our business and competitive positions are dependent on our ability to use and protect our
proprietary technologies. Our patent applications may not protect our technologies because, among
other things:
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there is no guarantee that any pending patent applications will result in issued
patents;
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we may develop additional proprietary technologies that are not patentable;
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there is no guarantee that any patent issued to us will provide us with any
competitive advantage;
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there is no guarantee that any patents issued to us will not be challenged,
circumvented or invalidated by third parties; and
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there is no guarantee that any patents previously issued to others or issued in the
future will not have an adverse effect on our ability to do business.
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In addition, if we are unable to protect and control unpatented trade secrets, know-how and
other technological innovation, we may suffer competitive harm. We also rely on trade secrets,
know-how and technologies that are not protected by patents to maintain our competitive position.
Trade secrets are difficult to protect. To maintain the confidentiality of trade secrets and
proprietary information, we generally seek to enter into confidentiality agreements with our
employees, consultants and collaborators upon the commencement of a relationship with us. However,
we at times do not obtain these agreements, nor can we guarantee that these agreements will provide
meaningful protection, that these agreements will not be breached or that we will have an adequate
remedy for any such breach. In addition, adequate remedies may not exist in the event of
unauthorized use or disclosure of this information. Others may have developed, or may develop in
the future, substantially similar or superior know-how and technologies. The loss or exposure of
our trade secrets, know-how and other proprietary information, or independent development of
similar or superior know-how, could harm our business, financial condition and results of
operations.
We may become subject to intellectual property rights claims in the future, which are extremely
costly to defend, could require us to pay significant damages and could limit our ability to use
the affected technologies.
Our commercial success will depend in part on not infringing the patents or proprietary rights
of third parties. Third parties could bring legal actions against us claiming damages and seeking
to enjoin us from using any technology found to be in violation of a third partys rights. If we
become involved in any litigation, it could consume a substantial portion of our resources,
regardless of the outcome of the litigation. If any of these actions are successful, in addition to
any potential liability for damages, we could be required to obtain a license to continue to use
the affected technology, in which case we may be required to pay substantial fees. There can be no
assurance that any such license will be available on acceptable terms or at all.
If we are unable to satisfy regulatory requirements relating to internal controls, or if our
internal controls over financial reporting are not effective, our stock price could decline.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the Commission adopted rules
requiring public companies to include a report of management on the companys internal controls
over financial reporting in their annual reports required by Section 13(a) of the Exchange Act. In
addition, the public accounting firm auditing the companys financial statements must attest to and
report on managements assessment of the effectiveness of the companys internal controls over
financial reporting. Ensuring that we have adequate internal financial and accounting controls and
procedures in place to help ensure that we can produce accurate financial statements on a timely
basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Any failure
to maintain the adequacy of our internal controls, or the resulting inability to produce accurate
financial statements on a timely basis, could increase our operating costs and harm our ability to
operate our business. In addition, investor perception that our internal controls are inadequate or
that we are unable to produce accurate financial statements on a consistent basis may adversely
affect our stock price.
We may be unable to manage our growth effectively.
Our ability to compete effectively and to manage our future growth, if any, requires us to:
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continue to improve our financial and management controls and reporting systems and
procedures to support the proposed expansion of our business operations; and
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locate or hire, at reasonable compensation rates, qualified personnel and other
employees necessary to expand our capacity in order to accommodate the proposed
expansion of our business operations.
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We may be unable to find or complete strategic acquisitions of complementary businesses or
technologies or to integrate acquired businesses or technologies.
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Our business strategy includes, among other things, achieving growth through the acquisition
and integration into our business of complementary businesses or technologies. We may be unable to
find additional complementary businesses or technologies to acquire. Future acquisitions may result
in substantial per share financial dilution of our common stock from the issuance of equity
securities. Completion of future acquisitions also would expose us to potential risks, including
risks associated with:
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the assimilation of new operations, technologies and personnel;
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unforeseen or hidden liabilities or other unanticipated events or circumstances;
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the diversion of resources from our existing business;
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the inability to generate sufficient revenue to offset the costs and expenses of
acquisitions, which may result in the impairment of assets acquired through
acquisitions; and
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the potential loss of, or harm to, relationships with our employees, customers and
insurance carrier partners as a result of the integration of new businesses.
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Our operating results may fluctuate as a result of factors beyond our control.
Our operating results may fluctuate significantly in the future as a result of a variety of
factors, many of which are beyond our control. These factors include, but are not limited to:
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capital expenditures for the development of our technologies;
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marketing and promotional activities and other costs;
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changes in operating expenses;
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increased competition in our market; and
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other general economic and seasonal factors.
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Our business may be materially adversely impacted by U.S. and global market and economic
conditions, particularly adverse conditions in the insurance industry.
For the foreseeable future, we expect to continue to derive most of our revenue from products
and services we provide to the insurance industry. Given the concentration of our business
activities in the healthcare industry, we may be particularly exposed to economic downturns in this
industry. U.S. and global market and economic conditions have been, and continue to be, disrupted
and volatile. A poor economic environment could result in significant decreases in demand for our
products or could present difficulties in collecting accounts receivables from our customers due to
their deteriorating financial condition. Our existing customers may be acquired by or merged into
other institutions that use our competitors or decide to terminate their relationships with us for
other reasons. As a result, our sales could decline if an existing customer is merged with or
acquired by another company or closed. All of these conditions could adversely affect our operating
results and financial position.
We may not be able to secure additional financing to support capital requirements when needed.
We may need to raise additional funds in the future in order to fund more aggressive promotion
or more rapid market penetration, to develop new or enhanced products, to respond to competitive
pressures, to make acquisitions or for other purposes. Any required additional financing may not be
available on terms favorable to us, or at all, particularly in light of current conditions in the
credit markets. If adequate funds are not available on acceptable terms, we may be unable to meet
our strategic business objectives or compete effectively, and the future growth of our business
could be adversely impacted. If additional funds are raised by our issuing equity securities,
stockholders may experience dilution of their ownership and economic interests, and the newly
issued
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securities may have rights superior to those of our common stock. If additional funds are raised by
our issuing debt, we may be subject to significant market risks related to interest rates, and
operating risks regarding limitations on our activities.
The markets for our products are highly competitive and are likely to become more competitive, and
our competitors may be able to respond more quickly to new or emerging technology and changes in
customer requirements.
Our insurance software business experiences competition from certain large hardware suppliers
that sell systems and system components to independent agencies and from small independent
developers and suppliers of software, who sometimes work in concert with hardware vendors to supply
systems to independent agencies. Pricing strategies and new product introductions and other
pressures from existing or emerging competitors could result in a loss of customers or a rate of
increase or decrease in prices for our services different than past experience. Our internet
business may also face indirect competition from insurance carriers that have subsidiaries which
perform in-house agency and brokerage functions.
Some of our current competitors have longer operating histories, larger customer bases,
greater brand recognition and significantly greater financial and marketing resources than we do.
If we infringe on the proprietary rights of others, our business operations may be disrupted, and
any related litigation could be time consuming and costly.
Third parties may claim that we have violated their intellectual property rights. Any of these
claims, with or without merit, could subject us to costly litigation and divert the attention of
key personnel. To the extent that we violate a patent or other intellectual property right of a
third party, we may be prevented from operating our business as planned, and we may be required to
pay damages, to obtain a license, if available, to use the right or to use a non-infringing method,
if possible, to accomplish our objectives. The cost of such activity could have a material adverse
effect on our business.
We may be unable to compete successfully against new and existing competitors.
We operate in a highly competitive market with few barriers to entry. We expect that
competition will continue to intensify. Some of our competitors are more established than we are,
and have significantly greater financial, technical, marketing, and other resources than we do. In
addition, many of our current and potential competitors can devote substantially greater resources
than we can to promotion, website development and systems development. Many of our competitors have
greater name recognition and a larger customer base than we do. These competitors may be able to
respond more quickly to new or changing opportunities and customer requirements and may be able to
undertake more extensive promotional activities and offer more attractive terms to insurance
carriers. Competition could reduce our market share in the individual health and life insurance
market.
Changes and developments in the structure of the health insurance system in the United States could
harm our business.
Our business largely depends upon the private sector of the United States health insurance
system and its relative role in the sale of individual health insurance. Recently, there has been
substantial national and state attention and debate regarding healthcare reform. While President
Obama and members of Congress have expressed that our healthcare system is in need of reform, a
detailed proposal regarding federal healthcare reform has yet to emerge. It is therefore not
possible for us to predict the impact of any healthcare reform at the federal level on our
business. Significant federal or state changes to the existing health insurance system, the
individual and family health insurance market or in the manner in which health insurance is
distributed in the United States could increase competition or reduce or eliminate the need for
health insurance agents or demand for private health insurance for individuals, families or small
businesses, any of which could materially harm our ability to sell insurance-related software and
applications to these agents and, as a result, could materially harm our business, operating
results and financial condition. The adoption of state or federal laws that promote or establish a
government-sponsored or partially government-sponsored healthcare system could reduce or eliminate
the number of individuals, families and small businesses seeking or permitted to purchase private
health insurance or supplemental coverage, which would substantially reduce the demand for our
products by insurance carriers and agents and harm our business, operating results and financial
condition. In addition, speculation regarding healthcare reform or potential changes in the
regulatory environment in which we operate creates uncertainty that could lead to increased
volatility and a reduction in stock price.
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Governmental regulation of the Internet may adversely affect our business and operating results.
The laws governing general commerce on the Internet remain unsettled and it may take years to
fully determine whether and how existing laws such as those governing intellectual property,
privacy and taxation apply to the Internet. Due to the rapid growth and widespread use of the
Internet, federal and state governments have are considering enacting additional laws relating to
the Internet. Any of these existing laws or future laws relating to the Internet could expose us to
substantial compliance costs and liabilities and may impede the growth of Internet commerce.
Technology and customer requirements evolve rapidly in our industry, and if we do not continue to
develop new products and enhance our existing products in response to these changes, our business
could be harmed.
Ongoing enhancements to our products will be required to enable us to maintain our competitive
position. We may not be successful in developing and marketing enhancements to our products on a
timely basis, and any enhancements we develop may not adequately address the changing needs of the
marketplace. Overlaying the risks associated with our existing products and enhancements are
ongoing technological developments and rapid changes in customer requirements. Our future success
will depend upon our ability to develop and introduce in a timely manner new products or upgrades
to our existing products that take advantage of technological advances and respond to new customer
requirements. The development of new products is increasingly complex and uncertain, which
increases the risk of delays. We may not be successful in developing new or updated products
incorporating new technology on a timely basis, and any new products may not adequately address the
changing needs of the marketplace. Failure to develop new products and product enhancements that
meet market needs in a timely manner could have a material adverse effect on our business,
financial condition and operating results.
Risks Relating to our Common Stock
Sales of substantial amounts of our common stock in the public market could depress the market
price of our common stock.
Our common stock currently is quoted on the OTCBB, which is a limited and illiquid market. If
our stockholders sell substantial amounts of our common stock in the public market, including the
shares being registered under this registration statement and shares issuable upon the exercise of
outstanding warrants and options, or the market perceives that such sales may occur, the market
price of our common stock could fall and we may be unable to sell our common stock in the future.
Our common stock may experience extreme price and volume fluctuations, which could lead to costly
litigation for us and make an investment in us less appealing.
The market price of our common stock may fluctuate substantially due to a variety of factors,
including:
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our business strategy and plans;
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announcements concerning our competitors or the individual health and life insurance
market;
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rate of sales and customer acceptance;
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changing factors related to doing business in various jurisdictions within the United
States;
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new regulatory pronouncements and changes in regulatory guidelines and timing of
regulatory approvals;
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general and industry-specific economic conditions;
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additions to or departures of our key personnel;
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variations in our quarterly financial and operating results;
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changes in market valuations of other companies that operate in our business segments
or in our industry;
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lack of adequate trading liquidity;
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announcements about our business partners;
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changes in accounting principles; and
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general market conditions.
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The market prices of the securities of early-stage companies, particularly companies like ours
without consistent product revenues and earnings, have been highly volatile and are likely to
remain highly volatile in the future. This volatility has often been unrelated to the operating
performance of particular companies. In the past, companies that experience volatility in the
market price of their securities have often faced securities class action litigation. Whether or
not meritorious, litigation brought against us could result in substantial costs, divert our
managements attention and resources and harm our financial condition and results of operations.
Our directors, executive officers and entities affiliated with them beneficially own a substantial
number of shares of our common stock, which gives them significant control over certain major
decisions.
As
of December ___, 2009, our executive officers and directors and entities affiliated with them
beneficially owned, in the aggregate, approximately 93.0% of our outstanding shares of common stock
and 100% of our outstanding shares of Series A preferred stock, based on a total of 41,543,655
shares of common stock and 1,000,000 shares of Series A preferred stock outstanding. These
executive officers, directors and their affiliates may have different interests than you. For
example, they could act to delay or prevent a change of control of us, even if such a change of
control would benefit our other stockholders, could prevent or frustrate attempts to replace or
remove current management or could pursue strategies that are different from the wishes of other
investors. This significant concentration of stock ownership may adversely affect the trading price
of our common stock due to investors perception that conflicts of interest may exist or arise.
Transactions in which a privately-held company merges into a largely inactive company with publicly
traded stock are generally closely scrutinized by the Commission and we may encounter difficulties
or delays in obtaining future regulatory approvals.
Historically, the Commission and Nasdaq and securities exchanges have disfavored transactions
in which a privately-held company merges into a largely inactive company with publicly traded
stock, and there is a significant risk that we may encounter difficulties in obtaining the
regulatory approvals necessary to conduct future financing or acquisition transactions, or to
eventually achieve our common stock being quoted on Nasdaq or listed on a securities exchange.
Effective August 22, 2005, the Commission adopted rules dealing with private company mergers into
dormant or inactive public companies. As a result, it is likely that we will be scrutinized
carefully by the Commission and possibly by the National Association of Securities Dealers or
Nasdaq or a national securities exchange, which could result in difficulties or delays in achieving
Commission clearance of any future registration statements or other Commission filings that we may
pursue, in attracting NASD-member broker-dealers to serve as market-makers in our stock, or in
achieving admission to Nasdaq or a national securities exchange. As a result, our financial
condition and the value and liquidity of our shares may be negatively impacted.
As a stock quoted on the OTCBB, our common stock, which is deemed to be penny stock, currently
has limited liquidity.
Holders of shares of our common stock, which are quoted on the OTCBB, may find that the
liquidity of our common stock is impaired as compared with the liquidity of securities listed on
Nasdaq or one of the national or regional exchanges in the United States. This impairment of
liquidity may result from reduced coverage of us by security analysts and news media and lower
prices for our common stock than may otherwise be attained. In addition, our common stock is deemed
to be penny stock, as that term is defined in rules under the Exchange Act. Penny stocks
generally are equity securities that are not registered on certain national securities exchanges or
quoted by Nasdaq and have a price per share of less than $5.00. Penny stock may be difficult for
investors to resell. Federal rules and regulations impose additional sales practice requirements on
broker-dealers who sell the stock to persons other than established customers and accredited
investors. For transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of these securities and obtain the purchasers written
consent to the transaction prior to the sale. Prior to the sale, broker-dealers must also deliver
to the potential purchaser a disclosure schedule prescribed by the Commission, describing the penny
stock market and disclose the commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, broker-dealers must deliver to
penny stock investors monthly
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statements disclosing recent price information for penny stocks held in the account and
information on the limited market in penny stocks. These additional requirements restrict the
ability of broker-dealers to sell our common stock and make it more difficult for investors to
dispose of our common stock in the secondary market and may also adversely affect the price of our
common stock.
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THE RIGHTS OFFERING
The Subscription Rights
We are distributing, at
no charge to the holders of our common stock and preferred stock non-transferable
subscription rights to subscribe for units, which we refer to throughout this prospectus as Units,
consisting of 250 shares of our Series A preferred stock and a
five-year warrant to purchase 5,000 additional shares of our common stock at an exercise price of
$0.20 per share. Our stockholders will receive one subscription right
for every 12,256 shares of
our common stock and 613 shares of preferred stock held of record as
of 5:00 p.m., New York City time, on December ___, 2009, the record
date. Pursuant to the terms of this offering, the rights may only be exercised for a maximum of
5,000 Units, or $5 million of gross subscription proceeds
Each subscription right entitles the holder to a basic subscription right and an
over-subscription privilege.
Basic Subscription Right
. With your basic subscription right, you may purchase one Unit,
consisting of 250 shares of our Series A preferred stock and a
five-year warrant to purchase 5,000 additional shares of our common stock at and exercise price of
$0.20 per share, subject to delivery of the required documents and payment of the subscription
price of $1,000 per Unit, prior to the expiration of the rights offering. You may exercise all or a
portion of your basic subscription right, or you may choose not to exercise any of your
subscription rights. If you do not exercise your basic subscription rights in full, you will not be
entitled to purchase any shares under your over-subscription privilege.
There is no minimum number of Units you must purchase, but you may not purchase fractional
Units. When determining the number of subscription rights you will receive, divide the number of
shares of our common stock you own by 12,256 and the number of shares
of preferred stock you own by 613, and round down to the next whole number. For example,
if you own 30,000 shares of our common stock, you will receive two (2) subscription rights
(30,000 shares divided by 12,256 = 2.45, rounded down to two (2) subscription
rights, the next
whole number), which will entitle you to subscribe for up to two (2) Units under your basic
subscription privilege. Any excess subscription payments received by us will be returned, without
interest, as soon as practicable following the expiration of the rights offering.
We will deliver certificates representing shares of our preferred stock and
warrants or credit your account at your record holder with shares of our preferred
stock and warrants that you purchased with the basic subscription rights as soon as practicable
after the rights offering has expired.
Over-Subscription Privilege
. If you purchase all of the Units available to you pursuant to
your basic subscription right, you may also choose to purchase a portion of any Units that are not
purchased by other stockholders through the exercise of their basic subscription rights. If
sufficient Units are available, we will seek to honor the over-subscription requests in full. If,
however, over-subscription requests exceed the number of Units available, we will allocate the
available Units pro rata among the stockholders exercising the over-subscription privilege in
proportion to the number of shares of common stock and preferred stock owned by such stockholder on the record date,
relative to the number of shares owned on the record date by all stockholders exercising the
over-subscription privilege. If this pro rata allocation results in any stockholder receiving a
greater number of Units than the stockholder subscribed for pursuant to the exercise of the
over-subscription privilege, then such stockholder will be allocated only that number of Units for
which the stockholder oversubscribed, and the remaining Units will be allocated among all other
stockholders exercising the over-subscription privilege on the same pro rata basis described above.
The proration process will be repeated until all Units have been allocated.
In order to properly exercise your over-subscription privilege, you must deliver the
subscription payment related to your over-subscription privilege prior to the expiration of the
rights offering. Because we will not know the total number of unsubscribed Units prior to the
expiration of the rights offering, if you wish to maximize the number of Units you purchase
pursuant to your over-subscription privilege, you will need to deliver payment in an amount equal
to the aggregate subscription price for the maximum number of Units that may be available to you
(i.e., for the maximum number of Units available to you, assuming you exercise all of your basic
subscription right and are allotted the full amount of your over-subscription without reduction).
We can provide no assurances that you will actually be entitled to purchase the number of
Units issuable upon the exercise of your over-subscription right in full at the expiration of the
rights offering. We will not be able to satisfy any orders for Units pursuant to the
over-subscription privilege if all of our stockholders exercise their basic subscription rights in
full, and we will only honor an over-subscription privilege to the extent sufficient Units are
available following the exercise of subscription rights pursuant to the basic subscription rights.
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To the extent the aggregate subscription price of the actual number of unsubscribed Units
available to you pursuant to the over-subscription privilege is less than the amount you actually
paid in connection with the exercise of the over-subscription privilege, you will be allocated only
the number of unsubscribed Units available to you, and any excess subscription payments will be
returned to you, without interest or penalty, as soon as practicable.
To the extent the amount you actually paid in connection with the exercise of the
over-subscription privilege is less than the aggregate subscription price of the maximum number of
unsubscribed Units available to you pursuant to the over-subscription privilege, you will be
allocated the number of unsubscribed Units for which you actually paid in connection with the
over-subscription privilege and subject to the elimination of any fractional Units.
Any excess
subscription payments received by us will be returned, without interest or penalty, as soon as practicable.
We will deliver certificates representing shares of our preferred stock and
warrants or credit the account of your record holder with shares of our preferred
stock and warrants that you purchased with the over-subscription privilege as soon as practicable
after the expiration of the rights offering.
Reasons for the Rights Offering
We are engaging in the rights offering to raise capital to improve our overall capital
position. Our board of directors has chosen to raise capital through a rights offering to give our
stockholders the best opportunity to limit ownership dilution by participating in the rights
offering on a pro-rata basis. In addition, this rights offering, including the composition and price of the Unit, was
designed to give all of the holders of our common stock the opportunity to participate in an equity
investment in Health Benefits Direct Corporation on substantially the same economic terms as our
last private placement in January 2009.
27
Effect of Rights Offering on Existing Stockholders
The ownership interests and voting interests of the existing stockholders that do not exercise
their basic subscription privileges will be diluted. See Questions and Answers Related to the
Rights Offering.
Method of Exercising Subscription Rights
The exercise of subscription rights is irrevocable and may not be cancelled or modified. You
may exercise your subscription rights as follows:
Subscription by Registered Holders
. If you hold a Health Benefits Direct Corporation stock
certificate, the number of Units you may purchase pursuant to your basic subscription right is
indicated on the enclosed rights certificate. You may exercise your subscription rights by properly
completing and executing the rights certificate and forwarding it, together with your full payment,
to us at the address set forth below under Delivery of Subscription Payments, to be received
prior to 5:00 p.m., Eastern Time, on
February 15,
2010.
Subscription by Beneficial Owners
. If you are a beneficial owner of shares of our common stock
or preferred stock that are registered in the name of a broker, custodian bank or other nominee, you will not receive
a rights certificate. Instead, the DTC will issue one subscription right to the nominee record
holder for each 12,256 shares of our common stock or 613 shares of our
preferred stock that you own at the record date. If you are not
contacted by your nominee, you should promptly contact your nominee in order to subscribe for Units
in the rights offering.
Payment Method
Payments must be made in full in U.S. currency by:
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check or bank draft payable to Health Benefits Direct Corporation, drawn upon a U.S.
bank; or
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wire transfer of immediately available funds to an account maintained by Health Benefits
Direct Corporation for purposes of this rights offering.
|
Payment received after the expiration of the rights offering will not be honored, and we will
return your payment to you, without interest, as soon as practicable. We will be deemed to receive
payment upon:
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clearance of any uncertified check deposited by us into our account designated for the
rights offering;
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28
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receipt by us of any certified check or bank draft, drawn upon a U.S. bank; or
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receipt of collected funds in our account designated for the rights offering.
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If you elect to exercise your subscription rights, we urge you to consider using a certified
or cashiers check, money order or wire transfer of funds to ensure that we receive your funds
prior to the expiration of the rights offering. If you send an uncertified check, payment will not
be deemed to have been received by us until the check has cleared. If you send a certified check or
bank draft, drawn upon a U.S. bank, or wire or transfer funds directly to our account, payment will
be deemed to have been received by us immediately upon receipt of such instruments or wire
transfer.
Any personal check used to pay for Units must clear the appropriate financial institutions
prior to 5:00 p.m., Eastern Time, on
February 15,
2010, which is the expiration of the rights
offering. The clearinghouse may require five or more business days. Accordingly, holders that wish
to pay the subscription price by means of an uncertified personal check are urged to make payment
sufficiently in advance of the expiration of the rights offering to ensure such payment is received
and clears by such date.
You should read the instruction letter accompanying the rights certificate carefully and
strictly follow it. We will not consider your subscription received until we have received
delivery of a properly completed and duly executed rights certificate and payment of the full
subscription amount. The risk of delivery of all documents and payments is borne by you or your
nominee, not by Health Benefits Direct Corporation.
The method of delivery of rights certificates and payment of the subscription amount to us
will be at the risk of the holders of subscription rights. If sent by mail, we recommend that you
send those certificates and payments by overnight courier or by registered mail, properly insured,
with return receipt requested, and that a sufficient number of days be allowed to ensure delivery
to us and clearance of payment prior to the expiration of the rights offering.
Unless a rights certificate provides that the shares of preferred stock and
the warrants are to be delivered to the record holder of such rights or such certificate is
submitted for the account of a bank or a broker, signatures on such rights certificate must be
guaranteed by an eligible guarantor institution, as such term is defined in Rule 17Ad-15 of the
Exchange Act.
Medallion Guarantee May Be Required
Your signature on your rights certificate must be guaranteed by an eligible institution, such
as a member firm of a registered national securities exchange or a member of the Financial Industry
Regulatory Authority, Inc., or a commercial bank or trust company having an office or correspondent
in the United States, unless:
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you provide on the rights certificate that shares and warrants are to be delivered to
you as record holder of those subscription rights; or
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you are an eligible institution.
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Missing or Incomplete Subscription Information
If
you hold your shares of common stock or preferred stock in the name of a custodian bank, broker, dealer or
other nominee, the nominee will exercise the subscription rights on your behalf in accordance with
your instructions. Your nominee may establish a deadline that may be before the 5:00 p.m., Eastern
Time
February 15,
2010 expiration date that we have established for the rights offering. If you
send a payment that is insufficient to purchase the number of Units you requested, or if the number
of Units you requested is not specified in the forms, the payment received will be applied to
exercise your subscription rights to the fullest extent possible based on the amount of the payment
received, subject to the availability of Units under the over-subscription privilege and the
elimination of fractional Units. Any excess subscription payments received by us will be returned,
without interest, as soon as practicable following the expiration of the rights offering.
Expiration Date and Cancellation Rights
The subscription period, during which you may exercise your subscription rights, expires at
5:00 p.m., Eastern Time, on
February 15,
2010, which is the expiration of the rights offering. If
you do not exercise your subscription rights prior to that time, your
29
subscription rights will expire and will no longer be exercisable. We will not be required to issue
shares of our preferred stock or warrants to you if we receive your rights
certificate or your subscription payment after that time. We have the option to extend the rights
offering without notice to you, although we do not presently intend to do so. We may extend the
expiration of the rights offering at any time prior to the scheduled expiration of the rights
offering. If we elect to extend the expiration of the rights offering, we will issue a press
release announcing such extension no later than 9:00 a.m., Eastern Time, on the next business day
after the most recently announced expiration of the rights offering. We reserve the right to amend
or modify the terms of the rights offering.
If you hold your shares of common stock in the name of a broker, dealer, custodian bank or
other nominee, the nominee will exercise the subscription rights on your behalf in accordance with
your instructions. Please note that the nominee may establish a deadline that may be before the
5:00 p.m., Eastern Time,
February 15,
2010, expiration date that we have established for the
rights offering.
We may cancel the rights offering at any time for any reason prior to the time the rights
offering expires. If we cancel the rights offering, we will issue a press release notifying
stockholders of the cancellation and all subscription payments received by us will be returned,
without interest or penalty, as soon as practicable.
Determination of Subscription Price
The $1,000 per Unit subscription price was determined by our board of directors based on the
per share value of the preferred stock and warrants (considered in the aggregate)
purchased by investors in our last private placement in January 2009. In January 2009, we sold units, consisting of one share of our
Series A preferred stock (each share of which is convertible, at the sole option of the holder,
into twenty shares of our common stock) and one five-year warrant to purchase 20 shares of our
common stock, at a per unit price of $4.00. We sold a total of 1,000,000 units
for an aggregate purchase price of $4,000,000.
In determining the subscription price, our board of directors considered the overall economic
value offered to investors in Health Benefits Direct Corporation in
this last private
placement. If an investor had invested in this last private placement
, for every $1,000
invested, such investor would have received 250 shares of Series A
preferred stock and warrants to purchase 5,000 additional shares of our common stock at an exercise
price of $0.20 per share. As a result, the Units offered in this
rights offering consist of 250 shares of our Series A preferred stock and a warrant to purchase
5,000 shares of our common stock at a price per Unit of $1,000.
We did not seek or obtain an opinion of financial advisors in establishing the subscription
price. The subscription price will not necessarily be related to our book value, tangible book
value, net worth or any other established criteria of fair value.
There is currently no
market for our shares of Series A preferred stock and, unless you choose to convert any shares of
preferred stock you purchase in this offering into shares of common stock, you will not be able to
re-sell such shares. We urge you to obtain a current quote for our common stock and perform an
independent assessment of our preferred stock and warrants before exercising your subscription
rights and to make your own assessment of our business and financial condition, our prospects for
the future, and the terms of this rights offering.
30
Terms of Series A Convertible Preferred Stock
Each share of Series A preferred stock offered in this rights offering is convertible, at the
sole discretion of each holder of preferred stock, into 20 shares of common stock, subject to
certain adjustments. The holders of shares of our Series A preferred stock are entitled to vote,
with respect to any question upon which holders of our common stock are entitled to vote, together
with the holders of common stock as one class on an as-converted basis. At such time, if any, as
our board of directors declares a dividend or distribution on the common stock, the holders of
preferred stock shall be entitled to receive, for each share of Series A preferred stock held by
them, a dividend or distribution in an amount equal to what such holder of preferred stock would
receive if their shares were converted into shares of common stock. We do not currently intend to
pay any cash dividends to the holders of shares of our common stock.
In addition, upon the liquidation, sale or merger of Health Benefits Direct Corporation, each
share of our Series A preferred stock is entitled to receive an amount equal to the greater of (A)
a liquidation preference equal to two and a half (2.5) times the Series A preferred stock original
issue price, subject to certain customary adjustments, or (ii) the amount such preferred stock
would receive if it participated pari passu with the holders of our common stock on an as-converted
basis. For so long as any shares of Series A preferred stock are outstanding, the vote or consent
of the holders of at least two-thirds of the shares of preferred stock is required to approve (Y)
any amendment to our certificate of incorporation or bylaws that would adversely alter the voting
powers, preferences or special rights of the Series A preferred stock or (Z) any amendment to our
certificate of incorporation to create any shares of capital stock that rank senior to the Series A
preferred stock. In addition to the voting rights described above, for so long as 1,000,000 shares
of Series A preferred stock are outstanding, the vote or consent of the holders of at least
two-thirds of the preferred stock is required to effect or validate any merger, sale of
substantially all of the assets of Health Benefits Direct Corporation or other fundamental
transaction, unless such transaction, when consummated, will provide the holders of preferred stock
with an amount per share equal to two and a half (2.5) times the Series A preferred stock original
issue price.
In the event of (a) the sale of all or substantially all of the assets of Health Benefits
Direct Corporation, (b) any tender offer or exchange pursuant to which the holders of a majority of
common stock exchange such shares for other securities, cash or property or (c) any
reclassification of the common stock pursuant to which the shares of common stock are effectively
converted or exchanges for other securities, cash or property, if we do not effect a dissolution
within ninety (90) days after such event, the holder of a majority of the shares of Series A
preferred stock may require, within 120 days of such event, to redeem all outstanding shares of
Series A preferred stock at a price per share equal to two and a half (2.5) times the Series A
preferred stock original issue price, subject to certain customary adjustments.
Terms of Warrants
The warrants that we are offering in this rights offering are in substantially similar form to
those warrants purchased by our investors in the last private placement in
January 2009. Each warrant issued as a component of the Units will be a five-year warrant to
purchase 5,000 shares of our common stock at an exercise price of $0.20 per share, subject to our
right to call the warrant under certain conditions. The warrants include full ratchet
anti-dilution adjustment provisions for issuances of securities below $0.20 per share during the
first two years following the date of issuance of the warrants, subject to customary exceptions.
Withdrawal, Amendment and Termination
We reserve the right to withdraw the rights offering at any time for any reason. We also may
amend or terminate the rights offering at any time before its completion if our board of directors
decides to do so in its sole discretion. If we terminate the rights offering, all affected
subscription rights will expire without value, and all excess subscription payments received by us
will be returned, without interest, as soon as practicable.
31
Delivery of Subscription Payments
The address to which rights certificates and payments, other than wire transfers, should be
mailed or delivered is provided below. If sent by mail, we recommend that you send documents and
payments by overnight courier or by registered mail, properly insured, with return receipt
requested, and that a sufficient number of days be allowed to ensure delivery.
Health Benefits Direct Corporation
150 N. Radnor-Chester Rd.
Suite B-101
Radnor, PA 19087
Attn: Francis L. Gillan III
If you deliver subscription documents or rights certificates in a manner different than that
described in this prospectus, we may not honor the exercise of your subscription rights.
If you have any questions regarding completing a rights certificate, submitting payment in the
rights offering, or questions or requests regarding Health Benefits Direct Corporation or the
rights offering in general, please call Francis L. Gillan III,
at (484) 654-2200. You may also contact
us with questions by electronic mail at rightsoffering@HBDC.com.
Fees and Expenses
We will pay the fees and expenses of collecting the subscription payments and distributing the
share certificates and warrants associated with the Units. You are responsible for paying any other
commissions, fees, taxes or other expenses that you may incur in connection with the exercise of
your subscription rights.
No
Fractional Units
All Units will be sold at a purchase price of $1,000 per Unit. We will not issue fractional
Units. Fractional Units resulting from the exercise of the basic subscription rights and the
over-subscription privileges will be eliminated by rounding down to the nearest whole Unit. Any
excess subscription payments received by us will be returned, without interest, as soon as
practicable.
Notice to Nominees
If you are a broker, custodian bank or other nominee holder that holds shares of our common
stock or preferred
stock for the account of others on the record date, you should notify the beneficial owners of the
shares for whom you are the nominee of the rights offering as soon as possible to learn their
intentions with respect to exercising their subscription rights. You should obtain instructions
from the beneficial owners of our common stock. If a registered
holder of our common stock or preferred
stock so
instructs, you should complete the rights certificate and submit it to us with the proper
subscription payment by the expiration date. You may exercise the number of subscription rights to
which all beneficial owners in the aggregate otherwise would have been entitled had they been
direct holders of our common stock or preferred
stock on the record date, provided that you, as a nominee record
holder, make a proper showing to us by submitting the form entitled Nominee Holder Certification,
which is provided with your rights offering materials. If you did not receive this form, you should
contact us to request a copy.
Beneficial Owners
If
you are a beneficial owner of shares of our common stock or preferred
stock and will receive your subscription
rights through a broker, custodian bank or other nominee, we will ask your nominee to notify you of
the rights offering. If you wish to exercise your subscription rights, you will need to have your
nominee act for you, as described above. To indicate your decision with respect to your
subscription rights, you should follow the instructions of your nominee. If you wish instead to
obtain a separate rights certificate, you should contact your nominee as soon as possible and
request that a rights certificate be issued to you. You should contact your nominee if you do not
receive notice of the rights offering, but you believe you are entitled to participate in the
rights offering. We are not responsible if you do not receive the notice by mail or otherwise from
your nominee or if you receive notice without sufficient time to respond to your nominee by the
deadline established by your nominee, which may be before the 5:00 p.m., Eastern Time, February 15,
2010, expiration date.
32
Non-Transferability of Subscription Rights
The subscription rights granted to you are non-transferable and, therefore, you may not sell,
transfer or assign your subscription rights to anyone. We will not be listing shares of our Series
A preferred stock, the warrants or the subscription rights for trading on OTCBB or any other stock
exchange or market.
Validity of Subscriptions
We will resolve all questions regarding the validity and form of the exercise of your
subscription rights, including time of receipt and eligibility to participate in the rights
offering. Our determination will be final and binding. Once made, subscriptions and directions are
irrevocable, and we will not accept any alternative, conditional or contingent subscriptions or
directions. We reserve the absolute right to reject any subscriptions or directions not properly
submitted or the acceptance of which would be unlawful. You must resolve any irregularities in
connection with your subscriptions before the subscription period expires, unless waived by us in
our sole discretion. We shall not be under any duty to notify you or your representative of defects
in your subscriptions. A subscription will be considered accepted, subject to our right to withdraw
or terminate the rights offering, only when a properly completed and duly executed rights
certificate and any other required documents and the full subscription payment have been received
by us. Our interpretations of the terms and conditions of the rights offering will be final and
binding.
Escrow Arrangements; Return of Funds
We will hold funds received in payment for Units in a segregated account pending completion of
the rights offering. We will hold this money in escrow until the rights offering is completed or is
withdrawn and cancelled. If the rights offering is cancelled for any reason, all subscription
payments received by us will be returned, without interest or penalty, as soon as practicable.
Stockholder Rights
You will have no rights as a holder of the shares of our preferred stock you
purchase in the rights offering until certificates representing the shares of our preferred stock are
issued to you.
No Revocation or Change
Once you submit the rights certificate or have instructed your nominee of your subscription
request, you are not allowed to revoke or change the exercise or request a refund of monies paid.
All exercises of subscription rights are irrevocable, even if you learn information about us that
you consider to be unfavorable. You should not exercise your subscription rights unless you are
certain that you wish to purchase Units at the subscription price.
Material U.S. Federal Income Tax Treatment of Rights Distribution
For U.S. federal income tax purposes, you should not recognize income or loss upon receipt or
exercise of these subscription rights to purchase shares of our common stock for the reasons
described below in Material U.S. Federal Income Tax Considerations.
No Recommendation to Rights Holders
Our board of directors is making no recommendation regarding your exercise of the subscription
rights. Stockholders who exercise subscription rights risk investment loss on new money invested.
You are urged to make your decision based on your own assessment of our
business and financial condition, our prospects for the future and the terms of this rights
offering. Please see Risk Factors for a discussion of some of the risks involved in investing in
our common and preferred stock.
33
Shares of Our Preferred Stock and Warrants Outstanding After the Rights Offering
As
of December ___, 2009, 1,000,000 shares of our
preferred stock and warrants to purchase 51,566,887 shares of our common stock were issued and
outstanding. Assuming no other transactions by us involving our preferred stock or
warrants, if the rights offering is fully subscribed through the exercise of the subscription
rights, then an additional 1,250,000 shares of our preferred
stock and warrants to purchase 25,000,000 shares of our common stock will be issued and outstanding
after the closing of the rights offering, for a total of 2,250,000
shares of preferred stock and warrants to purchase 76,566,887 shares of common stock
outstanding.
34
USE OF PROCEEDS
Although the actual amount will depend on participation in the rights offering, we expect that
the net proceeds from the rights offering will be approximately $4.875 million. We intend to use the
proceeds of the rights offering for general corporate and working capital purposes, including for
the purpose of funding current operations, discontinued operations and future commitments.
Obtaining funding through the rights offering will allow us additional timing flexibility before we
need to raise funds through additional financings or other methods.
To
the extent that we raise less than $4.875 million in net proceeds in the rights offering, we
anticipate reducing the amounts of proceeds to be allocated to the foregoing uses on a pro rata
basis.
DILUTION
Purchasers of Units in the rights offering (and upon exercise of the warrants issued pursuant
to this rights offering) will experience an immediate dilution of the net tangible book value per
share of our common stock. Our net tangible book value as of September 30, 2009 was approximately
($1,237,473), or $(0.02) per share of our common stock (based upon 61,279,645 shares of our common
stock outstanding, as adjusted for 20,000,000 shares of common stock underlying the 1,000,000
shares of our Series A preferred stock outstanding). Net tangible book value per share is equal to
our total net tangible book value, which is our total tangible assets less our total liabilities,
divided by the number of shares of our outstanding common stock. Dilution per share equals the
difference between the amount per share of common stock paid by purchasers of Units in the rights
offering (including the equivalent amount per share of common stock paid by our holders of preferred stock in the rights offering) and the net tangible book value per share of our common stock immediately after the rights
offering.
Based
on the aggregate offering of a maximum of 5,000 Units and after deducting estimated
offering expenses payable by us of approximately $125,000, and the application of the estimated
$4,875,000 of net proceeds from the rights offering, our pro forma net tangible book value as of
September 30, 2009 would have been approximately $3,637,527 or
$0.04 per share. This represents an
immediate increase in pro forma net tangible book value to existing
stockholders of $0.06 per share
and an immediate dilution to purchasers in the rights offering of
$0.15 per share.
The following table illustrates this per-share dilution (assuming a fully subscribed for
rights offering of 5,000 Units at the subscription price of $1,000 per Unit but excluding any
issuance of shares of common stock to holders of warrants):
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Price per unit
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$
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1,000
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Net tangible book value per share prior to the rights offering
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$
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(0.02
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)
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Increase per share attributable to the rights offering
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$
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0.20
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Pro forma net tangible book value per share after the rights offering
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$
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0.04
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Dilution in net tangible book value per share to purchasers
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$
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0.15
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35
CAPITALIZATION
The following table sets forth our capitalization, cash and cash equivalents:
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on an actual basis as of September 30, 2009; and
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on a pro forma as adjusted basis to give effect to the sale
of maximum of 5,000 Units in
this rights offering (but excluding any issuance of shares of common stock to holders of
warrants), assuming a subscription price of $1,000 per Unit, and our receipt of the net
proceeds from that sale after deducting estimated offering expenses
payable by us of $4.875
million.
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This table should be read in conjunction with our Managements Discussion and Analysis or
Plan of Operation and our consolidated financial statements and the related notes included
elsewhere in this prospectus.
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September 30, 2009 (Unaudited)
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Pro Forma
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As Adjusted
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Actual
|
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(1)
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Cash
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$
|
641,666
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$
|
5,516,666
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Total assets
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$
|
5,064,293
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|
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$
|
9,939,293
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Total liabilities
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$
|
5,007,852
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|
|
$
|
5,007,852
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Net tangible book value
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$
|
(1,237,473
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)
|
|
$
|
3,637,527
|
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Total shareholders equity
|
|
$
|
56,441
|
|
|
$
|
4,934,441
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Total liabilities and shareholders equity
|
|
$
|
5,064,293
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|
|
$
|
9,939,293
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|
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(1)
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Assumes the rights offering is fully subscribed for, of which no assurances can be given.
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DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 200,000,000 shares of common stock, par value $0.001
per share, and 10,000,000 shares of preferred stock, par value $0.001 per share, 3,437,500 of which
are designated as Series A preferred stock. As of December ___, 2009, we had 41,543,655 shares of
common stock issued and outstanding, 51,566,887 shares of common stock reserved for issuance
underlying currently issued and outstanding warrants, 5,676,648 shares of common stock reserved for
issuance underlying currently issued and outstanding options and 320,332 shares of common stock
reserved for issuance under certain of our existing equity compensation plans.
Common Stock
Holders of shares of our common shares are entitled to one vote per share on all matters to be
voted upon by the stockholders and are not entitled to cumulative voting for the election of
directors. Holders of common stock are entitled to receive ratably such dividends, if any, as may
be declared from time to time by our board of directors out of funds legally available therefore,
subject to the rights of the preferred stockholders. We do not currently intend to pay any cash
dividends to the holders of common stock. In the event that we liquidate, dissolve or wind up the
Company, the holders of common stock are entitled to share ratably in all assets remaining after
payment of liabilities and the preferences of preferred stockholders. Our common stock has no
preemptive, conversion or other subscription rights. There are no redemption or sinking fund
provisions applicable to common shares.
Preferred Stock
Each share of Series A preferred stock is convertible, at the sole discretion of each holder
of preferred stock, into 20 shares of common stock, subject to certain adjustments. The holders of
shares of our Series A preferred stock are entitled to vote, with respect to any question upon
which holders of our common stock are entitled to vote, together with the holders of common stock
as one class on an as-converted basis. At such time, if any, as our board of directors declares a
dividend or distribution on the common stock, the holders of preferred stock shall be entitled to
receive, for each share of Series A preferred stock held by them, a dividend or
36
distribution in an amount equal to what such holder of preferred stock would receive if their
shares were converted into shares of common stock. We do not currently intend to pay any cash
dividends to the holders of shares of our common stock.
In addition, upon the liquidation, sale or merger of Health Benefits Direct Corporation, each
share of our Series A preferred stock is entitled to receive an amount equal to the greater of (A)
a liquidation preference equal to two and a half (2.5) times the Series A preferred stock original
issue price, subject to certain customary adjustments, or (ii) the amount such preferred stock
would receive if it participated
pari passu
with the holders of our common stock on an as-converted
basis. For so long as any shares of Series A preferred stock are outstanding, the vote or consent
of the holders of at least two-thirds of the shares of preferred stock is required to approve (Y)
any amendment to our certificate of incorporation or bylaws that would adversely alter the voting
powers, preferences or special rights of the Series A preferred stock or (Z) any amendment to our
certificate of incorporation to create any shares of capital stock that rank senior to the Series A
preferred stock. In addition to the voting rights described above, for so long as 1,000,000 shares
of Series A preferred stock are outstanding, the vote or consent of the holders of at least
two-thirds of the preferred stock is required to effect or validate any merger, sale of
substantially all of the assets of Health Benefits Direct Corporation or other fundamental
transaction, unless such transaction, when consummated, will provide the holders of preferred stock
with an amount per share equal to two and a half (2.5) times the Series A preferred stock original
issue price.
In the event of (a) the sale of all or substantially all of the assets of Health Benefits
Direct Corporation, (b) any tender offer or exchange pursuant to which the holders of a majority of
common stock exchange such shares for other securities, cash or property or (c) any
reclassification of the common stock pursuant to which the shares of common stock are effectively
converted or exchanges for other securities, cash or property, if we do not effect a dissolution
within ninety (90) days after such event, the holder of a majority of the shares of Series A
preferred stock may require, within 120 days of such event, to redeem all outstanding shares of
Series A preferred stock at a price per share equal to two and a half (2.5) times the Series A
preferred stock original issue price, subject to certain customary adjustments.
Except as noted above our shares of Series A preferred stock have no other conversion,
preemptive or other subscription rights. There are no sinking fund provisions applicable to
preferred stock.
Warrants
As
of December ___, 2009, there were outstanding (i) warrants to purchase up to 45,000,000 shares
of our common stock at an exercise price per share of $0.20; (ii) warrants to purchase up to
1,250,000 shares of our common stock at an exercise price per share of $1.50; (iii) warrants to
purchase up to 4,966,887 shares of our common stock at an exercise price per share of $1.51; and
(iv) warrants to purchase up to 350,000 shares of our common stock at an exercise price per share
of $2.80.
In connection with our private placement in March 2007, we issued to investors five-year
warrants to purchase up to 2,500,000 shares of our common stock at $3.00 per share, which warrants
were subsequently adjusted upon the closing of our private placements in March 2008 and January
2009 to provide for the purchase of up to 2,466,887 shares of our common stock at an exercise price
of $1.51 per share, per the anti-dilution provisions contained in such warrants. In addition, we
also issued to each of the placement agents in the private placement warrants to purchase in the
aggregate 350,000 shares of our common stock at an exercise price of $2.80 per share.
In connection with our private placement in March 2008, we issued to investors five-year
warrants to purchase up to 6,250,000 shares of our common stock at $0.80 per share, which warrants
were subsequently adjusted following the closing of our private placement in January 2009 to
provide for the purchase of up to 18,750,000 shares of our common stock at an exercise price of
$0.20 per share, per the anti-dilution provisions contained in such warrants.
The warrants to be issued as part of the Units upon exercise of the subscription rights will
contain substantially the same terms as the warrants issued to the investors in our January 2009
private placement. Each warrant issued as a component of the Units will be a five-year warrant to
purchase 5,000 shares of our common stock at an exercise price of $0.20 per share, subject to our
right to call the warrant under certain conditions. The warrants include full ratchet
anti-dilution adjustment provisions for issuances of securities below $0.20 per share during the
first two years following the date of issuance of the warrants, subject to customary exceptions.
Prior to exercise, the warrants do not confer upon holders any voting or any other rights as a
stockholder.
37
MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market Information
The following table sets forth the high and low bid prices for our common stock for the
periods indicated, as reported by the OTCBB. The prices state inter-dealer quotations, which do not
include retail mark-ups, mark-downs or commissions. Such prices do not necessarily represent actual
transactions.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
2007:
|
|
|
|
|
|
|
|
|
First quarter, ended March 31, 2007
|
|
$
|
3.26
|
|
|
$
|
2.55
|
|
Second quarter, ended June 30, 2007
|
|
$
|
2.93
|
|
|
$
|
2.20
|
|
Third quarter, ended September 30, 2007
|
|
$
|
2.40
|
|
|
$
|
1.75
|
|
Fourth quarter, ended December 31, 2007
|
|
$
|
2.60
|
|
|
$
|
1.65
|
|
|
|
|
|
|
|
|
|
|
2008:
|
|
|
|
|
|
|
|
|
First quarter, ended March 31, 2008
|
|
$
|
1.90
|
|
|
$
|
0.70
|
|
Second quarter, ended June 30, 2008
|
|
$
|
1.02
|
|
|
$
|
0.41
|
|
Third quarter, ended September 30, 2008
|
|
$
|
0.70
|
|
|
$
|
0.21
|
|
Fourth quarter, ended December 31, 2008
|
|
$
|
0.40
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
2009:
|
|
|
|
|
|
|
|
|
First quarter, ended March 31, 2009
|
|
$
|
0.16
|
|
|
$
|
0.05
|
|
Second quarter, ended June 30, 2009
|
|
$
|
0.16
|
|
|
$
|
0.04
|
|
Third quarter, ended September 30, 2009
|
|
$
|
0.16
|
|
|
$
|
0.05
|
|
Fourth
quarter, (through December 30, 2009)
|
|
$
|
0.12
|
|
|
$
|
0.04
|
|
Holders of Record and Dividends
Our common stock has been quoted on the OTCBB since December 13, 2005 under the symbol
HBDT.OB. Prior to that date, there was no active market for our common stock. Based on information
furnished by our transfer agent, as of December ___, 2009, we had approximately 139 holders of record
of our common stock. We have not declared any cash dividends on our common stock during the last
two fiscal years.
38
BUSINESS
Overview
We were originally incorporated under the laws of the state of Nevada on October 21, 2004 as
Darwin Resources Corp., an exploration stage company engaged in mineral exploration. On November
22, 2005, Darwin Resources Corp. merged with and into its newly-formed wholly-owned subsidiary,
Darwin Resources Corp., a Delaware corporation, solely for the purpose of changing its state of
incorporation from Nevada to Delaware. On November 23, 2005, HBDC II, Inc., a newly-formed
wholly-owned subsidiary of Darwin Resources Corp., was merged with and into Health Benefits Direct
Corporation, a privately-held Delaware corporation, and the name of the resulting entity was
changed from Health Benefits Direct Corporation to HBDC II, Inc. Following the merger, Darwin
Resources Corp. changed its name to Health Benefits Direct Corporation and we began operations in
our current form.
We are a technology company that provides software applications for use by insurance agents
and insurance administrators in the health insurance industry. Our business focuses on two primary
software products: our Insurint product and our InsPro software application.
Insurint is a proprietary, professional-grade, web-based agent portal that aggregates
real-time quotes and underwriting information from multiple highly-rated carriers of health and
life insurance and related products. We market Insurint using a Software as a Service (SaaS) model
instead of software licensing model, which offers easy web-based distribution and pay-as-you-go
pricing. We market Insurint primarily to insurance agents, agencies, and other organizations
selling health insurance products to families and individuals. Unlike existing health insurance
quote engines, Insurint also enables an agent to input responses to a set of questions about the
health of proposed insureds, which enables the agent to place an insurance policy faster and more
accurately. In addition, Insurint offers a suite of sales tools that agents can use to increase
their overall sales production.
InsPro is a comprehensive, web-based insurance administration software application. InsPro
was introduced by Atiam Technologies, L.P. (now our InsPro Technologies, LLC subsidiary) in 2004.
InsPro clients include health insurance carriers and third party administrators. Unlike our
Insurint platform, we market InsPro as a licensed software application, and we realizes revenue
from the sale of the software licenses, application service provider fees, software maintenance
fees and consulting and implementation services.
Insurint
Product and Services
Insurint is a web based tool that provides insurance agents and brokers with an all-in-one,
real time quoting engine and on-demand customer relationship management, or CRM, platform. It helps
insurance agents and brokers streamline their sales and marketing activities and increases agent
productivity, which ultimately strengthens the customer relationship. Insurint utilizes a Software
as a Service (SaaS) model instead of software licensing model, which offers easy web-based access
and pay-as-you-go pricing. Currently, we recognize revenue based on both one time setup and
recurring monthly access fees.
During 2008 we earned $97,177 in revenue from Insurint.
There are more than one million independent insurance agents licensed to sell health and life
insurance to individuals and groups in the United States. The vast majority of these agents use a
combination of manual quoting methods (such as rating tables from different carriers), legacy
software tools (such as stand-alone CRM software) and hard copies of underwriting guides to address
their customers needs and manage their business. While Insurint is designed for the use of
independent insurance agents, it may also be used by insurance companys direct sales departments,
or captive agents. We believe there is a significant opportunity for Insurint, based on this
tools unique strengths as described below, to provide a large number of these agents with a
comprehensive, end-to-end solution that meets all of their quoting, underwriting, CRM and marketing
needs, allowing them to improve their efficiency and maximize their productivity:
|
|
|
Insurint is a one-stop platform from which an agent may choose from a variety of health
and life insurance products and carriers. Insurint allows the insurance sales agent to
cross sell products or bundle quotes across different product lines.
|
39
|
|
|
Insurint provides real-time information and underwriting intelligence to help agents
build their business, while saving time and taking the hassle out of quoting and comparing
individual plans.
|
|
|
|
|
Insurint provides seamless integration of the quoting engine with CRM features, which
helps an agent to be more efficient with his or her sales, marketing and customer
management activities. Insurint can also enable an agent to make service calls to his or
her customers, thus improving customer service and providing another selling opportunity
for the agent.
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|
|
|
|
Insurint provides an integrated web sharing tool, InsurintConnect, which allows the
agent to share the sales process and presentation with the client, thereby involving the
client in the sale, and helping them move from multiple plan choices to a logical
conclusion to meet their coverage needs.
|
|
|
|
|
Insurint provides a brandable, flexible technology framework, which can be customized
to the needs of agencies of all sizes, and may integrate with any existing telephony and/or
CRM solution they may already employ.
|
|
|
|
|
Marketing, Sales and Operations
|
Insurints marketing utilizes aggregator and affinity relationships, which seeks co-marketing
opportunities that create synergies between products and organizations, email promotions and
presentations at important industry events. Insurints marketing message and graphical treatment is
centered on an evolutionary concept, and is positioning itself as the Next Stage in the Evolution
of Insurance Technology. Insurints sales team provides both personalized and group demonstrations
to agents, agencies and carriers looking to learn more about Insurint.
Insurint currently has several key vendor agreements and relationships, which provide
functionality for portions of Insurints quoting engine. The unanticipated loss of the
functionality of portions of Insurints quoting engine, which are provided by key vendors, would
result in an interruption of Insurints product delivery to its customers until such time that
Insurint integrated replacement functionality from alternative vendors or sources. The loss of such
functionality could result in the loss of existing customers and revenue. To mitigate the negative
impact of the potential loss of such functionality Insurint has contractual agreements with key
vendors, which include performance standards and minimum contractual time periods. Insurint
monitors these key vendor relationships, their performance of services and periodically evaluates
alternative vendors and services.
Insurint depends on various hosting and technology vendors, which provide services critical to
Insurints delivery of products and services to Insurints customers. Such hosting and technology
services can be replaced with comparable services from other vendors on short notice.
InsPro
We acquired Atiam Technologies, L.P. on October 1, 2007 and, following a name change on May
14, 2009 to InsPro Technologies, LLC, this entity sells and markets our InsPro software
application. InsPro and its predecessor, Systems Consulting Associates, Inc., or SCA, was founded
in 1986 by Robert J. Oakes as a programming and consulting services company. In 1988, SCA entered
into a long-term contract with Provident Mutual Insurance Company to develop, maintain, install,
support, and enhance IMACS, which was an insurance direct marketing and administration software
system. IMACS was the precursor of InsPro. InsPro dedicated four years, from 2001 to 2005, to
developing its principal product, InsPro, which is a comprehensive, scalable, and modular web-based
insurance marketing, claims administration, and policy servicing platform.
Product and Services
We offer InsPro on a licensed and an ASP (Application Service Provider) basis. InsPro is an
insurance administration and marketing system that supports group and individual business lines,
and efficiently processes agent, direct market, worksite and web site generated business.
During 2008, we earned 87% of InsPros revenues from our four largest InsPro clients as
follows; client #1 $2,885,388, client #2 $786,740, client #3 $576,399 and client #4 $552,138.
40
InsPro incorporates a modular design, which enables the customer to purchase only the
functionality needed, thus minimizing the customers implementation cost and time necessary to
implement InsPro. InsPro can be rapidly tailored to the requirements of a wide range of customers
from the largest insurance companies and marketing organizations to the smallest third party
administrators, operating in environments ranging from a single server environment to the mainframe
installations. InsPro currently supports a wide range of distribution channels, including the
Internet, traditional direct marketing, agent-booked, individual and group plans, worksite, and
association booked business, and supports underwritten as well as guaranteed products including
long term care, Medicare supplement, critical illness, long and short term disability, whole and
term life, comprehensive major, hospital indemnity accidental death and dismemberment.
An InsPro software license entitles the purchaser a perpetual license to a copy of the InsPro
software installed at a single client location, which may be used to drive a production and model
office instance of the application. The ASP Hosting Service enables a client to lease the InsPro
software, paying only for that capacity required to support their business. ASP clients access an
instance of InsPro installed on our servers located at InsPros offices or at a third partys site.
Software maintenance fees apply to both licensed and ASP clients. Maintenance fees cover
periodic updates to the application and the InsPro Help Desk.
Consulting and implementation services are generally associated with the implementation of an
InsPro instance for either an ASP or licensed client, and cover such activity as InsPro
installation, configuration, modification of InsPro functionality, client insurance plan set-up,
client insurance document design, and system documentation.
Sales, Marketing and Operations
InsPro markets its products and services directly to prospective insurance carriers and third
party administrators via trade shows, advertising in industry publications and direct mail.
InsPro delivers services to its clients, which include InsPro system implementation, legacy
system migration to InsPro, InsPro application management, web development, InsPro help desk and
24x7 hosting service support.
Competition
Insurint
The life and health insurance field agent tool market is fragmented, but also very
competitive, and is characterized by rapidly changing consumer demand and technological change. We
believe Insurints competitors fall into three categories, which are:
|
|
|
Direct competitors, who provide web based tools targeting the life and health insurance
agents desktop, which includes Norvax, Quotit and HealthConnect;
|
|
|
|
|
The insurance agents insurance agencies and their technology partners, who provide
internally developed web based tools;
|
|
|
|
|
Indirect competitors, who provide web based tools targeting insurance agents selling
insurance products other than primarily health insurance, such as Agencyworks InsureSocket
Brokerage, Connectures InsureConnect, and iPipeline, which all target life insurance
agents, and Ebix (for Life and Property and casualty insurance agents) and iBommerang,
which provide co-browsing for insurance agents.
|
Insurints major competitors in the agent quoting and sales software market for individual
major medical products are Norvax, which was founded in 2001 and has created a recognized brand,
and Quotit, which was founded in 1999 and has strong relationships with more than 120 insurance
carriers in health, life, dental and vision insurance markets.
41
InsPro
The market for insurance policy administration systems and services are very competitive,
rapidly evolving, highly fragmented and subject to rapid technological change. Many of our
competitors are more established than we are and have greater name recognition, a larger customer
base and greater financial, technical and marketing resources than InsPro.
InsPro is focused on the senior health, disability, affinity and association segments. InsPro
competes with such concerns as International Business Machines Corporation (Genelco Software),
Computer Sciences Corporation (FutureFirst), LifePro, and Fiserv Inc. (ID3), as well as with such
smaller enterprises as Management Data, Inc. To compete we use best practice technologies and
methods incorporated into InsPro, which provides customers with a user-friendly, flexible, modular
and cost-effective insurance administrative software system. We also compete on price with a
typical InsPro software license fee ranging from $500,000 to $750,000, compared to $800,000 to
$900,000 from our competitors. InsPros modular design, scalability and ASP hosting service option
makes it a compelling insurance administrative system from small third party administrators to the
largest insurance carriers.
Employees
As
of December ___, 2009, we had 47 employees, which included
46 full-time and 1 part-time
employee. None of our employees are members of any labor union and we are not a party to any
collective bargaining agreement. We believe that the relationship between our management and our
employees is good.
Intellectual Property and Proprietary Rights
We rely on a combination of trademark, copyright and trade secret laws in the United States
and other jurisdictions as well as confidentiality procedures and contractual provisions to protect
our proprietary technology and our brand. We also have filed patent applications that relate to
certain of our technologies and business processes.
Governmental Regulation
There are still relatively few laws or regulations specifically addressing our Internet
activities. As a result, the manner in which existing laws and regulations could be applied to the
Internet in general, and how they relate to our businesses in particular, is unclear in many cases.
Such uncertainty arises under existing laws regulating matters including user privacy, defamation,
pricing, advertising, taxation, gambling, sweepstakes, promotions, content regulation, quality of
products and services, and intellectual property ownership and infringement.
We expect to post privacy policy and practices concerning the use and disclosure of any user
data on our websites. Failure to comply with posted privacy policies, Federal Trade Commission
requirements, or other domestic or international privacy-related laws and regulations could result
in governmental proceedings. There are multiple legislative proposals before federal and state
legislative bodies regarding privacy issues. It is not possible to predict whether or when such
legislation may be adopted, and certain proposals, if adopted, could harm our business through a
decrease in use and revenue.
Corporate Information
We were incorporated under the laws of the state of Nevada on October 21, 2004 as Darwin
Resources Corp., or Darwin-NV, an exploration stage company engaged in mineral exploration. On
November 22, 2005, Darwin-NV merged with and into its newly-formed wholly-owned subsidiary, Darwin
Resources Corp., a Delaware corporation, or Darwin-DE, solely for the purpose of changing the
companys state of incorporation from Nevada to Delaware. On November 23, 2005, HBDC II, Inc., a
newly-formed wholly-owned subsidiary of Darwin-DE, was merged with and into Health Benefits Direct
Corporation, a privately-held Delaware corporation engaged in direct marketing and distribution of
health and life insurance and related products primarily over the Internet, and the name of the
resulting entity was changed from Health Benefits Direct Corporation to HBDC II, Inc. Following
this merger, Darwin-DE changed its name to Health Benefits Direct Corporation and, as a result,
HBDC II, Inc. became our wholly-owned subsidiary.
Our principal executive offices are located at 150 N. Radnor-Chester Road, Suite B-101,
Radnor, Pennsylvania 19087. Our telephone number is (484) 654-2200. Our website address is
www.healthbenefitsdirect.com
. The principal offices of our wholly-owned subsidiary, HBDC II, Inc.,
are located at 2200 S.W. 10th Street, Deerfield Beach, Florida 33442. The principal offices of our
wholly-owned subsidiary, Insurint Corporation are located at 2200 S.W. 10th Street, Deerfield
Beach, Florida 33442 and its web site is
www.insurint.com
. The principal offices of our
wholly-owned subsidiary, InsPro Technologies, LLC, are located at 130 Baldwin Tower, Eddystone, PA
19022 and its web site is
www.inspro.com
.
42
Investor Information
All periodic and current reports, registration statements and other material that we are
required to file with the Commission, including our annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) of the Securities Exchange Act of 1934, are available free of charge
through our investor relations page at www.healthbenefitsdirect.com. Such documents are available
as soon as reasonably practicable after electronic filing of the material with the Commission. Our
Internet websites and the information contained therein or connected thereto are not intended to be
incorporated into this Annual Report on Form 10-K.
The public may also read and copy any materials filed by the Company with the Commission at
the Commissions Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. The Commission maintains an Internet site,
www.sec.gov
, which contains reports,
proxy and information statements, and other information regarding issuers that file electronically
with the Commission.
Properties
We do not own any real property. We currently lease approximately 50,000 square feet of office
space in Deerfield Beach, Florida under a lease agreement with 2200 Deerfield Florida LLC. The
lease expires on March 31, 2016 and we have the option to extend the term for two additional
36-month periods, as well as the right to terminate the lease within the first five years. The
monthly rent increases every 12 months, starting at $62,500 and ending at approximately $81,550.
We also lease 7,414 square feet of office space in Radnor, Pennsylvania. We lease this office
space under a lease agreement with Radnor Properties-SDC, L.P. The term of the lease commenced on
November 1, 2006, and will expire on March 31, 2017. The monthly base rent increases every 12
months, starting at approximately $13,466 and ending at approximately $21,531. Under the terms of
the lease agreement, rent is waived for the first five months of the lease term with respect to
5,238 square feet and for the first 12 months for the remaining 2,176 square feet.
We also sublease approximately 14,000 square feet of office space located in New York, New
York. We sublease this office space under a sublease agreement with World Travel Partners I, LLC.
The initial term of the sublease terminates on December 30, 2010. The monthly base rent increases
every 12 months, starting at approximately $25,250 and ending at approximately $28,420.
We also lease approximately 13,600 square feet of space in Eddystone, Pennsylvania. We lease
this office space under a lease agreement with BPG Officer VI Baldwin Tower L.P. The term of this
lease commenced on August 1, 2007, and will expire on December 31, 2012. The monthly rent increases
every 12 months, starting at approximately $8,500 and ending at approximately $23,900.
Legal Proceedings
On August 28, 2008, one of our former employees, the plaintiff, filed a national class action
complaint in the Seventeenth Judicial Circuit of Florida, Broward County, case no. 062008 CA 042798
XXX CE, alleging that we breached a contract with employees by failing to provide certain
commissions and/or bonuses. The complaint also contained claims for an accounting and for
declaratory relief relating to the alleged compensation agreement. The plaintiff purported to
bring these claims on behalf of a class of current and former insurance sales agents. We filed a
motion to dismiss the complaint. In response, at the hearing on our Motion to Dismiss, the
plaintiff stated that he would amend the complaint. The amended complaint is no longer pled as a
class action but, instead, includes 64 named plaintiffs. The plaintiffs seek payment from us of
all commissions allegedly owed to them, triple damages, attorneys fees, costs, and interest. We
are in the process of responding to the amended complaint. In addition, the parties are engaging
in the exchange of discovery requests and responses. We believe that the plaintiffs claims are
without merit and intend to vigorously defend the litigation.
43
On March 24, 2009, certain of our stockholders filed an action in the Supreme Court of the
State of New York, County of New York, Index No. 650174/2009, against us, our board of directors,
two of our investors and the investors affiliates relating to alleged offers we purportedly
received in 2008 and a private placement transaction conducted in January 2009. The plaintiffs
alleged that the members of our board of directors breached their fiduciary duties in responding to
the offers received in 2008 and in connection with the private placement transaction conducted in
January 2009. The complaint also contained claims for unjust
enrichment against certain directors whom plaintiffs claim are interested and claims for aiding
and abetting breach of fiduciary duty and unjust enrichment against our stockholder, Cross Atlantic
Capital Partners, Inc., and its affiliates. The plaintiffs sought to rescind and cancel the private
placement, enjoin the board of directors from undertaking certain measures and remove certain
directors from the board. The plaintiffs also sought money judgments in an amount not less than
$10,000,000, plus interest, attorneys fees, and accounts and experts fees. On May 29, 2009, the
defendants moved to dismiss the complaint. The motion was granted on August 13, 2009 on forum non
conveniens grounds. On August 14, 2009, a writ of summons was filed in the Court of Common Pleas,
Philadelphia County No. 090801764 against us, our board of directors, two of our investors and the
investors affiliates by the same stockholders who brought the New York action and seven additional
stockholders.
On October 27, 2009 we entered into a agreement with the
stockholders who brought the New York action in which they agreed to
withdraw from the Philadelphia litigation and provided a general
release of all claims against
us, our board of directors and the other
defendants. These stockholders discontinued their claims against the
defendants in the writ of summons filed in August.
The terms of this settlement agreement required Co-Investment Fund to
purchase all of the shares of common stock held by the settling
plaintiffs (which amounted to 6,108,997 shares). Since the settlement
did not include all of the plaintiffs in the suit filed in Philadelphia County, that action has not been dismissed.
On December 21, 2009, five of the remaining shareholders who filed the writ of summons discontinued
their claims against the defendants named in the writ of summons. Also on December 21, 2009, Alvin
Clemens, a former officer and director of our company, Robert Kaul and Arthur Nagel (both of whom are
shareholders of our company) filed a complaint in the Philadelphia action. The complaint brings claims for
breach of fiduciary duty against the members of our board of directors for their alleged actions in
responding to the offers received in 2008 and in connection with the private placement transaction
conducted in January 2009. The complaint also contains claims for aiding and abetting the alleged breach
of fiduciary duty and unjust enrichment against our stockholder, Cross Atlantic Capital Partners, Inc., and
its affiliates. The plaintiffs seek to rescind and cancel the private placement, enjoin the board of directors
from undertaking certain measures and remove certain directors from the board. The plaintiffs also seek
money judgment against our board members in an amount in excess of $50,000 and against Cross Atlantic
and its affiliates in an amount in excess of $10,000,000, plus interest, attorneys fees, and accounts and
experts fees.
We are also involved in various investigations, claims and lawsuits arising in the normal
conduct of our business, none of which, in our opinion, will harm our business. We cannot assure
that we will prevail in any litigation. Regardless of the outcome, any litigation may require us to
incur significant litigation expense and may result in significant diversion of our attention.
44
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
The current operations of Health Benefits Direct Corporation (the Company, we, us or
our) consist of InsPro Technologies LLC and Insurint Corporation.
InsPro is a comprehensive, web-based insurance administration software application.
InsPro was introduced by Atiam Technologies, L.P. (now our InsPro Technologies,
LLC subsidiary) in
2004. InsPro clients include health insurance carriers and third party administrators. Unlike our
Insurint platform, we market InsPro as a licensed software application, and we realize revenue from
the sale of the software licenses, application service provider fees, software maintenance fees and
consulting and implementation services.
Insurint is a proprietary, professional-grade, web-based agent portal that
aggregates real-time quotes and underwriting information from multiple highly-rated carriers of
health and life insurance and related products. We market Insurint using a Software as a Service
(SaaS) model instead of software licensing model, which offers easy web-based distribution and
pay-as-you-go pricing. We market Insurint primarily to insurance agents, agencies, and other
organizations selling health insurance products to families and individuals. Unlike existing health
insurance quote engines, Insurint also enables an agent to input responses to a set of questions
about the health of proposed insureds, which enables the agent to place an insurance policy faster
and more accurately. In addition, Insurint offers a suite of sales tools that agents can use to
increase their overall sales production.
Critical Accounting Policies
Financial Reporting Release No. 60, which was released by the Securities and Exchange
Commission (the Commission), encourages all companies to include a discussion of critical
accounting policies or methods used in the preparation of financial statements. The Companys
consolidated financial statements include a summary of the significant accounting policies and
methods used in the preparation of the consolidated financial statements. Management believes the
following critical accounting policies affect the significant judgments and estimates used in the
preparation of the consolidated financial statements.
Use of Estimates Managements Discussion and Analysis or Plan of Operation is based upon the
Companys consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of these
consolidated financial statements requires management to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, management evaluates these estimates,
including those related to allowances for doubtful accounts receivable and long-lived assets such
as intangible assets. Management bases these estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances, the results of which
form the basis of making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Significant estimates in 2009 and 2008 include the allowance
for doubtful accounts, stock-based compensation, the useful lives of property and equipment and
intangible assets, accrued expenses pertaining to abandoned facilities and revenue recognition.
Actual results may differ from these estimates under different assumptions or conditions.
45
InsPro Technologies offers InsPro on a licensed and an application service provider (ASP)
basis. An InsPro software license entitles the purchaser a perpetual license to a copy of the
InsPro software installed at a single client location, which may be used to drive a production and
model office instance of the application. The ASP Hosting Service enables a client to lease the
InsPro software, paying only for that capacity required to support their business. ASP clients
access an instance of InsPro installed on InsPro Technologies owned servers located at InsPro
Technologies offices or at a third partys site.
Software maintenance fees apply to both licensed and ASP clients. Maintenance fees cover
periodic updates to the application and the InsPro Help Desk.
Consulting and implementation services are generally associated with the implementation of an
InsPro instance for either an ASP or licensed client, and cover such activity as InsPro
installation, configuration, modification of InsPro functionality, client insurance plan set-up,
client insurance document design, and system documentation.
Insurint Corporation offers Insurint, which is a proprietary, professional-grade, web-based
agent portal that aggregates real-time quotes and underwriting information from multiple
highly-rated carriers of health and life insurance and related products. Insurint typically
charges its clients a one time account set up fee, which is recognized as earned when collected and
the service has been provided, and recurring access fees, which are typically monthly in frequency
and are recognized as the service is provided.
The Company recognizes revenues from software license agreements is recognized when persuasive
evidence of an agreement exists, delivery of the software has occurred, the fee is fixed or
determinable, and collectibility is probable. The Company considers fees relating to arrangements
with payment terms extending beyond one year to not be fixed or determinable and revenue for these
arrangements is recognized as payments become due from the customer. In software arrangements that
include more than one InsPro module, the Company allocates the total arrangement fee among the
modules based on the relative fair value of each of the modules.
License revenue allocated to software products generally is recognized upon delivery of the
products or deferred and recognized in future periods to the extent that an arrangement includes
one or more elements to be delivered at a future date and for which fair values have not been
established. Revenue allocated to maintenance agreements is recognized ratably over the
maintenance term and revenue allocated to training and other service elements is recognized as the
services are performed.
The unearned portion of InsPro Technologies and Insurints revenue, which is revenue
collected or billed but not yet recognized as earned, has been included in the consolidated balance
sheet as a liability for deferred revenue.
We review the carrying value of property and equipment and intangible assets for impairment at
least annually or whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of
its carrying amount to the undiscounted cash flows that the asset or asset group is expected to
generate. If such assets are considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the property, if any, exceeds its fair market value.
46
Results of Operations for the Three Months Ended September 30, 2009 Compared to the Three Months
Ended September 30, 2008
Revenues
For the three months ended September 30, 2009 (Third
Quarter 2009), we earned revenues of
$1,475,696 compared to $1,426,160 for the three months ended September
30, 2008 (Third Quarter
2008), an increase of $49,536 or 3%. Revenues include the following:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Consulting and implementation services
|
|
$
|
831,701
|
|
|
$
|
988,564
|
|
ASP revenue
|
|
|
371,143
|
|
|
|
287,276
|
|
Maintenance revenue
|
|
|
144,500
|
|
|
|
117,000
|
|
License revenue
|
|
|
87,500
|
|
|
|
|
|
Other technology fees
|
|
|
31,526
|
|
|
|
33,320
|
|
Sub-leasing revenue
|
|
|
9,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,475,696
|
|
|
$
|
1,426,160
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in consulting and implementation services in Third Quarter 2009 as
compared to Third Quarter 2008 is attributable to a decrease in work modification
enhancements and data conversion required for clients. 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 InsPros functionality to support the clients business, interfacing
InsPro with the clients other systems, automation of client correspondence to their
customers and data conversion from the clients existing systems to InsPro.
|
|
|
|
|
In Third Quarter 2009 we earned ASP revenue from seven InsPro clients. The increase in
ASP revenue in Third Quarter 2009 as compared to Third Quarter 2008 is due to the
implementation of two new ASP agreements. ASP hosting service enables a client to lease
the InsPro software, paying only for that capacity required to support their business.
ASP clients access InsPro installed on InsPro Technologies owned servers located at InsPro
Technologies offices or at a third partys site.
|
|
|
|
|
In Third Quarter 2009 we earned maintenance revenues from four clients compared to two
clients in Third Quarter 2008.
|
|
|
|
|
In Third Quarter 2009 we earned license revenue from a
single existing client, which
represent the delivery of contractually agreed to modifications to previously installed
InsPro modules.
|
|
|
|
|
In Third Quarter 2009 we earned Sub-leasing revenue of $9,326 from the sub leasing of
space in our Radnor office, which commenced in the first quarter of 2009.
|
47
Total Operating Expenses
Our total operating expenses for Third Quarter 2009 was $3,705,444
as compared to $3,049,309
for Third Quarter 2008 for an increase of $656,135 or 22% as compared
to Third Quarter 2008. The
primary reason for the increase in operating expenses is attributable to an increase in InsPro
Technologies staffing and technology consultants needed to support additional client requirements
and planned growth. Total operating expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Salaries, employee benefits and related taxes
|
|
$
|
1,805,213
|
|
|
$
|
1,587,203
|
|
Advertising and other marketing
|
|
|
90,814
|
|
|
|
6,171
|
|
Depreciation and amortization
|
|
|
293,696
|
|
|
|
253,770
|
|
Rent, utilities, telephone and communications
|
|
|
201,700
|
|
|
|
149,299
|
|
Professional fees
|
|
|
942,010
|
|
|
|
715,080
|
|
Other general and administrative
|
|
|
372,011
|
|
|
|
337,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,705,444
|
|
|
$
|
3,049,309
|
|
|
|
|
|
|
|
|
In Third Quarter 2009 we incurred salaries, employee benefits and related taxes of $1,805,213
as compared to $1,587,203 for Third Quarter 2008, an increase of $218,010
or 14%. Salaries,
commission and related taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Salaries, wages and bonuses
|
|
$
|
1,516,573
|
|
|
$
|
1,254,092
|
|
Share based employee and director compensation
|
|
|
74,976
|
|
|
|
169,290
|
|
Employee benefits
|
|
|
74,156
|
|
|
|
41,116
|
|
Payroll taxes
|
|
|
102,906
|
|
|
|
72,664
|
|
Severance and other compensation
|
|
|
12,061
|
|
|
|
33,576
|
|
Directors compensation
|
|
|
24,541
|
|
|
|
16,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,805,213
|
|
|
$
|
1,587,203
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and bonuses were $1,516,573 in Third Quarter 2009 as compared to
$1,254,092 in Third Quarter 2008, an increase of $262,481 or
21%. The increase is the
result of the hiring of additional staff in InsPro Technologies sales and technology
departments to promote the growth in revenue and to service an expanding client base.
|
|
|
|
|
Share based employee and director compensation expense was $74,976 in Third Quarter
2009 as compared to $169,290 in Third Quarter 2008, a decrease of $94,314
or 56%.
|
48
|
|
|
The decrease is primarily attributable to the vesting of stock grants and options to directors
and employees. Share based employee and director compensation consist of stock option and
restricted stock grants, which are valued at fair-value at the date of the
grant and expensed over the stock options vesting period or the duration of employment,
whichever is shorter.
|
|
|
|
|
Employee benefits and payroll taxes increased as a result of the hiring of additional
staff in InsPro Technologies. Our 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. The increase was the result of an increase in
InsPro Technologies and Insurints staffing.
|
Advertising and other marketing in Third Quarter 2009 was $90,814
as compared to $6,171 in
Third Quarter 2008. The increase was due to the use of outside agencies for services rendered in
connection with the development of InsPro Technologies marketing strategy including creating the
corporate brand and message and redesign of all sales and marketing material, company web site,
brochures and sales presentation.
Depreciation and amortization expense consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Amortization of intangibles acquired as a result of the InsPro acquisition
|
|
$
|
117,020
|
|
|
$
|
117,020
|
|
Amortization of software and website development for external marketing
|
|
|
21,787
|
|
|
|
21,787
|
|
Amortization of software and website development for internal use
|
|
|
67,042
|
|
|
|
55,797
|
|
Depreciation expense
|
|
|
87,847
|
|
|
|
59,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
293,696
|
|
|
$
|
253,770
|
|
|
|
|
|
|
|
|
|
|
|
In Third Quarter 2009 we incurred amortization expense for the intangible assets
acquired from InsPro Technologies on October 1, 2007. Intangible assets acquired from
InsPro Technologies were assigned the following values:
|
|
o
|
|
value of client contracts and relationships other than
license with an assigned value of $1,089,223 amortized straight line over five
years
|
|
|
o
|
|
value of purchased software for sale and licensing value with
an assigned value of $644,449 amortized straight line over five years
|
|
|
o
|
|
employment and non-compete agreements acquired with an
assigned value of $364,000 amortized straight line over three years.
|
|
|
o
|
|
In Third Quarter 2009 we incurred amortization expense for
software development cost for external marketing pertaining to InsPro
Technologies InsPro system.
|
49
|
|
|
In Third Quarter 2009 we incurred amortization expense of $67,042 as compared to
$55,797 in Third Quarter 2008 for software and website development for internal use
pertaining to Insurint.
|
|
|
|
|
In Third Quarter 2009 we incurred depreciation expense of $87,847 as compared to
$59,166 in Third Quarter 2008. The increase was due to
equipment acquired for use in
InsPro Technologies operations.
|
In Third Quarter 2009 we incurred rent, utilities, telephone and communications expense of
$201,700 as compared to $149,299 in Third Quarter 2008, an increase
of $52,401 or 35%. Rent,
utilities, telephone and communications expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Rent, utilities and other occupancy
|
|
$
|
166,012
|
|
|
$
|
117,272
|
|
Telephone and communications
|
|
|
35,688
|
|
|
|
32,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
201,700
|
|
|
$
|
149,299
|
|
|
|
|
|
|
|
|
|
|
|
In Third Quarter 2009 we had an increase in rent, utilities and other occupancy due to
the leasing of additional space to accommodate the increase in staffing in InsPro
Technologies Eddystone office.
|
In Third Quarter 2009 we incurred professional fees of $942,010
as compared to $715,080 in
Third Quarter 2008, an increase of $226,930 or 32%. Professional fees
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Accounting and auditing
|
|
$
|
67,708
|
|
|
$
|
73,012
|
|
Legal
|
|
|
359,486
|
|
|
|
117,434
|
|
Technology
|
|
|
469,822
|
|
|
|
377,164
|
|
All other
|
|
|
44,994
|
|
|
|
147,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
942,010
|
|
|
$
|
715,080
|
|
|
|
|
|
|
|
|
|
|
|
In Third Quarter 2009 we had an increase in legal fees as compared to Third Quarter
2008, which was primarily due to legal costs incurred in connection with the settlement of
litigation with the shareholders who brought action against the Company in New York in
which the plaintiffs agreed to withdraw from the litigation and provided a general release
of all claims against the Company, its board of directors and the other defendants.
|
50
|
|
|
In Third Quarter 2009 we had an increase in technology fees as compared to Third
Quarter 2008, which was attributable to an increase in technology consultants needed to
support additional InsPro client requirements.
|
|
|
|
|
All other consulting consists of recruiting, investor relations and general management
consulting expense, which decreased as a result of expense reduction actions in all three
areas.
|
In Third Quarter 2009 we incurred other general and administrative expenses of $372,011
as
compared to $337,786 in Third Quarter 2008, an increase of $34,225 or
10%. Other general and
administrative expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Office expenses
|
|
$
|
103,513
|
|
|
$
|
95,462
|
|
Travel and entertainment
|
|
|
70,571
|
|
|
|
43,548
|
|
Insurance
|
|
|
13,519
|
|
|
|
38,386
|
|
Computer processing, hardware and software
|
|
|
184,781
|
|
|
|
145,570
|
|
Other
|
|
|
(373
|
)
|
|
|
14,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
372,011
|
|
|
$
|
337,786
|
|
|
|
|
|
|
|
|
|
|
|
In Third Quarter 2009 office expense increased compared to Third Quarter 2008 due to
costs associated with additional leased space at InsPro Technologies Eddystone office.
|
|
|
|
|
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. InsPro
Technologies has a hosting services contract with a third party, which can be terminated
with notice and payment of a termination fee. This third party provides InsPro
Technologies with hosting services for our clients ASP production and test environments.
In Third Quarter 2009 computer processing fees increased compared to Third Quarter 2008
due to the implementation of two additional ASP hosting agreements.
|
Loss from operations
As a result of the aforementioned factors, we reported a loss from operations of $2,229,748 or
$0.05 loss from operations per share in Third Quarter 2009 as compared to a loss from operations of
$1,623,149 or $0.04 loss per share in Third Quarter 2008.
51
Gain (loss) on discontinued operations
Results from discontinued operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Commission and other revenue from carriers
|
|
$
|
251,023
|
|
|
$
|
4,100,158
|
|
Transition policy commission pursuant to the
Agreement
|
|
|
606,424
|
|
|
|
|
|
Gain on disposal of property and equipment
|
|
|
217,501
|
|
|
|
|
|
Lead sale revenue
|
|
|
|
|
|
|
103,798
|
|
Sub-lease revenue
|
|
|
326,393
|
|
|
|
85,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,401,341
|
|
|
|
4,289,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Salaries, commission and related taxes
|
|
|
125,329
|
|
|
|
2,461,203
|
|
Lead, advertising and other marketing
|
|
|
(27,001
|
)
|
|
|
832,129
|
|
Depreciation and amortization
|
|
|
|
|
|
|
374,451
|
|
Rent, utilities, telephone and communications
|
|
|
348,001
|
|
|
|
486,758
|
|
Professional fees
|
|
|
35,222
|
|
|
|
47,813
|
|
Other general and administrative
|
|
|
112,999
|
|
|
|
113,679
|
|
(Gain) on disposal of property and equipment
|
|
|
|
|
|
|
92,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
594,550
|
|
|
|
4,408,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from discontinued operations
|
|
$
|
806,791
|
|
|
$
|
(118,548
|
)
|
|
|
|
|
|
|
|
During the first quarter of 2009, we ceased the direct marketing and sale of health and life
insurance and related products to individuals and families in its Telesales call center. We also
discontinued the sale of health and life insurance and related products to individuals and families
through our non employee ISG agents. During the first quarter of 2009 our Telesales business
segment eliminated 43 positions including all of its licensed employee sales agents along with
other Telesales service and support personnel and eliminated another 20 positions in Telesales
through attrition.
On February 20, 2009, we completed the sale of our Telesales
call center produced agency
business to eHealth, an unaffiliated third party.
52
Under the terms of our sale to
eHealth, we transferred to eHealth broker of record status and
the right to receive commissions on certain of the in-force individual and family major medical
health insurance policies and ancillary dental, life and vision insurance policies issued by Aetna,
Inc., Golden Rule, Humana, PacifiCare, Inc., Assurant and United Healthcare Insurance Co. on which
we were designated as broker of record. Certain policies and products were excluded from the
transaction, including our agency business generated through our ISG agents, all short term medical
products and all business produced through carriers other than those noted above. In addition, we
also transferred to eHealth certain lead information relating to health insurance prospects.
The aggregate initial amount of consideration paid by eHealth to us during the first quarter
of 2009 was approximately $1,280,000. In addition, eHealth assumed from us certain liabilities
relating to historical commission advances on the transferred policies made by the specified
carriers in an aggregate amount of approximately $1,385,000. eHealth has also agreed to pay to
HBDC II, Inc., a Delaware corporation and our wholly-owned subsidiary, a portion of each commission
payment received by eHealth and reported by the specified carrier relating to a transferred policy
for the duration of the policy, provided that eHealth remains broker of record on such transferred
policy.
Simultaneous with the sale to eHealth, we also entered into a Marketing and Referral
Agreement
with eHealth. Pursuant to the terms of this agreement, eHealth agreed to construct one or more
websites for the purpose of selling health insurance products and to pay to HBDC II a portion of
all first year and renewal commissions received by eHealth from policies sold through the Referral
Sites that result from marketing to prospects using the lead database or other leads delivered by
us to eHealth. This agreement is scheduled to terminate in August 2010
and is terminable by us or
eHealth upon material breach by the other party.
Revenue Recognition for Discontinued Operations
Our Telesales business segment generates revenue primarily from the receipt of commissions
paid to us by insurance companies based upon the insurance policies we sell to consumers. These
revenues are in the form of first year, bonus and renewal commissions that vary by company and
product. We recognize commission revenue primarily from the sale of health insurance, after we
receive notice that the insurance company has received payment of the related premium. First year
commission revenues per policy can fluctuate due to changing premiums, commission rates, and types
or amount of insurance sold. Insurance premium commission revenues are recognized pro-rata over
the terms of the policies. Revenues for renewal commissions are recognized after we receive notice
that the insurance company has received payment for a renewal premium. Renewal commission rates are
significantly less than first year commission rates and may not be offered by every insurance
company or with respect to certain types of products. The unearned portion of premium commissions
has been included in the consolidated balance sheet as a liability for unearned commission
advances.
The length of time between when we submit a consumers application for insurance to an
insurance company and when we recognize revenue varies. The type of insurance product, the
insurance companys premium billing and collection process, and the insurance companys
underwriting backlog are the primary factors that impact the length of time between submitted
applications and revenue recognition. Any changes in the amount of time between submitted
application and revenue recognition, which are influenced by many factors not under our control,
create fluctuations in our operating results and could affect our business, operating results and
financial condition.
53
We receive bonuses based upon individual criteria set by insurance companies, which vary over
time and generally do not extend beyond the current calendar year. We recognize bonus revenues when
we receive notification from the insurance company of the bonus due to us.
We receive fees for the placement and issuance of insurance policies that are in addition to,
and separate from, any sales commissions paid by insurance companies. As these policy fees are not
refundable and we have no continuing obligation, all such revenues are recognized on the effective
date of the policies or, in certain cases, the billing date, whichever is later.
We also generate revenue from the sub-lease of our leased New
York City office and a portion
of our leased Deerfield Beach Florida office, which are both leased under operating leases. The
terms of the sub-lease of our New York City office is under similar terms as our lease. We
sub-lease portions of our Deerfield Beach office to two unaffiliated parties through January 31,
2010. Sub-lease revenue includes base rent, additional rent representing a portion of occupancy
expenses under the terms of the sub-leases and certain technology and facility services provided.
We recognize sub-lease revenue when lease rent payments are due in accordance with the sub-lease
agreements. Recognition of sub-lease revenue commences when control of the facility has been given
to the tenant. We record a provision for losses on accounts receivable equal to the estimated
uncollectible amounts. This estimate is based on our historical experience and a review of the
current status of our receivables.
We recorded a liability for severance payments due to employees of discontinued operations of
$278,030 and $266,740 at September 30, 2009 and December 31, 2008, respectively.
For Third Quarter 2009 we earned revenues in discontinued operations of $1,401,341
compared to
$4,289,859 in the Third Quarter 2008, a decrease of $2,888,518 or
67%. Revenues include the
following:
|
|
|
During the Third Quarter 2009 we recognized commission and other revenue from carriers
of $251,023 as compared to $4,100,158 in Third Quarter 2008. The decrease
is primarily
the result of the execution of the agreement with eHealth whereby we no longer receives
commission revenue on transferred policies effective on or about February 1, 2009. We
continue to receive commissions from carriers other than specified carriers and
commissions on policies other than transferred policies.
|
|
|
|
|
During the Third Quarter 2009 we recognized $606,424
from commission payments from
eHealth subsequent to the sale of our agency business. We recognize as revenue commission
payments received from eHealth upon our notification by eHealth of such amounts.
|
54
|
|
|
During the Third Quarter 2009 we recognized a gain on disposal of property and
equipment of $217,601. On July 1, 2009 we entered into a sub-lease agreement with a third
party, effective July 15, 2009 which terminated an existing sub-lease agreement for
approximately 8,000 square feet of our Deerfield Beach office and replaced it with a
sub-lease agreement for approximately 29,952 square feet. This new sub-lease terminates
on February 28, 2011. As part of the sub-lease agreement, we also agreed to lease certain
personal property to the sub-lessee for the term of the lease. The sub-lessee agreed to
pay us 20 monthly payments of $10,890 for such personal property and we have agreed to
deliver to the sub-lessee a bill of sale for the leased personal property at the end of
the term. We have accounted for this personal property sub-lease arrangement as a sale.
|
|
|
|
|
During the Third Quarter 2009 we earned no lead sale-revenue as compared to $103,798 in
Third Quarter 2008. We re-sold certain Telesales leads that we purchase in order to
recoup a portion of our lead cost. The decrease in lead sales revenue is a result of the
cessation of direct marketing in the Second Quarter of 2009.
|
55
|
|
|
During the Third Quarter 2009 we earned sub-lease revenue of $326,393 as compared to
$85,903 in Third Quarter 2008 relating to the sub-lease of a portion of our Florida office
and our former New York sales office. Sub-lease revenue includes base rent, additional
rent pertaining to utilities and occupancy costs and certain telephony, technology and
facility services provided by us to certain of our sub-tenants.
|
|
o
|
|
On February 21, 2008 we entered into a sub-lease agreement with a
third party whereby the third party sub-leased approximately 5,200 square feet of
our Deerfield Beach office space beginning March 1, 2008 through February 28,
2009. This sub-lease agreement was amended and restated on October 3, 2008 to
increase the sub-leased square footage to 13,900 and extend the lease term through
January 31, 2010.
|
|
|
o
|
|
On October 1, 2008 we entered into a sub-lease agreement with a third
party whereby the third party sub-leased approximately 8,000 square feet of our
Deerfield Beach office space beginning October 15, 2008 through January 31, 2010.
In accordance with this sub-lease agreement we recognize base rent, additional
rent representing a portion of certain actual occupancy expenses for our Deerfield
Beach office and certain telephony, technology and facility services provided to
our sub-tenant. On July 1, 2009 we entered into a sub-lease agreement with a third
party effective July 15, 2009, which terminated an existing sub-lease agreement
for approximately 8,000 square feet of our Deerfield Beach office and replaced it
with a sub-lease agreement of approximately 29,952 square feet.
|
|
|
o
|
|
On April 17, 2008 we entered into a sub-lease agreement with a third
party whereby the third party agreed to sub-lease our New York office space for
the balance of our sublease agreement and pay our sub-lease payments essentially
equal to our costs under the sublease agreement. The third party commenced paying
sub-sublease payments to us in September 2008; however the third party failed to
pay its December 2008 and subsequent rent when due. We were a beneficiary to a
letter of credit in the amount of $151,503, which we had drawn against as a result
of the third partys failure to pay its rent when due. On July 23, 2009 we
entered into a settlement agreement with the third party whereby we cancelled the
sub-lease, the third party surrendered the sub-leased premises back to us and we
and the third party agreed to release each other from all claims.
|
Total operating expenses of discontinued operations for Third Quarter 2009 was $594,550
as
compared to $4,408,407 for Third Quarter 2008 for a decrease of $3,813,857
or 87% as compared to
Third Quarter 2008. The primary reason for the decrease in operating expenses of discontinued
operations is attributable to the cessation of direct marketing and selling activities in the first
quarter of 2009.
Gain (loss) from discontinued operations
As a result of the aforementioned factors, we reported a gain from discontinued operations of
$806,791 or $0.02 loss from discontinued operations per share in Third
Quarter 2009 as compared to
a loss from discontinued operations of $118,548 or $0.00 loss from discontinued
operations per
share in Third Quarter 2008.
56
Other income (expenses)
Interest income was attributable to interest-bearing cash deposits resulting from the capital
raised in private placements. The decrease in interest income is the result of a decline in
interest rates and to a lesser extent a decline in cash balances.
Interest expense pertains to imputed interest on certain employee obligations.
Net loss
As a result of these factors discussed above, we reported a net loss of $1,446,599 or $0.03
loss per share in Third Quarter 2009 as compared to a net loss of $1,739,008 or $0.04
loss per
share in Third Quarter 2008.
Results of Operations for the Nine Months Ended September 30, 2009 Compared to the
Nine Months
Ended September 30, 2008
Revenues
For the nine months ended September 30, 2009 (2009
To Date), we earned revenues of
$4,733,406 compared to $4,120,950 for the nine months ended
September 30, 2008 (2008 To Date), an
increase of $612,456 or 15%. Revenues include the following:
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Consulting and implementation services
|
|
$
|
3,000,592
|
|
|
$
|
2,787,385
|
|
ASP revenue
|
|
|
1,072,466
|
|
|
|
829,245
|
|
Sales of software licenses
|
|
|
87,500
|
|
|
|
115,000
|
|
Maintenance revenue
|
|
|
433,500
|
|
|
|
306,000
|
|
Other technology fees
|
|
|
118,022
|
|
|
|
83,320
|
|
Sub-leasing revenue
|
|
|
21,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,733,406
|
|
|
$
|
4,120,950
|
|
|
|
|
|
|
|
|
57
|
|
|
Consulting and implementation services are from seven InsPro clients. The increase in
consulting and implementation services in 2009 To Date as compared to 2008 To Date is
attributable to an increase in work modification enhancements and data conversion required
for additional clients. Implementation services provided to these clients included
assisting clients in setting up their insurance products in InsPro, providing
modifications to InsPros functionality to support the clients business, interfacing
InsPro with the clients other systems, automation of client correspondence to their
customers and data conversion from the clients existing systems to InsPro.
|
|
|
|
|
In 2009 To Date and 2008 To Date we earned 87,500 and $115,000, respectively from sales
of software licenses from a single InsPro client.
|
|
|
|
|
In 2009 To Date we earned ASP revenue from seven InsPro clients as compared to five in
2008 To Date. ASP hosting service enables a client to lease the InsPro software, paying
only for that capacity required to support their business. ASP clients access InsPro
installed on InsPro Technologies owned servers located at InsPro Technologies offices or
at a third partys site.
|
|
|
|
|
In 2009 To Date we earned maintenance revenues from four clients compared to two
clients in 2008 To Date.
|
|
|
|
|
In 2009 To Date we earned Sub-leasing revenue of $21,326 from the sub leasing of space
in our Radnor office.
|
Total Operating Expenses
Our total operating expenses for 2009 To Date was $11,393,450 as compared to $9,317,264
for
2008 To Date for an increase of $2,076,186 or 22% as compared to 2008 To Date. The primary reason
for the increase in operating expenses is attributable to an increase in InsPro Technologies
staffing and technology consultants needed to support additional client requirements. Total
operating expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Salaries, employee benefits and related taxes
|
|
$
|
6,151,608
|
|
|
$
|
5,156,072
|
|
Advertising and other marketing
|
|
|
231,923
|
|
|
|
29,971
|
|
Depreciation and amortization
|
|
|
859,103
|
|
|
|
759,285
|
|
Rent, utilities, telephone and communications
|
|
|
613,017
|
|
|
|
469,541
|
|
Professional fees
|
|
|
2,449,555
|
|
|
|
1,773,352
|
|
Other general and administrative
|
|
|
1,088,244
|
|
|
|
1,129,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,393,450
|
|
|
$
|
9,317,264
|
|
|
|
|
|
|
|
|
58
In 2009 To Date we incurred salaries, employee benefits and related taxes of $6,151,608 as
compared to $5,156,072 for 2008 To Date, an increase of $995,536 or 19%.
Salaries, commission and
related taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Salaries, wages and bonuses
|
|
$
|
4,707,944
|
|
|
$
|
3,285,053
|
|
Share based employee and director compensation
|
|
|
385,667
|
|
|
|
1,287,351
|
|
Commissions to employees
|
|
|
37,545
|
|
|
|
|
|
Employee benefits
|
|
|
228,585
|
|
|
|
139,185
|
|
Payroll taxes
|
|
|
348,306
|
|
|
|
312,098
|
|
Severance and other compensation
|
|
|
374,191
|
|
|
|
72,135
|
|
Directors compensation
|
|
|
69,370
|
|
|
|
60,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,151,608
|
|
|
$
|
5,156,072
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and bonuses were $4,707,944 in 2009 To Date as compared to $3,285,053
in 2008 To Date, an increase of $1,422,891 or 43%. The increase is the result of the
hiring of additional staff in InsPro Technologies sales and technology departments and
Insurints sales departments to promote the growth in revenue and to service an expanding
client base and $150,000 of bonuses to certain executives.
|
|
|
|
|
Share based employee and director compensation expense was $385,667 in 2009 To Date as
compared to $1,287,351 in 2008 To Date, a decrease of $901,684 or 70%.
The decrease is
attributable to expense pertaining to an option grant to Mr. Alvin Clemens, who is our
former CEO, in the Second Quarter 2008, and due to the vesting of an option grant to a
director and options to directors and employees. Share based employee and director
compensation consist of stock option and restricted stock grants, which are valued at
fair-value at the date of the grant and expensed over the stock options vesting period or
the duration of employment, whichever is shorter.
|
|
|
|
|
Commissions to employees represents commissions paid to InsPro Technologies and
Insurint sales personnel.
|
|
|
|
|
Employee benefits expense increased as a result of the hiring of additional staff in
InsPro Technologies and Insurint. Our 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. The increase was the result of an increase in
InsPro Technologies and Insurints staffing.
|
|
|
|
|
Payroll taxes expense increased as a result of the hiring of additional staff in InsPro
Technologies and Insurint partially offset by a greater number of salaries exceeding the
maximum FICA contribution limit.
|
59
|
|
|
Severance and other compensation increased primarily as a result of the Separation of
Employment and General Release Agreement with Mr. Eissa.
|
Advertising and other marketing in 2009 To Date was $231,923 as compared to $29,971
in 2008 To
Date. The increase was due to the use of outside agencies for services rendered in connection with
the development of InsPro Technologies marketing strategy including creating the corporate brand
and message and redesign of all sales and marketing material, company web site, brochures and sales
presentation.
Depreciation and amortization expense consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Amortization of intangibles acquired as a result of the InsPro acquisition
|
|
$
|
351,060
|
|
|
$
|
351,061
|
|
Amortization of software and website development for external marketing
|
|
|
65,361
|
|
|
|
21,787
|
|
Amortization of software and website development for internal use
|
|
|
201,126
|
|
|
|
143,070
|
|
Depreciation expense
|
|
|
241,556
|
|
|
|
243,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
859,103
|
|
|
$
|
759,285
|
|
|
|
|
|
|
|
|
|
|
|
In 2009 To Date we incurred amortization expense of $351,060 for the intangible assets
acquired from InsPro Technologies on October 1, 2007. Intangible assets acquired from
InsPro Technologies were assigned the following values:
|
|
o
|
|
value of client contracts and relationships other than
license with an assigned value of $1,089,223 amortized straight line over five
years
|
|
|
o
|
|
value of purchased software for sale and licensing value with
an assigned value of $644,449 amortized straight line over five years
|
|
|
o
|
|
employment and non-compete agreements acquired with an
assigned value of $364,000 amortized straight line over three years.
|
|
|
|
In 2009 To Date we incurred amortization expense of $65,361 as compared to $21,787
in 2008 To Date for software development cost for external marketing pertaining to
InsPro Technologies InsPro system.
|
|
|
|
|
In 2009 To Date we incurred amortization expense of $201,126 as compared to
$143,070 in 2008 To Date for software and website development for internal use
pertaining to Insurint.
|
|
|
|
|
In 2009 To Date we incurred depreciation expense of $241,556 as compared to
$243,367 in 2008 To Date. The decrease was due to the impairment of assets on
discontinued operations.
|
60
In 2009 To Date we incurred rent, utilities, telephone and communications expense of $613,017
as compared to $469,541 in 2008 To Date, an increase of $143,476 or 31%.
Rent, utilities, telephone
and communications expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Rent, utilities and other occupancy
|
|
$
|
483,536
|
|
|
$
|
369,702
|
|
Telephone and communications
|
|
|
129,481
|
|
|
|
99,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
613,017
|
|
|
$
|
469,541
|
|
|
|
|
|
|
|
|
|
|
|
In 2009 To Date we had an increase in rent, utilities and other occupancy due to the
leasing of additional space to accommodate the increase in staffing in InsPro
Technologies Eddystone office and annual rent increases in our Radnor office.
|
In 2009 To Date we incurred professional fees of $2,449,555 as compared to $1,773,352
in 2008
To Date, an increase of $676,203 or 38%. Professional fees consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Accounting and auditing
|
|
$
|
201,618
|
|
|
|
246,284
|
|
Legal
|
|
|
568,766
|
|
|
|
291,818
|
|
Technology
|
|
|
1,499,866
|
|
|
|
835,141
|
|
All other
|
|
|
179,305
|
|
|
|
400,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,449,555
|
|
|
$
|
1,773,352
|
|
|
|
|
|
|
|
|
|
|
|
In 2009 To Date we had an increase in legal fees as compared to 2008 To Date, which was
primarily due to legal costs incurred in connection with the settlement of litigation with
the shareholders who brought action against the Company in New York in which the
plaintiffs agreed to withdraw from the litigation and provided a general release of all
claims against the Company, its board of directors and the other defendants.
|
|
|
|
|
In 2009 To Date we had a decrease of $44,666 in accounting and auditing fees as
compared to 2008 To Date, which was attributable to reduced consulting costs associated
with Sarbanes Oxley.
|
|
|
|
|
In 2009 To Date we had an increase of $664,725 in technology fees as compared to 2008
To Date, which was attributable to an increase in technology consultants needed to support
additional InsPro client requirements.
|
61
|
|
|
All other consulting consists of executive recruiting, investor relations and
management consulting expense, which decreased as a result of expense reduction actions in
all three areas.
|
In 2009 To Date we incurred other general and administrative expenses of $1,088,244 as
compared to $1,129,044 in 2008 To Date, a decrease of $40,799 or 4%.
Other general and
administrative expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Office expenses
|
|
$
|
252,821
|
|
|
$
|
309,705
|
|
Travel and entertainment
|
|
|
160,657
|
|
|
|
189,504
|
|
Insurance
|
|
|
77,509
|
|
|
|
102,095
|
|
Computer processing, hardware and software
|
|
|
495,613
|
|
|
|
379,374
|
|
Other
|
|
|
101,644
|
|
|
|
148,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,088,244
|
|
|
$
|
1,129,044
|
|
|
|
|
|
|
|
|
|
|
|
In 2009 To Date office expense decreased due to the reduction in staff in our Florida
office.
|
|
|
|
|
We incur travel and entertainment expense in connection with marketing, sales and
implementation of InsPro at client locations.
|
|
|
|
|
In 2009 To Date computer processing, hardware and software expense increased due to an
increase in InsPro ASP clients to seven in 2009 compared to five in 2008. We incur
computer processing fees associated with ASP hosting services. InsPro Technologies has a
hosting services contract with a third party, which can be terminated with notice and
payment of a termination fee. This third party provides InsPro Technologies with hosting
services for our clients ASP production and test environments. In 2009 To Date computer
processing fees increased compared to 2008 To Date due to the implementation of two
additional ASP hosting agreements.
|
Loss from operations
As a result of the aforementioned factors, we reported a loss from operations of $6,660,044 or
$0.16 loss from operations per share in 2009 To Date as compared to a loss from operations of
$5,196,314 or $0.13 loss per share in 2008 To Date.
62
Gain (loss) on discontinued operations
Results from discontinued operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Commission and other revenue from carriers
|
|
$
|
1,972,178
|
|
|
$
|
13,847,293
|
|
Gain recognized upon the execution of the Agreement
|
|
|
2,664,794
|
|
|
|
|
|
Transition policy commission pursuant to the Agreement
|
|
|
1,383,279
|
|
|
|
|
|
Gain on disposal of property and equipment
|
|
|
227,728
|
|
|
|
|
|
Lead sale revenue
|
|
|
2,442
|
|
|
|
391,293
|
|
Sub-lease revenue
|
|
|
1,007,898
|
|
|
|
138,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,258,319
|
|
|
|
14,377,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Salaries, commission and related taxes
|
|
|
1,034,188
|
|
|
|
8,848,034
|
|
Lead, advertising and other marketing
|
|
|
98,350
|
|
|
|
3,877,825
|
|
Depreciation and amortization
|
|
|
95,619
|
|
|
|
1,192,366
|
|
Rent, utilities, telephone and communications
|
|
|
3,348,542
|
|
|
|
1,668,196
|
|
Professional fees
|
|
|
393,090
|
|
|
|
186,648
|
|
Loss on impairment of property and equipment
|
|
|
416,764
|
|
|
|
88,922
|
|
Loss on impairment of intangible assets
|
|
|
1,222,817
|
|
|
|
295,633
|
|
Other general and administrative
|
|
|
225,185
|
|
|
|
373,120
|
|
(Gain) on disposal of property and equipment
|
|
|
|
|
|
|
92,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,834,555
|
|
|
|
16,623,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from discontinued operations
|
|
$
|
423,764
|
|
|
$
|
(2,245,592
|
)
|
|
|
|
|
|
|
|
During the first quarter of 2009, we ceased the direct marketing and sale of health and life
insurance and related products to individuals and families in its Telesales call center. We also
discontinued the sale of health and life insurance and related products to individuals and families
through our non employee ISG agents. During the first quarter of 2009 our Telesales business
segment eliminated 43 positions including all of its licensed employee sales agents along with
other Telesales service and support personnel and eliminated another 20 positions in Telesales
through attrition.
On February 20, 2009, we completed the sale of our Telesales
call center produced agency
business to eHealth, an unaffiliated third party.
63
Under the terms of our sale to
eHealth, we transferred to eHealth broker of record status and
the right to receive commissions on certain of the in-force individual and family major medical
health insurance policies and ancillary dental, life and vision insurance policies issued by Aetna,
Inc., Golden Rule, Humana, PacifiCare, Inc., Assurant and United Healthcare Insurance Co. on which
we were designated as broker of record. Certain policies and products were excluded from the
transaction, including our agency business generated through our ISG agents, all short term medical
products and all business produced through carriers other than those noted above. In addition, we
also transferred to eHealth certain lead information relating to health insurance prospects.
The aggregate initial amount of consideration paid by eHealth to us during the first quarter
of 2009 was approximately $1,280,000. In addition, eHealth assumed from us certain liabilities
relating to historical commission advances on the transferred policies made by the specified
carriers in an aggregate amount of approximately $1,385,000. eHealth has also agreed to pay to
HBDC II, Inc., a Delaware corporation and our wholly-owned subsidiary, a portion of each commission
payment received by eHealth and reported by the specified carrier relating to a transferred policy
for the duration of the policy, provided that eHealth remains broker of record on such transferred
policy.
Simultaneous with our sale to eHealth, we also entered into a Marketing and Referral
Agreement
with eHealth. Pursuant to the terms of this agreement, eHealth agreed to construct one or more
websites for the purpose of selling health insurance products and to pay to HBDC II a portion of
all first year and renewal commissions received by eHealth from policies sold through the Referral
Sites that result from marketing to prospects using the lead database or other leads delivered by
us to eHealth. This agreement is scheduled to terminate in August 2010
and is terminable by us or
eHealth upon material breach by the other party.
For 2009 To Date we earned revenues in discontinued operations of $7,258,319 compared to
$14,377,526 in the 2008 To Date, a decrease of $7,119,207 or 50%. Revenues
include the following:
|
|
|
During 2009 To Date we recognized commission and other revenue from carriers of
$1,972,178 as compared to $13,847,293 in 2008 To Date. The decrease is primarily the
result of the execution of the agreement with eHealth whereby we no longer receive
commission revenue on transferred policies effective on or about February 1, 2009. We
continue to receive commissions from carriers other than specified carriers and
commissions on policies other than transferred policies.
|
|
|
|
|
During 2009 To Date we recognized a gain upon the execution of the Agreement of
$2,664,794, which is the sum of the aggregate initial amount of consideration paid by
eHealth to us and eHealths assumption of certain liabilities relating to historical
commission advances on the transferred policies.
|
|
|
|
|
During 2009 To Date we recognized $1,383,279 from commission payments from eHealth
subsequent to the sale of our agency business. We recognize as revenue commission
payments received from eHealth upon our notification by eHealth of such amounts.
|
64
|
|
|
During 2009 To Date we recognized a gain on disposal of property and equipment of
$227,728. On July 1, 2009 we entered into a sub-lease agreement with a third party,
effective July 15, 2009 which terminated an existing sub-lease agreement for approximately
8,000 square feet of our Deerfield Beach office and replaced it with a sub-lease agreement
for approximately 29,952 square feet. This new sub-lease terminates on February 28, 2011.
As part of the sub-lease agreement, we also agreed to lease certain personal property to
the sub-lessee for the term of the lease. The sub-lessee agreed to pay us 20 monthly
payments of $10,890 for such personal property and we have agreed to deliver to the
sub-lessee a bill of sale for the leased personal property at the end of the term. We
have accounted for this personal property sub-lease arrangement as a sale. During 2009 To
Date we earned lead sale-revenue of $2,442 as compared to $391,193 in 2008 To Date. We
re-sold certain Telesales leads that we purchase in order to recoup a portion of our lead
cost. The decrease in lead sales revenue is a result of the cessation of direct marketing
in the first quarter of 2009.
|
65
|
|
|
During 2009 To Date we earned sub-lease revenue of $1,007,898 as compared to $138,940
in 2008 To Date relating to the sub-lease of a portion of our Florida office and our
former New York sales office. Sub-lease revenue includes base rent, additional rent
pertaining to utilities and occupancy costs and certain telephony, technology and facility
services provided by us to certain of our sub-tenants.
|
|
o
|
|
On February 21, 2008 we entered into a sub-lease agreement with a
third party whereby the third party sub-leased approximately 5,200 square feet of
our Deerfield Beach office space beginning March 1, 2008 through February 28,
2009. This sub-lease agreement was amended and restated on October 3, 2008 to
increase the sub-leased square footage to 13,900 and extend the lease term through
January 31, 2010.
|
|
|
o
|
|
On October 1, 2008 we entered into a sub-lease agreement with a third
party whereby the third party sub-leased approximately 8,000 square feet of our
Deerfield Beach office space beginning October 15, 2008 through January 31, 2010.
On July 1, 2009 we entered into a sub-lease agreement with a third party effective
July 15, 2009, which terminated an existing sub-lease agreement for approximately
8,000 square feet of our Deerfield Beach office and replaced it with a sub-lease
agreement of approximately 29,952 square feet. This sub-lease terminates on
February 28, 2011. In accordance with this sub-lease agreement we recognize base
rent, additional rent representing a portion of certain actual occupancy expenses
for our Deerfield Beach office and certain telephony, technology and facility
services provided to our sub-tenant.
|
|
|
o
|
|
On April 17, 2008 we entered into a sub-lease agreement with a third
party whereby the third party agreed to sub-lease our New York office space for
the balance of our sublease agreement and pay us sub-lease payments essentially
equal to our costs under the sublease agreement. The third party commenced paying
sub-sublease payments to us in September 2008; however the third party failed to
pay its December 2008 and subsequent rent when due. We were a beneficiary to a
letter of credit in the amount of $151,503, which we had drawn against as a result
of the third partys failure to pay its rent when due. On July 23, 2009 we
entered into a settlement agreement with the third party whereby we cancelled the
sub-lease, the third party surrendered the sub-leased premises back to us and we
and the third party each released each other from all claims.
|
Total operating expenses of discontinued operations for 2009 To Date was $6,834,555 as
compared to $16,623,118 for 2008 To Date for a decrease of $9,788,563 or 59%
as compared to 2008 To
Date.
|
|
|
The primary reason for the decrease in operating expenses of discontinued operations is
attributable to the cessation of direct marketing and selling activities in the first
quarter of 2009.
|
|
|
|
|
During the first quarter of 2009 we determined certain long term assets were impaired
as a result of the cessation of direct marketing and sales in the Telesales call center.
We recorded expense in 2009 to write-off the value of these long term assets, which
included property and equipment net of depreciation of $416,764, intangible assets net of
accumulated amortization acquired from ISG of $1,200,428 and the value of internet domain
name www.healthbenefitsdirect.com net of accumulated amortization of $22,389.
|
66
|
|
|
During the second quarter we recorded $2,031,210 rent expense related to the
non-cancelable lease for the abandoned portion of the Deerfield Beach office. Effective
September 30, 2009, we have accrued $1,951,504 related to the non-cancelable lease for the
abandoned portion of the Deerfield Beach office, which is net present value of our future
lease payments through March 31, 2011 and consideration for early termination due under
the lease plus managements estimate of contractually required expenses pertaining to the
Deerfield Beach office, which are estimated to be $3,210,938, less a portion of the
Deerfield Beach office used in operations, which is estimated to be $107,971, less future
sub-lease revenue, which is estimated to be $1,148,727.
|
Gain (loss) from discontinued operations
As a result of the aforementioned factors, we reported a gain from discontinued operations of
$423,764 or $0.01 gain from discontinued operations per share in 2009 To Date as compared to a loss
from discontinued operations of $2,245,592 or $0.06 loss from discontinued operations per share in
2008 To Date.
Other income (expenses)
Interest income was attributable to interest-bearing cash deposits resulting from the capital
raised in private placements. The decrease in interest income is the result of a decline in
interest rates and to a lesser extent a decline in cash balances.
Interest expense pertains to imputed interest on certain employee obligations.
Net loss
As a result of these factors discussed above, we reported a net loss of $6,281,647 or $0.15
loss per share in 2009 To Date as compared to a net loss of $7,402,697 or $0.19 loss per share in
2008 To Date.
67
Results of Operations for the Year Ended December 31, 2008 Compared to the Year Ended December 31,
2007
Revenues
For the twelve months ended December 31, 2008, we earned revenues of $5,675,689 compared to
$1,141,028 for the twelve months ended December 31, 2007, an increase of $4,534,661 or 397%. The
increase in revenues is primarily attributable to an increase in InsPro Technologies revenues. We
acquired InsPro Technologies on October 1, 2007. The results of InsPro Technologies operations
prior to our October 1, 2007 acquisition have been excluded from our financial statements. The
results of our InsPro Technologies subsidiary have been included in the Companys statement of
operations as of October 1, 2007. Thus InsPro Technologies segments results from operations for
years ended December 31, 2008 and 2007 are not comparable. Revenues include the following:
|
|
|
|
|
|
|
|
|
|
|
For the Twelve Months
|
|
|
|
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Consulting and implementation services
|
|
|
3,889,069
|
|
|
$
|
668,674
|
|
ASP revenue
|
|
|
1,123,943
|
|
|
|
244,854
|
|
Sales of software licenses
|
|
|
115,000
|
|
|
|
137,500
|
|
Maintenance revenue
|
|
|
450,500
|
|
|
|
90,000
|
|
Insurint technology fees
|
|
|
97,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,675,689
|
|
|
|
1,141,028
|
|
|
|
|
|
|
|
|
In 2008, we earned revenues from seven InsPro Technologies clients as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Twelve Months
|
|
|
|
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Client 1
|
|
$
|
2,885,388
|
|
|
$
|
474,626
|
|
Client 2
|
|
|
786,740
|
|
|
|
344,863
|
|
Client 3
|
|
|
576,399
|
|
|
|
225,089
|
|
Client 4
|
|
|
552,138
|
|
|
|
96,450
|
|
Clients 5, 6, 7
|
|
|
777,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,578,512
|
|
|
$
|
1,141,028
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and implementation services revenues 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 InsPros functionality to
support the clients business, interfacing InsPro with the clients other systems,
automation of client correspondence to their customers and data conversion from the
clients 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 the capacity required to support its
business. ASP clients access InsPro installed on InsPro Technologies
owned servers located at InsPro Technologies offices or at a third partys site.
|
68
|
|
|
In 2008, we earned software license revenue from a single InsPro client.
|
|
|
|
|
In 2008, we earned maintenance revenues from four clients.
|
|
|
|
|
In 2008, we earned revenues of $97,177 relating to Insurint technology fees. Our
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. Insurints technology fees commenced in the second quarter
of 2008.
|
Total Operating Expenses
Our total operating expenses in 2008 were $12,583,752 as compared to $7,861,894 for 2007, for
an increase of $4,721,858 or 60%, which was primarily the result of InsPro Technologies. We
acquired InsPro Technologies on October 1, 2007. The results of InsPro Technologies operations
prior to our October 1, 2007 acquisition have been excluded from our financial statements. The
results of our InsPro Technologies have been included in the Companys statement of operations as
of October 1, 2007. Thus the Companys InsPro Technologies results from operations for years
ended December 31, 2008 and 2007 are not comparable.
Total operating expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
For the Twelve Months
|
|
|
|
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Salaries, commission and related taxes
|
|
$
|
7,042,192
|
|
|
$
|
4,976,961
|
|
Lead, advertising and other marketing
|
|
|
32,497
|
|
|
|
11,052
|
|
Depreciation and amortization
|
|
|
1,017,532
|
|
|
|
327,138
|
|
Rent, utilities, telephone and communications
|
|
|
648,208
|
|
|
|
339,909
|
|
Professional fees
|
|
|
2,407,073
|
|
|
|
1,517,663
|
|
Other general and administrative
|
|
|
1,436,250
|
|
|
|
689,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,583,752
|
|
|
$
|
7,861,894
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, commission and related taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
For the Twelve Months
|
|
|
|
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Salaries and wages
|
|
$
|
4,800,916
|
|
|
$
|
3,072,212
|
|
Share based employee and director compensation
|
|
|
1,448,836
|
|
|
|
1,562,712
|
|
Employee Benefits
|
|
|
230,441
|
|
|
|
60,980
|
|
Payroll Taxes
|
|
|
396,657
|
|
|
|
156,083
|
|
Other Compensation
|
|
|
88,509
|
|
|
|
14,308
|
|
Directors Compensation
|
|
|
76,833
|
|
|
|
110,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,042,192
|
|
|
$
|
4,976,961
|
|
|
|
|
|
|
|
|
69
|
|
|
Salaries and wages were $4,800,916 in 2008 as compared to $3,072,212 in 2007. The
increase is primary attributable to increased InsPro Technologies staffing and the
exclusion of InsPro Technologies expense prior to the Companys October 1, 2007
acquisition of InsPro Technologies. InsPro Technologies had 31 and 18 employees at
December 31, 2008 and 2007, respectively.
|
|
|
|
|
Share-based employee and director compensation expense was $1,448,836 in 2008 as
compared to $1,562,712 in 2007.
|
|
|
|
The decrease in 2008 as compared to 2007 was in part the result of an expense
in 2007 pertaining to the modification of the expiration dates and vesting of two
former executives options in the amount of $212,426 and vesting schedules of
stock options issued in 2006.
|
|
|
|
|
Share-based employee and director compensation consists of stock option and
restricted stock grants, which are valued at fair-value on the date of the grant
and expensed over the stock options vesting period or the duration of
employment, whichever is shorter.
|
|
|
|
Employee benefits expense was $230,441 in 2008 as compared to $60,980 in 2007. The
increase is primary attributable to increased InsPro Technologies staffing and the
exclusion of InsPro Technologies expense prior to the Companys October 1, 2007
acquisition of InsPro Technologies. Our employee benefit cost consists of the
company-paid portion of group medical, dental and life insurance coverage and partial
matching of employee contributions to our 401(k) plan.
|
|
|
|
|
Payroll taxes expense was $396,657 in 2008 as compared to $156,083 in 2007. The
increase is primary attributable to increased InsPro Technologies staffing and the
exclusion of InsPro Technologies expense prior to the Companys October 1, 2007
acquisition of InsPro Technologies.
|
|
|
|
|
Other compensation expense was $88,509 in 2008 as compared to $14,308 in 2007. The
increase was the result of increased severance expenses.
|
|
|
|
Depreciation and amortization expense consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
For the Twelve Months
|
|
|
|
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Amortization of intangibles acquired as a result of the InsPro Technologies acquisition
|
|
$
|
468,081
|
|
|
$
|
117,020
|
|
Software development costs for internal use
|
|
|
198,181
|
|
|
|
111,666
|
|
Software development costs for external marketing
|
|
|
43,574
|
|
|
|
|
|
Depreciation expense
|
|
|
307,696
|
|
|
|
98,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total Telesales
|
|
$
|
1,017,532
|
|
|
$
|
327,138
|
|
|
|
|
|
|
|
|
|
|
|
In 2008, we incurred amortization expense of $468,081 for the intangible assets
acquired from InsPro Technologies. The InsPro Technologies acquisition was effective
October 1, 2007. Intangible assets acquired from InsPro
Technologies were assigned the following values:
|
|
|
|
value of client contracts and relationships (other than licenses) 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 on a straight line basis over five years
|
70
|
|
|
employment and non-compete agreements acquired with an assigned value of
$364,000, amortized on a straight line basis over three years.
|
|
|
|
In 2008, we incurred amortization expense of $198,181 for software development cost
for internal use as compared to $111,666 in 2007, which pertains to the Insurint
web-based agent portal.
|
|
|
|
|
In 2008, we incurred amortization expense of $43,574 for software development cost
for external marketing.
|
|
|
|
|
In 2008, we incurred depreciation expense of $307,696 as compared to $98,452 in 2007.
The increase is primary attributable to the exclusion of InsPro Technologies expense
prior to the Companys October 1, 2007 acquisition of InsPro Technologies.
|
|
|
|
Rent, utilities, telephone and communications expenses were $648,208 in 2008 as compared
to $339,909 in 2007. The increase is primary attributable to increased InsPro Technologies
staffing and associated office space requirements, the exclusion of InsPro Technologies
expense prior to the Companys October 1, 2007 acquisition of InsPro Technologies and
increases in costs associated with our Florida office used in operations.
|
|
|
|
|
In 2008, we incurred professional fees of $2,407,073 as compared to $1,517,663 in 2007.
The increase was primarily attributable to InsPro Technologies outsourced system
development costs and to a lesser extent employee recruiting services. InsPro Technologies
expense prior to the Companys October 1, 2007 acquisition of InsPro Technologies has been
excluded from the Companys results.
|
|
|
|
|
In 2008, we incurred other general and administrative expenses of $1,436,250 as compared
to $689,171 in 2007. The increase was primarily attributable to InsPro Technologies
computer processing fees associated with ASP hosting services. InsPro Technologies has a
hosting services contract with a third party, which can be terminated with notice and
payment of a termination fee. This third party provides InsPro Technologies with hosting
services for our clients ASP production and test environments. InsPro Technologies
expense prior to the Companys October 1, 2007 acquisition of InsPro Technologies has been
excluded from the Companys results.
|
Gain (loss) on discontinued operations
Results from discontinued operations were as follows:
71
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Commission and other revenue from carriers
|
|
$
|
17,583,578
|
|
|
$
|
18,708,832
|
|
Lead sale revenue
|
|
|
408,120
|
|
|
|
859,890
|
|
Sub-lease revenue
|
|
|
460,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,452,338
|
|
|
|
19,568,722
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Salaries, commission and related taxes
|
|
|
10,090,638
|
|
|
|
12,567,206
|
|
Lead, advertising and other marketing
|
|
|
4,357,986
|
|
|
|
8,478,643
|
|
Depreciation and amortization
|
|
|
1,550,613
|
|
|
|
1,959,629
|
|
Rent, utilities, telephone and communications
|
|
|
2,861,505
|
|
|
|
2,380,826
|
|
Professional fees
|
|
|
541,430
|
|
|
|
544,444
|
|
Loss on impairment of property and equipment
|
|
|
88,922
|
|
|
|
|
|
Loss on impairment of intangible assets
|
|
|
380,711
|
|
|
|
125,000
|
|
Other general and administrative
|
|
|
636,180
|
|
|
|
1,245,149
|
|
(Gain) on disposal of property and equipment
|
|
|
46,479
|
|
|
|
2,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,554,464
|
|
|
|
27,303,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from discontinued operations
|
|
$
|
(2,102,126
|
)
|
|
$
|
(7,734,767
|
)
|
|
|
|
|
|
|
|
During the first quarter of 2009, the Company ceased the direct marketing and sale of health
and life insurance and related products to individuals and families in its Telesales call center.
The Company also determined to discontinue selling health and life insurance and related products
to individuals and families through its non employee ISG agents. During the first quarter of 2009
the Companys Telesales eliminated 43 positions including all of its licensed employee sales agents
along with other Telesales service and support personnel and eliminated another 20 positions in
Telesales through attrition.
On February 20, 2009 (the Closing Date), the Company entered into and completed the sale of
the Companys Telesales call center produced agency business (the Agency Business) to eHealth, an
unaffiliated third party, pursuant to the terms of a Client Transition Agreement (the Agreement).
Pursuant to the Agreement the Company transferred to eHealth broker of record status and the
right to receive commissions on certain of the in-force individual and family major medical health
insurance policies and ancillary dental, life and vision insurance policies issued by Aetna, Inc.,
Golden Rule, Humana, PacifiCare, Inc., Assurant and United Healthcare Insurance Co. (collectively,
the Specified Carriers) on which the Company was designated as broker of record as of the Closing
Date (collectively, the Transferred Policies and each, a Transferred Policy). Certain policies
and products were excluded from the transaction, including the Companys agency business generated
through its ISG agents, all short term medical products and all business produced through carriers
other than the Specified Carriers. In addition, the Agreement also provides for the transfer to
eHealth of certain lead information relating to health insurance prospects (the Lead Database).
The aggregate initial amount of consideration paid by eHealth to the Company pursuant to the
Agreement during the first quarter of 2009 was approximately $1,280,000, which was recognized in
2009. In addition, on the Closing Date, eHealth agreed to
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assume from the Company certain liabilities relating to historical commission advances on the
Transferred Policies made by the Specified Carriers in an aggregate amount of approximately
$1,385,000, which was recognized in 2009. In addition, eHealth has agreed to pay to HBDC II, Inc.,
a Delaware corporation and a wholly-owned subsidiary of the Company (HBDC II) a portion of each
commission payment received by eHealth and reported by the Specified Carrier relating to a
Transferred Policy for the duration of the policy, provided that eHealth remains broker of record
on such Transferred Policy.
Simultaneous with the execution of the Agreement, the Company and eHealth also entered into a
Marketing and Referral Agreement, dated as of February 20, 2009 (the Referral Agreement).
Pursuant to the terms of the Referral Agreement, eHealth agreed to construct one or more websites
for the purpose of selling health insurance products (the Referral Sites) and to pay to HBDC II a
portion of all first year and renewal commissions received by eHealth from policies sold through
the Referral Sites that result from marketing to prospects using the Lead Database or other leads
delivered by the Company to eHealth. The Referral Agreement is scheduled to terminate 18 months
following the Closing Date and is terminable by the Company or eHealth upon material breach by the
other party.
Revenue Recognition for Discontinued Operations
Our Telesales business segment generates revenue primarily from the receipt of commissions
paid to the Company by insurance companies based upon the insurance policies sold to consumers by
the Company. These revenues are in the form of first year, bonus and renewal commissions that vary
by company and product. We recognize commission revenue primarily from the sale of health
insurance, after we receive notice that the insurance company has received payment of the related
premium. First year commission revenues per policy can fluctuate due to changing premiums,
commission rates, and types or amount of insurance sold. Insurance premium commission revenues are
recognized pro-rata over the terms of the policies. Revenues for renewal commissions are
recognized after we receive notice that the insurance company has received payment for a renewal
premium. Renewal commission rates are significantly less than first year commission rates and may
not be offered by every insurance company or with respect to certain types of products. The
unearned portion of premium commissions has been included in the consolidated balance sheet as a
liability for unearned commission advances.
The length of time between when we submit a consumers application for insurance to an
insurance company and when we recognize revenue varies. The type of insurance product, the
insurance companys premium billing and collection process, and the insurance companys
underwriting backlog are the primary factors that impact the length of time between submitted
applications and revenue recognition. Any changes in the amount of time between submitted
application and revenue recognition, which are influenced by many factors not under our control,
create fluctuations in our operating results and could affect our business, operating results and
financial condition.
The Company receives bonuses based upon individual criteria set by insurance companies, which
vary over time and generally do not extend beyond the current calendar year. We recognize bonus
revenues when we receive notification from the insurance company of the bonus due to us.
The Company receives fees for the placement and issuance of insurance policies that are in
addition to, and separate from, any sales commissions paid by insurance companies. As these policy
fees are not refundable and the Company has no continuing obligation, all such revenues are
recognized on the effective date of the policies or, in certain cases, the billing date, whichever
is later.
The Company also generates revenue from the sub-lease of our leased New York City office and a
portion of our leased Deerfield Beach Florida office, which are both leased under operating leases.
The terms of the Companys sub-lease of our New York City office is under similar terms as our
lease. The Company sub-leases portions of our Deerfield Beach office to two unaffiliated parties
through January 31, 2010. Sub-lease revenue includes base rent, additional rent representing a
portion of occupancy expenses under the terms of the sub-leases and certain technology and facility
services provided. We recognize sub-lease revenue when lease rent payments are due in accordance
with the sub-lease agreements in accordance with SFAS No. 13 Accounting for Leases. Recognition
of sub-lease revenue commences when control of the facility has been given to the tenant. We record
a provision for losses on accounts receivable equal to the estimated uncollectible amounts. This
estimate is based on our historical experience and a review of the current status of the Companys
receivables.
73
The Company recorded a liability for severance payments due to employees of discontinued
operations of $266,740 at December 31, 2008.
For twelve months ended December 31, 2008 we earned revenues in discontinued operations of
$18,452,338 compared to $19,568,722 in the twelve months ended December 31, 2008, a decrease of
$1,116,384 or 6%. Revenues include the following:
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In 2008, we earned commission revenue from carriers of $17,583,578 as compared to
$18,708,832 in 2007.
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We had 31 licensed insurance agent employees at December 31, 2008 as
compared to 118 at December 31, 2007. In March 2008, we closed our New York sales
office, which accounted for approximately 20% of our sales activity for 2007. We
also reduced sales and sales support staff in our Florida office. 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
October 2008, we further reduced our Telesales sales and sales support staff in our
Florida office. In October 2008, we terminated 51 employees, including 22 agents.
Management believes the reduction in future revenues will be mitigated by
significant reductions in future expenses.
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In 2008, we earned periodic bonuses from carriers of $100,392 as compared
to $843,311 in 2007. The Telesales segment receives bonuses from certain carriers,
which are based primarily on the Telesales segments 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. As a result of the
cessation of direct marketing and sales in 2009, management does not anticipate
receiving material periodic bonuses from carriers in the future.
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In 2008, we earned revenue of $1,404,244 relating to ISG as compared to
$1,821,958 in 2007. ISG revenue declined as a result of reduced new sales, the
lapse of inforce business and reduced commission overrides earned on the Telesales
segment on new and inforce business. As a result of the transaction with eHealth in
February 2009, management anticipates a significant decline in ISG commission
revenue as a result of the elimination of commission overrides for all Telesales
business.
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In 2008, we earned revenues of $408,120 relating to the sale of leads to third parties
as compared to $859,890 in 2007. We re-sell certain leads that we purchase 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 resulted in a reduced number of leads
available for sale. As a result of the cessation of direct marketing in the first quarter
of 2009, management does not anticipate receiving material lead revenue in the future.
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In 2008 we earned revenue of $460,640 relating to the sub-lease of a portion of our
Florida office and our former New York sales office. Sub-lease revenue includes base rent,
additional rent pertaining to utilities and occupancy costs and certain telephony,
technology and facility services provided by us to certain of our sub-tenants.
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On February 21, 2008 the Company entered into a sub-lease agreement with
a third party whereby the third party sub-leased approximately 5,200 square feet of
our Deerfield Beach office space beginning March 1, 2008 through February 28, 2009.
This sub-lease agreement was amended and restated on October 3, 2008 to increase the
sub-leased square footage to 13,900 and extend the lease term through January 31,
2010.
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On October 1, 2008 the Company entered into a sub-lease agreement with a
third party whereby the third party sub-leased approximately 8,000 square feet of
our Deerfield Beach office space beginning October 15, 2008 through January 31,
2010. In accordance with this sub-lease agreement the Company recognizes base rent,
additional rent representing a portion of certain actual occupancy expenses for our
Deerfield Beach office and certain telephony, technology and facility services
provided to our sub-tenant.
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On April 17, 2008 the Company entered into a sub-lease agreement with a
third party whereby the third party will sub-lease our New York office space for the
balance of the Companys Sublease Agreement and pay the Company sub-lease payments
essentially equal to the Companys costs under the Sublease
Agreement. The third party
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commenced paying sub-sublease payments to the Company in September 2008
however the third party failed to pay their December 2008, January and February 2009
rent when due. The Company is a beneficiary to a letter of credit in the amount of
$151,503, which is available for the Company to draw against in the event of the
third partys failure to pay their rent when due. In 2009 we have notified the
third party that they have breached their lease and made draws against the letter of
credit for amounts past due. We subsequently terminated the sub-lease agreement
with a third party.
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Total operating expenses of discontinued operations in 2008 was $20,554,464 as compared to
$27,303,489 in 2007 for a decrease of $6,749,025 or 25% as compared to 2007, which is the result of
reduced personnel employed by the Telesales call center and a decrease in the number of leads
purchased in 2008 compared to 2007.
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The Telesales segment had 89 employees at December 31, 2008 as compared to 253 at
December 31, 2007.
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In March 2008, we closed our New York sales office, which accounted for approximately
20% of our sales activity for 2007. We also reduced sales and sales support staff in
our Florida office. 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 October 2008, we further reduced our Telesales sales and sales
support staff in our Florida office and terminated 51 employees, including 22 agents.
Management believes these reductions will result in the reduced expenses in excess of
reduced revenue.
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Subsequent to December 31, 2008, we ceased the direct marketing and sale of health
and life insurance and related products to individuals and families in our Telesales
call center. We continue to sell health and life insurance and related products to
individuals and families through our non-employee ISG agents. Our Telesales business
segment eliminated 43 positions including all of its licensed employee sales agents
along with other Telesales service and support personnel and eliminated another 20
positions in Telesales through attrition. Management believes these reductions will
result in the reduced expenses in excess of reduced revenue.
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In 2008, we incurred rent, utilities and other occupancy expense of $2,861,505 as
compared to $2,380,826 in 2007. The increase was primarily attributable to a $629,326
accrual for the non-terminable lease for Telesales New York sales office. In March 2008,
we closed our sales office located in New York. On April 17, 2008, we entered into a
sub-lease agreement with a third party, whereby the third party will sub-lease our New York
office space for the balance of our lease and pay us sub-lease payments essentially equal
to the payments under the lease. The terms of the sublease agreement required us to make
certain leasehold improvements. The third party commenced paying sub-lease payments to us
in September 2008; however, the third party failed to pay its December 2008 and January and
February 2009 rent when due. We are a beneficiary to a letter of credit in the amount of
$151,503, which is available for us to draw against in the event of the third partys
failure to pay its rent when due. Effective December 31, 2008, we have accrued $629,396
related to the non-terminable lease for the abandoned facilities, which is net present
value of our future lease payments due under the remaining sublease agreement term, plus
managements estimate of utility payments, which are estimated to be $773,311, less
managements estimate of future sub-lease revenue secured by the letter of credit, which is
estimated to be $120,023.
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During the first quarter of 2008, we recorded an $88,922 expense to write-down the value
of the assets located at our former New York sales office, which were impaired as a result
of the office closure, to their net realizable value in loss on impairment of property and
equipment.
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Loss on impairment of intangible assets pertains to the following:
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During the first quarter of 2008, we determined that the portion of the 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. We recorded a $295,633
expense in the first quarter of 2008 to write-off the value of this asset.
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As a result of Ivan Spinners termination of employment, we have determined the value
of an employment and non-compete agreement acquired pertaining to Mr. Spinner impaired
as of December 31, 2008 and recorded an impairment charge of $85,078 in loss on
impairment of intangible asset.
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Gain (loss) from discontinued operations
As a result of the aforementioned factors, we reported a loss from discontinued operations of
$2,102,126 or $0.05 loss from discontinued operations per share in 2008 as compared to a loss from
discontinued operations of $7,734,767 or $0.23 loss from discontinued operations per share in 2007.
Other income (expenses)
Interest income was attributable to interest-bearing cash deposits resulting from the capital
raised in private placements. The decrease in interest income is the result of a decline in
interest rates and to a lesser extent a decline in cash balances.
Interest expense pertains to imputed interest on certain employee obligations.
Net loss
As a result of these factors described above, we reported a net loss of $8,976,084 or $0.23
loss per share in 2008 as compared to a net loss of $14,136,599 or $0.43 loss per share in 2007.
Liquidity and Capital Resources
At September 30, 2009, we had a cash
balance of $641,666 and working capital of ($3,098,078).
At September 30, 2009, we had a
restricted cash balance of $1,150,000, which represents money
market account balances with a restricted balance pertaining to two letters of credit for the
benefit of the landlords of our Florida and New York offices. The money market accounts are on
deposit with the issuer of the letters of credit. The Company receives the interest on the money
market accounts.
On January 14, 2009, we entered into and,
on January 15, 2009 completed, a private placement
with Co-Investment, for an aggregate of 1,000,000 shares of our Preferred Stock, and warrants to
purchase 1,000,000 shares of our Preferred Stock. The gross proceeds from the closing were
$4 million and we have used, and intend to continue to use, the net proceeds of this private
placement for working capital purposes.
During the nine months ended
September 30, 2008, we generated approximately $5 million
in
working capital from a private placement on March 31, 2008 of an
aggregate of 6,250,000 shares of
our common stock and warrants to purchase 6,250,000 shares of our common stock to certain
institutional investors. The gross proceeds from this private placement were $5,000,000, net
$70,238 of legal and other expenses.
Net cash used by operations was $4,977,236 in
the nine months ended September 30, 2009 as
compared to net cash used by operations of $7,833,461 in the nine months ended September 30, 2008.
In the nine months ended September 30, 2009, we used cash to fund our net loss of $6,281,647
and:
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Increases in accounts receivable of $440,411, which is primarily the result of
increased billings to certain of InsPro Technologies clients.
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Increases in accrued expenses of $365,109, which is the result of accrued severance as
a result of the Separation of Employment and General Release Agreement with Mr. Eissa.
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Decreases in liabilities of discontinued operations of $1,409,421, which is primarily
the result of the repayment and assumption of certain unearned commission advances as a
result of the sale of our Telesales call center produced agency business, which was
partially offset by the accrual of the non-cancelable lease for the abandoned portion of
the Deerfield Beach office.
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In addition to cash used in operating
activities we incurred $2,951,400 of non cash expenses
and impairments in the nine months ended September 30, 2009, which were included in our net loss,
including:
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Recorded stock-based compensation and consulting expense of $450,227 (compared to
$1,571,243 in the nine months ended September 30, 2008).
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Recorded depreciation and amortization expense of $859,103 (compared to $759,285 in the
nine months ended September 30, 2008).
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We recorded $1,639,581 pertaining to the impairment of certain long lived assets of our
discontinued operations (compared to $384,555 in the nine months ended September 30,
2008).
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We recorded $2,489 pertaining to the provision for bad debts (compared to $63,851 in
the nine months ended September 30, 2008).
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Net cash used by investing activities in the
nine months ended September 30, 2009 was $293,169
as compared to $674,199 in the nine months ended September 30, 2008. Investing activities pertain
to the purchase of property and equipment supporting current and future operations and internal
development of software for internal and external use.
Net cash provided by financing activities in
the nine months ended September 30, 2009 was
$4,069,652 as compared to $5,099,281 in the nine months ended September 30,
2008.
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In first quarter 2009, we completed a private placement with Co-Investment and issued
1,000,000 shares of our Preferred Stock and warrants to purchase 1,000,000 shares of our
Preferred Stock. Our gross proceeds were $4,000,000 and we incurred $15,617 of legal and
other expenses paid in connection with this 2009 private placement.
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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 this private placement.
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Our InsPro Technologies business segment has entered into several capital lease
obligations to purchase equipment used for operations.
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Liquidity Considerations
During the nine months ended
September 30, 2009 we used $4,977,236 of cash to fund operations
and $293,169 of cash to fund investing activities. As of September 30, 2009, we have funded our
operating activities from the proceeds of the sale of shares of our common stock and Preferred
Stock in our January 2009 private placement; however, based on our most recent financial
projections, we believe that our current level of liquid assets and our expected cash flows from
operations may not be sufficient to finance our operations and financial commitments in the future.
On October 28, 2009, we filed a
registration statement on Form S-1 relating to this rights
offering of up to $5 million in units, with each unit consisting of
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250 shares of Preferred Stock and warrants to
purchase 5,000 shares of our common stock.
These units will be available, on a pro rata basis, to our existing shareholders for a subscription
price of $1,000 per unit. Our board of directors approved this rights offering for the purpose of
raising capital to finance our operating activities while giving all holders of our common stock
and Preferred Stock the opportunity to participate in an equity investment in the Company on the
same economic terms as our last private placement in January 2009.
There can be no assurance that any of our
shareholders will subscribe for any units in the
rights offering, or that we will complete the rights offering, and we are unable, at this time, to
ascertain the amount of proceeds we will generate in the rights offering.
In addition, there can be no assurance that we
will otherwise be able to raise sufficient
capital to both fund working capital and repay our obligations as they become due. Should we prove
unsuccessful in raising additional capital, we may be unable to fund our financial obligations,
both short-term and long-term.
Off-Balance Sheet Arrangements
We do not currently have any relationships
with unconsolidated entities or financial
partnerships, such as entities referred to as structured finance or special purpose entities, which
would have been established for the purpose of facilitating off-balance sheet or other
contractually narrow or limited purposes.
The letters of credit pertaining to the lease
for our Florida office and our New York office
were collateralized in the form of a money market account, which as of September 30, 2009, had a
balance of $1,150,000. This money market account is on deposit with the issuer of the letters of
credit and is classified as restricted cash on our balance sheet. The terms of the money market
account allow us to receive interest on the principal but prohibit us from withdrawing the
principal for the life of the letters of credit.
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Guarantee of Indebtedness by the
Company to Third Parties Pertaining to Unearned
Commission Advances Paid to Non-employee ISG Agents
We are a party to sales and marketing
agreements whereby we have guaranteed the repayment of
unearned commission advances paid directly from third parties including certain of our insurance
carriers to our non-employee ISG agents. Under these agreements certain third parties pay
commissions directly to our non-employee ISG agents and such payments include advances of first
year premium commissions before the commissions are earned. Unearned commission advances from our
insurance carriers to our non-employee ISG agents are earned after 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 an unearned commission advance the third parties
generally deduct the unearned commission advance from its commission payments to our non-employee
ISG agents in the form of charge-backs. In the event that commission payments from these third
parties to our non-employee ISG agents do not exceed the charge-backs these third parties may
deduct the unearned commission advance to non-employee ISG agents from their payments to us or
demand repayment of the non-employee ISG agents unearned commission balance from us. The current
amount of the unearned commission advances these third parties to our non-employee ISG agents,
which is the maximum potential amount of future payments us could be required to make to these
third parties, is estimated to be approximately $643,000 as of September 30, 2009. As of September
30, 2009 we had recorded a liability of $51,830 in accrued expenses for the estimated amount we
anticipate we will pay pertaining to these guarantees. Unearned commission advances from these
third parties are collateralized by the future commission payments to the non-employee ISG agents
and to us. We have recourse against certain non-employee ISG agents in the event we
must pay the
unearned commission advances.
License Agreement With Realtime
Solutions Group
On May 31, 2006, we entered into a
Software and Services Agreement with Realtime Solutions
Group, L.L.C., or Realtime, under which Realtime granted us a worldwide, transferable,
non-exclusive, perpetual and irrevocable license to use, display, copy, modify, enhance, create
derivate works within, and access Realtime Solutions Groups Straight Through Processing software,
or STP, and all associated documentation, source code and object code, for use in the marketing,
promotion and sale of health benefits or insurance products.
As consideration for the grant of the rights
and licenses under the agreement, we paid to
Realtime a $10,000 nonrefundable cash deposit and, upon delivery of the STP software and other
materials, we agreed to pay to Realtime a license fee in the form of 216,612 unregistered shares of
our common stock.
We may unilaterally terminate the Realtime
agreement, with or without cause, at any time on 30
calendar days prior written notice to Realtime. The license rights in the software granted under
the Realtime agreement survive any termination of the agreement.
As of September 30, 2009 we had not taken
delivery of the STP software or issued common stock
in connection with the Realtime agreement.
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DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the name, age, and position of each of our executive officers
and directors.
Directors serve until the next annual meeting of stockholders, until their successors are
elected or appointed or qualified, or until their prior resignation or removal. Our executive
officers are appointed by, and serve at the discretion of, our board of directors.
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Name
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Age
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Position
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Donald R. Caldwell
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63
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Chairman
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John Harrison
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66
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Director
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Warren V. Musser
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82
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Vice Chairman of the Board of Directors
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Robert Oakes
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52
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Director, President and Chief Executive
Officer of InsPro Technologies, LLC
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Sanford Rich
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51
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Director
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L.J. Rowell
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77
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Director
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Paul Soltoff
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55
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Director
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Frederick C. Tecce
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74
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Director
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Anthony R. Verdi
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60
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Acting Chief Executive Officer, Chief
Financial Officer and Chief Operating Officer
and Director
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Edmond J. Walters
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48
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Director
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Donald R. Caldwell
has served as one of our directors and as one of the Co-Chairmen of our
board of directors from April 2008
through November 24, 2009 and as our Chairman since November 24, 2009. Mr. Caldwell founded Cross Atlantic Capital Partners, Inc. in
1999, and presently serves as its Chairman and Chief Executive Officer. He has served as a Director
at Rubicon Technology, Inc. since 2001, and at Diamond Management & Technology Consultants, Inc.
(NASDAQ) since 1994. Mr. Caldwell is a Director and a member of the Compensation Committees of
Quaker Chemical Corporation (NYSE), a provider of process chemicals and chemical specialties, and
Voxware, Inc. (NASDAQ), a supplier of voice driven solutions. From 1996 to 1999, Mr. Caldwell was
President and Chief Operating Officer and a Director of Safeguard Scientifics, Inc. Mr. Caldwell is
a Certified Public Accountant in the State of New York.
John Harrison
has served as one of our directors since November 2005. He is a founding Partner
and Executive Director of The Keystone Equities Group, Inc., a full service investment banking
group and a registered NASD broker-dealer founded in 2003. Mr. Harrison also is a Managing Director
of Covenant Partners, a hedge fund that invests in direct marketing services companies. In 1999,
Mr. Harrison became a founding Partner of Emerging Growth Equities, Ltd., a full service investment
banking and brokerage firm focused on raising capital for emerging technology companies addressing
high-growth industry sectors. From 1985 to 2000, Mr. Harrison served as President of DiMark, a
direct marketing agency that was subsequently acquired by Harte-Hanks in 1996. He also has held
senior management positions with CUNA Mutual, RLI Insurance and CNA Insurance where he directed
their direct marketing practice. Mr. Harrison was Chairman of the board of Professional Insurance
Marketing Association (PIMA) and is on the advisory board of DePaul Universitys Interactive and
Direct Marketing Institute. He serves as a director of IXI Corporation, a database marketing
company that uses proprietary wealth and asset information, and Solutionary, Inc., a full-service
provider of managed security services.
Warren V. Musser
has served as one of our directors since January 2006 and as the Vice
Chairman of our board of directors since March 2006. He also has served as President of The Musser
Group, a financial consulting company, since 2001. Mr. Musser served as Chairman and Chief
Executive Officer of Safeguard Scientifics, Inc. from 1953 until 2001. Mr. Musser is a director of
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Internet Capital Group, Inc. and Chairman of the board of directors of Telkonet, Inc. Mr. Musser
serves on a variety of civic, educational and charitable boards of directors.
Robert J. Oakes
has served as one of our directors since August 2008. He has served as the
President and CEO of our InsPro Technologies, LLC subsidiary since our acquisition of the
subsidiary on October 1, 2007. From 1986 until 2007 Mr. Oakes was President and Chief Executive
Officer of the general partner of Atiam Technologies L.P. (now known as InsPro), a software
development and servicing company that developed, expanded and serviced products to serve the
insurance and financial services markets. Mr. Oakes founded InsPro Technologies under the name
Atiam in 1986 and led the companys effort to design and develop its flagship product, InsPro.
InsPro is a state-of-the-art Insurance, Marketing, Administration, and Claim System that provides
end-to-end insurance processing, technology and support, for a broad range of life, health, and
disability products.
Sanford Rich
has served as one of our directors since April 2006. He is currently the Managing
Director, Investment Banking for Matrix USA LLC and has held this position since May 2008. From
1995 to May 2008 Mr. Rich was Director, Senior Vice President and Portfolio Manager at GEM Capital
Management Inc. From 1993 to 1995, Mr. Rich was a Managing Director of High Yield Finance, Capital
Markets & North American Loan Syndicate, Sales and Trading at Citicorp Securities. From 1985 to
1993, he served as Managing Director of Debt Capital Markets at Merrill Lynch. From 1978 to 1985,
Mr. Rich held various Analyst positions in numerous companies, including Cypress Capital
Management, Inc. (Vice President and Analyst from 1983 to 1985), FIAMCO (Distressed/High Yield Bond
Analyst from 1981 to 1983), Progressive Corporation (Financial Analyst from 1980 to 1981) and
Prescott, Ball and Turben (Distressed/High Yield Bond Analyst from 1978 to 1980).
L.J. Rowell
has served as one of our directors since April 2006. He is a past President
(1984-1996), Chief Executive Officer (1991-1996) and Chairman of the Board (1993-1996) of Provident
Mutual Life Insurance Company, where he also held various other executive and committee positions
from 1980 until his retirement in 1996. Mr. Rowell currently serves on the boards of directors of
the Southeast Pennsylvania Chapter of the American Red Cross, The PMA Group, the American College,
The Foundation at Paoli, and The Milton S. Hershey Medical Center. Mr. Rowell also has served on
the Board of Trustees of The Pennsylvania State University as a business and industry trustee since
1992. In 1991, he served as the Chairman of the Major Business Division for the United Way of
Southeastern Pennsylvania. Mr. Rowell also has served as chairman of The American Red Cross Ad
Blood Campaign and has previously served on its Major Contributions Donor Campaign.
Paul Soltoff
has served as one of our directors since November 2005. He also has served as
Chairman and Chief Executive Officer of SendTec, Inc. since its inception in February 2000. From
1997 until February 2000, Mr. Soltoff served as Chief Executive Officer of Soltoff Direct
Corporation, a specialized direct marketing consulting company. From September 2004 until October
2005, Mr. Soltoff served as a director of theglobe.com.
Frederick C. Tecce
has served as one of our directors since August 2007. He currently serves
as of counsel with Buchanan Ingersoll & Rooney. He was an attorney with Klett Rooney Lieber &
Schorling when it joined Buchanan in 2006. Mr. Tecce also serves as counsel to Cross Atlantic
Capital Partners and has served on the investment committees of three of the funds managed by Cross
Atlantic Partners. Mr. Tecce previously served as Senior Vice President and General Counsel of
Academy Life Insurance Company. Mr. Tecce served on the transition team for Pennsylvania Governor
Tom Ridge and was appointed by Governor Ridge to serve as a member of the board of the $50 billion
Public School Employees Retirement System (PSERS), where he served as chairman of the Finance
Committee until his retirement in September of 2001. He was appointed by U.S. Senator Rick Santorum
to the Federal Judicial Nominating Committee where he served for several terms and also served on
Dr. Robert Gallos Board of Visitors at the University of Maryland Institute for Human Virology. He
has also served on the board of directors of several listed companies.
Anthony R. Verdi
has served as one of our directors since June 2008, as our Chief Financial
Officer and Assistant Secretary since November 2005, as our Chief Operating Officer since April
2008 and from June 20, 2008 as Acting Principal Executive Officer. From 2001 until November 2005,
Mr. Verdi has provided consulting services to life, health and property and casualty insurance
company agency and venture capital clients. Mr. Verdi served as Chief Operating Officer of
Provident and Chief Financial Officer of HealthAxis. From January 1990 until December 1998 Mr.
Verdi served as Chief Financial Officer of Provident American Corporation. From July 1986 until
January 1990, he was the Vice President and Controller of InterCounty Hospitalization and Health
Plans, a nonprofit group medical insurer. From April 1971 until July 1986, he served in various
finance and accounting capacities for the Academy Insurance Group, ultimately serving as the
Assistant Controller.
81
Edmond J. Walters
has served as one of our directors since April 2008. Mr. Walters is Founder
and Chief Executive Officer of eMoney Advisor, a wealth planning and management solutions provider
for financial advisors that was founded in 2000 and is now a wholly-owned subsidiary of Commerce
Bancorp. Prior to forming eMoney Advisor in 2000, Mr. Walters spent more than 20 years in the
financial services industry, advising high net worth clients. From 1983 to 1992 he was associated
with Kistler, Tiffany & Company in Wayne, PA. In 1992, Walters helped found the Wharton Business
Group, a financial advising firm, in Malvern, PA.
Board Independence
The Board has determined that Messrs. Harrison, Rich, Rowell, Tecce and Soltoff are
independent directors as defined by Rule 4200(a)(15) of the Nasdaq listing standards and as
defined by Rule 10A-3(b)(1)(ii) promulgated by the Commission.
82
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes the compensation paid to, awarded to or earned during the
fiscal years ended December 31, 2008 and 2007 by our Chief Executive Officer and each of our two
other most highly compensated executive officers whose total salary and bonus exceeded $100,000 for
services rendered to us in all capacities during 2008. The executive officers listed in the table
below are referred to in this report as our named executive officers. There were no non-equity
incentive plan compensation or non-qualified deferred compensation earnings for any of the named
executive officers for the fiscal years ended December 31, 2008 and December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
Option Awards
|
|
|
Compensation
|
|
|
|
|
Name and Principal Position
|
|
Fiscal Year
|
|
|
Salary ($)
|
|
|
Bonus ($)
|
|
|
($)
|
|
|
($) (8)
|
|
|
($) (9)
|
|
|
Total ($)
|
|
|
Alvin H. Clemens (1)
|
|
|
2008
|
|
|
|
343,269
|
|
|
|
|
|
|
|
|
|
|
|
313,542
|
|
|
|
32,649
|
|
|
|
689,460
|
|
Former Co-Chairman & Former Chief Executive Officer
|
|
|
2007
|
|
|
|
360,577
|
|
|
|
|
|
|
|
|
|
|
|
41,250
|
|
|
|
39,301
|
|
|
|
441,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles Eissa (2)
|
|
|
2008
|
|
|
|
264,423
|
|
|
|
|
|
|
|
150,000
|
(7)
|
|
|
7,188
|
|
|
|
20,408
|
|
|
|
442,018
|
|
President
|
|
|
2007
|
|
|
|
278,846
|
|
|
|
50,000
|
(10)
|
|
|
131,250
|
(7)
|
|
|
3,750
|
|
|
|
10,189
|
|
|
|
474,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard Arenschield (3)
|
|
|
2008
|
|
|
|
18,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,500
|
|
Former Interim Chief Executive Officer
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony R. Verdi (4)
|
|
|
2008
|
|
|
|
232,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,556
|
|
|
|
246,767
|
|
Principal Executive Officer, Chief
Financial Officer & Chief Operating
Officer
|
|
|
2007
|
|
|
|
235,577
|
|
|
|
25,000
|
(10)
|
|
|
|
|
|
|
35,700
|
|
|
|
13,842
|
|
|
|
310,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Oakes (5)
|
|
|
2008
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,075
|
|
|
|
273,075
|
|
President InsPro Technologies, LLC
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ivan M. Spinner (6)
|
|
|
2008
|
|
|
|
106,609
|
|
|
|
|
|
|
|
37,500
|
(7)
|
|
|
189,436
|
|
|
|
235,879
|
|
|
|
569,425
|
|
Senior Vice President
|
|
|
2007
|
|
|
|
356,731
|
|
|
|
|
|
|
|
131,250
|
(7)
|
|
|
156,186
|
|
|
|
13,727
|
|
|
|
657,893
|
|
|
|
|
(1)
|
|
Mr. Clemens served as Co-Chairman of our board from
April 1, 2008 to November 24, 2009. Mr. Clemens served as
Executive Chairman of our board of directors from January 2006 to March 2008 and as our Chief
Executive Officer from December 2006 to March 2008
.
|
|
(2)
|
|
Mr. Eissa was appointed as our President on November 18, 2005. Mr. Eissa served as Chief
Operating Officer from November 18, 2005 to March 31, 2008.
|
|
(3)
|
|
Mr. Arenschield was appointed as our interim Chief Executive Officer on April 1, 2008 and
resigned on April 3, 2008.
|
|
(4)
|
|
Mr. Verdi was appointed as our Chief Financial Officer on November 10, 2005, Chief Operating
Officer on April 1, 2008 and interim Principal Executive Officer on June 20, 2008.
|
|
(5)
|
|
Mr. Oakes was appointed as President of our subsidiary InsPro Technologies, LLC on October 1,
2007 concurrently with the closing of our acquisition of InsPro.
|
|
(6)
|
|
Mr. Spinner was appointed as our Senior Vice President on April 3, 2006 concurrently with the
closing of our acquisition of ISG. Mr. Spinners employment terminated on March 31, 2008.
|
83
|
|
|
(7)
|
|
Represents the dollar amount recognized for financial statement reporting purposes with respect
to the applicable fiscal year in accordance with SFAS 123(R), under the modified prospective
method. On February 15, 2007, we made restricted stock grants of 125,000 shares of our common
stock to each of Mr. Eissa and Mr. Spinner in accordance with the terms of our 2006 Omnibus Equity
Compensation Plan (which is now our 2008 Equity Compensation Plan). These grants are subject to
certain restrictions, including a restriction on transfer prior to the shares becoming fully
vested. Mr. Eissas shares will vest as follows: 50,000 shares on the first anniversary of the
grant date; 50,000 additional shares of the second anniversary of the grant date; 2,083 shares per
month on the 15th day of each month beginning on March 15, 2009 through January 15, 2009; and 2,087
on the third anniversary of the grant date. Mr. Spinners shares vested as follows: 50,000 shares
on the first anniversary of the grant date. Mr. Spinners remaining 75,000 unvested shares were
forfeited effective with his termination. The value of the restricted stock grants were based on
the closing price per share ($3.00) of our common stock on the OTCBB on the date of the grant.
Stock award expense for the most recently completed two fiscal years pertaining to named executive
officers is based on the value of the restricted stock grants amortized straight line over their
vesting period.
|
|
(8)
|
|
Represents the dollar amount recognized for financial statement reporting purposes with respect
to the applicable fiscal year in accordance with SFAS 123(R) under the modified prospective method.
Stock option expense for the two most recently completed fiscal years pertaining to the named
executive officers is based on the estimated fair value of the stock option as of the date of grant
using the Black-Scholes option-pricing model amortized over the vesting period of the option or the
duration of employment, whichever is shorter. Fair value is estimated based on an expected life of
five years, an assumed dividend yield of 0% and the assumptions below.
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expensed
|
|
|
Expensed in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
|
|
|
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
Statements
|
|
|
Fair Value at
|
|
|
Number of
|
|
|
Option
|
|
|
Price on
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
Statements
|
|
|
Based on
|
|
|
Date of
|
|
|
Options
|
|
|
Exercise
|
|
|
the Date of
|
|
|
Date of
|
|
|
Expected
|
|
|
Risk Free
|
|
Name
|
|
Year
|
|
|
$
|
|
|
Vesting
|
|
|
Grant ($)
|
|
|
Granted (#)
|
|
|
Price ($)
|
|
|
Grant ($)
|
|
|
Grant
|
|
|
Volatility
|
|
|
Interest Rate
|
|
|
Alvin H. Clemens
|
|
|
2008
|
|
|
|
313,542
|
|
|
|
100
|
%
|
|
|
313,542
|
|
|
|
550,000
|
|
|
|
1.01
|
|
|
|
1.01
|
|
|
|
4/1/2008
|
|
|
|
67.35
|
%
|
|
|
1.42
|
%
|
|
|
|
2007
|
|
|
|
41,250
|
|
|
|
27.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles Eissa
|
|
|
2008
|
|
|
|
7,188
|
|
|
|
47.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
3,750
|
|
|
|
25.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
3,889
|
|
|
|
25.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
173
|
|
|
|
1.2
|
%
|
|
|
15,000
|
|
|
|
500,000
|
|
|
|
2.50
|
|
|
|
1.00
|
|
|
|
11/10/2005
|
|
|
|
25
|
%
|
|
|
3.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony R. Verdi
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
35,700
|
|
|
|
34.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
67,959
|
|
|
|
64.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
1,341
|
|
|
|
1.3
|
%
|
|
|
105,000
|
|
|
|
350,000
|
|
|
|
1.00
|
|
|
|
1.00
|
|
|
|
11/10/2005
|
|
|
|
25
|
%
|
|
|
3.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ivan M. Spinner
|
|
|
2008
|
|
|
|
189,436
|
|
|
|
44.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
156,186
|
|
|
|
36.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
79,759
|
|
|
|
18.8
|
%
|
|
|
425,381
|
|
|
|
150,000
|
|
|
|
3.50
|
|
|
|
3.50
|
|
|
|
4/3/2006
|
|
|
|
111
|
%
|
|
|
4.55
|
%
|
|
|
|
|
|
|
Effective January 1, 2006, we adopted the provisions of SFAS No. 123(R) 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 initially are applied. For
periods prior to adoption, the financial statements are unchanged, and the pro forma disclosures
previously required by SFAS No. 123, as amended by SFAS No. 148, will continue to be required under
SFAS No. 123(R) to the extent those
105 amounts differ from those in the Statement of Operations. Expense in 2006 pertaining to
employee stock options for all named executive officers other than Mr. Spinner is recorded in
salaries, commissions and related taxes. Expense pertaining to Mr. Spinners stock option is
recorded in depreciation and amortization expense as part of the value of the employment and
non-compete agreement acquired as a result of our acquisition of ISG.
|
|
(9)
|
|
All other compensation paid to our named executive officers in the fiscal year ended December
31, 2008 consisted of the following:
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for
|
|
|
Company Paid
|
|
|
|
|
|
|
Company
|
|
|
Company Paid
|
|
|
|
|
|
|
Personal Use of
|
|
|
Health, Life and
|
|
|
|
|
|
|
Matching of
|
|
|
Entertainment
|
|
|
|
|
|
|
Auto and
|
|
|
Disabilitly
|
|
|
|
|
|
|
Employee 401(k)
|
|
|
and Meals ($)
|
|
|
|
|
Name
|
|
Equipment ($) (a)
|
|
|
Insurance ($) (b)
|
|
|
Severance ($) (c)
|
|
|
Contributions (d)
|
|
|
(e)
|
|
|
Total ($)
|
|
|
Alvin H. Clemens
|
|
|
13,200
|
|
|
|
19,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles Eissa
|
|
|
9,150
|
|
|
|
7,850
|
|
|
|
|
|
|
|
2,172
|
|
|
|
1,236
|
|
|
|
20,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony R. Verdi
|
|
|
10,500
|
|
|
|
1,915
|
|
|
|
|
|
|
|
2,142
|
|
|
|
|
|
|
|
14,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Oakes
|
|
|
|
|
|
|
20,970
|
|
|
|
|
|
|
|
2,104
|
|
|
|
|
|
|
|
23,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ivan M. Spinner
|
|
|
3,554
|
|
|
|
4,406
|
|
|
|
226,385
|
|
|
|
1,294
|
|
|
|
240
|
|
|
|
235,879
|
|
|
|
|
|
|
(a)
|
|
Payments for personal use of auto and equipment represent the taxable portion of monthly
auto allowances and company payments for cell phones and other equipment for the portion of our
named executive officers personal use of automobiles, cell phones and other equipment. The
portion of the $12,000 pertaining to business travel was considered a reimbursement for business
expenses and excluded from compensation.
|
|
|
(b)
|
|
Company-paid health, life and disability insurance represents the cost of company-paid
insurance premiums covering the named executive officers and, in the case of health insurance
premiums, their dependents. We pay 100% of these insurance premiums for the named executive
officers. Health insurance premiums vary based on several factors, including the age of the
named executive officer and the number of their covered dependents.
|
|
|
(c)
|
|
Severance represents payments to Mr. Spinner for salary, auto and equipment allowances paid
subsequent to his termination.
|
|
|
(d)
|
|
The Company implemented a 401(k) plan on January 1, 2007 and implemented an elective
contribution to the Plan of 25% of the employees contribution up to 4% of the employees
compensation, which were fully vested for the above named Executive Officers.
|
|
|
(e)
|
|
Company-paid lunches for the named executive officers.
|
|
(10)
|
Messrs. Eissa and Verdi each received a one time bonus in 2007.
|
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information for the outstanding equity awards held by our named
executive officers for the year ended December 31, 2008. The information below pertains to stock
options, which were granted under the 2005 Incentive Stock Plan and the 2006 Omnibus Equity Compensation Plan (both of which are now under our 2008 Equity
Compensation Plan), and restricted stock grants, which were granted in accordance with the terms of
our 2006 Omnibus Equity Compensation Plan. The number of shares of stock that have not vested
pertains to the February 15, 2007 restricted stock grant to the named executive officers below. The
market value of the number of shares of stock that have not vested was based on the closing price
per share ($0.08) of our common stock on the OTCBB on December 31, 2008.
85
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Value of
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
Shares or
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
|
Units of
|
|
|
Units of
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
|
|
|
|
Stock That
|
|
|
Stock That
|
|
|
|
Options
|
|
|
Options
|
|
|
Unearned
|
|
|
Exercise
|
|
|
Option
|
|
|
Have Not
|
|
|
Have Not
|
|
|
|
(#)
|
|
|
(#)
|
|
|
Options
|
|
|
Price
|
|
|
Expiration
|
|
|
Vested
|
|
|
Vested
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
(#)
|
|
|
($)
|
|
|
Date
|
|
|
(#)
|
|
|
($)
|
|
|
Richard Arenschield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alvin H. Clemens
|
|
|
466,664
|
(1)
|
|
|
83,336
|
|
|
|
|
|
|
|
1.01
|
|
|
|
4/1/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
(2)
|
|
|
|
|
|
|
|
|
|
|
1.00
|
|
|
|
11/22/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles Eissa
|
|
|
385,400
|
(3)
|
|
|
114,600
|
|
|
|
|
|
|
|
2.50
|
|
|
|
11/9/2015
|
|
|
|
75,000
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony R. Verdi
|
|
|
350,000
|
(4)
|
|
|
|
|
|
|
|
|
|
|
1.00
|
|
|
|
11/09/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Oakes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ivan M. Spinner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Vesting occurs as follows; 300,000 shares were vested on April 1, 2008, 20,833 vested on May
1, 2008 and 20,833 shares vested or will vest on the first of each month thereafter through March
1, 2009, and 20,837 shares will vest on April 1, 2009.
|
|
(2)
|
|
Vesting occurs as follows; 200,000 shares vested on May 23, 2006, 150,000 shares on November
23, 2006, 12,500 shares on December 31, 2006 and on the last day of each month thereafter until
November 30, 2007.
|
|
(3)
|
|
Vesting occurs as follows; 125,000 shares vested on November 10, 2006, 10,416 shares on
December 31, 2006 and on the last day of each month thereafter until October 31, 2007, and 10,440
shares on December 31, 2008.
|
|
(4)
|
|
Vesting occurs as follows; 100,000 shares vested on May 10, 2006, 125,000 shares on November
10, 2006, 10,416 shares on December 31, 2006 and on the last day of each month thereafter until
October 31, 2007, and 10,424 shares on December 31, 2008.
|
Employment, Severance and Other Agreements
Richard Arenschield
On March 31, 2008, Mr. Clemens resigned as Chief Executive Officer, effective upon the later
of April 1, 2008 and the business day immediately following the date on which we filed our Annual
Report on Form 10-KSB with the Commission for the fiscal year ended December 31, 2007. Richard
Arenschield was approved and appointed by our board of directors to serve as the interim Chief
Executive Officer, effective immediately upon the April 2, 2008 effective date of Mr. Clemens
resignation. Under the terms of a verbal agreement,
Mr. Arenschield was entitled to receive
compensation for his services as interim Chief Executive Officer in the
amount of $150,000 for a term of six months, payable in accordance with our ordinary payroll
procedures, and an additional amount of $50,000 for living expenses, payable in accordance with a
schedule to be determined by the board of directors. Mr. Arenschield resigned from the position of
interim Chief Executive Officer on April 3, 2008.
86
Alvin H. Clemens and Ivan M. Spinner
On November 27, 2007 we entered into amended and restated employment agreements with each of
Alvin H. Clemens and Ivan M. Spinner. The employment agreements replaced and superseded the
executives existing employment agreements. On March 28, 2008, Mr. Spinners employment as our
Executive Vice President was terminated without cause. In accordance with Mr. Spinners amended and
restated employment agreement Mr. Spinner was entitled to continue to receive his salary and
benefits for a period of 18 months after his termination.
On March 31, 2008, in connection with our March 31, 2008 private placement and Mr. Clemens
resignation as our Chief Executive Officer and appointment as Co-Chairman of our Board of
Directors, Mr. Clemens amended and restated employment agreement was terminated effective upon his
resignation on April 1, 2008. In consideration of Mr. Clemens resignation as Chief Executive
Officer and the termination of his existing Amended and Restated Employment Agreement, Mr. Clemens
received incentive stock options to purchase 550,000 shares of our common stock. These options have
a term of ten years and have an exercise per share equal to $1.01. The Company and Mr. Clemens had
attempted to negotiate a new employment agreement governing the terms of Mr. Clemens position as
Co-Chairman of the Board, which would provide Mr. Clemens with a one year term and a salary of
$300,000 effective as of the date of Mr. Clemens
resignation. The Company continued to pay Mr.
Clemens a salary at an annualized rate of $300,000, together with employee benefits through March
31, 2009. Mr. Clemens employment, salary and benefits ceased on March 31, 2009, after which point he
was compensated under our Non Employee Director Compensation Plan.
Mr. Clemens resigned from the Board effective November 24, 2009.
Charles A. Eissa
Mr. Eissa served as our President and Chief Operating Officer through March 27, 2009.
Pursuant to his employment agreement, his annual base salary was $214,200 per year through April,
1, 2006, was then increased to $250,000 through March 19, 2007, and then increased to $300,000
through March 31, 2008. In connection with our March 2008 private placement, Mr. Eissas
employment agreement was amended, effective March 31, 2008, in order to revise Mr. Eissas annual
base salary to $250,000 and to amend the term of his employment agreement to one year commencing on
March 31, 2008. On February 2, 2009, Mr. Eissas employment agreement was amended to amend the
term of his employment agreement to a term of 13 months commencing on March 31, 2008 and ending on
April 30, 2009.
On March 27, 2009, we agreed to a Separation of Employment and General Release Agreement with
Mr. Eissa, whereby we and Mr. Eissa mutually agreed that Mr. Eissas employment terminated
effective March 27, 2009, which refer to as the separation date. Under the terms of this
agreement, we have agreed to continue to pay Mr. Eissa his current base salary for a period of
fourteen (14) months after the separation date, less applicable tax withholding, which amount will
be paid in equal installments in accordance with our normal payroll practices. We have also agreed
to provide Mr. Eissa with continued medical, dental and vision coverage at the level in effect as
of the separation date until the end of the twelve (12)-month period following the separation date.
We also agreed to vest, effective as of March 27, 2009, all remaining restricted common stock
granted to Mr. Eissa on February 15, 2007, subject to the payment in cash of any withholding taxes
to us. These shares of restricted stock, by their original terms, would have vested between March
15, 2009 and February 15, 2010. Any unvested stock option grants held by Mr. Eissa as of the
separation date were forfeited.
Anthony R. Verdi
Pursuant to an amended and restated employment agreement Mr. Verdi serves as our Chief
Financial Officer and Chief Operating Officer. Pursuant to his amended and restated employment
agreement, his annual base salary was $225,000 per year through April, 1, 2006, was then increased
to $250,000 through March 31, 2009 and, if not terminated, will automatically renew for one year
periods. He is entitled to receive such bonus compensation as a majority of our board of directors
may determine from time to time.
In connection with the March 31, 2008 private placement, Mr. Verdis employment agreement was
amended effective March 31, 2008 to revise Mr. Verdis annual base salary to $225,000 and to amend
the term of his employment agreement to a one year term commencing March 31, 2008.
In the event of Mr. Verdis termination without cause or for good reason, he or his estate
would receive his then current base annual salary, plus unpaid accrued employee benefits, which is
primarily accrued vacation, plus the continuation of his employee
87
benefits for a period of 18 months, less all applicable taxes. In the event of his voluntary
termination, death or disability, he or his estate would receive unpaid accrued employee benefits,
plus the continuation of his employee benefits for a period of 1 month, less all applicable taxes.
Robert J. Oakes
Pursuant to a written employment agreement with InsPro Technologies, LLC, Mr. Oakes serves as
InsPro Technologies, LLCs President and Chief Executive Officer. Pursuant to his employment
agreement, his annual base salary is $250,000 per year through October 1, 2010. He is entitled to
receive such bonus compensation as may be determined by the Compensation Committee of the board of
directors and such fringe benefits as are available to other executives of Health Benefits Direct
Corporation. Mr. Oakes employment agreement shall be automatically extended for an additional one
year term on October 1, 2010 and annually thereafter unless either party provides written
notification to the other party of non-renewal no later than 60 days prior to the termination date
of the agreement.
In the event of Mr. Oakess termination without cause or for good reason, he or his estate
would receive his then current base annual salary, plus unpaid accrued employee benefits, which is
primarily accrued vacation, plus the continuation of his employee benefits for a period of 12
months, less all applicable taxes. In the event of his voluntary termination, death or disability,
he or his estate would receive unpaid accrued employee benefits, plus the continuation of his
employee benefits for a period of one month, less all applicable taxes.
Pursuant to Mr. Oakes employment agreement, he is subject to a non competition and
non-solicitation provision for a period of three years after October 1, 2007 or a period of one
year following his termination, whichever is shorter.
Compensation of Directors
The following table sets forth information concerning the compensation of all individuals who
served on our board of directors during the fiscal year ended December 31, 2008. There were no
non-equity incentive plan compensation or nonqualified deferred compensation earnings to any of our
directors for the year ended December 31, 2008. Directors who are employees receive no additional
or special compensation for serving as directors. All director compensation for Messrs. Clemens,
Oakes and Verdi is included in the Summary Compensation Table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or
|
|
|
|
|
|
|
Option
|
|
|
All Other
|
|
|
|
|
|
|
Paid in Cash
|
|
|
Stock Awards
|
|
|
Awards
|
|
|
Compensation
|
|
|
Total
|
|
Name
|
|
($) (1)
|
|
|
($) (2)
|
|
|
($) (3)
|
|
|
($) (4)
|
|
|
($)
|
|
|
Donald Caldwell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Harrison
|
|
|
11,500
|
|
|
|
25,800
|
|
|
|
23,250
|
|
|
|
11,538
|
|
|
|
72,088
|
|
|
C. James Jensen
|
|
|
6,000
|
|
|
|
17,200
|
|
|
|
258,423
|
|
|
|
|
|
|
|
281,623
|
|
|
Warren V. Musser
|
|
|
9,000
|
|
|
|
17,200
|
|
|
|
|
|
|
|
|
|
|
|
26,200
|
|
|
Sanford Rich
|
|
|
15,000
|
|
|
|
25,800
|
|
|
|
176,197
|
|
|
|
13,644
|
|
|
|
230,641
|
|
|
L.J. Rowell
|
|
|
13,500
|
|
|
|
25,800
|
|
|
|
176,197
|
|
|
|
|
|
|
|
215,497
|
|
|
Paul Soltoff
|
|
|
10,500
|
|
|
|
17,200
|
|
|
|
23,250
|
|
|
|
|
|
|
|
50,950
|
|
|
Frederick Tecce
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edmond Walters
|
|
|
9,000
|
|
|
|
33,333
|
|
|
|
|
|
|
|
|
|
|
|
42,333
|
|
88
|
|
|
(1)
|
|
Represents board and committee meeting and retainer fees paid to our directors under our
Non-Employee Director Compensation Plan.
|
|
(2)
|
|
Represents the dollar amount recognized for financial statement reporting purposed with respect
to the applicable fiscal year n accordance with SFAS 123(R). Stock award expense paid to our
directors under our Non Employee director Compensation Plan for the most recently completed fiscal
year pertaining to directors, which is detailed by director in the following tables, was based on
the closing price per share ($1.72) of our common stock on the OTCBB on the date of the grant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of
|
|
Number of Shares of
|
|
|
|
|
|
|
|
|
Stock
|
|
Common Stock
|
|
|
|
|
|
Aggregate Value
|
|
|
Grant
|
|
Granted
|
|
Value Per Share
|
|
of Stock Granted
|
Donald Caldwell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Harrison
|
|
|
1/3/2008
|
|
|
|
15,000
|
|
|
$
|
1.72
|
|
|
$
|
25,800
|
|
|
C. James Jensen (5)
|
|
|
1/3/2008
|
|
|
|
10,000
|
|
|
|
1.72
|
|
|
|
17,200
|
|
|
Warren V. Musser
|
|
|
1/3/2008
|
|
|
|
10,000
|
|
|
|
1.72
|
|
|
|
17,200
|
|
|
Sanford Rich
|
|
|
1/3/2008
|
|
|
|
15,000
|
|
|
|
1.72
|
|
|
|
25,800
|
|
|
L.J. Rowell
|
|
|
1/3/2008
|
|
|
|
15,000
|
|
|
|
1.72
|
|
|
|
25,800
|
|
|
Paul Soltoff
|
|
|
1/3/2008
|
|
|
|
10,000
|
|
|
|
1.72
|
|
|
|
17,200
|
|
|
Frederick C. Tecce
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edmond Walters
|
|
|
4/1/2008
|
|
|
|
99,010
|
|
|
|
1.01
|
|
|
|
100,000
|
|
|
|
|
(3)
|
|
Represents the dollar amount recognized for financial statement reporting purposes with respect
to the applicable fiscal year in accordance with SFAS 123(R). Stock option expense for the most
recently completed fiscal year pertaining to directors is based on the estimated fair value as of
the date of grant using the Black-Scholes option-pricing model based on the terms of each option
amortized over the vesting period of the option or the duration of board membership, whichever is
shorter. Fair value was estimated based on an assumed dividend yield of 0% and the assumptions
below.
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Expensed in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expensed in
|
|
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
|
|
Statements
|
|
Fair Value
|
|
Number of
|
|
Option
|
|
Stock Price
|
|
|
|
|
|
|
|
|
|
Risk Free
|
|
Expected
|
|
Assumed
|
|
|
Statements
|
|
Based on
|
|
of Option
|
|
Options
|
|
Exercise
|
|
on the Date
|
|
Date of
|
|
Expected
|
|
Interest
|
|
Life in
|
|
Dividend
|
Name
|
|
($)
|
|
Vesting
|
|
Award ($)
|
|
Granted (#)
|
|
Price ($)
|
|
of Grant ($)
|
|
Grant
|
|
Volatility
|
|
Rate
|
|
years
|
|
Yield
|
|
John Harrison
|
|
|
23,250
|
|
|
|
31
|
%
|
|
|
75,000
|
|
|
|
250,000
|
|
|
|
1.00
|
|
|
|
1.00
|
|
|
|
11/22/2005
|
|
|
|
25
|
%
|
|
|
3.75
|
%
|
|
|
4.5
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C. James Jensen
|
|
|
258,423
|
|
|
|
44
|
%
|
|
|
587,324
|
|
|
|
200,000
|
|
|
|
3.60
|
|
|
|
3.60
|
|
|
|
04/27/2006
|
|
|
|
113
|
%
|
|
|
4.66
|
%
|
|
|
5
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warren V. Musser
|
|
|
|
|
|
|
0
|
%
|
|
|
193,264
|
|
|
|
250,000
|
|
|
|
1.00
|
|
|
|
1.00
|
|
|
|
01/11/2006
|
|
|
|
103
|
%
|
|
|
3.75
|
%
|
|
|
5
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
0
|
%
|
|
|
896,542
|
|
|
|
425,000
|
|
|
|
2.70
|
|
|
|
2.90
|
|
|
|
03/14/2006
|
|
|
|
105
|
%
|
|
|
3.75
|
%
|
|
|
5
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L. J. Rowell
|
|
|
176,197
|
|
|
|
30
|
%
|
|
|
587,324
|
|
|
|
200,000
|
|
|
|
3.60
|
|
|
|
3.60
|
|
|
|
04/27/2006
|
|
|
|
113
|
%
|
|
|
4.66
|
%
|
|
|
5
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sanford Rich
|
|
|
176,197
|
|
|
|
30
|
%
|
|
|
587,324
|
|
|
|
200,000
|
|
|
|
3.60
|
|
|
|
3.60
|
|
|
|
04/27/2006
|
|
|
|
113
|
%
|
|
|
4.66
|
%
|
|
|
5
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Soltoff
|
|
|
23,250
|
|
|
|
31
|
%
|
|
|
75,000
|
|
|
|
250,000
|
|
|
|
1.00
|
|
|
|
1.00
|
|
|
|
11/23/2005
|
|
|
|
25
|
%
|
|
|
3.75
|
%
|
|
|
4.5
|
|
|
|
0
|
%
|
|
|
|
(4)
|
|
Mr. Harrison provided marketing consulting services to the Company pursuant to a verbal
agreement from January 29, 2007 through March 31, 2008. Mr. Rich provided management consulting
services from January 28, 2008 through March 6, 2008.
|
|
(5)
|
|
Mr. Jensen resigned from the board effective March 26, 2008.
|
The following table sets forth information concerning the aggregate number of options
available for non-employee directors as of December 31, 2008.
|
|
|
|
|
|
|
Aggregate Number of
|
|
|
Options Available as of
|
|
|
December 31, 2008
|
Donald Caldwell
|
|
|
|
|
|
John Harrison
|
|
|
250,000
|
|
|
C. James Jensen
|
|
|
|
|
|
Warren V. Musser
|
|
|
675,000
|
|
|
Sanford Rich
|
|
|
200,000
|
|
|
L.J. Rowell
|
|
|
200,000
|
|
|
Paul Soltoff
|
|
|
150,000
|
|
|
Frederick C. Tecce
|
|
|
|
|
|
Edmond Walters
|
|
|
|
|
Director Compensation Plan
Directors who are employees receive no additional or special compensation for serving as
directors. Non employee directors receive the following compensation under the terms of our Non
Employee Director Compensation Plan:
|
|
|
Each non employee director will receive the following cash compensation:
|
|
|
|
$5,000 annual retainer for each director
|
|
|
|
|
$2,000 annual retainer for the Audit Committee Chairperson
|
90
|
|
|
$1,000 annual retainer for the Compensation Committee Chairperson
|
|
|
|
|
$1,000 annual retainer for the Nominating and Governance Committee Chairperson
|
|
|
|
|
$1,000 meeting fee for each board meeting attending in person
or via teleconference
|
|
|
|
|
$500 meeting fee for each committee meeting attending in person or via teleconference.
|
|
|
|
Each non employee director will receive the following equity compensation:
|
|
|
|
Upon election to our board of a directors, a newly elected director will
receive a grant of restricted shares of common stock under our 2008 Equity
Compensation Plan with an aggregate fair market value of $100,000, as determined by
the closing market price of one share of our common stock on the date of the
directors election to the board of directors, which shall vest in the following
increments: (i) one-third on the date of the directors election to the board of
directors; (ii) one-third on the date of the first anniversary of the directors
election to the board of directors; (iii) one-third on the date of the second
anniversary of the directors election to the board of directors.
|
|
|
|
|
On a date specified by the Compensation Committee of the board, each
director who serves as a director on that specified date will receive an annual
grant of 10,000 fully vested shares of common stock granted under the 2008 Equity
Compensation Plan.
|
|
|
|
|
On a date specified by the Compensation Committee of the board, each
director who serves as a chairperson of a committee of the board of directors on
that specified date will receive an annual grant of 5,000 fully vested shares of
common stock granted under the 2008 Equity Compensation Plan.
|
We also purchase directors and officers liability insurance for the benefit of our directors
and officers as a group. We also reimburse our directors for their reasonable out-of-pocket
expenses incurred in attending meetings of our board of directors or its committees. No fees are
payable to directors for attendance at specially called meetings of the board.
91
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows information known by us with respect to the beneficial ownership of
our common stock and preferred stock as of December ___, 2009, for each of the following persons:
|
|
|
each of our directors;
|
|
|
|
|
our named executive officers;
|
|
|
|
|
all of our directors, director nominees and executive officers as a group; and
|
|
|
|
|
each person or group of affiliated persons or entities known by us to
beneficially own 5% or more of our shares.
|
The number of shares beneficially owned, beneficial ownership and percentage ownership are
determined in accordance with the rules of the Commission. Under these rules, beneficial ownership
includes any shares as to which the individual or entity has sole or shared voting power or
investment power and includes any shares that an individual or entity has the right to acquire
beneficial ownership of within 60 days of December ___, 2009 through the exercise of any warrant,
stock option or other right. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares underlying options and warrants that are
exercisable within 60 days of December ___, 2009 are considered to be outstanding. To our knowledge,
except as indicated in the footnotes to the following table and subject to community property laws,
where applicable, the persons named in this table have sole voting and investment power with
respect to all shares shown as beneficially owned by them. The following table is based on
41,543,655 shares of common stock and 1,000,000 shares of Series A preferred stock outstanding as
of December ___, 2009. Unless otherwise indicated, the address of all individuals and entities listed
below is Health Benefits Direct Corporation, 150 N. Radnor-Chester Road, Suite B-101, Radnor,
Pennsylvania 19087.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
Number of Shares
|
|
|
|
|
|
|
Shares
|
|
|
|
Beneficially
|
|
|
|
|
|
|
Beneficially
|
|
Name of Beneficial Owner
|
|
Owned
|
|
|
Title of Class
|
|
|
Owned
|
|
Directors and Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald R. Caldwell
|
|
|
73,754,261
|
(2)
|
|
Common Stock
|
|
|
71.9
|
%
|
|
|
|
1,000,000
|
(3)
|
|
Series A Preferred Stock
|
|
|
100
|
%
|
Warren V. Musser
|
|
|
1,145,000
|
(4)
|
|
Common Stock
|
|
|
2.7
|
%
|
Robert J. Oakes
|
|
|
1,398,899
|
(5)
|
|
Common Stock
|
|
|
3.3
|
%
|
John Harrison
|
|
|
481,750
|
(6)
|
|
Common Stock
|
|
|
1.2
|
%
|
L.J. Rowell
|
|
|
415,600
|
(7)
|
|
Common Stock
|
|
|
1.0
|
%
|
Paul Soltoff
|
|
|
355,000
|
(8)
|
|
Common Stock
|
|
|
*
|
|
Sanford Rich
|
|
|
305,000
|
(8)(9)
|
|
Common Stock
|
|
|
*
|
|
Frederick C. Tecce
|
|
|
73,870,251
|
(10)
|
|
Common Stock
|
|
|
72.0
|
%
|
|
|
|
1,000,000
|
(3)
|
|
Series A Preferred Stock
|
|
|
100
|
%
|
Anthony R. Verdi
|
|
|
1,085,000
|
(11)
|
|
Common Stock
|
|
|
2.6
|
%
|
Edmond Walters
|
|
|
171,633
|
|
|
Common Stock
|
|
|
*
|
|
All
directors and executive officers as a group (10 persons)
|
|
|
78,362,143
|
(2)(4)(5)(6)
(7)(8)(9)
(10)(11)
|
|
Common Stock
|
|
|
93.0
|
%
|
|
|
|
1,000,000
|
(3)
|
|
Series A Preferred Stock
|
|
|
100
|
%
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
Number of Shares
|
|
|
|
|
|
|
Shares
|
|
|
|
Beneficially
|
|
|
|
|
|
|
Beneficially
|
|
Name of Beneficial Owner
|
|
Owned
|
|
|
Title of Class
|
|
|
Owned
|
|
Holders of More than Five Percent of Our
Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alvin H.
Clemens
|
|
|
5,472,457
|
(1)
|
|
Common Stock
|
|
|
12.4
|
%
|
The Co-Investment Fund II, L. P
|
|
|
73,754,261
|
(12)
|
|
Common Stock
|
|
|
71.8
|
%
|
|
|
|
1,000,000
|
(3)
|
|
Series A Preferred Stock
|
|
|
100
|
%
|
Cumberland Associates LLC
|
|
|
3,339,113
|
(13)
|
|
Common Stock
|
|
|
7.8
|
%
|
|
|
|
*
|
|
Less than 1%
|
|
(1)
|
|
Includes 1,000,000 shares held by The Clemens-Beaver Creek Limited Partnership, of which
Alvin H. Clemens is the general partner. Mr. Clemens disclaims beneficial ownership of these
shares, except to the extent of his pecuniary interest therein. Also includes 100,000 shares
held by Mr. Clemenss minor children. Also includes 850,000 shares underlying options and
1,193,377 shares underlying warrants, all of which are exercisable within 60 days of December
___, 2009. Also includes 500,000 shares underlying warrants held by the Clemens-Beaver Creek
Limited Partnership which are exercisable within 60 days of December ___, 2009.
|
|
(2)
|
|
Includes 12,646,874 shares and 40,993,377 shares underlying warrants that are exercisable
within 60 days of December ___, 2009 and 20,000,000 shares convertible at the option of the holder from Series A preferred stock within 60 days of
December ___, 2009, which are beneficially owned by Co-Investment Fund, designee
of Cross Atlantic Capital Partners, Inc. Mr. Caldwell is a managing partner of Cross Atlantic
Capital Partners, Inc. Mr. Caldwell is also a stockholder, director and officer of Co-Invest
II Capital Partners, Inc., which is the general partner of Co-Invest Management II, L.P.,
which is the general partner of Co-Investment Fund. Mr. Caldwell disclaims beneficial
ownership of these securities, except to the extent of his pecuniary interest therein.
|
|
(3)
|
|
Represents securities owned by Co-Investment Fund, the designee of Cross Atlantic Capital
Partners, Inc., of which Frederick C. Tecce is the managing director and of which Donald R.
Caldwell is managing partner. Mr. Caldwell is also a stockholder, director and officer of
Co-Invest II Capital Partners, Inc., which is the general partner of Co-Invest Management II,
L.P., which is the general partner of Co-Investment Fund. Mr. Tecce and Mr. Caldwell disclaim
beneficial ownership of these securities, except to the extent of their pecuniary interest
therein.
|
|
(4)
|
|
Includes 440,000 shares underlying warrants and 675,000 shares underlying options, all of
which are exercisable within 60 days of December ___, 2009.
|
|
(5)
|
|
Includes 1,000,000 shares underlying options, which are exercisable within 60 days of December
___, 2009.
|
|
(6)
|
|
Includes 250,000 shares underlying options and 86,750 shares underlying warrants, all of
which are exercisable within 60 days of December ___, 2009.
|
|
(7)
|
|
Includes 200,000 shares underlying options that are exercisable within 60 days of December ___,
2009.
|
|
(8)
|
|
Includes 150,000 shares underlying options and 25,000 shares underlying warrants, all of
which are exercisable within 60 days of December ___, 2009.
|
|
(9)
|
|
Includes 25,000 shares underlying warrants that are exercisable within 60 days of December ___,
2009.
|
|
(10)
|
|
Includes 50,000 shares underlying warrants that are exercisable within 60 days of December ___,
2009. Also includes 12,646,874 shares and 40,043,377 shares underlying warrants that are
exercisable within 60 days of December ___, 2009 and 20,000,000 shares convertible at the option of the holder from Series A preferred stock within 60 days of
December ___, 2009, which are beneficially owned by Co-Investment
Fund, designee of Cross Atlantic Capital Partners, Inc. Mr. Tecce is a managing partner of
Cross Atlantic Capital Partners, Inc. Mr. Tecce disclaims beneficial ownership of these
securities, except to the extent of his pecuniary interest therein.
|
|
(11)
|
|
Includes 1,000,000 shares underlying options and 25,000 shares underlying warrants, all of
which are exercisable within 60 days of December ___, 2009.
|
93
|
|
|
|
(12)
|
|
Includes 40,993,377 shares underlying warrants that are exercisable within 60 days of December ___, 2009 and 20,000,000 shares convertible at the option of the holder from Series A preferred
stock within 60 days of December ___, 2009. Excludes 1,000,000 shares of Series A Convertible Preferred Stock, which is
convertible, at the sole option of the holder, into twenty shares of our common stock per
share of Series A Convertible Preferred Stock.
|
|
|
|
(13)
|
|
Includes 1,522,352 shares underlying warrants that are
exercisable within 60 days of December ___, 2009.
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TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
From the beginning of our last fiscal year until the date of this prospectus, there has been
no transaction, nor is there any transaction currently proposed, to which we were, are, or would be
a participant, in which the amount involved exceeded or would exceed the lesser of $120,000 or one
percent of the average of our total assets at year end for the last two completed fiscal years and
in which any of our directors or executive officers, any holder of more than 5% of our common stock
or any member of the immediate family of any of these persons or entities had or will have a direct
or indirect material interest, other than the compensation and compensation arrangements (including
with respect to equity compensation and board compensation) described below.
We believe that we have executed all of the transactions described below on terms no less
favorable to us than we could have obtained from unaffiliated third parties. It is our intention to
ensure that all future transactions between us and our officers, directors and principal
stockholders and their affiliates are approved by a majority of our board of directors, including a
majority of the independent and disinterested members of our board of directors, and are on terms
no less favorable to us than those that we could obtain from unaffiliated third parties.
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On March 31, 2008, we completed a private placement of an aggregate of 6,250,000 shares
of our common stock and warrants exercisable for 5,000,000 shares of our common stock. We
sold 6,250,000 investment units in the private placement, each investment unit consisting
of one share of our common stock and a warrant to purchase one share of common stock for an
aggregate purchase price of $5 million. In connection with this private placement:
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The Co-Investment Fund II, L.P., designee of Cross Atlantic Capital Partners, Inc.,
purchased 5,000,000 investment units for a purchase price of $4 million. Mr. Tecce, who
is one of our directors, is a managing partner of Cross Atlantic Partners, Inc. Mr.
Caldwell, who is also one of our directors, is a stockholder, director and officer of
Co-Invest II Capital Partners, Inc., which is the general partner of Co-Invest
Management II, L.P., which is the general partner of The Co-Investment Fund II, L.P.
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Cumberland Associates LLC, a holder of more than 5% of our shares of common stock,
purchased 1,250,000 investment units in the private placement for a purchase price of $1
million.
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On January 15, 2009, we completed a private placement with The Co-Investment Fund II, L.P.,
for an aggregate of 1,000,000 shares of our Series A preferred stock and warrants to
purchase 1,000,000 shares of our Series A preferred stock.
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The preferred stock is entitled to vote as a single class with the holders of our
common stock, with each share of preferred stock having the right to 20 votes. Upon the
liquidation, sale or merger of Health Benefits Direct Corporation, each share of
preferred stock is entitled to receive an amount equal to the greater of (A) a
liquidation preference equal to two and a half (2.5) times the preferred stock original
issue price, subject to certain customary adjustments, or (B) the amount such share of
preferred stock would receive if it participated pari passu with the holders of common
stock on an as-converted basis. Each share of preferred stock is convertible into 20
shares of common stock, subject to adjustment and solely at the option of the holder of
the preferred stock. For so long as any shares of preferred stock are outstanding, the
vote or consent of the holders of at least two-thirds of the shares preferred stock is
required to approve (Y) any amendment to our certificate of incorporation or bylaws that
would adversely alter the voting powers, preferences or special rights of the preferred
stock or (Z) any amendment to our certificate of incorporation to create any shares of
capital stock that rank senior to the preferred stock. In addition to the voting rights
described above, for so long as 1,000,000 shares of preferred stock are outstanding, the
vote or consent of the holders of at least two-thirds of the shares of preferred stock
is required to effect or validate any merger, sale of substantially all of the assets of
Health Benefits
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Direct or other fundamental transaction, unless such transaction, when consummated, will
provide the holders of preferred stock with an amount per share equal to two and a half
(2.5) times the preferred stock original issue price.
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The warrants provide that the holder thereof shall have the right at any time prior
to the earlier of (i) ten business days after the Company has properly provided written
notice to all such holders of a call event (as described below) and (ii) January 14,
2014, to acquire up to a total of 20,000,000 shares of our common stock upon the payment
of $0.20 per share. We also have the right, at any point after which the volume
weighted average trading price per share of our common stock for a minimum of 20
consecutive trading days is equal to at least eight times the exercise price per share,
provided that certain other conditions have been satisfied, to call the outstanding
warrants, in which case such warrants will expire if not exercised within ten business
days thereafter. The warrants also include full ratchet anti-dilution adjustment
provisions for issuances of securities below $0.20 per share of common stock during the
first two years following the date of issuance of the warrants, subject to customary
exceptions.
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On December 22, 2009, we, and certain of our subsidiaries, entered into a Loan Agreement and $1,125,000 Secured Promissory Note with The Co-Investment Fund II, L.P., pursuant to which The Co-Investment Fund II, L.P. extended the principal sum of $1,250,000 to us and our subsidiaries. All principal and accrued interest, which accrues at an annual rate of 8%, is due and payable on December 22, 2010. The Secured Promissory Note is secured by a perfected first priority security
interest in substantially all of our and our subsidiaries assets.
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PLAN OF DISTRIBUTION
On or about _________, 2009, we will distribute the rights, rights certificates, and copies of
this prospectus to individuals who owned shares of common stock on
December ___, 2009. If you wish to
exercise your rights and purchase Units, you should complete the rights certificate and return it
with payment for the shares, to us at the following address:
Health Benefits Direct Corporation
150 N. Radnor-Chester Road
Suite B-101
Radnor, Pennsylvania 19087
Attn: Francis L. Gillan III
See further the section of this prospectus entitled The Rights Offering. If you have any
questions, you should contact
Francis L. Gillan III,
at (484)654-2200 or by electronic mail at rightsoffering@HBDC.com.
We do not know of any existing agreements between any stockholder, broker, dealer,
underwriter, or agent relating to the sale or distribution of the common stock underlying the
rights.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal income tax consequences
to U.S. holders, as defined below, of the receipt, ownership and exercise of the subscription
rights distributed in the subscription rights offering. This discussion is based on the Code,
Treasury regulations promulgated thereunder, and administrative and judicial interpretations
thereof, all as in effect as of the date hereof and all of which are subject to change, possibly
with retroactive effect. This discussion is not binding on the Internal Revenue Service, the IRS or
the courts. Accordingly, no assurance can be given that the tax consequences described herein will
not be challenged by the IRS or that such a challenge would not be sustained by a court. No ruling
has been sought from the IRS, and no opinion of counsel has been rendered, as to the federal income
tax consequences set forth in this discussion.
This discussion does not address all aspects of U.S. federal income taxation that may be
applicable to holders in light of their particular circumstances or to holders subject to special
treatment under the U.S. federal income tax laws, including, but not limited to, financial
institutions, brokers and dealers in securities or currencies, insurance companies, regulated
investment companies, real estate investment trusts, tax-exempt organizations, persons who hold
their shares as part of a straddle, hedge, conversion or other risk-reduction transaction, persons
liable for the alternative minimum tax, persons who have received their common stock pursuant to
which the subscription rights in this rights offering have been granted through the exercise of
employee stock options or otherwise as
95
compensation for services, partnerships or other entities treated as partnerships for United States
federal income tax purposes, U.S. expatriates, persons whose functional currency is not the U.S.
dollar and foreign taxpayers. This discussion also does not address any aspect of state, local or
foreign income or other tax laws. This discussion is limited to U.S. holders which hold our shares
as capital assets. For purposes of this discussion, a U.S. holder is a holder that is, for U.S.
federal income tax purposes:
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a citizen or resident of the United States;
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a corporation created or organized in or under the laws of the United States or any
political subdivision thereof;
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an estate the income of which is subject to U.S. federal income taxation regardless of
its source; or
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a trust if (1) a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons have the authority to control all
substantial decisions of the trust or (2) has a valid election in effect under applicable
Treasury Department regulations to be treated as a United States person.
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If a partnership (including any entity treated as a partnership for United States federal income
tax purposes) receives the subscription rights or holds shares of common stock or warrants received
upon exercise of the subscription rights or the oversubscription privilege, the tax treatment of a
partner in a partnership generally will depend upon the status of the partner and the activities of
the partnership. Such a partner or partnership should consult its own tax advisor as to the United
States federal income tax consequences of the receipt and ownership of the subscription rights or
the ownership of shares of common stock and warrants received upon exercise of the subscription
rights or, if applicable, upon exercise of the oversubscription privilege.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO YOU OF YOUR
RECEIPT, OWNERSHIP AND EXERCISE OF THE RIGHTS, INCLUDING THE APPLICABILITY OF ANY FEDERAL ESTATE OR
GIFT TAX LAWS OR ANY STATE, LOCAL OR FOREIGN TAX LAWS.
Subscription Rights
Each subscription right entitles eligible shareholder the right to purchase for $1,000 one
Unit, consisting of 250 shares of our Series A convertible
preferred stock and a five-year warrant to purchase 5,000 additional shares of our common stock at
an exercise price of $0.20 per share. Generally, the distribution of stock by a corporation to its
shareholders with respect their stock is not taxable to such shareholders pursuant to Section
305(a) of the Code. For such purpose, a distribution of rights to acquire stock of the
distributing corporation constitutes a distribution of stock. However, if a distribution of stock
or rights to acquire stock is within one of several exceptions to the general rule of Section
305(a) set forth in Section 305(b) of the Code, the distribution may be taxable to the shareholders
of the distributing corporation as described below.
Many of the exceptions to the general rule of Section 305(a) set forth in Section 305(b)
involve preferred stock, such as the distribution of convertible preferred stock in certain
circumstances pursuant to Section 305(b)(5). Treasury regulations define preferred stock not for
its preferred rights and privileges, but its inability to participate in corporate growth. We
believe that the Series A convertible preferred stock is not preferred stock for tax purposes based
on certain features of the preferred stock, including its right to participate in dividends on an
as converted basis and the right to a distribution in a liquidation or other capital event on an as
converted basis if such distribution would be greater than the liquidation preference right
associated with the Series A convertible preferred stock. Accordingly, we believe that none of the
Section 305(b) exceptions that apply to preferred stock for tax purposes should be apply to the
rights offering and that the rights offering should be evaluated for Section 305 purposes as if we
have only one outstanding class of stock.
Section 305(b)(2) is an exception to the general rule of Section 305(a) that applies to a
disproportionate distribution. Pursuant to Section 305(b)(2), a distribution (or a series of
distributions of which such a distribution is one) of stock rights constitutes a disproportionate
distribution, and is therefore taxable, if the distribution results in (a) the receipt of
property, including cash, by some shareholders, and (b) an increase in the proportionate interest
of other shareholders in the assets or earnings and profits of the distributing corporation. For
this purpose, the term property means money, securities, and any other property, except that such
term does not include stock in the corporation making the distribution or rights to acquire such
stock. A series of distributions encompasses all distributions of stock made or deemed made by
a corporation which have the result of receipt of cash or property by
96
some shareholders and an increase in the proportionate interests of other shareholders. It is not
necessary for a distribution of stock to be considered as one of a series of distributions that
such distribution be pursuant to a plan to distribute cash and property to some shareholders and to
increase the proportionate interests of the other shareholders, rather it is sufficient if there is
a distribution (or a deemed distribution) having such effect. In addition, there is no requirement
that both elements of Section 305(b)(2) of the Code occur in the form of a distribution or series
of distributions as long as the result is that some shareholders receive cash and property and
other shareholders proportionate interests increase. Under the applicable Treasury Regulations,
where the receipt of cash or property occurs more than 36 months following a distribution or series
of distributions of stock, or where a distribution is made more than 36 months following the
receipt of cash or property, such distribution or distributions will be presumed not to result in
the receipt of cash or property by some shareholders and an increase in the proportionate interest
of other shareholders, unless the receipt of cash or property by some shareholders and the
distribution or series of distributions are made pursuant to a plan.
We believe that the distribution of rights in the rights offering does not constitute an
increase in the proportionate interest of some shareholders in the assets or earnings and profits
of Health Benefits Direct Corporation for the purpose of Section 305(b)(2) because all of our
stockholders will receive rights in the rights offering based upon their respective ownership our
common stock (or in the case of Co-Investment Fund, in its capacity
as the only holder of our warrants and Series A convertible preferred stock, based on the common stock into which
these securities may be converted). Accordingly, we do not believe that the rights offering should
constitute part of a disproportionate distribution, pursuant to Section 305(b)(2) of the Code.
Although Co-Investment Fund has notified the Company that it does not
intend to initially exercise any of the subscription rights in the
offering, but may do so if other stockholders subscribe for less than $3 million in Units, Co-Investment Fund is not legally required to so withhold its subscription and, therefore, we
believe that Co-Investment Fund should be treated as having received rights in the rights
offering for the purpose of Section 305 of the Code. However, there can be no assurances that our
application of Section 305 to the rights offerings is accurate. In the unlikely event the IRS
successfully asserts that your receipt of subscription rights is currently taxable pursuant to
Section 305(b) of the Code, the discussion under the heading Alternative Treatment of Subscription
Rights describes the tax consequences that will result from such a determination.
Receipt of the Subscription Rights
You should not recognize taxable income for U.S. federal income tax purposes in connection with the
receipt of the subscription right in the rights offering. However, there can be no assurance of
this result. Unless otherwise noted, the remainder of the discussion under this heading
Subscription Rights assumes that the distribution of the subscription rights in the rights
offering will not result in a disproportionate distribution or will otherwise be taxable pursuant
to Section 305(b) of the Code.
Tax Basis and Holding Period of the Subscription Rights
Your tax basis of the subscription rights for United States federal income tax purposes will depend
on the fair market value of the subscription rights you receive and the fair market value of your
existing shares of stock on the date you receive the subscription rights. The tax basis of the
subscription rights received by you in the subscription rights offering will be zero unless either
(1) the fair market value of the subscription rights on the date such subscription rights are
distributed is equal to at least 15% of the fair market value on such date of the shares with
respect to which they are received or (2) you elect to allocate part of the tax basis of such
shares to the subscription rights. If either (1) or (2) is true, then, if you exercise the
subscription rights, your tax basis in your shares will be allocated between the subscription
rights and the shares with respect to which the subscription rights were received in proportion to
their respective fair market values on the date the subscription rights are distributed.
In addition, any tax basis allocated to the subscription rights must be apportioned between
the right to receive shares of preferred
stock, or Preferred Stock Rights, and the right to receive warrants, or Warrant Rights, in
proportion to their respective fair market values on the date you receive the subscription rights.
We have not obtained an independent appraisal of the valuation of the subscription rights and,
therefore, you should consult with your tax advisor to determine the proper allocation of basis
between the subscription rights and the shares with respect to which the subscription rights are
received.
97
Your holding period for the subscription rights will include your holding period for the
shares with respect to which the subscription rights were received.
Expiration of the Subscription Rights
If you allow subscription rights received in the subscription rights offering to expire, you
should not recognize any gain or loss. If you have tax basis in the subscription rights, the tax
basis of the shares owned by you with respect to which such subscription rights were distributed
will be restored to the tax basis of such shares immediately prior to the receipt of the
subscription rights in the subscription rights offering.
Alternative Treatment of Subscription Rights
Receipt.
If the IRS were to successfully assert that the distribution of the subscription
rights in the rights offering resulted in a disproportionate distribution or is otherwise taxable
pursuant to Section 305(b), each holder would be considered to have received a distribution with
respect to such holders stock in an amount equal to the fair market value of the subscription
rights received by such holder on the date of the distribution. This distribution generally would
be taxed as dividend income to the extent of your ratable share of our current and accumulated
earnings and profits. The amount of any distribution in excess of our earnings and profits will be
applied to reduce, but not below zero, your tax basis in your stock, and any excess generally will
be taxable to you as capital gain (long-term, if your holding period with respect to your common
stock is more than one year as of the date of distribution, and otherwise short-term). Under
current law for taxable years beginning prior to January 1, 2011, so long as certain holding period
requirements are satisfied, the maximum federal income tax rate on most dividends received by
individuals is generally 15%. Your tax basis in the subscription rights received pursuant to the
rights offering would be equal to their fair market value on the date of distribution and the
holding period for the rights would begin upon receipt.
Expiration.
Assuming the receipt of subscription rights in the rights offering is a taxable
event, if your subscription rights lapse without being exercised, you will recognize a capital loss
equal to your tax basis in such expired subscription rights. The deductibility of capital losses is
subject to limitations.
Exercise of the Subscription Rights; Tax Basis and Holding Period of the Shares
You should not recognize any gain or loss upon the exercise of the subscription rights
received in the subscription rights offering by purchasing Unit(s) for $1,000 per Unit. The tax
basis of the shares and warrants acquired through exercise of the subscription rights should equal
the sum of (i) the subscription price and (ii) your tax basis, if any, in the subscription rights
as described above. The tax
basis of the preferred stock acquired generally will be the sum of (i) that portion of the
subscription price allocable to the preferred stock, plus (ii) the portion, if any of the tax basis
of the subscription rights allocable to the Preferred Stock Rights. The tax basis of the warrants
acquired generally will be the sum of (i) that portion of the subscription price allocable to the
warrants, plus (ii) the portion, if any of the tax basis of the subscription rights allocable to
the Warrant Rights.
The holding period for the shares and warrants acquired through exercise of the subscription
rights will begin on the date the subscription rights are exercised.
98
EXPERTS
Our consolidated financial statements as of and for the years ended December 31, 2008 and 2007
included in this prospectus and in the registration statement of which this prospectus is a part
have been audited by Sherb & Co., LLP, independent registered public accountants, to the extent and
for the periods set forth in their report and are incorporated in this prospectus in reliance upon
the report given upon the authority of Sherb & Co., LLP as experts in auditing and accounting.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Pacific Stock Transfer Company, whose
address is 500 E. Warm Springs Road, Suite 240, Las Vegas, NV 89119, and whose phone number is
(702) 361-3033.
LEGAL MATTERS
The validity of the securities being offered by this prospectus have been passed upon for us
by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission a registration statement on Form S-1, including exhibits,
schedules and amendments filed with this registration statement, under the Securities Act with
respect to offers and resales of shares of our common stock by the selling stockholders identified
in this prospectus. This prospectus, which constitutes part of the registration statement, does
not include all of the information contained in the registration statement and its exhibits and
schedules. You should refer to the registration statement and its exhibits and schedules for
additional information. Whenever we make reference in this prospectus to any of our contracts,
agreements or other documents, the references are not necessarily complete and you should refer to
the exhibits filed with the registration statement for copies of the actual contract, agreement or
other document. Statements contained in this prospectus as to the contents of any contract or
other document referred to in this prospectus are not necessarily complete and, where that contract
is an exhibit to the registration statement, each statement is qualified in all respects by
reference to the exhibit to which the reference relates.
You can read the registration statement and our other filings with the Commission, over the
Internet at the Commissions website at http://www.sec.gov. You also may read and copy any document
that we file with the Commission at its public reference room at Headquarters Office, 100 F Street,
N.E., Washington, D.C. 20549.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to our directors, officers or persons controlling us pursuant to the foregoing
provisions, we have been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore unenforceable.
99
FINANCIAL STATEMENTS
TABLE OF CONTENTS
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Page
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Number
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F-2
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F-3
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F-4
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F-5
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F-6
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F-7
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F-8
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Interim
Financial Statements for the Nine Months ended September 30, 2009 and 2008 (UNAUDITED)
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F-48
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F-49
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F-50
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F-51
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F-52
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F-1
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our
internal control over financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the United States and
include those policies and procedures that:
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Pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets;
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Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting principles generally
accepted in the United States;
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Provide reasonable assurance that our receipts and expenditures are being made only in
accordance with authorization of our management and directors; and
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Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of our assets that could have a material effect on the
financial statements.
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Because of its inherent limitations, such as resource constraints, human error, lack of knowledge
or awareness and the possibility of intentional circumvention of these controls, internal control
over financial reporting may not prevent or detect misstatements. Furthermore, the design of any
control system is based, in part, upon assumptions about the likelihood of future events, which
assumptions may ultimately prove to be incorrect. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial statement preparation and
presentation.
Our management assessed the effectiveness of its internal control over financial reporting as of
December 31, 2008. In making this assessment, management used the criteria established in
Internal
Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on its assessment, management has concluded that the Companys internal
control over financial reporting was effective as of December 31, 2008.
This Annual Report on Form 10-K does not include an attestation report of the Companys registered
public accounting firm regarding internal control over financial reporting. Managements report
was not subject to attestation by the Companys registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit the Company to provide only
managements report in this Annual Report on Form 10-K.
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/s/ Anthony R. Verdi
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Anthony R. Verdi
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Chief Financial Officer and Chief Operating Officer
(Principal Executive Officer and Principal Financial Officer)
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March 31, 2009
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F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Health Benefits Direct Corporation and Subsidiaries
Radnor, Pennsylvania
We have audited the accompanying consolidated balance sheets of Health Benefits Direct Corporation
and Subsidiaries as of December 31, 2008 and December 31, 2007, the related consolidated statements
of operations, changes in shareholders equity and cash flows for the years ended December 31, 2008
and December 31, 2007. These consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purposes of expressing an opinion on the effectiveness of the Companys internal
control over financial reporting. Accordingly, we express no such opinion. An audit includes
examining on a test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Health Benefits Direct Corporation and Subsidiaries as
of December 31, 2008 and December 31, 2007, and the results of their operations and their cash
flows for the years ended December 31, 2008 and December 31, 2007, in conformity with accounting
principles generally accepted in the United States of America.
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/s/ Sherb & Co., LLP
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Certified Public Accountants
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Boca Raton, Florida
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March 26, 2009
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F-3
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
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December 31, 2008
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December 31, 2007
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ASSETS
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CURRENT ASSETS:
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Cash
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$
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1,842,419
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$
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5,787,585
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Accounts receivable, less allowance for doubtful accounts $0 and $0
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461,875
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540,643
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State tax receivable
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31,290
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Prepaid expenses
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126,804
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116,326
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Other current assets
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8,461
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22,285
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Total current assets
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2,470,849
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6,466,839
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Restricted cash
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1,150,000
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1,150,000
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Property and equipment, net of accumulated depreciation $267,384 and $206,132
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729,881
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525,454
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Intangibles, net of accumulated amortization $1,021,187 and $454,109
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1,911,461
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2,625,084
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Other assets
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110,608
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114,830
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Total assets
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$
|
6,372,799
|
|
|
$
|
10,882,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
733,128
|
|
|
$
|
436,964
|
|
Accrued expenses
|
|
|
697,256
|
|
|
|
1,406,640
|
|
Current portion of capital lease obligations
|
|
|
89,297
|
|
|
|
14,707
|
|
Due to related parties
|
|
|
4,315
|
|
|
|
28,500
|
|
Deferred revenue
|
|
|
457,500
|
|
|
|
209,125
|
|
Income tax payable
|
|
|
|
|
|
|
157,288
|
|
Liabilities of discontinued
operations
|
|
|
2,238,315
|
|
|
|
4,084,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,219,811
|
|
|
|
6,337,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
|
209,511
|
|
|
|
44,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long term liabilities
|
|
|
209,511
|
|
|
|
44,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS 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;
41,279,645 and 34,951,384 shares issued and outstanding
|
|
|
41,279
|
|
|
|
34,951
|
|
Additional paid-in capital
|
|
|
43,281,139
|
|
|
|
36,868,409
|
|
Accumulated deficit
|
|
|
(41,378,941
|
)
|
|
|
(32,402,857
|
)
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
1,943,477
|
|
|
|
4,500,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
6,372,799
|
|
|
$
|
10,882,207
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
$
|
5,675,689
|
|
|
$
|
1,141,028
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Salaries, commission and related taxes
|
|
|
7,042,192
|
|
|
|
4,976,961
|
|
Lead, advertising and other marketing
|
|
|
32,497
|
|
|
|
11,052
|
|
Depreciation and amortization
|
|
|
1,017,532
|
|
|
|
327,138
|
|
Rent, utilities, telephone and communications
|
|
|
648,208
|
|
|
|
339,909
|
|
Professional fees
|
|
|
2,407,073
|
|
|
|
1,517,663
|
|
Other general and administrative
|
|
|
1,436,250
|
|
|
|
689,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,583,752
|
|
|
|
7,861,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(6,908,063
|
)
|
|
|
(6,720,866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(2,102,127
|
)
|
|
|
(7,734,767
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
73,913
|
|
|
|
350,707
|
|
Interest expense
|
|
|
(39,807
|
)
|
|
|
(31,673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
34,106
|
|
|
|
319,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,976,084
|
)
|
|
$
|
(14,136,599
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share (basic and diluted):
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(0.17
|
)
|
|
$
|
(0.19
|
)
|
Loss from discontinued operations
|
|
|
(0.05
|
)
|
|
|
(0.23
|
)
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(0.23
|
)
|
|
$
|
(0.43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic and diluted
|
|
|
39,734,505
|
|
|
|
33,006,127
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
F-5
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock, $.001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Par Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Total
|
|
|
|
Number of
|
|
|
|
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
Balance December 31, 2006
|
|
|
28,586,471
|
|
|
$
|
28,586
|
|
|
$
|
22,668,453
|
|
|
$
|
(18,266,258
|
)
|
|
$
|
4,430,781
|
|
Common stock issued in private placement
|
|
|
5,000,000
|
|
|
|
5,000
|
|
|
|
10,349,760
|
|
|
|
|
|
|
|
10,354,760
|
|
Common stock issued in SCA purchase
|
|
|
739,913
|
|
|
|
740
|
|
|
|
1,649,266
|
|
|
|
|
|
|
|
1,650,006
|
|
Common stock issued to directors as compensation
|
|
|
75,000
|
|
|
|
75
|
|
|
|
161,175
|
|
|
|
|
|
|
|
161,250
|
|
Modification of employee stock options
|
|
|
|
|
|
|
|
|
|
|
212,426
|
|
|
|
|
|
|
|
212,426
|
|
Issuance of restricted stock to employees
|
|
|
250,000
|
|
|
|
250
|
|
|
|
(250
|
)
|
|
|
|
|
|
|
|
|
Common stock issued upon exercise of warrants
|
|
|
300,000
|
|
|
|
300
|
|
|
|
449,700
|
|
|
|
|
|
|
|
450,000
|
|
Issuance of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
1,377,879
|
|
|
|
|
|
|
|
1,377,879
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,136,599
|
)
|
|
|
(14,136,599
|
)
|
Balance December 31, 2007
|
|
|
34,951,384
|
|
|
|
34,951
|
|
|
|
36,868,409
|
|
|
|
(32,402,857
|
)
|
|
|
4,500,503
|
|
Common stock issued in private placement
|
|
|
6,250,000
|
|
|
|
6,250
|
|
|
|
4,923,512
|
|
|
|
|
|
|
|
4,929,762
|
|
Common stock issued to directors as compensation
|
|
|
174,010
|
|
|
|
174
|
|
|
|
167,814
|
|
|
|
|
|
|
|
167,988
|
|
Return of restricted stock from employees in payment of withholding tax
|
|
|
(20,749
|
)
|
|
|
(21
|
)
|
|
|
(27,368
|
)
|
|
|
|
|
|
|
(27,389
|
)
|
Forfeiture of restricted stock
|
|
|
(75,000
|
)
|
|
|
(75
|
)
|
|
|
75
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
1,348,697
|
|
|
|
|
|
|
|
1,348,697
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,976,084
|
)
|
|
|
(8,976,084
|
)
|
|
|
|
Balance December 31, 2008
|
|
|
41,279,645
|
|
|
$
|
41,279
|
|
|
$
|
43,281,139
|
|
|
$
|
(41,378,941
|
)
|
|
$
|
1,943,477
|
|
|
|
|
See accompanying notes to audited consolidated financial statements.
F-6
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,976,084
|
)
|
|
$
|
(14,136,599
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
751,256
|
|
|
|
2,286,767
|
|
Stock-based compensation and consulting
|
|
|
1,516,686
|
|
|
|
1,772,031
|
|
Loss on impairment of property and equipment
|
|
|
88,922
|
|
|
|
|
|
Loss on impairment of intangible assets
|
|
|
380,711
|
|
|
|
|
|
Loss on the disposal of property and equipment
|
|
|
46,479
|
|
|
|
|
|
Provision for bad debt
|
|
|
46,748
|
|
|
|
(20,317
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
32,020
|
|
|
|
2,158,995
|
|
State tax receivable
|
|
|
(31,290
|
)
|
|
|
(578,372
|
)
|
Deferred compensation advances
|
|
|
|
|
|
|
213,252
|
|
Prepaid expenses
|
|
|
(10,477
|
)
|
|
|
(116,441
|
)
|
Other current assets
|
|
|
13,824
|
|
|
|
(8,269
|
)
|
Other assets
|
|
|
4,222
|
|
|
|
(55,943
|
)
|
Accounts payable
|
|
|
296,165
|
|
|
|
379,100
|
|
Accrued expenses
|
|
|
(734,392
|
)
|
|
|
(1,044,943
|
)
|
Due to related parties
|
|
|
(24,185
|
)
|
|
|
(67,751
|
)
|
Unearned commission advances
|
|
|
|
|
|
|
1,162,512
|
|
Deferred revenue
|
|
|
248,375
|
|
|
|
51,837
|
|
Income tax payable
|
|
|
(157,288
|
)
|
|
|
37,288
|
|
Liabilities of discontinued operations
|
|
|
(1,845,924
|
)
|
|
|
2,465,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(8,354,232
|
)
|
|
|
(5,500,884
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(533,661
|
)
|
|
|
(555,787
|
)
|
Proceeds from the sale of property and equipment
|
|
|
64,950
|
|
|
|
|
|
Purchase of intangible assets and capitalization of software development
|
|
|
(291,847
|
)
|
|
|
(1,331,233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(760,558
|
)
|
|
|
(1,887,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Capital leases obligations assumed
|
|
|
|
|
|
|
19,081
|
|
Gross proceeds from capital leases
|
|
|
282,271
|
|
|
|
41,875
|
|
Payments on capital leases
|
|
|
(42,409
|
)
|
|
|
(2,008
|
)
|
Gross proceeds from sales of common stock
|
|
|
5,000,000
|
|
|
|
11,250,000
|
|
Gross proceeds from exercise of warrants
|
|
|
|
|
|
|
450,000
|
|
Placement and other fees paid in connection with offering
|
|
|
(70,238
|
)
|
|
|
(895,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
5,169,624
|
|
|
|
10,863,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(3,945,166
|
)
|
|
|
3,475,804
|
|
|
Cash beginning of the year
|
|
|
5,787,585
|
|
|
|
2,311,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash end of the year
|
|
$
|
1,842,419
|
|
|
$
|
5,787,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash payments for income taxes
|
|
$
|
188,578
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Common stock issued for the purchase of SCA
|
|
$
|
|
|
|
$
|
1,650,006
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
F-7
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 1
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Health Benefits Direct Corporation (the Company, we, us or our) was incorporated under the
laws of the state of Nevada on October 21, 2004 as Darwin Resources Corp., (Darwin-NV). On
November 22, 2005, Darwin-NV merged with and into its newly-formed wholly-owned subsidiary, Darwin
Resources Corp., a Delaware corporation (Darwin-DE), solely for the purpose of changing the
Companys state of incorporation from Nevada to Delaware. On November 23, 2005, HBDC II, Inc., a
newly-formed wholly-owned subsidiary of Darwin-DE, was merged with and into Health Benefits Direct
Corporation, a privately-held Delaware corporation (HBDC), and the name of the resulting entity
was changed from Health Benefits Direct Corporation to HBDC II, Inc. Following the merger,
Darwin-DE changed its name to Health Benefits Direct Corporation.
HBDC was formed in January 2004 for the purpose of acquiring, owning and operating businesses
engaged in direct marketing and distribution of health and life insurance products, primarily
utilizing the Internet. On September 9, 2005, HBDC acquired three affiliated Internet health
insurance marketing companies, namely Platinum Partners, LLC, a Florida limited liability company,
Health Benefits Direct II, LLC, a Florida limited liability company, and Health Benefits Direct
III, LLC, a Florida limited liability company. HBDC issued 7,500,000 shares of its common stock and
a warrant to purchase 50,000 shares of its common stock, in the aggregate, in exchange for 100% of
the limited liability company interests of these companies.
The acquisition of HBDC by the Company was accounted for as a reverse merger because, on a
post-merger basis, the former HBDC shareholders held a majority of the outstanding common stock of
the Company on a voting and fully diluted basis. As a result, HBDC was deemed to be the acquirer
for accounting purposes. Accordingly, the consolidated financial statements presented for the
period ended December 31, 2005, are those of HBDC for all periods prior to the acquisition, and the
financial statements of the consolidated companies from the acquisition date forward. The
historical shareholders deficit of HBDC prior to the acquisition has been retroactively restated
(a recapitalization) for the equivalent number of shares received in the acquisition after giving
effect to any differences in the par value of the Company and HBDCs common stock, with an offset
to additional paid-in capital. The restated consolidated retained earnings of the accounting
acquirer, HBDC, are carried forward after the acquisition.
During the second quarter of 2009 Atiam Technologies LLC was renamed InsPro Technologies LLC
(InsPro Technologies). InsPro Technologies is a provider of comprehensive, web-based insurance
administration software applications. InsPro Technologies flagship software product is InsPro,
which was introduced in 2004. InsPro Technologies offers InsPro on a licensed and an ASP
(Application Service Provider) basis. InsPro is an insurance administration and marketing system
that supports group and individual business lines, and efficiently processes agent, direct market,
worksite and web site generated business. InsPro Technologies clients include insurance carriers
and third party administrators. InsPro Technologies realizes revenue from the sale of software
licenses, application service provider fees, software maintenance fees and consulting and
implementation services. We acquired InsPro Technologies on October 1, 2007.
Insurint is a proprietary, professional-grade, web-based agent portal that aggregates real-time
quotes and underwriting information from multiple highly-rated carriers of health and life
insurance and related products. We market Insurint using a Software as a Service (SaaS) model
instead of software licensing model, which offers easy web-based distribution and pay-as-you-go
pricing. We market primarily to insurance agents, agencies, and other organizations selling health
insurance products to families and individuals. Unlike existing health insurance quote engines,
Insurint also enables an agent to input responses to a set of questions about the health of
proposed insureds to place an insurance policy faster and more accurately. In addition, Insurint
offers a suite of sales tools that agents can use to increase their overall sales production.
F-8
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 1
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Basis of presentation
The consolidated financial statements are prepared in accordance with generally accepted accounting
principles in the United States of America (US GAAP). The consolidated financial statements of
the Company include the Company and its subsidiaries. All material inter-company balances and
transactions have been eliminated.
These financial statements have been restated to reflect discontinued operations. During the first
quarter of 2009 we ceased marketing and selling activities in Telesales and sold the majority of
our call center-produced agency business to eHealth Insurance Services, Inc. (eHealth).
Telesales specialized in the direct marketing of health and life insurance and related products to
individuals and families. Telesales receives commission and other fees from the insurance companies
on behalf of which it sells insurance products for the sale of such products. See Note 2 -
Discontinued Operations.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates. Significant estimates in 2008 and 2007 include the
allowance for doubtful accounts, stock-based compensation, the useful lives of property and
equipment and intangible assets, revenue recognition and deferred compensation advances to
employees.
Cash and cash equivalents
The Company considers all liquid debt instruments with original matuirities of 3 months or less to
be cash equivalents.
Restricted cash
The Company considers all cash and cash equivalents held in restricted accounts pertaining to the
Companys letters of credit as restricted cash.
Accounts receivable
The Company has a policy of establishing an allowance for uncollectible accounts based on its best
estimate of the amount of probable credit losses in its existing accounts receivable. The Company
periodically reviews its accounts receivable to determine whether an allowance is necessary based
on an analysis of past due accounts and other factors that may indicate that the realization of an
account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance
after all means of collection have been exhausted and the potential for recovery is considered
remote. At December 31, 2008, the Company has established, based on a review of its outstanding
balances, an allowance for doubtful accounts in the amount of $0.
Accounts receivable from the Companys largest InsPro Technologies client as measured by receivable
balance accounted for 54% and 35% of the Companys total accounts receivable balance at December
31, 2008 and 2007, respectively.
Fair value of financial instruments
The carrying amounts of financial instruments, including cash and cash equivalents, restricted
cash, accounts receivable, accounts payable, accrued expenses and capital leases approximated fair
value as of December 31, 2008 and December 31, 2007, because of the relatively short-term maturity
of these instruments and their market interest rates.
F-9
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 1
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property and equipment
Property and equipment are carried at cost. The cost of repairs and maintenance is expensed as
incurred; major replacements and improvements are capitalized. When assets are retired or disposed
of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. In
accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets the Company examines the possibility of decreases in
the value of fixed assets when events or changes in circumstances reflect the fact that their
recorded value may not be recoverable.
Intangible assets
Intangible assets consist of assets acquired in connection with the acquisition of InsPro
Technologies, costs incurred in connection with the development of the Companys software and the
purchase of internet domain names. See Note 3 InsPro Technologies Acquisition and Note 5
Intangible Assets.
The Companys discontinued operations capitalized certain costs valued in connection with
developing or obtaining internal use software in accordance with American Institute of Certified
Public Accountants Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. These costs, which consist of direct technology labor
costs, are capitalized and amortized using the straight-line method over expected useful lives.
Costs that the Company has incurred in connection with developing the Companys websites and
purchasing domain names are capitalized and amortized using the straight-line method over an
expected useful life.
Under the criteria set forth in SOP 98-1, Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use capitalization of software development costs begins upon the
establishment of technological feasibility of the software. The establishment of technological
feasibility and the ongoing assessment of the recoverability of these costs require considerable
judgment by management with respect to certain external factors, including, but not limited to,
anticipated future gross product revenues, estimated economic life, and changes in software and
hardware technology. Capitalized software development costs are amortized utilizing the
straight-line method over the estimated economic life of the software not to exceed three years. We
regularly review the carrying value of software development assets and a loss is recognized when
the unamortized costs are deemed unrecoverable based on the estimated cash flows to be generated
from the applicable software.
The Companys InsPro Technologies subsidiary capitalized certain costs valued in connection with
developing or obtaining software for external use in accordance with Statement of Financial
Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed.
These costs, which consist of direct technology labor costs, are
capitalized subsequent to the establishment of technological feasibility and until the product is
available for general release. Both prior and subsequent costs relating to the establishment of
technological feasibility are expensed as incurred. Development costs associated with product
enhancements that extend the original products life or significantly improve the original
products marketability are also capitalized once technological feasibility has been established.
Software development costs are amortized on a straight-line basis over the estimated useful lives
of the products not to exceed two years, beginning with the initial release to customers. The
Company continually evaluates whether events or circumstances have occurred that indicate the
remaining useful life of the capitalized software development costs should be revised or the
remaining balance of such assets may not be recoverable. The Company evaluates the recoverability
of capitalized software based on the net realizable value of its software products, as defined by
the estimated future revenue from the products less the estimated future costs of completing and
disposing of the products, compared to the unamortized capitalized costs of the products. As of
December 31, 2008, management believes no revisions to the remaining useful life or additional
write-downs of capitalized software development costs are required because the net realizable value
of its software products exceeds the unamortized capitalized costs. Managements estimates about
future revenue and costs associated with
F-10
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 1
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
its software products are subject to risks and uncertainties related to, among other things, market
and industry conditions, technological changes, and regulatory factors. A change in estimates
could result in an impairment charge related to capitalized software costs.
Impairment of long-lived assets
In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, the Company periodically reviews its long-lived
assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of the assets may not be fully recoverable. The Company recognizes an impairment
loss when the sum of expected undiscounted future cash flows is less than the carrying amount of
the asset. The amount of impairment is measured as the difference between the assets estimated
fair value and its book value.
Income taxes
The Company accounts for income taxes under the liability method in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes under this method, deferred
income tax assets and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
Loss per common share
In accordance with SFAS No. 128 Earnings Per Share, basic earnings per share is computed by
dividing net income by the weighted average number of shares of common stock outstanding during the
period. Diluted earnings per share is computed by dividing net income by the weighted average
number of shares of common stock, common stock equivalents and potentially dilutive securities
outstanding during each period. Diluted loss per common share is not presented because it is
anti-dilutive. The Companys common stock equivalents at December 31, 2008 include the following:
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Options
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4,291,200
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Warrants
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13,636,686
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17,927,886
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Revenue recognition
We follow the guidance of the Commissions Staff Accounting Bulletin 104 for revenue recognition.
In general, the Company records revenue when persuasive evidence of an arrangement exists, services
have been rendered or product delivery has occurred, the sales price to the customer is fixed or
determinable, and collectability is reasonably assured.
The Companys InsPro Technologies subsidiary offers InsPro on a licensed and an application service
provider (ASP) basis. An InsPro software license entitles the purchaser a perpetual license to a
copy of the InsPro software installed at a single client location. Alternatively, ASP hosting
service enables a client to lease the InsPro software, paying only for that capacity required to
support their business. ASP clients access InsPro installed on InsPro technologies owned servers
located at InsPro Technologies offices or at a third partys site.
F-11
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 1
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Software maintenance fees apply to both licensed and ASP clients. Maintenance fees cover periodic
updates to the application and the InsPro help desk.
Consulting and implementation services are generally associated with the implementation of an
InsPro instance for either an ASP or licensed client, and cover such activity as InsPro
installation, configuration, modification of InsPro functionality, client insurance plan set-up,
client insurance document design and system documentation.
The Company recognizes revenues in accordance with AICPA Statement of Position (SOP) 97-2,
Software Revenue Recognition
, as amended by SOP 98-9 (Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions). Revenue from software license agreements is
recognized when persuasive evidence of an agreement exists, delivery of the software has occurred,
the fee is fixed or determinable, and collectability is probable. The Company considers fees
relating to arrangements with payment terms extending beyond one year to not be fixed or
determinable and revenue for these arrangements is recognized as payments become due from the
customer. In software arrangements that include more than one InsPro module, the Company allocates
the total arrangement fee among the modules based on the relative fair value of each of the
modules.
License revenue allocated to software products generally is recognized upon delivery of the
products or deferred and recognized in future periods to the extent that an arrangement includes
one or more elements to be delivered at a future date and for which fair values have not been
established. Revenue allocated to maintenance agreements is recognized ratably over the
maintenance term and revenue allocated to training and other service elements is recognized as the
services are performed.
The unearned portion of InsPro Technologies revenue, which is revenue collected or billed but not
yet recognized as earned, has been included in the consolidated balance sheet as a liability for
deferred revenue.
Concentrations of credit risk
The Company maintains its cash and restricted cash in bank deposit accounts, which exceed the
federally insured limits of $250,000 per account as of December 31, 2008. At December 31, 2008,
the Company had approximately $1,209,000 in United States bank deposits, which exceeded federally
insured limits. Effective October 3, 2008 through December 31, 2009, federally insured limits have
been increased from $100,000 to $250,000 per account. The Company has not experienced any losses
in such accounts through December 31, 2008.
During the years ended December 31, 2008 and 2007, approximately 51% and 42% of the Companys
revenue was earned from each of the Companys largest InsPro clients.
Stock-based compensation
The Company follows the provisions of SFAS No. 123(R), Share-Based Payment, under the modified
prospective method. SFAS No. 123(R) requires stock based compensation transactions be accounted for
using a fair-value-based method. Under the modified prospective method, the Company is 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.
F-12
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 1
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Non-employee stock based compensation
The cost of stock based compensation awards issued to non-employees for services are recorded at
either the fair value of the services rendered or the instruments issued in exchange for such
services, whichever is more readily determinable, using the measurement date guidelines enumerated
in Emerging Issues Task Force Issue (EITF) Issue No. 96-18, Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services (EITF 96-18).
Registration rights agreements
The Company has adopted View C of EITF 05-4 The Effect of a Liquidated Damages Clause on a
Freestanding Financial Instrument Subject to EITF Issue No. 00-19 Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled In, a Companys Own Stock (EITF 05-4).
Accordingly, the Company classifies as liability instruments the fair value of registration rights
agreements when such agreements (i) require it to file, and cause to be declared effective under
the Securities Act, a registration statement with the Commission within contractually fixed time
periods, and (ii) provide for the payment of liquidating damages in the event of its failure to
comply with such agreements. Under View C of EITF 05-4, (i) registration rights with these
characteristics are accounted for as derivative financial instruments at fair value and (ii)
contracts that are (a) indexed to and potentially settled in an issuers own stock and (b) permit
gross physical or net share settlement with no net cash settlement alternative are classified as
equity instruments.
At December 31, 2008, the Company does not believe that it is probable that the Company will incur
a penalty in connection with the registration rights agreement, which we entered into on March 31,
2008 in connection with the 2008 private placement. Accordingly, no liability was recorded as of
December 31, 2008.
Recent accounting pronouncements
The Company adopted the provisions of FASB Interpretation No. 48 Accounting for Uncertainty in
Income Taxes on January 1, 2007. The adoption did not result in the recording of a liability for
unrecognized tax benefits. The Company or one or more of its subsidiaries files income tax returns
in the U.S. federal jurisdiction and various states and local jurisdictions. While the Companys
past tax returns are not currently under examination, generally all past returns are subject to
examination by the relevant taxing authorities. The Company has not recorded any liability for
uncertain tax positions since management believes the tax return position taken reflects the most
likely outcome upon audit and that any audit adjustment would not result in any additional tax
liability as a result of the Companys material tax losses.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS No. 159), which provides companies with an option to report selected
financial assets and liabilities at fair value. SFAS No. 159 also establishes presentation and
disclosure requirements designed to facilitate comparisons between companies that choose different
measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective as of
the beginning of an entitys first fiscal year beginning after November 15, 2007. The Company
believes that the adoption of SFAS No. 159 will not have a material effect on the Companys
financial statements.
F-13
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 1
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In December 2007 FASB issued FAS 141(R) Business Combinations (FAS 141 (R)) and FAS 160
Noncontrolling Interests in Consolidated Financial Statements (FAS 160). These statements are
effective for fiscal years, and interim periods within those fiscal years in case of FAS 160,
beginning on or after December 15, 2008. Earlier adoption is prohibited. Together these
statements revise the accounting rules with respect to accounting for business combinations.
Specifically, the objective of FAS 141(R) is to improve the relevance, representational
faithfulness and comparability of the information that the reporting entity provides in its
financial reports about a business combination and its effects. This statement thus establishes
principles and requirements for how the acquirer:
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Recognizes and measures in its financial statements the identifiable assets acquired,
the liabilities assumed, and any noncontrolling interest in the acquiree;
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Recognizes and measures the goodwill acquired in the business combination or a gain from
a bargain purchase; and
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Determines what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination.
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The objective of FAS 160 is to improve the relevance, comparability, and transparency of the
financial information that a reporting entity provides in its consolidated financial statements by
establishing accounting and reporting standards that require:
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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 parents equity.
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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.
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Changes in a parents ownership interest while the parent retains its controlling
financial interest in its subsidiary be accounted for consistently. A parents 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.
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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.
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Entities provide sufficient disclosures that clearly identify and distinguish between
the interests of the parent and the interests of the noncontrolling owners.
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Together these statements are not currently expected to have a significant impact on the Companys
consolidated financial statements. A significant impact may however be realized on any future
acquisition(s) by the Company. The amounts of such impact cannot be currently determined and will
depend on the nature and terms of such future acquisition(s), if any.
In March 2008, the FASB issued FASB No. 161, Disclosures about Derivative Instruments and Hedging
Activities, which amends and expands the disclosure requirements of FASB No. 133, Accounting for
Derivative Instruments and Hedging Activities, with the intent to provide users of financial
statements with an enhanced understanding of; how and why an entity sues derivative instruments,
F-14
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 1
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
how the derivative instruments and the related hedged items are accounted for and how the related
hedged items affect an entitys financial position, performance and cash flows. This statement is
effective for financial statements for fiscal years and interim periods beginning after November
15, 2008. Management believes this statement has no impact on the consolidated financial
statements of the Company.
In May 2008, the FASB issued SFAS 162,
The Hierarchy of Generally Accepted Accounting Principles
(SFAS 162)
. SFAS 162 identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with GAAP in the United States. Any effect of applying
the provisions of SFAS 162 shall be reported as a change in accounting principle in accordance with
SFAS 154,
Accounting Changes and Error Corrections
. SFAS 162 is effective 60 days following
approval by the Securities and Exchange Commission of the Public Company Accounting Oversight Board
amendments to AU Section 411,
The Meaning of Present Fairly in Conformity with Generally Accepted
Accounting Principles.
Management does not anticipate that the adoption of SFAS 162 will have a
material impact on the Companys consolidated financial statements.
In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities (FSP 03-6-1), which
addresses whether instruments granted in share-based payment transactions are participating
securities prior to vesting and, therefore, need to be included in earnings allocation in computing
earnings per share under the two-class method. The statement is effective for financial statements
issued for fiscal years beginning after December 15, 2008 and retrospective application is required
for all periods presented. Management believes FSP 03-6-1 has no impact on the consolidated
financial statements of the Company.
On September 12, 2008, the FASB issued FSP FAS 133-1 and FIN 45-4,
Disclosures about Credit
Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation
No. 45; and Clarification of the Effective Date of FASB Statement No. 161
(FSP FAS 133-1 and FIN
45-4). FSP FAS 133-1 and FIN 45-4 (1) amends Statement of Financial Accounting Standards (SFAS)
No. 133,
Accounting for Derivative Instruments and Hedging Activities
(SFAS 133), to require
disclosures by sellers of credit derivatives, including credit derivatives embedded in a hybrid
instrument; (2) amends FASB Interpretation No. 45,
Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others
, to require an
additional disclosure about the current status of the payment/performance risk of a guarantee and
(3) clarifies the FASBs intent about the effective date of SFAS No. 161,
Disclosures about
Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133
(SFAS
161). FSP FAS 133-1 and FIN 45-4 is effective for reporting periods ending after November 15,
2008. Management believes FSP FAS 133-1 and FIN 45-4 have no impact on the consolidated financial
statements of the Company.
In October 2008 the FASB issued FASB Staff Position SFAS No. 157-3, Determining the Fair Value of
a Financial Asset When the Market for That Asset Is Not Active (FSP). This FSP clarifies the
application of SFAS No. 157 in an inactive market and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the market for that
financial asset is not active. This FSP was effective October 10, 2008 and must be applied to prior
periods for which financial statements have not been issued. The application of this FSP did not
have a material impact to our consolidated financial statements.
On December 11, 2008, the FASB issued FSP FAS 140-4 and FASB Interpretation (FIN) 46(R)-8,
Disclosures about Transfers of Financial Assets and Interests in Variable Interest Entities
(FSP
FAS 140-4 and FIN 46(R)-8). This FSP requires additional disclosures by public entities with
continuing involvement in transfers of financial assets to special purpose entities and with
variable interests in VIEs. FSP FAS 140-4 and FIN 46(R)-8 was effective for reporting periods
ending after December 15, 2008. Management believes FSP FAS 140-4 and FIN 46(R)-8 have no material
impact on the consolidated financial statements of the Company.
F-15
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 1
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
On January 12, 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
(FSP) Emerging Issues Task Force (EITF) 99-20-1
, Amendments to the Impairment Guidance of EITF
Issue No. 99-20
(FSP EITF 99-20-1). This FSP amends EITF Issue No. 99-20,
Recognition of Interest
Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to
Be Held by a Transferor in Securitized Financial Assets,
by eliminating the requirement that a
holders best estimate of cash flows be based upon those that a market participant would use.
Instead, FSP EITF 99-20-1 eliminates the use of market participant assumptions and requires the use
of managements judgment in the determination of whether it is probable there has been an adverse
change in estimated cash flow. This FSP was effective for reporting periods ending after December
15, 2008. Management believes FSP EITF 99-20-1 has no material impact on the consolidated financial
statements of the Company.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting
bodies that do not require adoption until a future date are not expected to have a material impact
on the consolidated financial statements upon adoption.
NOTE 2
DISCONTINUED OPERATIONS
During the first quarter of 2009, the Company ceased the direct marketing and sale of health and
life insurance and related products to individuals and families in its Telesales call center. The
Company also determined to discontinue selling health and life insurance and related products to
individuals and families through its non employee ISG agents. During the first quarter of 2009 the
Companys Telesales business eliminated 43 positions including all of its licensed employee sales
agents along with other Telesales service and support personnel and eliminated another 20 positions
in Telesales through attrition.
On February 20, 2009 (the Closing Date), the Company entered into and completed the sale of the
Companys Telesales call center produced agency business (the Agency Business) to eHealth, an
unaffiliated third party, pursuant to the terms of a Client Transition Agreement (the Agreement).
Pursuant to the Agreement the Company transferred to eHealth the broker of record status and the
right to receive commissions on certain of the in-force individual and family major medial health
insurance policies and ancillary dental, life and vision insurance policies issued by Aetna, Inc.,
Golden Rule, Humana, PacifiCare, Inc., Assurant and United Healthcare Insurance Co. (collectively,
the Specified Carriers) on which the Company was designated as broker of record as of the Closing
Date (collectively, the Transferred Policies and each, a Transferred Policy). Certain policies
and products were excluded from the transaction, including the Companys agency business generated
through its ISG agents, all short term medical products and all business produced through carriers
other than the Specified Carriers. In addition, the Agreement also provides for the transfer to
eHealth of certain lead information relating to health insurance prospects (the Lead Database).
The aggregate initial amount of consideration paid by eHealth to the Company pursuant to the
Agreement during the first quarter of 2009 was approximately $1,280,000, which was recognized in
2009. In addition, on the Closing Date, eHealth agreed to assume from the Company certain
liabilities relating to historical commission advances on the Transferred Policies made by the
Specified Carriers in an aggregate amount of approximately $1,385,000, which was recognized in
2009. In addition, eHealth has agreed to pay to HBDC II, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Company (HBDC II) a portion of each commission payment received by
eHealth and reported by the Specified Carrier relating to a Transferred Policy for the duration of
the policy, provided that eHealth remains broker of record on such Transferred Policy. See Note 12
Subsequent Events.
Simultaneous with the execution of the Agreement, the Company and eHealth also entered into a
Marketing and Referral Agreement, dated as of February 20, 2009 (the Referral Agreement).
Pursuant to the terms of the Referral Agreement, eHealth agreed to construct one or more websites
for the purpose of selling health insurance products (the Referral Sites) and to pay to HBDC II a
portion of all first year and renewal commissions received by eHealth from policies sold through
the Referral Sites that result from
F-16
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 2
DISCONTINUED OPERATIONS (continued)
marketing to prospects using the Lead Database or other leads delivered by the Company to eHealth.
The Referral Agreement is scheduled to terminate 18 months following the Closing Date and is
terminable by the Company or eHealth upon material breach by the other party.
Concentrations of credit risk
During the years ended December 31, 2008 and 2007, approximately 47% and 53% of the Companys
revenue from discontinued operations was earned from the Companys largest insurance carrier,
respectively. See Note 12 Subsequent Events.
Revenue Recognition for Discontinued Operations
Our Telesales business generates revenue primarily from the receipt of commissions paid to the
Company by insurance companies based upon the insurance policies sold to consumers by the Company.
These revenues are in the form of first year, bonus and renewal commissions that vary by company
and product. We recognize commission revenue primarily from the sale of health insurance, after we
receive notice that the insurance company has received payment of the related premium. First year
commission revenues per policy can fluctuate due to changing premiums, commission rates, and types
or amount of insurance sold. Insurance premium commission revenues are recognized pro-rata over
the terms of the policies. Revenues for renewal commissions are recognized after we receive notice
that the insurance company has received payment for a renewal premium. Renewal commission rates are
significantly less than first year commission rates and may not be offered by every insurance
company or with respect to certain types of products. The unearned portion of premium commissions
has been included in the consolidated balance sheet as a liability for unearned commission
advances.
The length of time between when we submit a consumers application for insurance to an insurance
company and when we recognize revenue varies. The type of insurance product, the insurance
companys premium billing and collection process, and the insurance companys underwriting backlog
are the primary factors that impact the length of time between submitted applications and revenue
recognition. Any changes in the amount of time between submitted application and revenue
recognition, which are influenced by many factors not under our control, create fluctuations in our
operating results and could affect our business, operating results and financial condition.
The Company received bonuses based upon individual criteria set by insurance companies, which we
recognize when we receive notification from the insurance company of the bonus due to us.
The Company receives fees for the placement and issuance of insurance policies that are in addition
to, and separate from, any sales commissions paid by insurance companies. As these policy fees are
not refundable and the Company has no continuing obligation, all such revenues are recognized on
the effective date of the policies or, in certain cases, the billing date, whichever is later.
During the first quarter of 2009 the Company recognized a gain upon the execution of the Agreement
of $2,664,794, which is the sum of the aggregate initial amount of consideration paid by eHealth to
the Company and eHealths assumption of certain liabilities relating to historical commission
advances on the Transferred Policies.
The Company recognizes as revenue commission payments received from eHealth in connection with the
Agreement upon the Companys notification by eHealth of such amounts.
The Company generated revenue from the sale of leads to third parties. Such revenues are recognized
when the Company delivers the leads and bills the purchaser of the leads.
F-17
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 2
DISCONTINUED OPERATIONS (continued)
The Company also generates revenue from the sub-lease of our leased New York City office and a
portion of our leased Deerfield Beach Florida office, which are both leased under operating leases.
The terms of the Companys sub-lease of our New York City office is under similar terms as our
lease. The Company sub-leases portions of our Deerfield Beach office to two unaffiliated parties
through January 31, 2010. Sub-lease revenue includes base rent, additional rent representing a
portion of occupancy expenses under the terms of the sub-leases and certain technology and facility
services provided. We recognize sub-lease revenue when lease rent payments are due in accordance
with the sub-lease agreements in accordance with SFAS No. 13 Accounting for Leases. Recognition
of sub-lease revenue commences when control of the facility has been given to the tenant. We record
a provision for losses on accounts receivable equal to the estimated uncollectible amounts. This
estimate is based on our historical experience and a review of the current status of the Companys
receivables.
ISG Acquisition
On April 3, 2006, the Company entered into a merger agreement (the ISG Merger Agreement) with ISG
Merger Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the Company
(Merger Sub), ISG, and Ivan M. Spinner pursuant to which, among other things, Merger Sub merged
with and into ISG (the ISG Merger). As consideration for the ISG Merger, the Company made a cash
payment of $920,000 and issued 1,000,000 shares of its common stock to Mr. Spinner, the sole
shareholder of ISG, in exchange for all of the outstanding stock of ISG. The ISG merger was
completed on April 4, 2006.
The Company accounted for the acquisition of ISG using the purchase method of accounting in
accordance with Statement of Financial Accounting Standards No. 141 Business Combinations. The
Companys purchase price for ISG in the aggregate was $5,154,329 and consisted of the following:
|
|
|
|
|
Cash payment to seller
|
|
$
|
1,135,000
|
|
Fair value of common stock issued to seller
|
|
|
3,310,806
|
|
Discounted value of future fixed payments of employment agreement
|
|
|
225,212
|
|
Fair value of stock option issued to seller
|
|
|
425,381
|
|
Estimated direct transaction fees and expenses
|
|
|
57,930
|
|
|
|
|
|
|
|
|
|
|
Estimated purchase price
|
|
$
|
5,154,329
|
|
|
|
|
|
The following table summarizes the estimated fair values of ISGs assets acquired and liabilities
assumed at the date of acquisition.
|
|
|
|
|
Cash
|
|
$
|
111,024
|
|
Accounts receivable
|
|
|
210,889
|
|
Deferred compensation advances
|
|
|
256,775
|
|
Prepaid expenses and other assets
|
|
|
957
|
|
Property and equipment, net
|
|
|
600
|
|
Intangible assets
|
|
|
4,964,330
|
|
Accrued expenses
|
|
|
(164,549
|
)
|
Unearned commission advances
|
|
|
(225,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,154,329
|
|
|
|
|
|
F-18
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 2
DISCONTINUED OPERATIONS (continued)
Intangible assets acquired from ISG were assigned the following values: 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 an employment and non-compete agreement acquired with an assigned value of
$800,593 amortized straight line over the contractual period, which is a weighted average expected
useful life of 3.1 years. Intangible assets acquired from ISG had the following unamortized values
as of December 31, 2008: value of purchased commission override revenue of $227,779 and value of
acquired carrier contracts and agent relationships of $1,032,294. As a result of Ivan Spinners
termination of employment the Company has determined the value of an employment and non-compete
agreement acquired pertaining to Mr. Spinner impaired as of December 31, 2008 and recorded an
impairment charge of $85,078 in depreciation and amortization expense.
See Note 12 Subsequent Events.
Effective June 30, 2007, the Company executed a software license agreement with InsPro
Technologies, which granted the Company a non-exclusive perpetual and irrevocable license to use
certain modules of InsPro Technologies policy insurance software, InsPro, for internal use in
discontinued operations. As of March 31, 2008, we determined that the portion of license fee paid
for the commission module, together with capitalized costs incurred to implement the commission
module, was impaired as a result of the absence of definitive plans to implement this module for
internal use in Telesales. The Company recorded a $295,633 expense in the 2008 to write-off the
value of this asset.
During the first quarter of 2008, the Company closed its sales office located in New York. As of
March 31, 2008, the Company determined that all furniture and lease-hold improvements located at
the New York sales office were impaired as a result of the office closure. The Company recorded
$88,922 expense to write-down the value of these assets to their net realizable value. During the
third quarter of 2008 the Company sold all furniture and equipment located at the New York office
and realized a loss of $92,374.
As a result of termination of Ivan Spinners employment the Company has determined the value of an
employment and non-compete agreement acquired pertaining to Mr. Spinner impaired as of December 31,
2008 and recorded an impairment charge of $85,078.
See Note 12 Subsequent Events.
The Company recorded a liability for severance payments due to employees of discontinued operations
of $266,740 at December 31, 2008.
Unearned Commission Advances
The Company has agreements with certain of its insurance carriers whereby the Companys 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 Companys operations. 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.
The Companys advance agreement with Golden Rule Insurance Company (Golden Rule) 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 Companys outstanding advance balance (including interest, if any) can be called
by Golden Rule with seven days written notice. The Companys advance agreement with Golden Rule
expired on December 31, 2008 and thereafter Golden Rule will no longer advance first year premium
commissions to the
F-19
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 2
DISCONTINUED OPERATIONS (continued)
Company. As of December 31, 2008 the Companys outstanding advance balance with Golden Rule was
$2,317,003. Subsequent to December 31, 2008 in connection with the Companys execution of a client
transition agreement with eHealthInsurance Services, Inc. (eHealth), eHealth paid Golden Rule
$966,097, which represented a partial repayment of the Companys outstanding advance balance owed
to Golden Rule, from amounts that otherwise would have been due the Company from eHealth. In
addition eHealth assumed approximately $794,000 of the Companys outstanding advance balance with
Golden Rule as of the date of the eHealth transaction.
The Companys advance agreement with Humana, Inc. (Humana) 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 December 31, 2008 the Companys
outstanding advance balance with Humana was $353,808. Subsequent to December 31, 2008 in
connection with the eHealth transaction eHealth assumed $370,794 of the Companys outstanding
advance balance with Humana as of the date of the eHealth transaction. Effective January 31, 2009
Humana notified the Company that it will no longer advance first year premium commissions and
charged back to the Company the remaining unearned commission advance as of January 31, 2009.
As of December 31, 2008 the Companys outstanding advance balance with Time Insurance Company
(marketed under the name Assurant Health) (Assurant) was $236,064. Subsequent to December 31,
2008 in connection with the eHealth transactions eHealth assumed approximately $220,000 of the
Companys outstanding advance balance with Assurant as of the date of the eHealth transactions.
See Note 12 Subsequent Events.
The financial position of discontinued operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
Accounts receivable, less allowance for doubtful accounts $2,173 and $59,106
|
|
$
|
(457,994
|
)
|
|
$
|
(1,179,371
|
)
|
Deferred compensation advances
|
|
|
(36,186
|
)
|
|
|
(578,372
|
)
|
Prepaid expenses
|
|
|
(51,029
|
)
|
|
|
(65,761
|
)
|
Other current assets
|
|
|
|
|
|
|
|
|
Property and equipment, net of accumulated depreciation of $1,300,155 and $909,430
|
|
|
(434,067
|
)
|
|
|
(1,067,026
|
)
|
Intangibles, net of accumulated amortization of $3,858,592 and $2,654,662
|
|
|
(1,286,946
|
)
|
|
|
(2,470,876
|
)
|
Other assets
|
|
|
(70,033
|
)
|
|
|
(51,041
|
)
|
Accounts payable
|
|
|
179,623
|
|
|
|
1,046,100
|
|
Accrued expenses
|
|
|
1,333,693
|
|
|
|
|
|
Sub-tenant security deposit
|
|
|
39,093
|
|
|
|
|
|
Unearned commission advances
|
|
|
3,022,161
|
|
|
|
8,450,586
|
|
|
|
|
|
|
|
|
Net current liabilities of discontinued operations
|
|
$
|
2,238,315
|
|
|
$
|
4,084,239
|
|
|
|
|
|
|
|
|
F-20
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 2
DISCONTINUED OPERATIONS (continued)
The results of discontinued operations do not include any allocated or common overhead expenses
except for a portion of expenses pertaining to our Florida office. The results of operations of
discontinued operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Commission and other revenue from carriers
|
|
$
|
17,583,578
|
|
|
$
|
18,708,832
|
|
Lead sale revenue
|
|
|
408,120
|
|
|
|
859,890
|
|
Sub-lease revenue
|
|
|
460,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,452,338
|
|
|
|
19,568,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Salaries, commission and related taxes
|
|
|
10,090,638
|
|
|
|
12,567,206
|
|
Lead, advertising and other marketing
|
|
|
4,357,986
|
|
|
|
8,478,643
|
|
Depreciation and amortization
|
|
|
1,550,613
|
|
|
|
1,959,629
|
|
Rent, utilities, telephone and communications
|
|
|
2,861,505
|
|
|
|
2,380,826
|
|
Professional fees
|
|
|
541,430
|
|
|
|
544,444
|
|
Loss on impairment of property and equipment
|
|
|
88,922
|
|
|
|
|
|
Loss on impairment of intangible assets
|
|
|
380,711
|
|
|
|
125,000
|
|
Other general and administrative
|
|
|
636,180
|
|
|
|
1,245,149
|
|
(Gain) on disposal of property and equipment
|
|
|
46,479
|
|
|
|
2,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,554,464
|
|
|
|
27,303,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from discontinued operations
|
|
$
|
(2,102,126
|
)
|
|
$
|
(7,734,767
|
)
|
|
|
|
|
|
|
|
NOTE 3
ACQUISITION OF INSPRO TECHNOLOGIES
On October 1, 2007, HBDC Acquisition, LLC (HBDC Sub), a Delaware limited liability company and
wholly-owned subsidiary of the Company, entered into an Agreement to Transfer Partnership Interests
(the Bilenia Agreement) with the former partners (the Bilenia Partners) of BileniaTech, L.P., a
Delaware limited partnership (Bilenia), whereby HBDC Sub purchased all of the outstanding general
and limited partnership interests of Atiam Technologies, L.P., a Delaware limited partnership,
owned by the Bilenia Partners. Bilenia owned approximately 40% of Atiam Technologies, L.P. The
execution of the Bilenia Agreement and the transfer of the Atiam partnership interests to HBDC Sub
there under were conditions precedent to the closing of the Merger Agreement (as defined below) on
October 1, 2007 (the Closing Date).
F-21
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 3
ACQUISITION OF INSPRO TECHNOLOGIES (continued)
The aggregate amount paid by HBDC Sub to the Bilenia Partners for the Atiam partnership interests
under the Bilenia Agreement was $1,000,000, consisting of $500,000 in cash and 224,216 shares of
the Companys common stock, which shares had an aggregate value of $500,000 based on the average
closing price per share ($2.23) of Company Common Stock on The Over the Counter Bulletin Board
(OTCBB) on the five consecutive trading days preceding the Closing Date.
On September 21, 2007, the Company entered into an Agreement and Plan of Merger (the Atiam Merger
Agreement) by and among the Company, HBDC, System Consulting Associates, Inc., a Pennsylvania
corporation (SCA), and the shareholders of SCA party thereto (the Shareholders). SCA owned
approximately 60% of Atiam Technologies, L.P. The Company and SCA closed on the Merger on October
1, 2007.
The Atiam Merger Agreement provided for a business combination whereby SCA would be merged with and
into HBDC Sub, with HBDC Sub continuing as the surviving corporation and as a wholly-owned
subsidiary of the Company (the Atiam Merger). The aggregate amount paid by the Company with
respect to all outstanding shares of capital stock of SCA (such amount, the Atiam Merger
Consideration) was $2,000,000, consisting of (a) $850,000 in cash and (b) 515,697 unregistered
shares of the Companys common stock, which number of shares had a value of $1,150,000 based on the
average closing price per share ($2.23) of Common Stock on OTCBB on the five consecutive trading
days preceding the closing date. Upon the effectiveness of the Atiam Merger, each share of SCA
Common Stock issued and outstanding immediately prior to the closing date was converted into the
right to receive a pro rata portion of the Atiam Merger Consideration. The Company placed
certificates representing 134,529 shares, or an amount equal to $300,000, of the Companys common
stock that otherwise would be payable to the Shareholders as Atiam Merger Consideration into an
escrow account, which shares will be held in escrow for a period of one year to satisfy any
indemnification claims by the Company or HBDC Sub under the Atiam Merger Agreement.
Through October 1, 2007, SCA operated through Atiam Technologies, L.P. Subsequent to October 1,
2007, SCA was merged into HBDC Sub, which was subsequently renamed Atiam Technologies LLC in 2007
and subsequently renamed InsPro Technologies LLC in 2009 and operates as the Companys InsPro
Technologies business. The results of InsPro Technologies have been included in the Companys
statement of operations as of October 1, 2007. InsPro Technologies is a provider of comprehensive,
web-based insurance administration software applications that support individual insurance
products.
The Company accounted for the acquisition of InsPro Technologies using the purchase method of
accounting in accordance with Statement of Financial Accounting Standards No. 141 Business
Combinations. Our calculation for the consideration paid for InsPro Technologies in connection
with the Bilenia Agreement and the Atiam Merger Agreement in the aggregate was $3,080,744 and
consisted of the following:
|
|
|
|
|
Cash payments to sellers
|
|
$
|
1,350,000
|
|
Fair value of common stock issued to sellers
|
|
|
1,650,006
|
|
Estimated direct transaction fees and expenses
|
|
|
80,738
|
|
|
|
|
|
Estimated purchase price
|
|
$
|
3,080,744
|
|
|
|
|
|
F-22
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 3
ACQUISITION OF INSPRO TECHNOLOGIES (continued)
We estimated the fair values of InsPro Technologies assets acquired and liabilities assumed at the
date of acquisition as follows:
|
|
|
|
|
Cash
|
|
$
|
608,534
|
|
Accounts receivable
|
|
|
643,017
|
|
Prepaid expenses & other assets
|
|
|
22,623
|
|
Property and equipment, net
|
|
|
158,819
|
|
Other assets
|
|
|
3,401
|
|
Intangible assets
|
|
|
2,097,672
|
|
Accounts 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
|
|
|
|
|
|
Intangible assets acquired from InsPro Technologies were assigned the following values: value of
client contracts and relationships other than license with an assigned value of $1,089,223
amortized straight line over five years; value of purchased software for sale and licensing value
with an assigned value of $644,449 amortized straight line over five years; and employment and
non-compete agreements acquired with an assigned value of $364,000 amortized straight line over
three years. Intangible assets acquired from InsPro Technologies had the following unamortized
values as of December 31, 2008: value of client contracts and relationships other than licensing of
$816,916; value of purchased software for sale and licensing value of $483,337; and employment and
non-compete agreements acquired of $212,319.
The following table summarizes the required disclosures of the pro forma combined entity, as if the
acquisition of InsPro Technologies occurred at January 1, 2007.
|
|
|
|
|
|
|
For the Year
|
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
Revenues, net
|
|
$
|
23,710,061
|
|
Net loss
|
|
|
(14,042,239
|
)
|
Net loss per common share basic and diluted
|
|
$
|
(0.42
|
)
|
In connection with the InsPro Technologies acquisition, InsPro Technologies entered into three-year
employment agreements with four key employees of InsPro Technologies effective October 1, 2007.
These employment agreements provide that these four key employees will be compensated at an
aggregate annual base salary of $700,000 with bonus compensation at the discretion of the Companys
board. These agreements may be terminated by the Company for cause (as such term is defined in
the agreements) and without cause upon 30 days notice. These agreements may be terminated by the
Company without cause, in which case the terminated employee will be entitled to their base
salary for a period ranging from six to twelve months. These agreements also contain
non-competition and non-solicitation provisions for the duration of the agreements plus a period
ranging from six to twelve months after termination of employment.
F-23
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 4
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
At December 31,
|
|
|
At December 31,
|
|
|
|
(Years)
|
|
|
2008
|
|
|
2007
|
|
Computer equipment and software
|
|
|
3
|
|
|
$
|
657,205
|
|
|
$
|
218,448
|
|
Office equipment
|
|
|
4.6
|
|
|
|
11,998
|
|
|
|
39,834
|
|
Office furniture and fixtures
|
|
|
6.7
|
|
|
|
294,029
|
|
|
|
293,785
|
|
Leasehold improvements
|
|
|
9.8
|
|
|
|
34,033
|
|
|
|
179,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
997,265
|
|
|
|
731,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
(267,384
|
)
|
|
|
(206,132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
729,881
|
|
|
$
|
525,454
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2008 and 2007, depreciation expense was $307,696 and $98,452,
respectively.
NOTE 5
INTANGIBLE ASSETS
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
At December 31,
|
|
|
At December 31,
|
|
|
|
(Years)
|
|
|
2008
|
|
|
2007
|
|
Atiam intangible assets acquired
|
|
|
4.7
|
|
|
$
|
2,097,672
|
|
|
$
|
2,097,670
|
|
Software development costs for internal use
|
|
|
2.6
|
|
|
|
660,680
|
|
|
|
981,523
|
|
Software development costs for external marketing
|
|
|
2
|
|
|
|
174,296
|
|
|
|
|
|
Internet domain (www.healthbenefitsdirect.com)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,932,648
|
|
|
|
3,079,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated amortization
|
|
|
|
|
|
|
(1,021,187
|
)
|
|
|
(454,109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,911,461
|
|
|
$
|
2,625,084
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2008 and 2007, amortization expense was $709,836 and $228,686
respectively.
F-24
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 5
INTANGIBLE ASSETS (Continued)
Amortization expense subsequent to the period ended December 31, 2008 is as follows:
|
|
|
|
|
2009
|
|
$
|
778,415
|
|
2010
|
|
|
526,263
|
|
2011
|
|
|
346,734
|
|
2012
|
|
|
260,050
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,911,461
|
|
|
|
|
|
NOTE 6
RELATED PARTY TRANSACTIONS
On March 30, 2007, the Companys Co-Chairman and former CEO, Alvin H. Clemens, participated in a
private placement along with other accredited and institutional investors wherein he purchased
1,000,000 shares of the Companys Common Stock and a warrant to purchase 500,000 shares of the
Companys Common Stock for a total purchase price of $2,225,000.
On March 30, 2007, Co-Investment Trust II, L.P., designee of Cross Atlantic Capital Partners, Inc.;
participated in a private placement along with other accredited and institutional investors wherein
it purchased 5.0 million investment units for a purchase price of $5,000,000. Mr. Tecce, who is
one of our directors effective August 2, 2007, is a managing director and counsel to Cross Atlantic
Capital Partners, Inc. Mr. Caldwell, who is also one of our directors effective April 1, 2008, is
a shareholder, director and officer of Co-Invest II Capital Partners, Inc., which is the general
partner of Co-Invest Management II, L.P., which is the general partner of The Co-Investment Fund
II, L.P and is the Chairman and Chief Executive Officer of Cross Atlantic Capital Partners, Inc.
On March 31, 2008, Co-Investment Trust II, L.P., designee of Cross Atlantic Capital Partners, Inc.
participated in a private placement along with other accredited and institutional investors wherein
it purchased 5.0 million investment units for a purchase price of $4,000,000.
See Note 7 Shareholders Equity.
As of December 31, 2007, the Company recorded $28,500 due to related parties, which consisted of
the following:
|
|
|
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.
|
As of December 31, 2008, the Company recorded $4,315 due to related parties, which consisted of
director travel expense
reimbursement to Cross Atlantic Capital Partners for Messrs. Caldwell and Tecces travel expense to
board of director meetings.
F-25
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 7
SHAREHOLDERS EQUITY
Common Stock
2007
On February 15, 2007, the Company granted 125,000 restricted shares of Common Stock to each of
Charles A. Eissa, the Companys President, and Ivan M. Spinner, the Companys former Senior Vice
President, in accordance with the terms of the Plan. The shares granted to Messrs. Eissa and
Spinner were valued at $3.00 per share and 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.
On March 30, 2007, the Company entered into Securities Purchase Agreements (Purchase Agreements)
and completed a private placement with certain institutional and individual accredited investors
and issued 5,000,000 shares of its Common Stock and warrants to purchase 2,500,000 shares of its
Common Stock. Pursuant to the Purchase Agreements, the Company sold investment units (each, a
2007 Unit) in the 2007 Private Placement at a per unit purchase price equal to $2.25. Each 2007
Unit sold in the 2007 Private Placement consisted of one share of Common Stock and a Warrant to
purchase one-half (1/2) of one share of Common Stock at an initial exercise price of $3.00 per
share, subject to adjustment. The gross proceeds from the 2007 Private Placement were $11,250,000.
Alvin H. Clemens purchased 1,000,000 2007 Units in the 2007 Private Placement.
In connection with the 2007 Private Placement, the Company paid the placement agents an aggregate
placement fee equal of $787,500 plus the reimbursement of certain expenses in the amount of
$42,500. The Company also issued to the placement agents warrants (the Placement Agent Warrants)
to purchase in the aggregate 350,000 shares of the Companys Common Stock with an exercise price of
$2.80 and exercisable from September 30, 2007 through March 30, 2010. The Company also incurred
legal and other expenses in the amount of $65,240 in connection with the 2007 Private Placement.
The Purchase Agreements also provide a customary participation right, subject to exceptions and
limitations, which provides for a designated investor to be able to participate in future
financings for capital raising purposes occurring within two years of March 30, 2007 at a level
based on such investors ownership percentage of the Company on a fully-diluted basis prior to such
financing.
On October 1, 2007 the Company issued 739,913 shares of its Common Stock in connection with the
Companys acquisition of InsPro Technologies. See Note 3 Acquisition of InsPro Technologies.
On December 15, 2007 the Company issued 75,000 unrestricted shares of its Common Stock to certain
directors of the Company in accordance with the Companys Non Employee Director Compensation Plan,
which were valued at $161,250 based on the $2.15 closing price of our Common Stock on the OTCBB on
December 14, 2007.
2008
On January 3, 2008, the Company issued 75,000 shares of unrestricted Common Stock to certain
directors in accordance with the Companys Non Employee Director Compensation Plan, which was
valued in aggregate at $129,000 based on the closing price per share ($1.72) of Common Stock on the
OTCBB on January 3, 2008.
On February 15, 2008, Mr. Eissa and Mr. Spinner returned to the Company in aggregate 20,749 shares
of the 100,000 shares of the Companys Common Stock that vested to them on this date as
consideration for the Company paying their estimated tax liabilities pursuant to the terms of their
February 15, 2007 restricted stock grants. The shares were valued at $1.32 per share based on
closing price of our Common Stock on the OTCBB on February 15, 2008.
F-26
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 7
SHAREHOLDERS EQUITY (continued)
On March 31, 2008, the Company entered into Securities Purchase Agreements (the 2008 Purchase
Agreements) with certain institutional and individual accredited investors (collectively, the
2008 Investors) and completed a private placement (the 2008 Private Placement) of an aggregate
of 6,250,000 shares of our Common Stock and warrants to purchase 6,250,000 shares of our Common
Stock. Pursuant to the 2008 Purchase Agreement, the Company sold investment units (each, a 2008
Unit) at a per unit purchase price equal to $0.80. Each 2008 Unit sold in the 2008 Private
Placement consisted of one share of Common Stock and a Warrant to purchase one share of Common
Stock at an initial exercise price of $0.80 per share, subject to adjustment (the 2008 Warrant).
The gross proceeds from the 2008 Private Placement were $5,000,000 and we incurred $70,238 of legal
and other expenses in connection with the 2008 Private Placement.
On March 31, 2008, 75,000 restricted shares of Common Stock issued to Ivan M. Spinner, the
Companys former Senior Vice President, were forfeited in accordance with the terms restricted
stock grant. The forfeiture was accounted for as retirement of 75,000 shares valued at $225,000
based on the fair market value on the date of grant and recorded as a reduction to salaries,
commission and related taxes, net effects are included in amortization of deferred compensation.
On April 1, 2008, the Company issued 99,010 restricted shares of its Common Stock to Mr. Edmond
Walters upon the effective date of his becoming a director of the Company in accordance with the
Companys Non Employee Director Compensation Plan and the Companys 2006 Omnibus Equity
Compensation Plan. Mr. Walters was granted shares valued at $100,000 in aggregate based on the
$1.01 closing price of our Common Stock on the OTCBB on April 1, 2008, and will vest as follows:
33,003 shares on April 1, 2008; 33,003 additional shares on April 1, 2009; 33,004 shares on April
1, 2010. Pursuant to the Companys 2006 Omnibus Equity Compensation Plan, Mr. Walters has voting,
dividend and distribution rights pertaining to his unvested shares, but he is restricted from
selling or otherwise disposing of his restricted shares until vesting occurs.
Stock Options
2007
On February 15, 2007, the Company and Daniel Brauser, the Companys former Senior Vice President,
entered into Amendment No. 1 (the Amendment) to Mr. Brausers option, dated November 10, 2005
(the Brauser Option). The Brauser Amendment was approved by the Companys board of directors on
February 15, 2007. Under the terms of the Brauser Option, Mr. Brauser has the right to purchase,
at an exercise price of $2.50 per share, 500,000 fully-paid and non-assessable shares (the Option
Shares) of the Companys Common Stock.
Under the terms of the Brauser Option, the vesting schedule of the Option Shares was as follows:
(a) 25% of the Option Shares on or after the first anniversary of the Brauser Options grant date;
(b) 10,416 Option Shares on or after the last day of each month thereafter; and (c) 10,440 Option
Shares on or after November 30, 2009. As of February 15, 2007, the Brauser Option was vested with
respect to 145,832 Option Shares and remained unvested with respect to the remaining 354,168 Option
Shares. The Amendment accelerates the vesting schedule of the Option Shares as follows: 25% of the
Option Shares subject to the Brauser Option on the first anniversary of the Brauser Options date
of grant; an additional 10,416 Option Shares on December 31, 2006; an additional 10,416 Option
Shares on January 31, 2007; an additional 19,966 Option Shares on February 15, 2007; and an
additional 30,382 Option Shares on the last day of each month thereafter beginning on February 28,
2007 through December 31, 2007.
The Amendment also provided that, in the event Mr. Brauser was removed as an officer or employee of
the Company at any time on or before December 31, 2007, 100% of the Option Shares that are
unexercisable as of the removal date will become fully vested upon such removal. Alternatively, in
the event Mr. Brauser resigned as an employee of the Company at any time after June 30, 2007 but
before December 31, 2007, 50% of the Option Shares that are unexercisable as of the resignation
date would become exercisable upon such resignation.
F-27
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 7
SHAREHOLDERS EQUITY (continued)
Finally, the Amendment provides that, upon the termination of Mr. Brausers employment with the
Company for any reason, the vested portion of the Option Shares as of the date of such termination
will remain exercisable by Mr. Brauser for one year following such termination.
On September 10, 2007, the Company and Mr. Brauser entered into a Separation and Transitional
Services Agreement, which, among other things, extended the exercisable period of Mr. Brausers
exercisable options for an additional year. The Company recorded $106,925 of compensation expense
as a result of the modification of the Brauser Option, which was valued as of September 10, 2007
using the Black-Scholes option-pricing model based on the following assumptions: expected
volatility of 50%, risk free interest rate of 4.77%, expected life of 2 years and 0% assumed
dividend yield.
On December 7, 2007, the Company and Mr. Frohman entered into an Amendment to the Separation
Agreement, which, among other things, extended the exercisable period of Mr. Frohmans exercisable
options for an additional year and terminated all future severance payments from the Company to Mr.
Frohman. The Company recorded $105,501 of compensation expense as a result of the modification of
Mr. Frohmans options, which was valued as of December 7, 2007 using the Black-Scholes
option-pricing model based on the following assumptions: expected volatility of 48%, risk free
interest rate of 3.32%, expected life of 1 year and 0% assumed dividend yield.
During 2007, the Company issued options to purchase 190,550 shares of Common Stock to various
employees at prices ranging from $2.13 to $3.00. These options vest one third on the first
anniversary and an additional one third on each anniversary thereafter.
During 2007, 239,918 options were forfeited as a result of the termination of the employment of
various employees in accordance with the terms of the stock options.
2008
On March 31, 2008, the board of directors of the Company adopted the Companys 2008 Equity
Compensation Plan (the 2008 Plan), which plan was not subject to shareholder approval. An
aggregate of 1,000,000 shares of the Companys common stock was reserved for issuance under the
2008 Plan in addition to any authorized and unissued shares of common stock available for issuance
under the Companys 2006 Omnibus Equity Compensation Plan. The purpose of the 2008 Plan is to
provide a comprehensive compensation program to attract and retain qualified individuals to serve
as directors. The Company is authorized to award cash fees and issue non-qualified stock options
under the 2008 Plan. The 2008 Plan is administered by the Companys board of directors or the
compensation committee established by the board.
Effective October 2, 2008, our shareholders approved an amendment and restatement of the 2008 Plan
to (i) permit the grant of incentive stock options, (ii) provide our compensation committee with
the flexibility to make grants that qualify as qualified performance-based compensation within
the meaning of section 162(m) of the Internal Revenue Code of 1986, as amended (the Code), (iii)
reflect the merger of the Health Benefits Direct Corporation 2006 Omnibus Equity Compensation Plan
(the 2006 Plan) with and into the 2008 Plan, (iv) amend the adjustment provision to make
clarifying changes and (v) specify the maximum number of shares authorized for issuance under the
2008 Plan.
The 2008 Plan provides that the maximum aggregate number of shares of common stock that may be made
with respect to grants, other than dividend equivalents, to any individual during any calendar year
is 1,000,000 shares, subject to adjustment as described below. Grantees may not accrue dividend
equivalents during any calendar year in excess of $1,000,000.
On March 31, 2008, the Board approved the grant of 550,000 incentive stock options to Alvin H.
Clemens, the Companys former Chief Executive Officer and current Co-Chairman, under the Health
Benefits Direct Corporation 2006 Plan, in consideration of Mr. Clemens resignation as Chief
Executive Officer and the termination of his existing Amended and Restated Employment
F-28
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 7
SHAREHOLDERS EQUITY (continued)
Agreement, effective on April 1, 2008. This option has a term of ten years, an exercise per share
of $1.01 and will vest as follows: 300,000 shares on April 1, 2008; 20,833 on the first calendar
day of each month from May 1, 2008 through March 1, 2009 and 20,837 shares on April 1, 2009. The
Company recorded the entire fair value of this option as compensation expense as of June 30, 2008.
Also during 2008, the Company issued options under the 2006 Plan and 2008 Plan in aggregate to
purchase 35,000 shares of Common Stock to employees at a weighted average option exercise price of
$0.72. These options will vest one third on the first anniversary and an additional one third on
each anniversary thereafter.
During 2008, a total of 1,125,700 options granted under the 2006 Plan and 2008 Plan were forfeited
as a result of the resignation of a director and the termination of the employment of various
employees in accordance with the terms of the stock options.
The Company recorded compensation expense pertaining to director and employee stock options and
restricted and unrestricted stock grants as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Year ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Salaries, commission and related taxes
|
|
$
|
1,319,836
|
|
|
$
|
1,189,044
|
|
Loss from discontinued operations
|
|
|
67,850
|
|
|
|
188,844
|
|
|
|
|
|
|
|
|
|
|
$
|
1,387,686
|
|
|
$
|
1,377,888
|
|
|
|
|
|
|
|
|
F-29
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 7
SHAREHOLDERS EQUITY (continued)
A summary of the Companys outstanding stock options as of and for the years ended December 31,
2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
|
Of Shares
|
|
|
Average
|
|
|
Weighted
|
|
|
|
Underlying
|
|
|
Exercise
|
|
|
Average
|
|
|
|
Options
|
|
|
Price
|
|
|
Fair Value
|
|
Outstanding at December 31, 2006
|
|
|
4,881,268
|
|
|
$
|
2.22
|
|
|
$
|
0.83
|
|
For the year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
190,550
|
|
|
|
2.83
|
|
|
|
1.41
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
239,918
|
|
|
|
2.50
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
4,831,900
|
|
|
|
2.23
|
|
|
|
0.89
|
|
For the year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
585,000
|
|
|
|
0.99
|
|
|
|
0.56
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
1,125,700
|
|
|
|
2.49
|
|
|
|
0.84
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
4,291,200
|
|
|
|
1.99
|
|
|
|
0.86
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at December 31, 2008
|
|
|
3,867,245
|
|
|
$
|
1.98
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average fair value of option grants are estimated as of the date of grant using the
Black-Scholes option-pricing model based on the following assumptions for options granted during
the years ended December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
For the Year Ended
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
Expected volatility
|
|
|
68
|
%
|
|
|
60
|
%
|
Risk-free interest rate
|
|
|
1.41
|
%
|
|
|
4.67
|
%
|
Expected life in years
|
|
|
5
|
|
|
|
5.0
|
|
Assumed dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
F-30
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 7
SHAREHOLDERS EQUITY (continued)
The following information applies to options outstanding at December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
Exercise
|
|
Number of Shares
|
|
|
Contractual
|
|
|
Exercise
|
|
|
|
|
|
|
Exercise
|
|
Price
|
|
Underlying Options
|
|
|
Life
|
|
|
Price
|
|
|
Number Exercisable
|
|
|
Price
|
|
$ 0.24
|
|
|
15,000
|
|
|
|
4.9
|
|
|
$
|
0.24
|
|
|
|
|
|
|
$
|
|
|
0.78
|
|
|
10,000
|
|
|
|
4.3
|
|
|
|
0.78
|
|
|
|
|
|
|
|
|
|
1.00
|
|
|
1,300,000
|
|
|
|
6.9
|
|
|
|
1.00
|
|
|
|
1,300,000
|
|
|
|
1.00
|
|
1.01
|
|
|
550,000
|
|
|
|
9.3
|
|
|
|
1.01
|
|
|
|
466,664
|
|
|
|
1.01
|
|
1.05
|
|
|
10,000
|
|
|
|
3.2
|
|
|
|
1.05
|
|
|
|
|
|
|
|
|
|
2.13
|
|
|
15,000
|
|
|
|
3.9
|
|
|
|
2.13
|
|
|
|
4,950
|
|
|
|
2.13
|
|
2.30
|
|
|
5,000
|
|
|
|
3.6
|
|
|
|
2.30
|
|
|
|
1,650
|
|
|
|
2.30
|
|
2.50
|
|
|
1,268,500
|
|
|
|
4.5
|
|
|
|
2.50
|
|
|
|
1,092,440
|
|
|
|
2.50
|
|
2.55
|
|
|
25,000
|
|
|
|
2.5
|
|
|
|
2.55
|
|
|
|
16,500
|
|
|
|
2.55
|
|
2.62
|
|
|
20,000
|
|
|
|
3.0
|
|
|
|
2.62
|
|
|
|
13,200
|
|
|
|
2.62
|
|
2.70
|
|
|
475,000
|
|
|
|
2.3
|
|
|
|
2.70
|
|
|
|
441,500
|
|
|
|
2.70
|
|
2.95
|
|
|
45,000
|
|
|
|
2.3
|
|
|
|
2.95
|
|
|
|
29,700
|
|
|
|
2.95
|
|
3.00
|
|
|
77,700
|
|
|
|
3.4
|
|
|
|
3.00
|
|
|
|
25,641
|
|
|
|
3.00
|
|
3.50
|
|
|
75,000
|
|
|
|
7.3
|
|
|
|
3.50
|
|
|
|
75,000
|
|
|
|
3.50
|
|
3.60
|
|
|
400,000
|
|
|
|
2.3
|
|
|
|
3.60
|
|
|
|
400,000
|
|
|
|
3.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,291,200
|
|
|
|
|
|
|
|
|
|
|
|
3,867,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, there were 7,000,000 shares of our common stock authorized to be issued
under the 2008 Plan, of which 1,969,790 shares of our common stock remain available for future
stock option grants.
The total intrinsic value of stock options granted during 2008 and 2007 was $0 and $0,
respectively. The total intrinsic value of stock options outstanding and exercisable as of
December 31, 2008 and December 31, 2007 was $0 and $0, respectively.
The value of equity compensation expense not yet expensed pertaining to unvested equity
compensation was $412,478 as of December 31, 2008, which will be recognized over a weighted average
0.6 years in the future.
F-31
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 7
SHAREHOLDERS EQUITY (continued)
Common Stock warrants
2007
In March 2007, in connection with the 2007 Private Placement, the Company issued warrants to
purchase an aggregate of 2,500,000 shares of common stock at an exercise price of $3.00 per share
to the participating investors in the 2007 Private Placement, which provides that the holder
thereof shall have the right, at any time after March 30, 2007, but prior to the earlier of (i) ten
business days after the Company has properly provided written notice to all such holders of a Call
Event (as defined below) or (ii) the fifth
anniversary of the date of issuance of the warrant, to acquire shares of Common Stock upon the
payment of the exercise price. The Company also has the right, at any point after which the volume
weighted average trading price per share of the Common Stock for a minimum of 20 consecutive
trading days is equal to at least two times the Exercise Price per share, provided that certain
other conditions have been satisfied to call the outstanding Warrants (a Call Event), in which
case such Warrants will expire if not exercised within ten business days thereafter. The Warrants
also include a cashless exercise and weighted average anti-dilution adjustment provisions for
issuances of securities below the exercise price during the first two years following the date of
issuance of the warrants, subject to customary exceptions.
Also in March 2007, in connection with the 2007 Private Placement, the Company issued to the
placement agents warrants to purchase in the aggregate 350,000 shares of the Companys Common
Stock, which have an exercise price of $2.80 and are exercisable from September 30, 2007 through
March 30, 2010.
During 2007, certain holders of the Companys outstanding warrants exercised their warrants to
purchase an aggregate of 300,000 shares of the Companys common stock at an exercise price of $1.50
per share for an aggregate exercise price of $450,000.
2008
On March 31, 2008, in connection with the 2008 Private Placement the Company issued warrants to
purchase 6,250,000 shares of its Common Stock at an exercise price of $0.80 per share to the
participating investors in the 2008 Private Placement. The 2008 Warrants provide that the holder
thereof shall have the right, at any time after March 31, 2008 but prior to the earlier of (i) ten
business days after the Company has properly provided written notice to all such holders of a 2008
Call Event (as defined below) or (ii) the fifth anniversary of the date of issuance of the 2008
Warrant, to acquire shares of Common Stock upon the payment of $0.80 per Warrant Share (the 2008
Exercise Price). The Company also has the right, at any point after which the volume weighted
average trading price per share of the Common Stock for a minimum of 20 consecutive trading days is
equal to at least two times the 2008 Exercise Price per share, provided that certain other
conditions have been satisfied to call the outstanding 2008 Warrants (a 2008 Call Event), in
which case such 2008 Warrants will expire if not exercised within ten business days thereafter.
The 2008 Warrants also include full ratchet anti-dilution adjustment provisions for issuances of
Common Stock or Common Stock equivalents below $0.80 during the first two years following the date
of issuance of the Warrants.
Effective March 31, 2008, in connection with the 2008 Private Placement, the Company adjusted the
2007 Warrants pursuant to the weighted average anti-dilution adjustment provisions of the 2007
Warrants. The exercise price of the 2007 Warrants was adjusted from $3.00 to $2.48 and the number
of issued, exercisable and outstanding 2007 Warrants was adjusted from 2,500,000 to 3,024,186.
During 2008, warrants to purchase 3,887,500 shares of its Common Stock at an exercise price of
$1.50 per share expired in accordance with the terms of the Warrants.
F-32
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 7
SHAREHOLDERS EQUITY (continued)
A summary of the status of the Companys outstanding stock warrants granted as of December 31, 2008
and changes during the period is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Common
|
|
|
Average
|
|
|
|
Stock
|
|
|
Exercise
|
|
|
|
Warrants
|
|
|
Price
|
|
Outstanding at December 31, 2006
|
|
|
8,200,000
|
|
|
$
|
1.50
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2007
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,850,000
|
|
|
|
2.98
|
|
Exercised
|
|
|
(300,000
|
)
|
|
|
1.50
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
10,750,000
|
|
|
|
1.89
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2008
|
|
|
|
|
|
|
|
|
Granted
|
|
|
6,250,000
|
|
|
|
0.80
|
|
Adjustment to warrants issued in 2007
for the issuance of warrants in 2008
|
|
|
524,186
|
|
|
|
2.48
|
|
Exercised
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(3,887,500
|
)
|
|
|
1.50
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
13,636,686
|
|
|
$
|
1.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2008
|
|
|
13,636,686
|
|
|
$
|
1.43
|
|
|
|
|
|
|
|
|
The following information applies to warrants outstanding at December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
Stock
|
|
|
Exercise
|
|
Year of Expiration
|
|
Warrants
|
|
|
Price
|
|
2009
|
|
|
2,762,500
|
|
|
$
|
1.50
|
|
2010
|
|
|
75,000
|
|
|
|
1.50
|
|
2010
|
|
|
350,000
|
|
|
|
2.80
|
|
2011
|
|
|
1,175,000
|
|
|
|
1.50
|
|
2012
|
|
|
3,024,186
|
|
|
|
2.48
|
|
2013
|
|
|
6,250,000
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
13,636,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding warrants at December 31, 2008 have a weighted average remaining contractual life of 2.9
years.
F-33
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 7
SHAREHOLDERS EQUITY (continued)
Registration Rights
On March 30, 2007 and in connection with 2007 Private Placement, the Company and the participating
investors entered into a Registration Rights Agreement (the Registration Rights Agreement).
Under the terms of the Registration Rights Agreement, the Company agreed to prepare and file with
the Commission, as soon as possible but in any event within 30 days following the later of (i) the
date the Company is required to file with the Commission its Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2006, or (ii) the date of the Registration Rights Agreement, a
registration statement on Form SB-2 covering the resale of the shares and the warrant shares
collectively, the Registrable Securities). Subject to limited exceptions, the Company also
agreed to use its reasonable best efforts to cause the registration statement to be declared
effective under the Securities Act of 1933 as amended (the Securities Act) as soon as practicable
and agreed to use its reasonable best efforts to keep the registration statement effective under
the Securities Act until the date that is two years after the date that the registration statement
is declared effective by the Commission or such earlier date when all of the Registrable Securities
covered by the Registration Statement have been sold or may be sold without volume restrictions
pursuant to Rule 144(k) promulgated under the Securities Act. The Registration Rights Agreement
also provides for payment of partial damages to the 2007 Private Placement investors under certain
circumstances relating to failure to file or obtain or maintain effectiveness of the registration
statement, subject to adjustment.
In connection with the 2007 Private Placement, the Company issued to the placement agents the
Placement Agent Warrants. Under the terms of the Registration Rights Agreement, the holders of the
Placement Agent Warrants have certain piggyback registration rights for the shares of Common
Stock underlying the Placement Agent Warrants (the Placement Agent Warrant Shares).
On May 2, 2007, the Company and Alvin H. Clemens entered into a Waiver of Registration Rights
Agreement whereby Mr. Clemens agreed to waive his registration rights for the 500,000 warrants that
he purchased in the 2007 Private Placement until the later of 60 days following the sale of
substantially all of the shares he purchased in the 2007 Private Placement or six months following
the effectiveness of the registration statement filed in connection with the 2007 Private
Placement. On May 10, 2007, the Company and Mr. Clemens entered into a Consent and Waiver of
Registration Rights Agreement whereby Mr. Clemens and the Company consented to the filing of an
amendment to the registration statement filed in connection with the 2007 Private Placement to
remove the 1,000,000 shares of Common Stock that Mr. Clemens purchased in the 2007 private
placement from the registration statement until the six months following the effectiveness of such
registration statement.
On June 1, 2007, the Commission declared effective the Companys Registration Statement on Form
SB-2 filed with the Commission on May 2, 2007 as amended.
In connection with the Bilenia Agreement, the Company and CCCC entered into the Bilenia
Registration Rights Agreement. In connection with the Atiam Merger Agreement, the Company and
Shareholders also entered into a Registration Rights Agreement (the Shareholder Registration
Rights Agreement). See Note 3 InsPro Technologies Acquisition.
On April 22, 2008, the Commission declared effective the Companys Registration Statement on Form
SB-2 filed with the Commission on February 1, 2008 as amended.
F-34
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 7
SHAREHOLDERS EQUITY (continued)
In connection with the signing of the 2008 Purchase Agreement, the Company and the 2008 Investors
also entered into a Registration Rights Agreement (the 2008 Registration Rights Agreement).
Under the terms of the 2008 Registration Rights Agreement, the Company agreed to prepare and file
with the Commission, as soon as possible but in any event within 30 days following the later of (i)
the date the Company is required to file with the Commission its Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2007, or (ii) the date of the Registration Rights Agreement, a
registration statement on Form S-1 (the 2008 Registration Statement) covering the resale of the
Shares and the Warrant Shares collectively, the 2008 Registrable Securities). Subject to limited
exceptions, the Company also agreed to use its reasonable best efforts to cause the 2008
Registration Statement to be declared effective under the Securities Act of 1933 as amended (the
Securities Act) as soon as practicable but, in any event, no later than 90 days following the
date of the 2008 Registration Rights Agreement (or 150 days following the date of the 2008
Registration Rights Agreement in the event the 2008 Registration Statement is subject to review by
the Commission), and agreed to use its reasonable best efforts to keep the 2008 Registration
Statement effective under the Securities Act until the date that all of the 2008 Registrable
Securities covered by the 2008 Registration Statement have been sold or may be sold without volume
restrictions pursuant to Rule 144(b)(i)) promulgated under the Securities Act. The 2008
Registration Rights Agreement also provides for payment of partial damages to the Investors under
certain circumstances relating to failure to file or obtain or maintain effectiveness of the 2008
Registration Statement, subject to adjustment.
NOTE 8
CAPITAL LEASE OBLIGATIONS
The Companys InsPro Technologies subsidiary has entered into several capital lease obligations to
purchase equipment used for operations. The Company has the option to purchase the equipment at the
end of the lease agreement for one dollar. The underlying assets and related depreciation were
included in the appropriate fixed asset category, and related depreciation account.
Property and equipment includes the following amounts for leases that have been capitalized as of
December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
Useful Life (Years)
|
|
|
|
|
|
|
|
|
|
Computer equipment and software
|
|
|
3
|
|
|
$
|
328,074
|
|
|
$
|
60,815
|
|
Phone System
|
|
|
3
|
|
|
|
15,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
343,085
|
|
|
|
60,815
|
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
(68,090
|
)
|
|
|
(4,125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
274,995
|
|
|
$
|
56,690
|
|
|
|
|
|
|
|
|
|
|
|
F-35
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 8
CAPITAL LEASE OBLIGATIONS (Continued)
Future minimum payments required under capital leases at December 31, 2008 are as follows:
|
|
|
|
|
2009
|
|
$
|
115,973
|
|
2010
|
|
|
119,325
|
|
2011
|
|
|
99,705
|
|
2012
|
|
|
23,078
|
|
|
|
|
|
|
|
|
|
|
Total future payments
|
|
|
358,081
|
|
Less amount representing interest
|
|
|
59,272
|
|
|
|
|
|
|
|
|
|
|
Present value of future minimum payments
|
|
|
298,808
|
|
Less current portion
|
|
|
89,297
|
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
209,511
|
|
|
|
|
|
NOTE 9
DEFINED CONTRIBUTION 401(k) PLAN
The Company implemented a 401(k) plan on January 1, 2007. Eligible employees contribute to the
401(k) plan. Employees become eligible after attaining age 19 and after 6 months of employment with
the Company. The employee may become a participant of the 401(k) plan on the first day of the
month following the completion of the eligibility requirements. Effective January 1, 2007 the
Company implemented an elective contribution to the plan of 25% of the employees contribution up
to 4% of the employees contribution (the Contribution). The Contributions are subject to a
vesting schedule and become fully vested after one year of service, retirement, death or
disability, whichever occurs first. The Company made contributions of $57,556 and $73,236 for the
years ended December 31, 2008 and 2007.
NOTE 10
RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES
Employment and Separation Agreements
On March 31, 2008, in connection with our 2008 Private Placement and Mr. Clemens resignation as
our Chief Executive Officer and appointment as Co-Chairman of our board of directors, Mr. Clemens
amended and restated employment agreement was terminated effective upon his resignation on April 1,
2008. Also in connection with our 2008 Private Placement, the Company and Mr. Clemens agreed to
enter into a new employment agreement within 15 days of the effective date of Mr. Clemens
resignation as Chief Executive Officer, which agreement will provide for a one year term and a
salary of $300,000, which salary shall be effective as of the date of Mr. Clemens resignation.
F-36
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 10
RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
On March 31, 2008, following Mr. Clemens resignation as our Chief Executive Officer, Anthony R.
Verdi, our Chief Financial Officer, was also appointed to the position of Chief Operating Officer,
effective April 8, 2008. Mr. Verdi shall have the authority, as our Chief Operating Officer, to
lead the Company as the principal executive officer in the absence of a Chief Executive Officer and
Mr. Verdi shall have such authority until we appoint a new Chief Executive Officer or until such
time as our board of directors determines otherwise.
Mr. Verdis amended and restated employment agreement, as amended on March 31, 2008, provides for
an initial term of one year with automatic successive one-year renewals unless we or Mr. Verdi
gives the other party 60 days written notice prior to the end of the then current term. Mr.
Verdis base salary is $225,000 per year.
If we terminate Mr. Verdis employment for cause or Mr. Verdi terminates his employment agreement
without good reason, Mr. Verdi will be entitled to receive (i) all accrued and unpaid salary and
vacation pay through the date of termination and (ii) continued participation for one month in our
benefit plans. Otherwise if we terminate Mr. Verdis employment or Mr. Verdi terminates his
employment agreement for good reason including his permanent disability he will be entitled to
receive 18 months base salary at the then current rate, payable in accordance with our usual
practices, continued participation for 18 months in our benefit plans and payment, within a
commercially reasonable time and on a prorated basis, of any bonus or other payments earned in
connection with our bonus plan existing at the time of termination. In addition, if Mr. Verdis
employment is terminated in accordance with the foregoing sentence within two months prior to, or
24 months following, a change in control (as described in the employment agreement), Mr. Verdi will
be entitled to receive 18 months base salary at the then current rate upon the date of
termination, regardless of our usual practices, and all stock options held by Mr. Verdi at the date
of termination will immediately become 100% vested and all restrictions on such options will lapse.
If Mr. Verdis employment is terminated due to a permanent disability we may credit any such
amounts against any proceeds paid to Mr. Verdi with respect to any disability policy maintained and
paid for by us for Mr. Verdis benefit.
If Mr. Verdi dies during the term of his employment agreement, the employment agreement will
automatically terminate and Mr. Verdis estate or beneficiaries will be entitled to receive (i)
three months base salary at the then current rate, payable in a lump sum and (ii) continued
participation for one year in our benefit plans.
Mr. Verdi was appointed to the Board on June 20, 2008.
Pursuant to a written employment agreement, which we amended on March 31, 2008, Mr. Charles Eissa
serves as our President. Pursuant to his amended employment agreement, his annual base salary is
$250,000 per year. He is entitled to receive such bonus compensation as a majority of the members
of our board of directors may determine from time to time. Mr. Eissa s amended employment
agreement is effective beginning on March 31, 2008 and expires on March 31, 2009, subject to
automatic annual renewals.
In the event of Mr. Eissa s termination without cause or for good reason, he or his estate would
receive his then current base annual salary, plus unpaid accrued employee benefits, which is
primarily accrued vacation, plus the continuation of his employee benefits for a period of one
year, less all applicable taxes. In the event of his voluntary termination, death or disability, he
or his estate would receive unpaid accrued employee benefits, plus the continuation of his employee
benefits for a period of 1 month, less all applicable taxes. See Note 12 Subsequent Events.
F-37
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 10 RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
Restricted Cash and Operating Leases
On February 17, 2006, the Company entered into a lease agreement with FG2200, LLC, a Florida
limited liability company, for approximately 50,000 square feet of office space at 2200 S.W. 10th
Street, Deerfield Beach, Florida (the Lease). The initial term of the Lease commences on March
15, 2006 and terminates on March 31, 2016. The Company has the option to extend the term for two
additional 36-month periods, as well as the right to terminate the Lease within the first five
years. The monthly rent increases every 12 months, starting at $62,500 plus certain building
expenses incurred by the landlord and ending at approximately $81,550 plus certain building
expenses incurred by the landlord. In connection with the Lease, the Company provided a $1 million
letter of credit to the landlord as a security deposit for the Companys obligations under the
Lease.
On February 21, 2008 the Company entered into a sub-lease agreement with a third party whereby the
third party sub-leased approximately 5,200 square feet of our Deerfield Beach office space
beginning March 1, 2008 through February 28, 2009. This sub-lease agreement was amended and
restated on October 3, 2008 to increase the sub-leased square footage to 13,900 and extend the
lease term through January 31, 2010.
On October 1, 2008 the Company entered into a sub-lease agreement with a third party whereby the
third party sub-leased approximately 8,000 square feet of our Deerfield Beach office space
beginning October 15, 2008 through January 31, 2010. In accordance with this sub-lease agreement
the Company recognizes base rent, additional rent representing a portion of certain actual
occupancy expenses for our Deerfield Beach office and certain telephony, technology and facility
services provided to our sub-tenant.
On July 7, 2006, the Company entered into a lease agreement with Radnor Properties-SDC, L.P. (the
Landlord) for the lease of 7,414 square feet of office space located in Radnor Financial Center,
Building B, 150 Radnor-Chester Road, Radnor, Pennsylvania. The term of the lease commenced on
November 1, 2006, which was the date the Company, with the Landlords prior consent, assumed
possession of the premises and the date the Landlord tendered possession of the premises to the
Company following the substantial completion of the improvements required to be made by the
Landlord under the lease agreement, and will expire on the last day of the 125
th
month
following the commencement of the lease term. The annual rent increases every 12 months, starting
at approximately $161,592 plus a proportionate share of landlords building expenses after the
second month and ending at approximately $258,378 plus a proportionate share of landlords building
expenses. Under the terms of the lease agreement, rent is waived for the first five months of the
lease term with respect to 5,238 square feet and for the first twelve months for the remaining
2,176 square feet. The Company recorded an expense charge and liability for deferred rent in the
amount of $38,578 as of December 31, 2006.
The Company paid to the Landlord a security deposit of $100,000 under the lease (the Security
Deposit) during the third quarter of 2006, which is accounted for as a deposit in other assets.
The Company will not earn interest on the Security Deposit. The Security Deposit will decrease and
the Landlord will return to the Company $10,000 on the third anniversary of the commencement date
of the lease and on each anniversary thereafter until the required Security Deposit has been
reduced to $20,000. The Security Deposit will be returned to the Company 30 days after the end of
the lease provided the Company has complied with all provisions of the lease.
Effective during the first quarter of 2007, the letters of credit pertaining to the lease for our
Florida office and our New York office were collateralized in the form of a money market account,
which as of December 31, 2008 and December 31, 2007 had a balance of $1,150,000. This money market
account is on deposit with the issuer of the letters of credit and is classified as restricted cash
on the Companys balance sheet. The terms of the money market account allow the Company to receive
interest on the principal but prohibits the Company from withdrawing the principal for the life of
the letters of credit.
On March 7, 2006, the Company entered into a sublease for approximately 13,773 square feet of
office space located on the 7th floor at 1120 Avenue of the Americas, New York, New York (Sublease
Agreement). The initial term of the Sublease Agreement
F-38
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 10
RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
commences in March 2006, and terminates on December 31, 2010. The monthly rent increases every 12
months, starting at approximately $303,000 per annum plus a proportionate share of landlords
building expenses and ending at approximately $341,000 per annum plus a proportionate share of
landlords building expenses. In connection with the Sublease Agreement, the Company provided a
$151,503 letter of credit to the landlord as a security deposit for the Companys obligations under
the sublease. On May 15, 2006 the Company received the landlords consent, dated April 18, 2006,
to the Sublease Agreement. In March 2008, the Company closed its sales office located in New York.
On April 17, 2008 the Company entered into a sub-lease agreement with a third party (2008
Sublease Agreement) whereby the third party will sub-lease the Companys New York office space for
the balance of the Companys Sublease Agreement and pay the Company sub-lease payments essentially
equal to the Companys costs under the Sublease Agreement. The terms of the 2008 Sublease
Agreement required the Company to make certain leasehold improvements. The third party commenced
paying sub-sublease payments to the Company in September 2008 however the third party failed to pay
their December 2008, January and February 2009 rent when due. The Company is a beneficiary to a
letter of credit in the amount of $151,503, which is available for the Company to draw against in
the event of the third partys failure to pay their rent when due. Effective December 31, 2008,
the Company has accrued $629,396 related to the non-cancelable lease for the abandoned facilities,
which is net present value of the Companys future lease payments due under the remaining Sublease
Agreement term plus managements estimate of utility payments, which is estimated to be $773,311,
less managements estimate of future sub-lease revenue under the 2008 Sublease Agreement secured by
the letter of credit, which is estimated to be $120,023.
The Company leases certain real and personal property under non-cancelable operating leases. Rent
expense was $2,482,008 and $1,710,010 for the years ended December 31, 2008 and 2007, respectively.
Future minimum payments required under operating leases, severance and employment agreements and
service agreements at December 31, 2008 are as follows:
|
|
|
|
|
2009
|
|
$
|
2,114,929
|
|
2010
|
|
|
1,934,411
|
|
2011
|
|
|
1,602,323
|
|
2012
|
|
|
1,418,744
|
|
2013
|
|
|
1,191,826
|
|
thereafter
|
|
|
2,920,264
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,182,497
|
|
|
|
|
|
Litigation
On August 7, 2008, a former employee of the Company (the Plaintiff) filed a putative collective
action in the United States District Court for the Southern District of Florida, case no.
08-CV-61254-Ungaro-Simonton. The case alleges that the Company and three co-defendants, who are
former officers of the Company, unlawfully failed to pay overtime to its insurance sales agents in
violation of the Fair Labor Standards Act (FLSA). Plaintiff purported to bring claims on behalf
of a class of current and former insurance sales agents who were classified as non-exempt by the
Company and compensated at an hourly rate, plus commissions (Agents). On October 16, 2008, the
Court conditionally certified a collective action under the FLSA covering all Agents who worked for
the Company within the last three years. Plaintiff and all Agents who opt to participate in the
collective action seek payment from the Company of compensation for all overtime hours worked at the rate of one and one-half times their
regular rate of pay, liquidated damages, attorneys fees, costs, and interest. On March 2, 2009,
the parties reached an agreement to settle this case. On April 21,
F-39
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 10
RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
2009, the Court entered an Order of Final Dismissal with Prejudice. As of December 31, 2008 the
Company recorded $200,000 of expense in gain (loss) from discontinued operations, which represented
the estimated cost of the settlement.
On August 28, 2008, one of the Companys former employees, the plaintiff, filed a national class
action complaint in the Seventeenth Judicial Circuit of Florida, Broward County, case no. 062008 CA
042798 XXX CE, alleging that the Company breached a contract with employees by failing to provide
certain commissions and/or bonuses. The complaint also contained claims for an accounting and for
declaratory relief relating to the alleged compensation agreement. The plaintiff purported to
bring these claims on behalf of a class of current and former insurance sales agents. The Company
filed a motion to dismiss the complaint. In response, at the hearing on our Motion to Dismiss, the
plaintiff stated that he would amend the complaint. The amended complaint is no longer pled as a
class action but, instead, includes 64 named plaintiffs. The plaintiffs seek payment from the
Company of all commissions allegedly owed to them, triple damages, attorneys fees, costs, and
interest. The Company is in the process of responding to the amended complaint. In addition, the
parties are engaging in the exchange of discovery requests and responses. The Company believes
that the plaintiffs claims are without merit and intends to vigorously defend the litigation.
Guarantee of Indebtedness by the Company to Third Parties Pertaining to Unearned Commission
Advances Paid to Non-employee ISG Agents
The Company is a party to sales and marketing agreements whereby the Company has guaranteed the
repayment of unearned commission advances paid directly from third parties including certain of the
Companys insurance carriers to the Companys non-employee ISG agents. Under these agreements
certain third parties pay commissions directly to the Companys non-employee ISG agents and such
payments include advances of first year premium commissions before the commissions are earned.
Unearned commission advances from the Companys insurance carriers to the Companys non-employee
ISG agents are earned after 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
an unearned commission advance the third parties generally deduct the unearned commission advance
from its commission payments to the Companys non-employee ISG agents in the form of charge-backs.
In the event that commission payments from these third parties to the Companys non-employee ISG
agents do not exceed the charge-backs these third parties may deduct the unearned commission
advance to non-employee ISG agents from their payments to the Company or demand repayment of the
non-employee ISG agents unearned commission balance from the Company. The current amount of the
unearned commission advances these third parties to the Companys non-employee ISG agents, which is
the maximum potential amount of future payments the Company could be required to make to these
third parties, is estimated to be approximately $643,000 as of December 31, 2008. As of December
31, 2008 the Company has recorded a liability of $76,651 in accrued expenses in liabilities of
discontinued operations for the estimated amount the Company anticipates it will pay pertaining to
these guarantees. Unearned commission advances from these third parties are collateralized by the
future commission payments to the non-employee ISG agents and to the Company. The Company has
recourse against certain non-employee ISG agents in the event the Company must pay the unearned
commission advances.
License Agreement with Realtime Solutions Group
On May 31, 2006, the Company entered into a Software and Services Agreement (the License
Agreement) with Realtime Solutions Group, L.L.C. (Realtime), under which Realtime granted the
Company a worldwide, transferable, non-exclusive, perpetual and irrevocable license to use,
display, copy, modify, enhance, create derivate works within, and access Realtime Solutions Groups
Straight Through Processing software (STP) and all associated documentation, source code and
object code, for use in the marketing, promotion and sale of health benefits or insurance products.
As consideration for the grant of the rights and licenses under the License Agreement, the Company
paid to Realtime a $10,000 nonrefundable cash deposit and upon delivery of the STP software and
other materials the Company will pay a license fee in the form
F-40
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 10
RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
of 216,612 unregistered shares of our common stock. Concurrent with entering into the License
Agreement, HBDC and Realtime entered into a Registration Rights Agreement that provides for
piggyback registration rights for the to be issued shares.
The Company may unilaterally terminate the License Agreement, with or without cause, at any time on
30 calendar day prior written notice to Realtime. The license rights in the software granted under
the License Agreement survive any termination of the License Agreement in perpetuity.
As of December 31, 2008 the Company has not taken delivery of the STP software or issued Common
Stock in connection with the License Agreement.
NOTE 11
INCOME TAXES
The Company has net operating losses carry-forwards for federal income tax purposes of
approximately $25,000,000 at December 31, 2008, the unused portion of which, if any, expires in
years 2025 through 2028. The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes SFAS 109. SFAS 109 requires the
recognition of deferred tax assets and liabilities for both the expected impact of differences
between the financial statements and the tax basis of assets and liabilities, and for the expected
future tax benefit to be derived from tax losses and tax credit carry forwards. SFAS 109
additionally requires the establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets. Internal Revenue Code Section 382 places a limitation on the
amount of taxable income that can be offset by carry forwards after a change in control (generally
greater than a 50% change in ownership).
The table below summarizes the differences between the Companys effective tax rate and the
statutory federal rate as follows for the periods ended December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
Computed expected benefit
|
|
$
|
(3,141,629
|
)
|
|
$
|
(4,953,699
|
)
|
State tax benefit, net of federal effect
|
|
|
(269,283
|
)
|
|
|
(424,603
|
)
|
Amortization of acquisition related assets
|
|
|
724,266
|
|
|
|
489,211
|
|
Other permanent differences
|
|
|
57,489
|
|
|
|
13,737
|
|
Increase in valuation allowance
|
|
|
2,629,157
|
|
|
|
4,875,354
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
F-41
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 11
INCOME TAXES (Continued)
Deferred tax assets and liabilities are provided for significant income and expense items
recognized in different years for tax and financial reporting purposes. The components of the net
deferred tax assets for the years ended December 31, 2008 and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry forward
|
|
$
|
9,589,320
|
|
|
$
|
5,668,883
|
|
Unearned commission advances
|
|
|
1,148,421
|
|
|
|
3,211,222
|
|
Stock option and other compensation expense
|
|
|
2,036,038
|
|
|
|
1,431,623
|
|
Depreciation
|
|
|
41,011
|
|
|
|
|
|
All Other
|
|
|
444,645
|
|
|
|
411,434
|
|
|
|
|
|
|
|
|
Total deferred tax asset
|
|
|
13,259,435
|
|
|
|
10,723,162
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
0
|
|
|
|
(37,196
|
)
|
Software development costs
|
|
|
(317,291
|
)
|
|
|
(372,979
|
)
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
12,942,144
|
|
|
|
10,312,987
|
|
|
|
|
|
|
|
|
Less: Valuation allowance
|
|
|
(12,942,144
|
)
|
|
|
(10,312,987
|
)
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
The Company fully reserved the net deferred tax asset due to the substantial uncertainty of the
realization of any tax assets in future periods. The valuation allowance was increased by
$2,629,157 from the prior year.
NOTE 12
SUBSEQUENT EVENTS
Expiration of Warrants
On January 10, 2009, warrants to purchase 2,762,500 shares of the Companys Common Stock at an
exercise price of $1.50 per share expired in accordance with the terms of the warrants.
Issuance of Stock, Amendments to Articles of Incorporation or Bylaws
On January 14, 2009, the Company entered into and, on January 15, 2009 completed, a private
placement (the 2009 Private Placement) with Co-Investment Fund II, L.P., a Delaware limited
partnership (Co-Investment or the Investor), for an aggregate of 1,000,000 shares (each, a
Preferred Share) of its Series A Convertible Preferred Stock, par value $0.001 per share
(Preferred Stock), and warrants (2009 Warrants) to purchase 1,000,000 shares of its Preferred
Stock (each, a Preferred Warrant Share), pursuant to the terms of the Securities Purchase
Agreement (the 2009 Purchase Agreement). The gross proceeds from the closing were $4 million and
the Company intends to use the net proceeds of the Private Placement for working capital purposes.
Pursuant to the Purchase Agreement, the Company agreed to sell to Co-Investment 1,000,000
investment units (each, a 2009 Unit) in the 2009 Private Placement at a per 2009 Unit purchase
price equal to $4.00. Each 2009 Unit sold in the 2009 Private Placement consisted of one share of
Preferred Stock and a Warrant to purchase one share of Preferred Stock at an initial exercise price
of $4.00 per share, subject to adjustment (the 2009 Warrant).
The Preferred Stock is entitled to vote as a single class with the holders of the Companys common
stock, with each Share of Preferred Stock having the right to 20 votes. Upon the liquidation, sale
or merger of the Company, each Share of Preferred Stock is entitled to receive an amount equal to
the greater of (A) a liquidation preference equal to two and a half (2.5) times the Preferred Stock
original issue price, subject to certain customary adjustments, or (B) the amount such Share of
Preferred Stock would receive if it participated
F-42
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 12
SUBSEQUENT EVENTS (continued)
pari passu
with the holders of Common Stock on an as-converted basis. Each Share of Preferred
Stock becomes convertible into 20 shares of Common Stock (the Shares), subject to adjustment and
at the option of the holder of the Preferred Stock, immediately after shareholder approval of the
Charter Amendment (as defined below). For so long as any shares of Preferred Stocks are
outstanding, the vote or consent of the Holders of at least two-thirds of the Preferred Stock is
required to approve (Y) any amendment to the Companys certificate of incorporation or bylaws that
would adversely alter the voting powers, preferences or special rights of the Preferred Stock or
(Z) any amendment to the Companys certificate of incorporation to create any shares of capital
stock that rank senior to the Preferred Stock. In addition to the voting rights described above,
for so long as 1,000,000 Share of Preferred Stocks are outstanding, the vote or consent of the
holders of at least two-thirds of the Share of Preferred Stock is required to effect or validate
any merger, sale of substantially all of the assets of the Company or other fundamental
transaction, unless such transaction, when consummated, will provide the holders of Preferred Stock
with an amount per share equal to two and a half (2.5) times the Preferred Stock original issue
price.
The Company is also required, under the terms of the 2009 Purchase Agreement, to file a proxy
statement (the Proxy Statement) and hold a special meeting of the Companys shareholders (the
Special Meeting) within 75 days of the effective date of the Purchase Agreement for the purpose
of approving a certificate of amendment to the Companys certificate of incorporation to increase
the total number of the Companys authorized shares of Common Stock from 90,000,000 to 250,000,000
(the Charter Amendment). Under the terms of the 2009 Purchase Agreement, Co-Investment has
agreed to vote all Preferred Shares and shares of Common Stock beneficially owned by it in favor of
the Charter Amendment at the Special Meeting.
The 2009 Warrants provide that the holder thereof shall have the right (A) at any time after the
Shareholder Approval Deadline, but prior to the earlier of (i) ten business days after the Company
has properly provided written notice to all such holders of a Call Event (as defined below), (ii)
the date on which the Companys shareholders approve the Charter Amendment (the Shareholder
Approval Date) and (iii) January 14, 2014, to acquire 1,000,000 shares of Preferred Stock upon the
payment of $4.00 per Preferred Warrant Share and (B) at any time after the Shareholder Approval
Date, but prior to the earlier of (i) ten business days after the Company has properly provided
written notice to all such holders of a Call Event (as defined below) and (ii) January 14, 2014, to
acquire up to a total of 20,000,000 shares of Common Stock of the Company (each a Warrant Share)
upon the payment of $0.20 per Warrant Share (the Exercise Price). The Company also has the
right, at any point after the Shareholder Approval Date and after which the volume weighted average
trading price per share of the Preferred Stock for a minimum of 20 consecutive trading days is
equal to at least eight times the Exercise Price per share, provided that certain other conditions
have been satisfied, to call the outstanding 2009 Warrants (a Call Event), in which case such
2009 Warrants will expire if not exercised within ten business days thereafter. The 2009 Warrants
also include full ratchet anti-dilution adjustment provisions for issuances of securities below
$0.20 per share of Common Stock during the first two years following the date of issuance of the
2009 Warrants, subject to customary exceptions.
Upon shareholder approval of the Charter Amendment at the Special Meeting and the filing of the
Certificate of Amendment, all outstanding shares of Series A Preferred Stock will become
immediately convertible, at the election of each holder of Preferred Shares, into twenty shares of
the Companys common stock and the 2009 Warrants issued in the 2009 Private Placement will
automatically become exercisable for twenty shares of Common Stock.
In connection with the signing of the 2009 Purchase Agreement, the Company and the Investor also
entered into a Registration Rights Agreement (the 2009 Registration Rights Agreement). Under the
terms of the 2009 Registration Rights Agreement, the Company agreed to prepare and file with the
SEC, within 30 days following the receipt of a demand notice of a holder of Registrable Securities,
a registration statement on Form S-1 (the Registration Statement) covering the resale of the
Shares and the Warrant Shares (collectively, the Registrable Securities). Subject to limited
exceptions, the Company also agreed to use its reasonable best efforts to cause the Registration
Statement to be declared effective under the Securities Act of 1933, as amended (the Securities
Act), as soon as practicable but, in any event, no later than 60 days following the date of the
2009 Registration Rights Agreement (or 120 days following the date of the 2009 Registration Rights
Agreement in the event the Registration Statement is subject to review by the SEC),
F-43
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 12
SUBSEQUENT EVENTS (continued)
and agreed to use its reasonable best efforts to keep the Registration Statement effective under
the Securities Act until the date that all of the Registrable Securities covered by the
Registration Statement have been sold or may be sold without volume restrictions pursuant to Rule
144(b)(i) promulgated under the Securities Act. In addition, if the Company proposes to register
any of its securities under the Securities Act in connection with the offering of such securities
for cash, the Company shall, at such time, promptly give each holder of Registrable Securities
notice of such intent, and such holders shall have the option to register their Registrable
Securities on such additional registration statement. The 2009 Registration Rights Agreement also
provides for payment of partial damages to the Investor under certain circumstances relating to
failure to file or obtain or maintain effectiveness of the Registration Statement, subject to
adjustment.
The Company also agreed, pursuant to the terms of the 2009 Purchase Agreement, that, except for the
Follow-on Financing, for a period of 90 days after the effective date (the
Initial
Standstill
) of the 2009 Purchase Agreement, the Company shall not, subject to certain
exceptions, offer, sell, grant any option to purchase, or otherwise dispose of any equity
securities or equity equivalent securities, including without limitation, any debt, preferred
stock, rights, options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, capital stock and other
securities of the Company (any such issuance, offer, sale, grant, disposition or announcement being
referred to as a
Subsequent Placement
). Additionally, the Company has agreed with
Co-Investment that, for an additional 90 day period following the Initial Standstill, it shall not
engage in any Subsequent Placement without the prior written consent of Co-Investment, if such
Subsequent Placement seeks to raise less than $15 million.
The 2009 Purchase Agreement also provides for a customary participation right for Co-Investment,
subject to certain exceptions and limitations, which grants Co-Investment the right to participate
in any future capital raising financings of the Company occurring prior to January 14, 2011.
Co-Investment may participate in such financings at a level based on Co-Investments ownership
percentage of the Company on a fully-diluted basis prior to such financing.
On January 14, 2009, the Company filed the Certificate of Designation with the Secretary of State
of the State of Delaware. The Certificate of Designation was approved by the Companys Board of
Directors on January 12, 2009 and became effective upon filing. The Certificate of Designation
provides for the terms of the Preferred Stock issued pursuant to the 2009 Purchase Agreement.
Cessation of Direct Marketing and Sales in the Telesales Call Center, Transactions with eHealth
and Reduction in Staffing
During the first quarter of 2009, the Company ceased the direct marketing and sale of health and
life insurance and related products to individuals and families in its Telesales call center. The
Companys Telesales business eliminated 43 positions including all of its licensed employee sales
agents along with other Telesales service and support personnel and eliminated another 20 positions
in Telesales through attrition.
On February 20, 2009 (the Closing Date), the Company entered into and completed the sale of the
Companys Telesales call center produced agency business (the Agency Business) to eHealth, an
unaffiliated third party, pursuant to the terms of a Client Transition Agreement (the Agreement).
Pursuant to the Agreement the Company transferred to eHealth broker of record status and the right
to receive commissions on certain of the in-force individual and family major medial health
insurance policies and ancillary dental, life and vision insurance policies issued by Aetna, Inc.,
Golden Rule, Humana, PacifiCare, Inc., Assurant and United Healthcare Insurance Co. (collectively,
the Specified Carriers) on which the Company was designated as broker of record as of the Closing
Date (collectively, the Transferred Policies and each, a Transferred Policy). Certain policies
and products were excluded from the transaction, including the Companys agency business generated
through its ISG agents, all short term medical products and all business produced through carriers
other than the Specified Carriers. In addition, the Agreement also provides for the transfer to
eHealth of certain lead
F-44
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 12
SUBSEQUENT EVENTS (continued)
information relating to health insurance prospects (the Lead Database). The estimated aggregate
initial amount of consideration paid by eHealth pursuant to the Agreement is approximately
$1,280,000. In addition, on the Closing Date, eHealth agreed to assume from the Company certain
liabilities relating to historical commission advances on the Transferred Policies made by the
Specified Carriers in an aggregate amount of approximately $1,385,000. In addition, eHealth has
agreed to pay to HBDC II a portion of each commission payment received by eHealth and reported by
the Specified Carrier relating to a Transferred Policy for the duration of the policy, provided
that eHealth remains broker of record on such Transferred Policy.
Simultaneous with the execution of the Agreement, the Company and eHealth also entered into a
Marketing and Referral Agreement, dated as of February 20, 2009 (the
Referral Agreement
).
Pursuant to the terms of the Referral Agreement, eHealth agreed to construct one or more websites
for the purpose of selling health insurance products (the
Referral Sites
) and to pay to
HBDC II a portion of all first year and renewal commissions received by eHealth from policies sold
through the Referral Sites that result from marketing to prospects using the Lead Database or other
leads delivered by the Company to eHealth. The Referral Agreement is scheduled to terminate 18
months following the Closing Date and is terminable by the Company or eHealth upon material breach
by the other party.
As a result of above, management anticipates a significant decline in future Telesales revenues as
a result of the cessation of direct marketing and sales in Telesales and the eHealth transaction.
Impairment of Long Lived Assets
During the first quarter of 2009 we determined certain long term assets were impaired as a result
of the cessation of direct marketing and sales in the Telesales call center. The Company recorded
expense in 2009 to write-off the value of these long term assets in the results from discontinued
operations, which included property and equipment net of depreciation of $416,764, intangible
assets net of accumulated amortization acquired from ISG of $1,200,428 and the value of internet
domain name
www.healthbenefitsdirect.com
net of accumulated amortization of $22,389.
Results of March 25, 2009 Special Shareholder Meeting
Effective March 25, 2009, our shareholders approved an amendment to our certificate of
incorporation, as amended, to increase the number of authorized Common Shares from 90,000,000
shares to 200,000,000.
Amendments to Articles of Incorporation Pertaining to the Convertibility of Preferred Shares
into Common Shares
As a result of shareholder approval of an amendment to our certificate of incorporation, as
amended, to increase the number of authorized shares of Common Stock from 90,000,000 shares to
200,000,000 on March 25, 2009, the Company filed a Certificate of Amendment with the Secretary of
State of the State of Delaware. The Certificate of Amendment was approved by the Companys board of
directors on January 12, 2009 and became effective upon filing on March 25, 2009. Upon the filing
of the Certificate of Amendment, all outstanding shares of Series A Preferred Stock became
immediately convertible, at the election of each holder of Preferred Shares, into twenty shares of
the Companys common stock and the 2009 Warrants issued in the 2009 Private Placement automatically
became exercisable for twenty shares of Common Stock.
Anti-dilution Adjustment to 2007 Warrants and 2008 Warrants
Effective March 25, 2009, in connection with our shareholders approval of an amendment to our
certificate of incorporation, the Company adjusted the 2007 Warrants pursuant to the weighted
average anti-dilution adjustment provisions of the 2007 Warrants. The exercise price of the 2007
Warrants was adjusted from $2.48 to $1.51 and the number of issued, exercisable and outstanding
2007
F-45
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 12
SUBSEQUENT EVENTS (continued)
Warrants were adjusted from 3,024,186 to 4,968,491.
Also effective March 25, 2009, in connection with our shareholders approval of an amendment to our
certificate of incorporation, the Company adjusted the 2008 Warrants pursuant to the full ratchet
anti-dilution adjustment provisions of the 2008 Warrants. The exercise price of the 2008 Warrants
was adjusted from $0.80 to $0.20 and the number of issued, exercisable and outstanding 2008
Warrants were adjusted from 6,250,000 to 25,000,000.
Action of the Compensation Committee on February 5, 2009
On February 5, 2009, the Compensation Committee (the Committee) of the Companys board of
directors authorized and issued stock option grants and bonuses to each of Anthony R. Verdi, the
Companys Chief Financial Officer, Chief Operating Officer and acting principal executive officer,
and Robert Oakes, a director of the Company and President of the Companys InsPro Technologies
subsidiary.
The Committee approved a $100,000 cash bonus payable to Mr. Verdi in four equal monthly
installments beginning in April 2009 and a $50,000 cash bonus payable to Mr. Oakes in February
2009. The Committee also authorized and issued to Mr. Verdi a stock option
grant to purchase a total of 650,000 shares of the Companys common stock, which vests as follows:
130,000 shares of Common Stock on each of May 31, 2009, September 30, 2009, May 31, 2010 and
September 30, 2010; 65,000 shares of Common Stock on May 31, 2011; and 32,500 shares of Common
Stock on each of September 30, 2011 and May 31, 2012.
The Committee authorized and issued to Mr. Oakes a stock option grant to purchase a total of
1,000,000 shares of the Companys common stock, which vests as follows: 200,000 shares of Common
Stock on each of May 31, 2009, September 30, 2009, May 31, 2010 and September 30, 2010; 100,000
shares of Common Stock on May 31, 2011; and 50,000 shares of Common Stock on each of September 30,
2011 and May 31, 2012.
Each of the options issued to Messrs. Verdi and Oakes have a five year term and an exercise price
of $0.101, which is equal to closing price of one share of the Companys common stock as quoted on
the OTCBB on February 5, 2009.
Separation of Employment Agreement and General Release With Charles Eissa
On March 27, 2009, Charles Eissa, the Companys President, and the Company agreed to a Separation
of Employment and General Release Agreement whereby Mr. Eissa and the Company mutually agreed that
Mr. Eissas employment terminated effective March 27, 2009 (Separation Date). Under the terms of
the agreement the Company will continue to pay Mr. Eissa his current base salary for a period of
fourteen (14) months after the Separation Date, less applicable tax withholding, which will be paid
in equal installments in accordance with the Companys normal payroll practices. The Company will
provide Mr. Eissa with continued medical, dental and vision coverage at the level in effect as of
the Separation Date until the end of the twelve (12)-month period following the Separation Date.
In addition the Company agreed to vest effective with the Separation Date all remaining restricted
common stock granted to Mr. Eissa on February 15, 2007 subject to the payment in cash of any
withholding taxes to the Company, which would have vested between March 15, 2009 and February 15,
2010. Any stock option grants held by Mr. Eissa that are not vested as of the Separation Date
shall be forfeited as of the Separation Date.
F-46
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 12
SUBSEQUENT EVENTS (continued)
Litigation
On March 24, 2009, certain of the Companys shareholders filed an action in the Supreme Court of
the State of New York, County of New York, Index No. 650174/2009, against the Company, its board of
directors, two of the Companys investors and the investors affiliates relating to alleged offers
we purportedly received in 2008 and a private placement transaction conducted in January 2009. The
plaintiffs allege that the members of the Companys board of directors breached their fiduciary
duties in responding to the offers received in 2008 and in connection with the private placement
transaction conducted in January 2009. The complaint also contains claims for unjust enrichment
against certain directors whom plaintiffs claim are interested and claims for aiding and abetting
breach of fiduciary duty and unjust enrichment against one of the Companys shareholders, Cross
Atlantic Capital Partners, Inc., and its affiliates. The plaintiffs seek to rescind and cancel the
private placement, enjoin the board of directors from undertaking certain measures and remove
certain directors from the board. The plaintiffs also seek money judgments in an amount not less
than $10,000,000, plus interest, attorneys fees, and accounts and experts fees. On May 29, 2009,
the defendants moved to dismiss the complaint. The motion was granted on August 13, 2009 on forum
non conveniens grounds. On August 14, 2009, a writ of summons was filed in the Court of Common
Pleas, Philadelphia County No. 090801764 against the Company, its board of directors, two of the
Companys investors and the investors affiliates by the same shareholders who brought the New York
action and seven additional shareholders. The Company does not know what claims the shareholders
may be asserting because no complaint has been filed, but it believes that any claims relating to
the facts that were the basis of the New York action are without merit. The Company intends to
vigorously defend the litigation.
New Sub-lease Agreement
On July 1, 2009 the Company entered into a sub-lease agreement with a third party effective July
15, 2009, which terminated an existing sub-lease agreement for approximately 8,000 square feet of
the Companys Deerfield Beach office and replaced it with a sub-lease agreement of approximately
29,952 square feet. This sub-lease terminates on February 28, 2011. As part of the sub-lease the
Company agreed to lease certain personal property to the third party effective July 1, 2009 through
February 28, 2011 whereby the third party will pay the Company 20 monthly payments of $10,890 and
at the end of the lease the Company will deliver to the third party a bill of sale for the leased
personal property.
F-47
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(Unaudited)
|
|
|
(1)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
641,666
|
|
|
$
|
1,842,419
|
|
Accounts receivable, less allowance for doubtful accounts $3,034 and $0
|
|
|
899,797
|
|
|
|
461,875
|
|
Tax receivable
|
|
|
5,615
|
|
|
|
31,290
|
|
Prepaid expenses
|
|
|
104,819
|
|
|
|
126,804
|
|
Other current assets
|
|
|
11,820
|
|
|
|
8,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,663,717
|
|
|
|
2,470,849
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
1,150,000
|
|
|
|
1,150,000
|
|
Property and equipment, net of accumulated depreciation of $467,624 and $267,384
|
|
|
846,054
|
|
|
|
729,881
|
|
Intangibles, net of accumulated amortization of $1,616,345 and $1,021,187
|
|
|
1,293,914
|
|
|
|
1,911,461
|
|
Other assets
|
|
|
110,608
|
|
|
|
110,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,064,293
|
|
|
$
|
6,372,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Note payable
|
|
$
|
15,016
|
|
|
$
|
|
|
Accounts payable
|
|
|
780,011
|
|
|
|
733,128
|
|
Accrued expenses
|
|
|
1,062,364
|
|
|
|
697,256
|
|
Current portion of capital lease obligations
|
|
|
123,004
|
|
|
|
89,297
|
|
Due to related parties
|
|
|
40,000
|
|
|
|
4,315
|
|
Deferred revenue
|
|
|
436,128
|
|
|
|
457,500
|
|
Liabilities of discontinued operations
|
|
|
2,305,272
|
|
|
|
2,238,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,761,795
|
|
|
|
4,219,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
|
246,057
|
|
|
|
209,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long term liabilities
|
|
|
246,057
|
|
|
|
209,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
Preferred stock ($.001 par value; 10,000,000 shares authorized; Series A
convertible preferred stock; 3,437,500 shares authorized, 1,000,000 shares issued
and outstanding (liquidation value $10,000,000))
|
|
|
1,983,984
|
|
|
|
|
|
Common stock ($.001 par value; 200,000,000 shares authorized;
41,279,645 shares issued and outstanding)
|
|
|
41,279
|
|
|
|
41,279
|
|
Additional paid-in capital
|
|
|
45,691,766
|
|
|
|
43,281,139
|
|
Accumulated deficit
|
|
|
(47,660,588
|
)
|
|
|
(41,378,941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
56,441
|
|
|
|
1,943,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
5,064,293
|
|
|
$
|
6,372,799
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Derived from audited financial statements
|
See
accompanying notes to unaudited consolidated financial statements.
F-48
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenues
|
|
$
|
1,475,696
|
|
|
$
|
1,426,160
|
|
|
$
|
4,733,406
|
|
|
$
|
4,120,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, employee benefits and related taxes
|
|
|
1,805,213
|
|
|
|
1,587,203
|
|
|
|
6,151,608
|
|
|
|
5,156,072
|
|
Advertising and other marketing
|
|
|
90,814
|
|
|
|
6,171
|
|
|
|
231,923
|
|
|
|
29,971
|
|
Depreciation and amortization
|
|
|
293,696
|
|
|
|
253,770
|
|
|
|
859,103
|
|
|
|
759,285
|
|
Rent, utilities, telephone and communications
|
|
|
201,700
|
|
|
|
149,299
|
|
|
|
613,017
|
|
|
|
469,541
|
|
Professional fees
|
|
|
942,010
|
|
|
|
715,080
|
|
|
|
2,449,555
|
|
|
|
1,773,352
|
|
Other general and administrative
|
|
|
372,011
|
|
|
|
337,786
|
|
|
|
1,088,244
|
|
|
|
1,129,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,705,444
|
|
|
|
3,049,309
|
|
|
|
11,393,450
|
|
|
|
9,317,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,229,748
|
)
|
|
|
(1,623,149
|
)
|
|
|
(6,660,044
|
)
|
|
|
(5,196,314
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from discontinued operations
|
|
|
806,791
|
|
|
|
(118,548
|
)
|
|
|
423,764
|
|
|
|
(2,245,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
4,771
|
|
|
|
14,384
|
|
|
|
27,082
|
|
|
|
67,119
|
|
Interest expense
|
|
|
(28,413
|
)
|
|
|
(11,695
|
)
|
|
|
(72,449
|
)
|
|
|
(27,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(23,642
|
)
|
|
|
2,689
|
|
|
|
(45,367
|
)
|
|
|
39,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,446,599
|
)
|
|
$
|
(1,739,008
|
)
|
|
$
|
(6,281,647
|
)
|
|
$
|
(7,402,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(0.05
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.13
|
)
|
Gain (loss) from discontinued operations
|
|
|
0.02
|
|
|
|
(0.00
|
)
|
|
|
0.01
|
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share basic and diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic and diluted
|
|
|
41,279,645
|
|
|
|
41,354,645
|
|
|
|
41,279,645
|
|
|
|
39,248,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
F-49
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FOR NINE MONTHS ENDED
SEPTEMBER 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock, $.001
|
|
Common Stock, $.001
|
|
|
|
|
|
|
|
|
|
|
Par Value
|
|
Par Value
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Paid-in
|
|
Accumulated
|
|
Shareholders
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Equity
|
Balance December 31, 2008
|
|
|
|
|
|
$
|
|
|
|
|
41,279,645
|
|
|
$
|
41,279
|
|
|
$
|
43,281,139
|
|
|
$
|
(41,378,941
|
)
|
|
$
|
1,943,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock and warrants issued in private
placement
|
|
|
1,000,000
|
|
|
|
1,983,984
|
|
|
|
|
|
|
|
|
|
|
|
1,960,399
|
|
|
|
|
|
|
|
3,944,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450,228
|
|
|
|
|
|
|
|
450,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,281,647
|
)
|
|
|
(6,281,647
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2009
|
|
|
1,000,000
|
|
|
$
|
1,983,984
|
|
|
|
41,279,645
|
|
|
$
|
41,279
|
|
|
$
|
45,691,766
|
|
|
$
|
(47,660,588
|
)
|
|
$
|
56,441
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
F-50
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,281,647
|
)
|
|
$
|
(7,402,697
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
859,103
|
|
|
|
759,285
|
|
Stock-based compensation and consulting
|
|
|
450,227
|
|
|
|
1,571,243
|
|
Loss on impairment of property and equipment of discontinued operations
|
|
|
416,764
|
|
|
|
88,922
|
|
Loss on impairment of intangible assets of discontinued operations
|
|
|
1,222,817
|
|
|
|
295,633
|
|
Gain on the disposal of property and equipment of discontinued operations
|
|
|
(227,763
|
)
|
|
|
92,374
|
|
Provision for bad debt
|
|
|
2,489
|
|
|
|
63,851
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(440,411
|
)
|
|
|
(212,914
|
)
|
Tax receivable
|
|
|
25,675
|
|
|
|
(31,290
|
)
|
Prepaid expenses
|
|
|
21,985
|
|
|
|
(55,822
|
)
|
Other current assets
|
|
|
(3,359
|
)
|
|
|
11,841
|
|
Other assets
|
|
|
|
|
|
|
1,722
|
|
Accounts payable
|
|
|
46,883
|
|
|
|
22,462
|
|
Accrued expenses
|
|
|
365,109
|
|
|
|
(397,953
|
)
|
Due to related parties
|
|
|
(4,315
|
)
|
|
|
(28,500
|
)
|
Deferred revenue
|
|
|
(21,372
|
)
|
|
|
(149,125
|
)
|
Income tax payable
|
|
|
|
|
|
|
(157,288
|
)
|
Liabilities of discontinued operations
|
|
|
(1,409,421
|
)
|
|
|
(2,355,205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(4,977,236
|
)
|
|
|
(7,883,461
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(304,664
|
)
|
|
|
(409,352
|
)
|
Proceeds from the sale of property and equipment of discontinued operations
|
|
|
11,495
|
|
|
|
27,000
|
|
Purchase of intangible assets and capitalization of software development
|
|
|
|
|
|
|
(291,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(293,169
|
)
|
|
|
(674,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Gross proceeds from note
|
|
|
32,831
|
|
|
|
|
|
Payments on note payable
|
|
|
(17,816
|
)
|
|
|
|
|
Gross proceeds from capital leases
|
|
|
155,055
|
|
|
|
193,498
|
|
Payments on capital leases
|
|
|
(84,801
|
)
|
|
|
(23,979
|
)
|
Gross proceeds from sales of preferred stock
|
|
|
4,000,000
|
|
|
|
|
|
Gross proceeds from sales of common stock
|
|
|
|
|
|
|
5,000,000
|
|
Fees paid in connection with offering
|
|
|
(15,617
|
)
|
|
|
(70,238
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
4,069,652
|
|
|
|
5,099,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
(1,200,753
|
)
|
|
|
(3,458,379
|
)
|
|
|
|
|
|
|
|
|
|
Cash beginning of the year
|
|
|
1,842,419
|
|
|
|
5,787,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash end of the period
|
|
$
|
641,666
|
|
|
$
|
2,329,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information
Cash payments for income taxes
|
|
$
|
|
|
|
$
|
188,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non cash financing activities:
|
|
|
|
|
|
|
|
|
Fees payable to a related party in connection with offering
|
|
$
|
40,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
F-51
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 1
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America (US GAAP) for interim
financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X.
Accordingly, the consolidated financial statements do not include all of the information and
footnotes required by US GAAP for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included and such adjustments
are of a normal recurring nature. These consolidated financial statements should be read in
conjunction with the consolidated financial statements for the year ended December 31, 2008 and
notes thereto and other pertinent information contained in Form 10-K of Health Benefits Direct
Corporation (the Company, we, us or our) as filed with the Securities and Exchange
Commission (the Commission).
The consolidated financial statements of the Company include the Company and its subsidiaries. All
material inter-company balances and transactions have been eliminated.
For purposes of comparability, certain prior period amounts have been reclassified to conform to
the 2009 presentation.
The results of operations for the nine months ended September 30, 2009 are not necessarily
indicative of the results for the full fiscal year ending December 31, 2009.
Organization
Health Benefits Direct Corporation (the Company, we, us or our) was formed in January
2004 for the purpose of acquiring, owning and operating businesses engaged in direct marketing and
sale of health and life insurance products, primarily utilizing the Internet and our former call
center. Our current operations consist of InsPro Technologies LLC and Insurint Corporation.
During the second quarter of 2009 Atiam Technologies LLC was renamed InsPro Technologies LLC
(InsPro Technologies). InsPro Technologies is a provider of comprehensive, web-based insurance
administration software applications. InsPro Technologies flagship software product is InsPro,
which was introduced in 2004. InsPro Technologies offers InsPro on a licensed and an ASP
(Application Service Provider) basis. InsPro is an insurance administration and marketing system
that supports group and individual business lines, and efficiently processes agent, direct market,
worksite and web site generated business. InsPro Technologies clients include insurance carriers
and third party administrators. InsPro Technologies realizes revenue from the sale of software
licenses, application service provider fees, software maintenance fees and consulting and
implementation services. We acquired InsPro Technologies on October 1, 2007.
F-52
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 1
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Insurint is a proprietary, professional-grade, web-based agent portal that aggregates real-time
quotes and underwriting information from multiple highly-rated carriers of health and life
insurance and related products. We market Insurint using a Software as a Service (SaaS) model
instead of software licensing model, which offers easy web-based distribution and pay-as-you-go
pricing. We market primarily to insurance agents, agencies, and other organizations selling health
insurance products to families and individuals. Unlike existing health insurance quote engines,
Insurint also enables an agent to input responses to a set of questions about the health of
proposed insureds to place an insurance policy faster and more accurately. In addition, Insurint
offers a suite of sales tools that agents can use to increase their overall sales production.
During the first quarter of 2009 we ceased marketing and selling activities in Telesales and sold
the majority of our call center-produced agency business to eHealth Insurance Services, Inc.
(eHealth). Telesales specialized in the direct marketing of health and life insurance and
related products to individuals and families. Telesales receives commission and other fees from the
insurance companies on behalf of which it sells insurance products for the sale of such products.
See Note 2 Discontinued Operations.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates. Significant estimates in 2009 and 2008 include the
allowance for doubtful accounts, stock-based compensation, the useful lives of property and
equipment and intangible assets, accrued expenses pertaining to abandoned facilities, fair value of
financial and equity instruments, and revenue recognition.
Cash and cash equivalents
The Company considers all liquid debt instruments with original maturities of 3 months or less to
be cash equivalents.
Restricted cash
The Company considers all cash and cash equivalents held in restricted accounts pertaining to the
Companys letters of credit as restricted cash.
Accounts receivable
The Company has a policy of establishing an allowance for uncollectible accounts based on its best
estimate of the amount of probable credit losses in its existing accounts receivable. The Company
periodically reviews its accounts receivable to determine whether an allowance is necessary based
on an analysis of past due accounts and other factors that may indicate that the realization of an
account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance
after all means of collection have been exhausted and the potential for recovery is considered
remote. At September 30, 2009, the Company has established, based on a review of its outstanding
balances, an allowance for doubtful accounts in the amount of $3,034.
F-53
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 1
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounts receivable from the Companys two largest InsPro Technologies clients as measured by
receivable balance accounted for 36% and 9% of the Companys total accounts receivable balance at
September 30, 2009.
Fair value of financial instruments
The carrying amounts of financial instruments, including cash and cash equivalents, restricted
cash, accounts receivable, accounts payable, accrued expenses and capital leases approximated fair
value as of September 30, 2009 and December 31, 2008, because of the relatively short-term maturity
of these instruments and their market interest rates.
Property and equipment
Property and equipment are carried at cost. The cost of repairs and maintenance is expensed as
incurred; major replacements and improvements are capitalized. When assets are retired or disposed
of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or
losses are included in income in the year of disposition. The Company examines the possibility of
decreases in the value of fixed assets when events or changes in circumstances reflect the fact
that their recorded value may not be recoverable.
Intangible assets
Intangible assets consist of assets acquired in connection with the acquisition of InsPro
Technologies and costs incurred in connection with the development of the Companys software. See
Note 4 Intangible Assets.
The Companys Insurint subsidiary capitalized certain costs valued in connection with developing or
obtaining internal use software. These costs, which consist of direct technology labor costs, are
capitalized and amortized using the straight-line method over expected useful lives. Costs that the
Company has incurred in connection with developing the Companys websites and purchasing domain
names are capitalized and amortized using the straight-line method over an expected useful life.
The Companys capitalization of software development costs for software used internally begins upon
the establishment of technological feasibility of the software. The establishment of technological
feasibility and the ongoing assessment of the recoverability of these costs require considerable
judgment by management with respect to certain external factors, including, but not limited to,
anticipated future gross product revenues, estimated economic life, and changes in software and
hardware technology. Capitalized software development costs are amortized utilizing the
straight-line method over the estimated economic life of the software not to exceed three years. We
regularly review the carrying value of software development assets and a loss is recognized when
the unamortized costs are deemed unrecoverable based on the estimated cash flows to be generated
from the applicable software.
F-54
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 1
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Companys InsPro Technologies subsidiary capitalized certain costs valued in connection with
developing or obtaining software for external use
.
These costs, which consist of direct technology
labor costs, are capitalized subsequent to the establishment of technological feasibility and until
the product is available for general release. Both prior and subsequent costs relating to the
establishment of technological feasibility are expensed as incurred. Development costs associated
with product enhancements that extend the original products life or significantly improve the
original products marketability are also capitalized once technological feasibility has been
established. Software development costs are amortized on a straight-line basis over the estimated
useful lives of the products not to exceed two years, beginning with the initial release to
customers. The Company continually evaluates whether events or circumstances have occurred that
indicate the remaining useful life of the capitalized software development costs should be revised
or the remaining balance of such assets may not be recoverable. The Company evaluates the
recoverability of capitalized software based on the net realizable value of its software products,
as defined by the estimated future revenue from the products less the estimated future costs of
completing and disposing of the products, compared to the unamortized capitalized costs of the
products. As of September 30, 2009, management believes no revisions to the remaining useful life
or additional write-downs of capitalized software development costs are required because the net
realizable value of its software products exceeds the unamortized capitalized costs. Managements
estimates about future revenue and costs associated with its software products are subject to risks
and uncertainties related to, among other things, market and industry conditions, technological
changes, and regulatory factors. A change in estimates could result in an impairment charge
related to capitalized software costs.
Impairment of long-lived assets
The Company periodically reviews its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully recoverable. The
Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is
less than the carrying amount of the asset. The amount of impairment is measured as the difference
between the assets estimated fair value and its book value.
See Note 2 Discontinued Operations.
Income taxes
The Company accounts for income taxes under the liability method. Under this method, deferred
income tax assets and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
F-55
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 1
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Loss per common share
Basic earnings per share is computed by dividing net income by the weighted average number of
shares of common stock outstanding during the period. Diluted earnings per share is computed by
dividing net income by the weighted average number of shares of common stock, common stock
equivalents and potentially dilutive securities outstanding during each period. Diluted loss per
common share is not presented because it is anti-dilutive. The Companys common stock equivalents
at September 30, 2009 include the following:
|
|
|
|
|
Convertible preferred stock
|
|
|
20,000,000
|
|
Options
|
|
|
5,439,148
|
|
Warrants
|
|
|
51,566,887
|
|
|
|
|
|
|
|
|
77,006,035
|
|
|
|
|
|
Revenue recognition
We follow the guidance of the Commissions Staff Accounting Bulletin 104 for revenue recognition.
In general, the Company records revenue when persuasive evidence of an arrangement exists, services
have been rendered or product delivery has occurred, the sales price to the customer is fixed or
determinable, and collectibility is reasonably assured.
InsPro Technologies offers InsPro on a licensed and an application service provider (ASP) basis.
An InsPro software license entitles the purchaser a perpetual license to a copy of the InsPro
software installed at a single client location. Alternatively, ASP hosting service enables a
client to lease the InsPro software, paying only for that capacity required to support their
business. ASP clients access InsPro installed on InsPro Technologies owned servers located at
InsPro Technologies offices or at a third partys site.
InsPro Technologies software maintenance fees apply to both licensed and ASP clients. Maintenance
fees cover periodic updates to the application and the InsPro help desk.
InsPro Technologies consulting and implementation services are generally associated with the
implementation of an InsPro instance for either an ASP or licensed client, and cover such activity
as InsPro installation, configuration, modification of InsPro functionality, client insurance plan
set-up, client insurance document design and system documentation.
Insurint Corporation offers Insurint, which is a proprietary, professional-grade, web-based agent
portal that aggregates real-time quotes and underwriting information from multiple highly-rated
carriers of health and life insurance and related products. Insurint typically charges its clients
a one time account set up fee, which is recognized as earned when collected and the service has
been provided, and recurring access fees, which are typically monthly in frequency and are
recognized as the service is provided.
F-56
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 1
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company recognizes revenue from software license agreements when persuasive evidence of an
agreement exists, delivery of the software has occurred, the fee is fixed or determinable, and
collectibility is probable. The Company considers fees relating to arrangements with payment terms
extending beyond one year to not be fixed or determinable and revenue for these arrangements is
recognized as payments become due from the customer. In software arrangements that include more
than one InsPro module, the Company allocates the total arrangement fee among the modules based on
the relative fair value of each of the modules.
License revenue allocated to software products generally is recognized upon delivery of the
products or deferred and recognized in future periods to the extent that an arrangement includes
one or more elements to be delivered at a future date and for which fair values have not been
established. Revenue allocated to maintenance agreements is recognized ratably over the
maintenance term and revenue allocated to training and other service elements is recognized as the
services are performed.
The unearned portion of InsPro Technologies and Insurints revenue, which is revenue collected or
billed but not yet recognized as earned, has been included in the consolidated balance sheet as a
liability for deferred revenue.
See Note 2 Discontinued Operations for revenue recognition for discontinued operations.
Advertising and other marketing expense
Advertising expense pertains to the development and distribution of brand and product advertising.
Other marketing includes professional marketing services. Advertising and other marketing are
expensed as incurred.
Concentrations of credit risk
The Company maintains its cash and restricted cash in bank deposit accounts, which, at times,
exceed the federally insured limits of $250,000 per account. At September 30, 2009, the Company
had approximately $1,241,290 in United States bank deposits, which exceeded federally insured
limits. Federally insured limits have been increased from $100,000 to $250,000 per account through
December 31, 2013. The Company has not experienced any losses in such accounts through September
30, 2009.
During the nine months ended September 30, 2009, approximately
46% and 22% of the Companys revenue
was earned from each of the Companys two largest InsPro Technologies clients.
Stock-based compensation
The Company accounts for stock based compensation transactions using a fair-value-based method and
recognizes compensation cost for share-based payments to employees based on their grant-date fair
value from the beginning of the fiscal period in which the recognition provisions are first
applied.
F-57
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 1
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Non-employee stock based compensation
The cost of stock based compensation awards issued to non-employees for services are recorded at
either the fair value of the services rendered or the instruments issued in exchange for such
services, whichever is more readily determinable, based on their grant-date fair value from the
beginning of the fiscal period in which the recognition provisions are first applied.
Registration rights agreements
The Company classifies as liability instruments the fair value of registration rights agreements
when such agreements (i) require it to file, and cause to be declared effective under the
Securities Act, a registration statement with the Commission within contractually fixed time
periods, and (ii) provide for the payment of liquidating damages in the event of its failure to
comply with such agreements. Registration rights with these characteristics are accounted for as
derivative financial instruments at fair value and (ii) contracts that are (a) indexed to and
potentially settled in an issuers own stock and (b) permit gross physical or net share settlement
with no net cash settlement alternative are classified as equity instruments.
At September 30, 2009, the Company does not believe that it is probable that the Company will incur
a penalty in connection with registration rights agreements, which we entered into in connection
with the 2008 and 2009 private placements. Accordingly no liability was recorded as of September
30, 2009.
Recent accounting pronouncements
In September 2006, the FASB issued guidance in the
Fair Value Measurements and Disclosures Topic of
the Codification. This guidance defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about fair value
measurements. In February 2008, the FASB deferred the effective date of this guidance for one year
for all nonfinancial assets and nonfinancial liabilities, except for those items that are
recognized or disclosed at fair value in the financial statements on a recurring basis (at least
annually). We adopted the guidance effective January 1, 2008 for
all financial assets and
liabilities. As of January 1, 2009, we adopted the
guidance for all non-financial assets and all
non-financial liabilities. There is no impact on our financial
statements as of September 30,
2009. In December 2007, the FASB issued guidance in the Business
Combinations Topic of the
Codification. This guidance requires the acquiring entity
in a business combination to record all
assets acquired and liabilities assumed at their respective acquisition-date fair values including
contingent consideration. In addition, this guidance changes the
recognition of assets acquired
and liabilities assumed arising from preacquisition contingencies and requires the expensing of
acquisition-related costs as incurred. The guidance applies prospectively to business combinations
for which the acquisition date is on or after January 1, 2009. We adopted this guidance effective
January 1, 2009. Any impact would be on future acquisitions.
F-58
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 1
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In December 2007,
the FASB issued guidance in the Consolidation Topic of the Codification on the
accounting for noncontrolling interests in consolidated financial statements. This guidance
clarifies the classification of noncontrolling interests in consolidated statements of financial
position and the accounting for and reporting of transactions between the reporting entity and
holders of such noncontrolling interests. This guidance is effective as of the beginning of an
entitys first fiscal year that begins on or after December 15,
2008 and is required to be adopted
prospectively, except for the reclassification of noncontrolling interests to equity
and the
recasting of net income (loss) attributable
to both the controlling and noncontrolling interests,
which are required to be adopted retrospectively. We adopted this
guidance effective January 1,
2009. There is no impact on our financial statements
as of September 30, 2009.
In April 2008, the FASB issued guidance in the
Intangibles-Goodwill and Other Topic of the
Codification on the determination of the useful life of
an intangible asset. This guidance amends
the factors that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset. This
statement is effective for
financial statements issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. We adopted this guidance effective January 1, 2009. There
is no impact
on our financial statements as of September 30, 2009.
In June 2008, FASB issued guidance in the Earnings Per Share
Topic of the Codification on
determining whether instruments granted in share-based payment transactions are participating
securities. The guidance clarified that all unvested share-based payment awards that contain
non-forfeitable rights to dividends are participating securities and provides guidance on how
to
compute basic EPS under the two-class method. The guidance is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal
years. We adopted this guidance effective January 1, 2009 and
it had no impact on our financial
statements.
In April 2009, the FASB issued guidance in
the Fair Value Measurements and Disclosures Topic of the
Codification on determining fair value when the volume and level of activity for an asset or
liability have significantly decreased and identifying transactions that are not orderly. The
guidance emphasizes that even if there has been a significant decrease in the volume and level of
activity, the objective of a fair value measurement remains the same. Fair value is the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction (that
is, not a forced liquidation or distressed sale) between market participants. The guidance
provides a number of factors to consider when evaluating whether there has been a significant
decrease in the volume and level of activity
for an asset or liability in relation to normal market
activity. In addition, when transactions or quoted prices are not considered orderly, adjustments
to those prices based on the weight of available information may be needed to determine the
appropriate fair value. The guidance is effective for interim or annual reporting periods ending
after June 15, 2009, and shall be applied
prospectively. We adopted this guidance effective for
the quarter ending June 30, 2009. There is no impact of the adoption on our financial statements
as of September 30, 2009.
In April 2009, FASB issued guidance in the Financial Instruments Topic of the Codification
on
interim disclosures about fair value of financial instruments. The guidance requires disclosures
about the fair value of financial instruments for both interim reporting periods, as well as annual
reporting periods. The guidance is effective for all interim and annual reporting periods ending
after June 15, 2009 and shall be applied prospectively. The adoption of this
guidance had no
impact on our financial statements as of September 30, 2009.
F-59
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 1
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In May 2009, FASB issued guidance in the Subsequent Events Topic of the Codification. The
guidance
is intended to establish general standards of accounting for, and disclosure of, events that occur
after the balance sheet date but before financial statements are issued. It requires the
disclosure of the date through which an entity has evaluated subsequent events and the basis
for
that date. The guidance is effective for interim or annual financial periods ending after June 15,
2009 and is required to be adopted prospectively. We adopted this guidance effective for
the
quarter ending June 30, 2009. The adoption of this guidance had no impact on
our financial
statements as of September 30, 2009, other than the additional disclosure.
In June 2009, the FASB issued guidance which will amend the Consolidation Topic of the
Codification. The guidance addresses the effects of
eliminating the qualifying special-purpose
entity (QSPE) concept and responds to concerns over the transparency of enterprises involvement
with variable interest entities (VIEs). The guidance is effective beginning on January 1,
2010. We do not expect the adoption of this guidance to have
an impact on our financial
statements.
In August 2009, the FASB issued Accounting Standards Update No. 2009-05, Measuring Liabilities
at
Fair Value (ASU 2009-05). ASU
2009-05 amends the Fair Value Measurements and Disclosures Topic of
the FASB Accounting Standards Codification by providing additional guidance clarifying the
measurement of liabilities at fair value. ASU 2009-05 is effective for us for the reporting period
ending December 31, 2009. We do not expect
the adoption of ASU 2009-05 to have an impact on our
financial statements.
NOTE 2
DISCONTINUED OPERATIONS
During the first quarter of 2009, the Company ceased the direct marketing and sale of health and
life insurance and related products to individuals and families in its Telesales call center. The
Company also determined to discontinue selling health and life insurance and related products to
individuals and families through its non employee ISG agents. During the first quarter of 2009 the
Companys Telesales business segment eliminated 43 positions including all of its licensed employee
sales agents along with other Telesales service and support personnel and eliminated another 20
positions in Telesales through attrition.
On February 20, 2009 (the Closing Date), the Company entered into and completed the sale of the
Companys Telesales call center produced agency business (the Agency Business) to eHealth, an
unaffiliated third party, pursuant to the terms of a Client Transition Agreement (the Agreement).
Pursuant to the Agreement the Company transferred to eHealth the broker of record status and the
right to receive commissions on certain of the in-force individual and family major medial health
insurance policies and ancillary dental, life and vision insurance policies issued by Aetna, Inc.,
Golden Rule, Humana, PacifiCare, Inc., Assurant and United Healthcare Insurance Co. (collectively,
the Specified Carriers) on which the Company was designated as broker of record as of the Closing
Date (collectively, the Transferred Policies and each, a Transferred Policy). Certain policies
and products were excluded from the transaction, including the Companys agency business generated
through its ISG agents, all short term medical products and all business produced through carriers
other than the Specified Carriers. In addition, the Agreement also provides for the transfer to
eHealth of certain lead information relating to health insurance prospects (the Lead Database).
F-60
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 2
DISCONTINUED OPERATIONS (continued)
The aggregate initial amount of consideration paid by eHealth to the Company pursuant to the
Agreement during the first quarter of 2009 was approximately $1,280,000. In addition, on the
Closing Date, eHealth agreed to assume from the Company certain liabilities relating to historical
commission advances on the Transferred Policies made by the Specified Carriers in an aggregate
amount of approximately $1,385,000. In addition, eHealth has agreed to pay to HBDC II, Inc., a
Delaware corporation and a wholly-owned subsidiary of the Company (HBDC II) a portion of each
commission payment received by eHealth and reported by the Specified Carrier relating to a
Transferred Policy for the duration of the policy, provided that eHealth remains broker of record
on such Transferred Policy.
Simultaneous with the execution of the Agreement, the Company and eHealth also entered into a
Marketing and Referral Agreement, dated as of February 20, 2009 (the Referral Agreement).
Pursuant to the terms of the Referral Agreement, eHealth agreed to construct one or more websites
for the purpose of selling health insurance products (the Referral Sites) and to pay to HBDC II a
portion of all first year and renewal commissions received by eHealth from policies sold through
the Referral Sites that result from marketing to prospects using the Lead Database or other leads
delivered by the Company to eHealth. The Referral Agreement is scheduled to terminate 18 months
following the Closing Date and is terminable by the Company or eHealth upon material breach by the
other party.
Revenue Recognition for Discontinued Operations
Our Telesales business segment generates revenue primarily from the receipt of commissions paid to
the Company by insurance companies based upon the insurance policies sold to consumers by the
Company. These revenues are in the form of first year, bonus and renewal commissions that vary by
company and product. We recognize commission revenue primarily from the sale of health insurance,
after we receive notice that the insurance company has received payment of the related premium.
First year commission revenues per policy can fluctuate due to changing premiums, commission rates,
and types or amount of insurance sold. Insurance premium commission revenues are recognized
pro-rata over the terms of the policies. Revenues for renewal commissions are recognized after we
receive notice that the insurance company has received payment for a renewal premium. Renewal
commission rates are significantly less than first year commission rates and may not be offered by
every insurance company or with respect to certain types of products. The unearned portion of
premium commissions has been included in the consolidated balance sheet as a liability for unearned
commission advances.
The length of time between when we submit a consumers application for insurance to an insurance
company and when we recognize revenue varies. The type of insurance product, the insurance
companys premium billing and collection process, and the insurance companys underwriting backlog
are the primary factors that impact the length of time between submitted applications and revenue
recognition. Any changes in the amount of time between submitted application and revenue
recognition, which are influenced by many factors not under our control, create fluctuations in our
operating results and could affect our business, operating results and financial condition.
The Company received bonuses based upon individual criteria set by insurance companies, which we
recognize when we receive notification from the insurance company of the bonus due to us.
F-61
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 2
DISCONTINUED OPERATIONS (continued)
The Company receives fees for the placement and issuance of insurance policies that are in addition
to, and separate from, any sales commissions paid by insurance companies. As these policy fees are
not refundable and the Company has no continuing obligation, all such revenues are recognized on
the effective date of the policies or, in certain cases, the billing date, whichever is later.
During the first quarter of 2009 the Company recognized a gain upon the execution of the Agreement
of $2,664,794, which is the sum of the aggregate initial amount of consideration paid by eHealth to
the Company and eHealths assumption of certain liabilities relating to historical commission
advances on the Transferred Policies.
The Company recognizes as revenue commission payments received from eHealth in connection with the
Agreement upon the Companys notification by eHealth of such amounts.
The Company generated revenue from the sale of leads to third parties. Such revenues are recognized
when the Company delivers the leads and bills the purchaser of the leads.
The Company also generated revenue from the sub-lease of our leased New York City office and a
portion of our leased Deerfield Beach Florida office, which are both leased under operating leases.
The terms of the Companys sub-lease of our New York City office is under similar terms as our
lease. The Company sub-leases portions of our Deerfield Beach office to two unaffiliated parties
through January 31, 2010. Sub-lease revenue includes base rent, additional rent representing a
portion of occupancy expenses under the terms of the sub-leases and certain technology and facility
services provided. We recognize sub-lease revenue when lease rent payments are due in accordance
with the sub-lease agreements. Recognition of sub-lease revenue commences when control of the
facility has been given to the tenant. We record a provision for losses on accounts receivable
equal to the estimated uncollectible amounts. This estimate is based on our historical experience
and a review of the current status of the Companys receivables.
Impairment of Long Lived Assets
During the first quarter of 2009 we determined certain long term assets were impaired as a result
of the cessation of direct marketing and sales in the Telesales call center. The Company recorded
expense in 2009 to write-off the value of these long term assets in the results from discontinued
operations, which included property and equipment net of depreciation of $416,764, intangible
assets net of accumulated amortization acquired from ISG of $1,200,428 and the value of internet
domain name www.healthbenefitsdirect.com net of accumulated amortization of $22,389.
On July 1, 2009 the Company entered into a sub-lease agreement with a third party, effective July
15, 2009 which terminated an existing sub-lease agreement for approximately 8,000 square feet of
the Companys Deerfield Beach office and replaced it with a sub-lease agreement for approximately
29,952 square feet. This new sub-lease terminates on February 28, 2011. As part of the sub-lease
agreement, the Company also agreed to lease certain personal property to the sub-lessee for the
term of the lease. The sub-lessee agreed to pay the Company 20 monthly payments of $10,890 for
such personal property and the Company has agreed to deliver to the sub-lessee a bill of sale for
the leased personal property at the end of the term. The Company has accounted for this personal
property sub-lease arrangement as a sale and recorded a gain of $217,501.
F-62
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 2
DISCONTINUED OPERATIONS (continued)
The Company recorded a liability for severance payments due to employees of discontinued operations
of $278,030 and $266,740 at September 30, 2009 and December 31, 2008, respectively.
The financial position of discontinued operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
Accounts receivable, less allowance for doubtful accounts $0 and $2,173
|
|
$
|
(340,658
|
)
|
|
$
|
(457,994
|
)
|
Deferred compensation advances
|
|
|
(926
|
)
|
|
|
(36,186
|
)
|
Prepaid expenses
|
|
|
(10,375
|
)
|
|
|
(51,029
|
)
|
Other current assets
|
|
|
(5,943
|
)
|
|
|
|
|
Property and equipment, net of accumulated depreciation of $0 and $1,300,155
|
|
|
|
|
|
|
(434,067
|
)
|
Intangibles, net of accumulated amortization of $0 and $3,858,592
|
|
|
|
|
|
|
(1,286,946
|
)
|
Other assets
|
|
|
(124,463
|
)
|
|
|
(70,033
|
)
|
Accounts payable
|
|
|
103,515
|
|
|
|
179,623
|
|
Accrued expenses
|
|
|
2,544,129
|
|
|
|
1,333,693
|
|
Sub-tenant security deposit
|
|
|
121,007
|
|
|
|
39,093
|
|
Unearned commission advances
|
|
|
18,986
|
|
|
|
3,022,161
|
|
|
|
|
|
|
|
|
Net current liabilities of discontinued operations
|
|
$
|
2,305,272
|
|
|
$
|
2,238,315
|
|
|
|
|
|
|
|
|
The gain on the execution of the Agreement together with the results of the Telesales call center,
ISG and real estate sub-leasing of the Companys former New York and Florida sales offices are all
classified as discontinued operations for all periods presented. The results of discontinued
operations do not include any allocated or common overhead expenses except for a portion of
expenses pertaining to our Florida office. The results of operations of discontinued operations
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission and other revenue from carriers
|
|
$
|
251,023
|
|
|
$
|
4,100,158
|
|
|
$
|
1,972,178
|
|
|
$
|
13,847,293
|
|
Gain recognized upon the execution of the Agreement
|
|
|
|
|
|
|
|
|
|
|
2,664,794
|
|
|
|
|
|
Transition policy commission pursuant to the Agreement
|
|
|
606,424
|
|
|
|
|
|
|
|
1,383,279
|
|
|
|
|
|
Gain on disposal of property and equipment
|
|
|
217,501
|
|
|
|
|
|
|
|
227,728
|
|
|
|
|
|
Lead sale revenue
|
|
|
|
|
|
|
103,798
|
|
|
|
2,442
|
|
|
|
391,293
|
|
Sub-lease revenue
|
|
|
326,393
|
|
|
|
85,903
|
|
|
|
1,007,898
|
|
|
|
138,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,401,341
|
|
|
|
4,289,859
|
|
|
|
7,258,319
|
|
|
|
14,377,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, commission and related taxes
|
|
|
125,329
|
|
|
|
2,461,203
|
|
|
|
1,034,188
|
|
|
|
8,848,034
|
|
Lead, advertising and other marketing
|
|
|
(27,001
|
)
|
|
|
832,129
|
|
|
|
98,350
|
|
|
|
3,877,825
|
|
Depreciation and amortization
|
|
|
|
|
|
|
374,451
|
|
|
|
95,619
|
|
|
|
1,192,366
|
|
Rent, utilities, telephone and communications
|
|
|
348,001
|
|
|
|
486,758
|
|
|
|
3,348,542
|
|
|
|
1,668,196
|
|
Professional fees
|
|
|
35,222
|
|
|
|
47,813
|
|
|
|
393,090
|
|
|
|
186,648
|
|
Loss on impairment of property and equipment
|
|
|
|
|
|
|
|
|
|
|
416,764
|
|
|
|
88,922
|
|
Loss on impairment of intangible assets
|
|
|
|
|
|
|
|
|
|
|
1,222,817
|
|
|
|
295,633
|
|
Other general and administrative
|
|
|
112,999
|
|
|
|
113,679
|
|
|
|
225,185
|
|
|
|
373,120
|
|
Loss on disposal of property and equipment
|
|
|
|
|
|
|
92,374
|
|
|
|
|
|
|
|
92,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
594,550
|
|
|
|
4,408,407
|
|
|
|
6,834,555
|
|
|
|
16,623,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from discontinued operations
|
|
$
|
806,791
|
|
|
$
|
(118,548
|
)
|
|
$
|
423,764
|
|
|
$
|
(2,245,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-63
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 3
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
At September 30,
|
|
|
At December 31,
|
|
|
|
(Years)
|
|
|
2009
|
|
|
2008
|
|
Computer equipment and software
|
|
|
3
|
|
|
$
|
895,427
|
|
|
$
|
657,205
|
|
Office equipment
|
|
|
4.6
|
|
|
|
194,360
|
|
|
|
11,998
|
|
Office furniture and fixtures
|
|
|
6.7
|
|
|
|
189,857
|
|
|
|
294,029
|
|
Leasehold improvements
|
|
|
9.8
|
|
|
|
34,034
|
|
|
|
34,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,313,678
|
|
|
|
997,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
(467,624
|
)
|
|
|
(267,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
846,054
|
|
|
$
|
729,881
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2009 and 2008, depreciation expense was $87,847 and
$59,166, respectively. For the nine months ended September 30,
2009 and 2008, depreciation expense
was $241,556 and $243,367, respectively.
NOTE 4
INTANGIBLE ASSETS
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
At September 30,
|
|
|
At December 31,
|
|
|
|
(Years)
|
|
|
2009
|
|
|
2008
|
|
Atiam intangible assets acquired
|
|
|
4.7
|
|
|
$
|
2,097,672
|
|
|
$
|
2,097,672
|
|
Software development costs for internal use
|
|
|
2.6
|
|
|
|
638,291
|
|
|
|
660,680
|
|
Software development costs for external marketing
|
|
|
2
|
|
|
|
174,296
|
|
|
|
174,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,910,259
|
|
|
|
2,932,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated amortization
|
|
|
|
|
|
|
(1,616,345
|
)
|
|
|
(1,021,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,293,914
|
|
|
$
|
1,911,461
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets acquired from InsPro Technologies had the following unamortized values as of
September 30, 2009: value of client contracts and relationships other than license of $653,532; the
value of purchased software for sale and licensing value of $386,668; and the employment and
non-compete agreements acquired of $121,311. Software development costs for internal use and
external marketing had unamortized values as of September 30, 2009 of $67,042 and $65,361
,
respectively.
F-64
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 4
INTANGIBLE ASSETS (continued)
For the three months ended September 30, 2009 and 2008, amortization expense was $205,849 and
$194,604, respectively. For the nine months ended September 30,
2009 and 2008, amortization
expense was $617,547 and $515,918, respectively.
Amortization expense subsequent to the period ended September 30, 2009 is as follows:
|
|
|
|
|
2009
|
|
$
|
205,847
|
|
2010
|
|
|
481,283
|
|
2011
|
|
|
346,734
|
|
2012
|
|
|
260,050
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,293,914
|
|
|
|
|
|
NOTE 5
RELATED PARTY TRANSACTIONS
As of September 30, 2009, the Company recorded $40,000 due to related parties, which consisted of
the reimbursement of legal expense to Cross Atlantic Capital Partners pursuant to the terms of a
Securities Purchase Agreement, dated January 14, 2009. See Note 6 Shareholders Equity. As of
December 31, 2008, the Company recorded $4,315 due to related parties, which consisted of director
travel expense reimbursement to Cross Atlantic Capital Partners for Messrs. Caldwells and Tecces
travel expense to board of director meetings.
NOTE 6
SHAREHOLDERS EQUITY
Common Stock
2008
On January 3, 2008, the Company issued 75,000 shares of unrestricted common stock to certain
directors in accordance with the Companys Non Employee Director Compensation Plan, which was
valued in aggregate at $129,000 based on the closing price per share ($1.72) of the Companys
common stock on the OTCBB on January 3, 2008.
On February 15, 2008, Mr. Eissa and Mr. Spinner returned to the Company in aggregate 20,749 shares
of the 100,000 shares of the Companys common stock that vested to them on this date as
consideration for the Company paying their estimated tax liabilities pursuant to the terms of their
February 15, 2007 restricted stock grants. The shares were valued at $1.32 per share based on
closing price of the Companys common stock on the OTCBB on February 15, 2008.
F-65
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 6
SHAREHOLDERS EQUITY (continued)
On March 31, 2008, the Company entered into Securities Purchase Agreements (the 2008 Purchase
Agreements) with certain institutional and individual accredited investors (collectively, the
2008 Investors) and completed a private placement (the 2008 Private Placement) of an aggregate
of 6,250,000 shares of the Companys common stock and warrants to purchase 6,250,000 shares of the
Companys common stock. Pursuant to the 2008 Purchase Agreement, the Company sold investment units
(each, a 2008 Unit) at a per unit purchase price equal to $0.80. Each 2008 Unit sold in the 2008
Private Placement consisted of one share of common stock and a Warrant to purchase one share of
common stock at an initial exercise price of $0.80 per share, subject to adjustment (the 2008
Warrant). The gross proceeds from the 2008 Private Placement were $5,000,000 and we incurred
$70,238 of legal and other expenses in connection with the 2008 Private Placement.
On March 31, 2008, 75,000 restricted shares of common stock issued to Ivan M. Spinner, the
Companys former Senior Vice President, were forfeited in accordance with the terms of the
restricted stock grant. The forfeiture was accounted for as retirement of 75,000 shares valued at
$225,000 based on the fair market value on the date of grant and recorded as a reduction to
salaries, commission and related taxes, net effects are included in amortization of deferred
compensation.
On April 1, 2008, the Company issued 99,010 restricted shares of its common stock to Mr. Edmond
Walters upon the effective date of his becoming a director of the Company in accordance with the
Companys Non Employee Director Compensation Plan and the Companys 2006 Omnibus Equity
Compensation Plan. Mr. Walters was granted shares valued at $100,000 in aggregate based on the
$1.01 closing price of the Companys common stock on the OTCBB on April 1, 2008, and will vest as
follows: 33,003 shares on April 1, 2008; 33,003 additional shares on April 1, 2009; 33,004 shares
on April 1, 2010. Pursuant to the Companys 2006 Omnibus Equity Compensation Plan, Mr. Walters has
voting, dividend and distribution rights pertaining to his unvested shares, but he is restricted
from selling or otherwise disposing of his restricted shares until vesting occurs.
2009
Effective March 25, 2009, our shareholders approved an amendment to our certificate of
incorporation, as amended, to increase the number of authorized shares of common stock from
90,000,000 shares to 200,000,000.
As a result, the Company filed a Certificate of Amendment with the Secretary of State of the State
of Delaware. The Certificate of Amendment was approved by the Companys board of directors on
January 12, 2009 and became effective upon filing on March 25, 2009. Upon the filing of the
Certificate of Amendment, all outstanding shares of the Companys Series A convertible preferred
stock became immediately convertible, at the election of each holder, into twenty shares of the
Companys common stock and the 2009 Warrants (as defined below) issued in the 2009 Private
Placement (as defined below) automatically became exercisable for twenty shares of common stock and
are no longer exercisable into Preferred Shares (as defined below).
F-66
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 6
SHAREHOLDERS EQUITY (continued)
Preferred Stock
On January 14, 2009, the Company filed a Certificate of Designation with the Secretary of State of
the State of Delaware. The Certificate of Designation was approved by the Companys Board of
Directors on January 12, 2009 and became effective upon filing. The Certificate of Designation
provides for the terms of the Companys Series A convertible preferred stock (the Preferred
Stock) issued pursuant to the 2009 Purchase Agreement (as defined below).
On January 14, 2009, the Company entered into and, on January 15, 2009 completed, a private
placement (the 2009 Private Placement) with Co-Investment Fund II, L.P., a Delaware limited
partnership (Co-Investment or the Investor), for an aggregate of 1,000,000 shares (each, a
Preferred Share) of its Preferred Stock, par and warrants to purchase 1,000,000 shares of its
Preferred Stock (each, a Preferred Warrant Share), pursuant to the terms of the Securities
Purchase Agreement (the 2009 Purchase Agreement). The gross proceeds from the closing were
$4 million and the Company intends to use the net proceeds of the 2009 Private Placement for
working capital purposes.
Pursuant to the 2009 Purchase Agreement, the Company agreed to sell to Co-Investment 1,000,000
investment units (each, a 2009 Unit) in the 2009 Private Placement at a per 2009 Unit purchase
price equal to $4.00. Each 2009 Unit sold in the 2009 Private Placement consisted of one share of
Preferred Stock and a Warrant to purchase one share of Preferred Stock at an initial exercise price
of $4.00 per share, subject to adjustment (the 2009 Warrant).
The Preferred Stock is entitled to vote as a single class with the holders of the Companys common
stock, with each Share of Preferred Stock having the right to 20 votes. Upon the liquidation, sale
or merger of the Company, each Share of Preferred Stock is entitled to receive an amount equal to
the greater of (A) a liquidation preference equal to two and a half (2.5) times the Preferred Stock
original issue price or $10,000,000, subject to certain customary adjustments, or (B) the amount
such Share of Preferred Stock would receive if it participated
pari passu
with the holders of
common stock on an as-converted basis. Each Share of Preferred Stock becomes convertible into 20
shares of common stock (the Shares), subject to adjustment and at the option of the holder of the
Preferred Stock, immediately after shareholder approval of the Charter Amendment (as defined
below). For so long as any shares of Preferred Stocks are outstanding, the vote or consent of the
Holders of at least two-thirds of the Preferred Stock is required to approve (Y) any amendment to
the Companys certificate of incorporation or bylaws that would adversely alter the voting powers,
preferences or special rights of the Preferred Stock or (Z) any amendment to the Companys
certificate of incorporation to create any shares of capital stock that rank senior to the
Preferred Stock. In addition to the voting rights described above, for so long as 1,000,000 Shares
of Preferred Stocks are outstanding, the vote or consent of the holders of at least two-thirds of
the Shares of Preferred Stock is required to effect or validate any merger, sale of substantially
all of the assets of the Company or other fundamental transaction, unless such transaction, when
consummated, will provide the holders of Preferred Stock with an amount per share equal to two and
a half (2.5) times the Preferred Stock original issue price or $10,000,000 in aggregate for all
issued and outstanding Preferred Stock.
F-67
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 6
SHAREHOLDERS EQUITY (continued)
The Company was required, under the terms of the 2009 Purchase Agreement, to file a proxy statement
(the Proxy Statement) and hold a special meeting of the Companys shareholders (the Special
Meeting) within 75 days of the effective date of the 2009 Purchase Agreement for the purpose of
approving a certificate of amendment to the Companys certificate of incorporation to increase the
total number of the Companys authorized shares of common stock from 90,000,000 to 200,000,000 (the
Charter Amendment). Under the terms of the 2009 Purchase Agreement, Co-Investment agreed to vote
all Preferred Shares and shares of common stock beneficially owned by it in favor of the Charter
Amendment at the Special Meeting. The Company filed a Proxy Statement and on March 25, 2009 held a
Special Meeting of shareholders whereby shareholders voted and approved the Charter Amendment.
The Company also agreed, pursuant to the terms of the 2009 Purchase Agreement, that, except for the
Follow-on Financing, for a period of 90 days after the effective date (the Initial Standstill) of
the 2009 Purchase Agreement, the Company shall not, subject to certain exceptions, offer, sell,
grant any option to purchase, or otherwise dispose of any equity securities or equity equivalent
securities, including without limitation, any debt, preferred stock, rights, options, warrants or
other instrument that is at any time convertible into or exchangeable for, or otherwise entitles
the holder thereof to receive, capital stock and other securities of the Company (any such
issuance, offer, sale, grant, disposition or announcement being referred to as a Subsequent
Placement). Additionally, the Company has agreed with Co-Investment that, for an additional 90
day period following the Initial Standstill, it shall not engage in any Subsequent Placement
without the prior written consent of Co-Investment, if such Subsequent Placement seeks to raise
less than $15 million.
The 2009 Purchase Agreement also provides for a customary participation right for Co-Investment,
subject to certain exceptions and limitations, which grants Co-Investment the right to participate
in any future capital raising financings of the Company occurring prior to January 14, 2011.
Co-Investment may participate in such financings at a level based on Co-Investments ownership
percentage of the Company on a fully-diluted basis prior to such financing.
The Company allocated the $4,000,000 proceeds received from the 2009 Private Placement net of
$45,617 of costs incurred to complete 2009 Private Placement to the Preferred Shares and 2009
Warrants based on their relative fair values, which were determined to have a fair value in
aggregate of $3,758,306. The Company determined the 2009 Warrants are properly classified as an
equity instrument. The Company recorded the value of the Preferred Shares as $1,983,984 and the
value of the 2009 Warrants as $1,960,399 in additional paid in capital. The Company determined the
fair value of the Preferred Shares to be $1,900,000 based on the closing price of the Companys
common stock on January 15, 2009 and the 20 to 1 conversion ratio of the Preferred Shares into
Common Shares. The Company determined the fair value of the 2009 Warrants to be $1,812,867 using a
Black-Scholes option pricing model with the following assumptions: expected volatility of 192%, a
risk-free interest rate of 0.12%, an expected term of 5 years and 0% dividend yield.
F-68
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 6
SHAREHOLDERS EQUITY (continued)
Stock Options
On February 5, 2009 the Company issued to Mr. Verdi a stock option grant to purchase a total of
650,000 shares of the Companys common stock, which vests as follows: 130,000 shares of common
stock on each of May 31, 2009, September 30, 2009, May 31, 2010 and September 30, 2010; 65,000
shares of common stock on May 31, 2011; and 32,500 shares of common stock on each of September 30,
2011 and May 31, 2012.
Also on February 5, 2009 the Company issued to Mr. Oakes a stock option grant to purchase a total
of 1,000,000 shares of the Companys common stock, which vests as follows: 200,000 shares of common
stock on each of May 31, 2009, September 30, 2009, May 31, 2010 and September 30, 2010; 100,000
shares of common stock on May 31, 2011; and 50,000 shares of common stock on each of September 30,
2011 and May 31, 2012.
Each of the options issued to Messrs. Verdi and Oakes have a five year term and an exercise price
of $0.101, which is equal to closing price of one share of the Companys common stock as quoted on
the OTCBB on February 5, 2009.
On May 20, 2009 the Company issued options under the 2008 Plan to purchase 250,000 shares of common
stock to an outside consultant at an option exercise price of $0.10. These options have a term of
3 years and will vest 20,000 shares on June 20, 2009 and 10,000 shares vesting monthly starting
July 20, 2009 through April 20, 2011.
During the nine months ended September 30, 2009 the Company also issued options under the 2008 Plan
in aggregate to purchase 225,000 shares of common stock to employees at a weighted average option
exercise price of $0.07. These options have a term of 5 years and will vest one third on the first
anniversary and an additional one third on each anniversary thereafter.
During the nine months ended September 30, 2009 a total of
977,052 options previously granted were
forfeited as a result of the termination of the employment of various employees in accordance with
the terms of the stock options.
The Company recorded $450,227 and $1,287,351 in salaries, commission and related taxes pertaining
to director and employee stock options and restricted and unrestricted stock grants in nine months
ended September 30, 2009 and 2008, respectively.
The weighted average fair value of option grants are estimated as of the date of grant using the
Black-Scholes option-pricing model based on the following assumptions for options granted during
the nine months ended September 30, 2009:
|
|
|
|
|
Expected volatility
|
|
|
201
|
%
|
Risk-free interest rate
|
|
|
3.69
|
%
|
Expected life in years
|
|
|
4.6
|
|
Assumed dividend yield
|
|
|
0
|
%
|
F-69
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 6
SHAREHOLDERS EQUITY (continued)
A summary of the Companys outstanding stock options as of and for the nine months ended September
30, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
|
Of Shares
|
|
|
Average
|
|
|
Weighted
|
|
|
|
Underlying
|
|
|
Exercise
|
|
|
Average
|
|
|
|
Options
|
|
|
Price
|
|
|
Fair Value
|
|
Outstanding at December 31, 2008
|
|
|
4,291,200
|
|
|
$
|
1.99
|
|
|
$
|
0.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,125,000
|
|
|
|
0.08
|
|
|
|
0.08
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
977,052
|
|
|
|
2.52
|
|
|
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2009
|
|
|
5,439,148
|
|
|
|
1.15
|
|
|
|
0.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at September 30, 2009
|
|
|
3,987,966
|
|
|
$
|
1.51
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
The following information applies to stock options outstanding at September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
Average
|
|
|
|
|
|
Average
|
Exercise
|
|
|
|
Number of Shares
|
|
Contractual
|
|
Exercise
|
|
|
|
|
|
Exercise
|
Price
|
|
|
|
Underlying Options
|
|
Life
|
|
Price
|
|
Number Exercisable
|
|
Price
|
$
|
0.06
|
|
|
|
|
|
155,000
|
|
|
|
4.5
|
|
|
$
|
0.06
|
|
|
|
|
|
|
$
|
|
|
|
0.10
|
|
|
|
|
|
1,970,000
|
|
|
|
4.4
|
|
|
|
0.10
|
|
|
|
720,000
|
|
|
|
0.10
|
|
|
0.24
|
|
|
|
|
|
15,000
|
|
|
|
4.1
|
|
|
|
0.24
|
|
|
|
|
|
|
|
|
|
|
0.78
|
|
|
|
|
|
10,000
|
|
|
|
3.6
|
|
|
|
0.78
|
|
|
|
3,333
|
|
|
|
|
|
|
1.00
|
|
|
|
|
|
1,300,000
|
|
|
|
6.2
|
|
|
|
1.00
|
|
|
|
1,300,000
|
|
|
|
1.00
|
|
|
1.01
|
|
|
|
|
|
550,000
|
|
|
|
8.5
|
|
|
|
1.01
|
|
|
|
550,000
|
|
|
|
1.01
|
|
|
2.50
|
|
|
|
|
|
421,648
|
|
|
|
6.1
|
|
|
|
2.50
|
|
|
|
421,434
|
|
|
|
2.50
|
|
|
2.62
|
|
|
|
|
|
20,000
|
|
|
|
2.2
|
|
|
|
2.62
|
|
|
|
13,200
|
|
|
|
2.62
|
|
|
2.70
|
|
|
|
|
|
475,000
|
|
|
|
1.6
|
|
|
|
2.70
|
|
|
|
458,333
|
|
|
|
2.70
|
|
|
2.95
|
|
|
|
|
|
45,000
|
|
|
|
1.6
|
|
|
|
2.95
|
|
|
|
45,000
|
|
|
|
2.95
|
|
|
3.00
|
|
|
|
|
|
2,500
|
|
|
|
2.6
|
|
|
|
3.00
|
|
|
|
1,666
|
|
|
|
3.00
|
|
|
3.50
|
|
|
|
|
|
75,000
|
|
|
|
6.5
|
|
|
|
3.50
|
|
|
|
75,000
|
|
|
|
3.50
|
|
|
3.60
|
|
|
|
|
|
400,000
|
|
|
|
1.6
|
|
|
|
3.60
|
|
|
|
400,000
|
|
|
|
3.60
|
|
|
|
|
|
|
|
|
5,439,148
|
|
|
|
|
|
|
|
|
|
|
|
3,987,966
|
|
|
|
|
|
F-70
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 6
SHAREHOLDERS EQUITY (continued)
As of September 30, 2009, there were 7,000,000 shares of our common stock authorized to be issued
under the 2008 Plan, of which 821,842 shares of our common stock remain available for future stock
option grants.
The total intrinsic value of stock options granted during the nine months ended and as of
September
30, 2009 was $0. The total intrinsic value of stock options outstanding and exercisable as of
September 30, 2009 was $0.
The value of equity compensation expense not yet expensed pertaining to unvested equity
compensation was $154,693 as of September 30, 2009, which will be recognized in the
fourth quarter
of 2009.
Common Stock Warrants
On January 10, 2009, warrants to purchase 2,762,500 shares of the Companys common stock at an
exercise price of $1.50 per share expired in accordance with the terms of the warrants.
The 2009 Warrants provide that the holder thereof shall have the right (A) at any time after the
Stockholder Approval Date (as defined below), but prior to the earlier of (i) ten business days
after the Company has properly provided written notice to all such holders of a Call Event (as
defined below), (ii) the date on which the Companys shareholders approve the Charter Amendment
(the Stockholder Approval Date) and (iii) January 14, 2014, to acquire 1,000,000 shares of
Preferred Stock upon the payment of $4.00 per Preferred Warrant Share and (B) at any time after
the Stockholder Approval Date, but prior to the earlier of (i) ten business days after the Company
has properly provided written notice to all such holders of a Call Event (as defined below) and
(ii) January 14, 2014, to acquire up to a total of 20,000,000 shares of common stock of the Company
(each a Warrant Share) upon the payment of $0.20 per Warrant Share (the Exercise Price). The
Company also has the right, at any point after the Stockholder Approval Date and after which the
volume weighted average trading price per share of the Preferred Stock for a minimum of 20
consecutive trading days is equal to at least eight times the Exercise Price per share, provided
that certain other conditions have been satisfied, to call the outstanding 2009 Warrants (a Call
Event), in which case such 2009 Warrants will expire if not exercised within ten business days
thereafter. The 2009 Warrants also include full ratchet anti-dilution adjustment provisions for
issuances of securities below $0.20 per share of common stock during the first two years following
the date of issuance of the 2009 Warrants, subject to customary exceptions. Effective March 25,
2009, the 2009 Warrants became exercisable for 20,000,000 shares of common stock and are no longer
exercisable into Preferred Shares.
Effective March 25, 2009, in connection with our shareholders approval of an amendment to our
certificate of incorporation, the Company adjusted the warrants issued in connection with the
Companys private placement completed in March 2007 (the 2007 Warrants) pursuant to the weighted
average anti-dilution adjustment provisions of the 2007 Warrants. The exercise price of the 2007
Warrants was adjusted from $2.48 to $1.51 and the number of issued, exercisable and outstanding
2007 Warrants were adjusted from 3,024,186 to 4,966,887.
Effective March 25, 2009, in connection with our shareholders approval of an amendment to our
certificate of incorporation, the Company adjusted the 2008 Warrants pursuant to the full ratchet
anti-dilution adjustment provisions of the 2008 Warrants. The exercise price of the 2008 Warrants
was adjusted from $0.80 to $0.20 and the number of issued, exercisable and outstanding 2008
Warrants were adjusted from 6,250,000 to 25,000,000.
F-71
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 6
SHAREHOLDERS EQUITY (continued)
A summary of the status of the Companys outstanding stock warrants granted as of September 30,
2009 and changes during the period is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Common
|
|
|
Average
|
|
|
|
Stock
|
|
|
Exercise
|
|
|
|
Warrants
|
|
|
Price
|
|
Outstanding at December 31, 2008
|
|
|
13,636,686
|
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
For the period ended September 30, 2009
|
|
|
|
|
|
|
|
|
Granted
|
|
|
20,000,000
|
|
|
|
0.20
|
|
Adjustment to warrants issued in 2007 for Preferred Stock and 2009 Warrants
|
|
|
1,942,701
|
|
|
|
1.51
|
|
Adjustment to warrants issued in 2008 for Preferred Stock and 2009 Warrants
|
|
|
18,750,000
|
|
|
|
0.20
|
|
Exercised
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(2,762,500
|
)
|
|
|
1.50
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2009
|
|
|
51,566,887
|
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2009
|
|
|
51,566,887
|
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
The following information applies to warrants outstanding at September 30, 2009:
|
|
|
|
|
|
|
|
Common
|
|
|
Year of
|
|
Stock
|
|
Exercise
|
Expiration
|
|
Warrants
|
|
Price
|
|
|
|
|
2010
|
|
75,000
|
|
|
$1.50
|
2010
|
|
350,000
|
|
|
2.80
|
2011
|
|
1,175,000
|
|
|
1.50
|
2012
|
|
4,966,887
|
|
|
1.51
|
2013
|
|
25,000,000
|
|
|
0.20
|
2014
|
|
20,000,000
|
|
|
$0.20
|
|
|
|
|
|
|
|
|
51,566,887
|
|
|
|
|
|
|
|
|
|
Outstanding warrants at September 30, 2009 have a weighted average remaining contractual life of
3.6 years.
F-72
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 6
SHAREHOLDERS EQUITY (continued)
Registration Rights
In connection with the signing of the 2009 Purchase Agreement, the Company and the Investor also
entered into a Registration Rights Agreement (the 2009 Registration Rights Agreement). Under the
terms of the 2009 Registration Rights Agreement, the Company agreed to prepare and file with the
SEC, within 30 days following the receipt of a demand notice of a holder of Registrable Securities,
a registration statement on Form S-1 (the Registration Statement) covering the resale of the
Shares and the Warrant Shares (collectively, the Registrable Securities). Subject to limited
exceptions, the Company also agreed to use its reasonable best efforts to cause the Registration
Statement to be declared effective under the Securities Act of 1933, as amended (the Securities
Act), as soon as practicable but, in any event, no later than 60 days following the date of the
2009 Registration Rights Agreement (or 120 days following the date of the 2009 Registration Rights
Agreement in the event the Registration Statement is subject to review by the SEC), and agreed to
use its reasonable best efforts to keep the Registration Statement effective under the Securities
Act until the date that all of the Registrable Securities covered by the Registration Statement
have been sold or may be sold without volume restrictions pursuant to Rule 144(b)(i) promulgated
under the Securities Act. In addition, if the Company proposes to register any of its securities
under the Securities Act in connection with the offering of such securities for cash, the Company
shall, at such time, promptly give each holder of Registrable Securities notice of such intent, and
such holders shall have the option to register their Registrable Securities on such additional
registration statement. The 2009 Registration Rights Agreement also provides for payment of
partial damages to the Investor under certain circumstances relating to failure to file or obtain
or maintain effectiveness of the Registration Statement, subject to adjustment.
NOTE 7
CAPITAL LEASE OBLIGATIONS
The Companys InsPro Technologies Business Segment has entered into several capital lease
obligations to purchase equipment used for operations. The Company has the option to purchase the
equipment at the end of the lease agreement for one dollar. The underlying assets and related
depreciation were included in the appropriate fixed asset category, and related depreciation
account.
Property and equipment includes the following amounts for leases that have been capitalized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Useful Life (Years)
|
|
|
|
|
|
|
|
|
|
Computer equipment and software
|
|
|
3
|
|
|
$
|
483,130
|
|
|
|
328,074
|
|
Phone System
|
|
|
3
|
|
|
|
15,011
|
|
|
|
15,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
498,141
|
|
|
|
343,085
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
(180,623
|
)
|
|
|
(68,091
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
317,518
|
|
|
|
274,994
|
|
|
|
|
|
|
|
|
|
|
|
|
F-73
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 7
CAPITAL LEASE OBLIGATIONS (continued)
Future minimum payments required under capital leases at September 30, 2009 are as follows:
|
|
|
|
|
2009
|
|
$
|
37,313
|
|
2010
|
|
|
170,132
|
|
2011
|
|
|
150,512
|
|
2012
|
|
|
70,443
|
|
2013
|
|
|
6,663
|
|
|
|
|
|
|
|
|
|
|
Total future payments
|
|
|
435,063
|
|
Less amount representing interest
|
|
|
66,002
|
|
|
|
|
|
|
|
|
|
|
Present value of future minimum payments
|
|
|
369,061
|
|
Less current portion
|
|
|
123,004
|
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
246,057
|
|
|
|
|
|
NOTE 8
DEFINED CONTRIBUTION 401(k) PLAN
The Company implemented a 401(k) plan on January 1, 2007. Eligible employees contribute to the
401(k) plan. Employees become eligible after attaining age 19 and after 6 months of employment with
the Company. The employee may become a participant of the 401(k) plan on the first day of the
month following the completion of the eligibility requirements. Effective January 1, 2007 the
Company implemented an elective contribution to the plan of 25% of the employees contribution up
to 4% of the employees contribution (the Contribution). The Contributions are subject to a
vesting schedule and become fully vested after one year of service, retirement, death or
disability, whichever occurs first. The Company made contributions of $32,519 and $60,156 for the
nine months ended September 30, 2009 and 2008.
F-74
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 9
RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES
Employment and Separation Agreements
On March 27, 2009, Charles Eissa, the Companys President, and the Company agreed to a Separation
of Employment and General Release Agreement whereby Mr. Eissa and the Company mutually agreed that
Mr. Eissas employment terminated effective March 27, 2009 (the Separation Date). Under the
terms of the agreement the Company will continue to pay Mr. Eissa his current base salary for a
period of fourteen (14) months after the Separation Date, less applicable tax withholding, which
will be paid in equal installments in accordance with the Companys normal payroll practices. The
Company will provide Mr. Eissa with continued medical, dental and vision coverage at the level in
effect as of the Separation Date until the end of the twelve (12)-month period following the
Separation Date. In addition the Company agreed to vest effective with the Separation Date all
remaining restricted common stock granted to Mr. Eissa on February 15, 2007 subject to the payment
in cash of any withholding taxes to the Company, which would have vested between March 15, 2009 and
February 15, 2010. Stock option grants held by Mr. Eissa, which were not vested as of the
Separation Date, were forfeited as of the Separation Date.
Restricted Cash and Operating Leases
On February 17, 2006, the Company entered into a lease agreement with FG2200, LLC, a Florida
limited liability company, for approximately 50,000 square feet of office space at 2200 S.W. 10th
Street, Deerfield Beach, Florida (the Lease). The initial term of the Lease commences on March
15, 2006 and terminates on March 31, 2016. The Company has the option to extend the term for two
additional 36-month periods, as well as the right to terminate the Lease within the first five
years. The monthly rent increases every 12 months, starting at $62,500 plus certain building
expenses incurred by the landlord and ending at approximately $81,550 plus certain building
expenses incurred by the landlord. In connection with the Lease, the Company provided a $1 million
letter of credit to the landlord as a security deposit for the Companys obligations under the
Lease. The Company has a one time option to cancel the Lease effective March 31, 2011 provided the
Company; a) is not in default of the Lease, b) no part of the Deerfield Beach office is sub-let
beyond March 31, 2011, c) the Company and its sub-tenants vacate the Deerfield Beach office on or
before March 31, 2011 and d) the Company gives written notice to FG2200, LLC on or before June 30,
2010 accompanied with a payment FG2200, LLC the sum of 9 months installments of base rent plus 9
months installments of additional rent for the Companys share of operating costs under the Lease.
On February 21, 2008 the Company entered into a sub-lease agreement with a third party whereby the
third party sub-leased approximately 5,200 square feet of our Deerfield Beach office space
beginning March 1, 2008 through February 28, 2009. This sub-lease agreement was amended and
restated on October 3, 2008 to increase the sub-leased square footage to 13,900 and extend the
lease term through January 31, 2010.
On October 1, 2008 the Company entered into a sub-lease agreement with a third party whereby the
third party sub-leased approximately 8,000 square feet of our Deerfield Beach office space
beginning October 15, 2008 through January 31, 2010. In accordance with this sub-lease agreement
the Company recognizes base rent, additional rent representing a portion of certain actual
occupancy expenses for our Deerfield Beach office and certain telephony, technology and facility
services provided to our sub-tenant. This sub-lease agreement was terminated and replaced
effective July 15, 2009 with a sub-lease whereby the same third party will sub-lease approximately
29,952 square feet. This sub-lease will terminate on February 28, 2011.
F-75
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 9
RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
Effective June 30, 2009, the Company uses 5,094 square feet of the approximate 50,000 square feet
of the Deerfield Beach office for operations. Effective September 30, 2009, the Company has
accrued $1,951,504 related to the non-cancelable lease for the abandoned portion of the Deerfield
Beach office, which is net present value of the Companys future lease payments through March 31,
2011 and consideration for early termination due under Lease plus managements estimate of
contractually required expenses pertaining to the Deerfield Beach office, which are estimated to be
$3,210,938, less a portion of the Deerfield Beach office used in operations, which is estimated to
be $107,971, less future sub-lease revenue, which is estimated to be $1,148,727.
On March 7, 2006, the Company entered into a sublease for approximately 13,773 square feet of
office space located on the 7th floor at 1120 Avenue of the Americas, New York, New York (the
Sublease Agreement). The initial term of the Sublease Agreement commences in March 2006, and
terminates on December 31, 2010. The monthly rent increases every 12 months, starting at
approximately $303,000 per annum plus a proportionate share of landlords building expenses and
ending at approximately $341,000 per annum plus a proportionate share of landlords building
expenses. In connection with the Sublease Agreement, the Company provided a $151,503 letter of
credit to the landlord as a security deposit for the Companys obligations under the sublease. On
May 15, 2006 the Company received the landlords consent, dated April 18, 2006, to the Sublease
Agreement. In March 2008, the Company closed its sales office located in New York. On April 17,
2008 the Company entered into a sub-lease agreement with a third party (2008 Sublease Agreement)
whereby the third party will sub-lease the Companys New York office space for the balance of the
Companys Sublease Agreement and pay the Company sub-lease payments essentially equal to the
Companys costs under the Sublease Agreement. The terms of the 2008 Sublease Agreement required
the Company to make certain leasehold improvements. The third party commenced paying sub-sublease
payments to the Company in September 2008; however the third party subsequently failed to pay their
certain rent when due and on July 23, 2009 the Company and the third party entered into a
settlement agreement whereby both parties agreed to terminate the 2008 Sublease Agreement.
Effective September 30, 2009, the Company has accrued $478,388 related to the non-cancelable lease
for the abandoned facilities, which is net present value of the Companys future lease payments due
under the remaining Sublease Agreement term plus managements estimate of utility payments.
The letters of credit pertaining to the lease for our Florida office and our New York office were
collateralized in the form of a certificate of deposit and money market account, which as of
September 30, 2009, had a balance of $1,150,000. This money market account is on deposit with the
issuer of the letters of credit and is classified as restricted cash on our balance sheet. The
terms of the money market account allow us to receive interest on the principal but prohibits us
from withdrawing the principal for the life of the letters of credit.
The Company leases certain real and personal property under non-cancelable operating leases. Rent
expense was $3,249,979 and $1,380,529 for the nine months ended
September 30, 2009 and 2008,
respectively.
F-76
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 9
RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
Guarantee of Indebtedness by the Company to Third Parties Pertaining to Unearned Commission
Advances Paid to Non-employee ISG Agents
The Company is a party to sales and marketing agreements whereby the Company has guaranteed the
repayment of unearned commission advances paid directly from third parties including certain of the
Companys insurance carriers to the Companys non-employee ISG agents. Under these agreements
certain third parties pay commissions directly to the Companys non-employee ISG agents and such
payments include advances of first year premium commissions before the commissions are earned.
Unearned commission advances from the Companys insurance carriers to the Companys non-employee
ISG agents are earned after 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
an unearned commission advance the third parties generally deduct the unearned commission advance
from its commission payments to the Companys non-employee ISG agents in the form of charge-backs.
In the event that commission payments from these third parties to the Companys non-employee ISG
agents do not exceed the charge-backs; these third parties may deduct the unearned commission
advance to non-employee ISG agents from their payments to the Company or demand repayment of the
non-employee ISG agents unearned commission balance from the Company. The current amount of the
unearned commission advances these third parties to the Companys non-employee ISG agents, which is
the maximum potential amount of future payments the Company could be required to make to these
third parties, is estimated to be approximately $643,000 as of September 30, 2009. As of September
30, 2009 the Company has recorded a liability of $53,677 in accrued expenses for the estimated
amount the Company anticipates it will pay pertaining to these guarantees. Unearned commission
advances from these third parties are collateralized by the future commission payments to the
non-employee ISG agents and to the Company. The Company has recourse against certain non-employee
ISG agents in the event the Company must pay the unearned commission advances.
Litigation
On August 7, 2008, a former employee of the Company (the Plaintiff) filed a putative collective
action in the United States District Court for the Southern District of Florida, case no.
08-CV-61254-Ungaro-Simonton. The case alleges that the Company and three co-defendants, who are
former officers of the Company, unlawfully failed to pay overtime to its insurance sales agents in
violation of the Fair Labor Standards Act (FLSA). Plaintiff purported to bring claims on behalf
of a class of current and former insurance sales agents who were classified as non-exempt by the
Company and compensated at an hourly rate, plus commissions (Agents). On October 16, 2008, the
Court conditionally certified a collective action under the FLSA covering all Agents who worked for
the Company within the last three years. Plaintiff and all Agents who opt to participate in the
collective action seek payment from the Company of compensation for all overtime hours worked at
the rate of one and one-half times their regular rate of pay, liquidated damages, attorneys fees,
costs, and interest. On March 2, 2009, the parties reached an agreement to settle this case. On
April 21, 2009, the Court entered an Order of Final Dismissal with Prejudice. As of December 31,
2008 the Company recorded $200,000 of expense in gain (loss) from discontinued operations, which
represented the estimated cost of the settlement. As of September 30, 2009 the Company recorded an
additional $9,073 of expense in gain (loss) from discontinued operations, which represents the cost
of the settlement.
F-77
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 9
RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
On August 28, 2008, one of the Companys former employees, the plaintiff, filed a national class
action complaint in the Seventeenth Judicial Circuit of Florida, Broward County, case no. 062008 CA
042798 XXX CE, alleging that the Company breached a contract with employees by failing to provide
certain commissions and/or bonuses. The complaint also contained claims for an accounting and for
declaratory relief relating to the alleged compensation agreement. The plaintiff purported to
bring these claims on behalf of a class of current and former insurance sales agents. The Company
filed a motion to dismiss the complaint. In response, at the hearing on the Companys Motion to
Dismiss, the plaintiff stated that he would amend the complaint. The amended complaint is no
longer pled as a class action but, instead, includes 64 named plaintiffs. The plaintiffs seek
payment from the Company of all commissions allegedly owed to them, triple damages, attorneys
fees, costs, and interest. The Company has filed an answer to the amended complaint denying any
breach of contract. The Company also asserted counterclaims for breach of contract and unjust
enrichment against 50 of the plaintiffs, for recovery of overpaid commissions that were advanced to
those plaintiffs but never earned. Presently, the parties are engaging in the exchange of
discovery requests and responses. The Company believes that the plaintiffs claims are without
merit and intends to vigorously defend against their claims and prosecute the Companys
counterclaims.
On March 24, 2009, certain of the Companys shareholders filed an action in the Supreme Court of
the State of New York, County of New York, Index No. 650174/2009, against the Company, its board of
directors, two of the Companys investors and the investors affiliates relating to alleged offers
the Company purportedly received in 2008 and a private placement transaction conducted in January
2009. The plaintiffs alleged that the members of the Companys board of directors breached their
fiduciary duties in responding to the offers received in 2008 and in connection with the private
placement transaction conducted in January 2009. The complaint also contained claims for unjust
enrichment against certain directors whom plaintiffs claim are interested and claims for aiding
and abetting breach of fiduciary duty and unjust enrichment against one of the Companys
shareholders, Cross Atlantic Capital Partners, Inc., and its affiliates. The plaintiffs sought to
rescind and cancel the private placement, enjoin the board of directors from undertaking certain
measures and remove certain directors from the board. The plaintiffs also sought money judgments
in an amount not less than $10,000,000, plus interest, attorneys fees, and accounts and experts
fees. On May 29, 2009, the defendants moved to dismiss the complaint. The motion was granted on
August 13, 2009 on forum non conveniens grounds. On August 14, 2009, a writ of summons was filed
in the Court of Common Pleas, Philadelphia County No. 090801764 against the Company, its board of
directors, two of its investors and the investors affiliates by the same shareholders who brought
the New York action and seven additional shareholders. On October 27, 2009, the Company entered
into an agreement with the shareholders who brought the New York action in which they agreed to
withdraw from the Philadelphia litigation and provided a general release of all claims against the
Company, its board of directors and the other defendants. The
terms of this settlement agreement
required Co-Investment to purchase all of the shares of common stock held by the settling
plaintiffs (which amounted to 6,108,997 shares). Since the settlement did not include all of the
plaintiffs in the suit filed in Philadelphia County, that action has not been dismissed.
F-78
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 9
RESTRICTED CASH, COMMITMENTS AND CONTINGENCIES (continued)
License Agreement with Realtime Solutions Group
On May 31, 2006, the Company entered into a Software and Services Agreement (the License
Agreement) with Realtime Solutions Group, L.L.C. (Realtime), under which Realtime granted the
Company a worldwide, transferable, non-exclusive, perpetual and irrevocable license to use,
display, copy, modify, enhance, create derivate works within, and access Realtime Solutions Groups
Straight Through Processing software (STP) and all associated documentation, source code and
object code, for use in the marketing, promotion and sale of health benefits or insurance products.
As consideration for the grant of the rights and licenses under the License Agreement, the Company
paid to Realtime a $10,000 nonrefundable cash deposit and upon delivery of the STP software and
other materials the Company will pay a license fee in the form of 216,612 unregistered shares of
the Companys common stock. Concurrent with entering into the License Agreement, HBDC and Realtime
entered into a Registration Rights Agreement that provides for piggyback registration rights for
the to be issued shares. The Company may unilaterally terminate the License Agreement, with or
without cause, at any time on 30 calendar days prior written notice to Realtime. The license rights
in the software granted under the License Agreement survive any termination of the License
Agreement in perpetuity.
As of September 30, 2009 the Company has not taken delivery of the STP software or issued common
stock in connection with the License Agreement.
NOTE 10
SUBSEQUENT EVENTS
On October 27, 2009, the Company entered into a settlement
agreement with certain shareholder
plaintiffs who had filed an action against the Company, its board of directors, two of the
Companys investors and the investors affiliates relating to an alleged breach of fiduciary
duties. Pursuant to the terms of this agreement, the plaintiffs agreed to withdraw from the
pending litigation in Philadelphia County and provided a general release of all claims against the
Company, its board of directors and the other defendants. The terms of this settlement agreement
also required Co-Investment to purchase all of the shares of common stock held by the settling
plaintiffs, which amounted to 6,108,997 shares. As a result of this purchase, Co-Investment now
holds voting securities of the Company providing it with the right to cast approximately 53% of the
votes on matters presented for a vote by the Companys stockholders.
On October 28, 2009, the Company filed a registration statement on Form S
-1 relating to a rights
offering of up to $8 million in units, with each unit consisting of 625 shares of the Companys
common stock, 125 shares of Preferred Stock and warrants to purchase 5,000 shares of the Companys
common stock. These units are available, on a pro rata basis, to the Companys existing
shareholders for a subscription price of $1,000 per unit. The Companys board of directors
approved this rights offering for the purpose of raising capital to finance the Companys operating
activities while giving all holders of the Companys common stock and Preferred Stock
the
opportunity to participate in an equity investment in the Company on the same economic terms as the
Companys last two private placements in March 2008 and January 2009.
F-79
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
NOTE 10
SUBSEQUENT EVENTS (continued)
Co-Investment, which as of October 29, 2009 was the
owner of approximately 30.2% of the Companys
common stock and 100% of the Preferred Stock, has informed the Company that it will not initially
exercise any of the subscription rights issued to it in the rights offering, but may exercise a
portion of its subscription rights in the event shareholders other than Co-Investment subscribe for
less than $3 million in units in the rights offering. Any such subscription by Co-Investment would
be for no more than the number of units that would result in the issuance of $3 million in units in
the rights offering. If shareholders other than Co-Investment Fund subscribe for at least $3
million in units, then Co-Investment will agree not to exercise any of its subscription rights in
this offering.
There can be no assurance that any of the Companys shareholders will subscribe for any units in
the rights offering, nor that the Company will complete the rights offering, and the Company is
unable, at this time, to ascertain the amount of proceeds it will generate in the rights offering.
F-80
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses payable by us in connection with this registration statement are estimated as follows:
|
|
|
|
|
Commission Registration Fee
|
|
$
|
446
|
|
Accounting Fees and Expenses
|
|
|
9,500
|
|
Legal Fees and Expenses
|
|
|
90,000
|
|
Printing Fees and Expenses
|
|
|
15,000
|
|
Blue Sky Fees and Expenses (including legal fees)
|
|
|
10,000
|
|
Miscellaneous
|
|
|
54
|
|
|
|
|
|
Total
|
|
$
|
125,000
|
|
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law provides, in general, that a corporation
incorporated under the laws of the State of Delaware, such as us, may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (other than a derivative action by or in the right of the corporation) by reason
of the fact that such person is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer, employee or agent of
another enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with such action, suit
or proceeding if such person acted in good faith and in a manner such person reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe such persons conduct was unlawful. In the
case of a derivative action, a Delaware corporation may indemnify any such person against expenses
(including attorneys fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit if such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests of the corporation,
except that no indemnification will be made in respect of any claim, issue or matter as to which
such person will have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery of the State of Delaware or any other court in which such action was
brought determines such person is fairly and reasonably entitled to indemnity for such expenses.
Our certificate of incorporation and bylaws provide that we will indemnify our directors,
officers, employees and agents to the extent and in the manner permitted by the provisions of the
Delaware General Corporation Law, as amended from time to time, subject to any permissible
expansion or limitation of such indemnification, as may be set forth in any stockholders or
directors resolution or by contract. We also have director and officer indemnification agreements
with each of our executive officers and directors which provide, among other things, for the
indemnification to the fullest extent permitted or required by Delaware law, provided that such
indemnitee shall not be entitled to indemnification in connection with any claim (as such term is
defined in the agreement) initiated by the indemnitee against us or our directors or officers
unless we join or consent to the initiation of such claim, or the purchase and sale of securities
by the indemnitee in violation of Section 16(b) of the Exchange Act.
Item 15. Recent Sales of Unregistered Securities
During the last three years, we have issued the following securities that were not registered
under the Securities Act:
|
|
|
In January 2006, we completed a private placement under which we issued 14,700,000
shares of our common stock and warrants to purchase 7,350,000 shares of our common
stock. We sold an aggregate of 295 units to accredited investors in the private
placement. Each unit sold in the private placement consisted of 50,000 shares of our
common stock and a detachable transferable warrant to purchase 25,000 shares of our
common stock. Keystone Equities Group, L.P. acted as
|
II-1
|
|
|
the placement agent in connection
with this private placement and received, as compensation, a total cash fee of $558,000
(4% of the gross proceeds), and warrants to purchase an aggregate of 735,000 shares (5%
of the shares sold in the private
placement) of our common stock at an exercise price of $1.50 per share. Warren V. Musser
acted as an advisor to Health Benefits Direct Corporation in connection with the private
placement. In his role as an advisor, Mr. Musser did not solicit investors to make an
investment in, make any recommendations to individuals regarding an investment in, or
provide any analysis or advice regarding an investment in Health Benefits Direct
Corporation. Mr. Musser received as compensation for his services a total cash fee of
$325,000 and warrants to purchase 440,000 shares of our common stock at an exercise price
of $1.50 a share. We realized gross proceeds of $14,700,000 from the private placement.
|
|
|
|
|
In April 2006, we and our wholly-owned subsidiary, ISG Merger Acquisition Corp., a
Delaware corporation, or merger sub, entered into a merger agreement with Insurance
Specialist Group Inc., or ISG, and Ivan M. Spinner, pursuant to which, among other
things, the merger sub merged with and into ISG. As consideration for the merger, we
made a cash payment of $920,000 and issued 1,000,000 shares of our common stock to Mr.
Spinner, the sole stockholder of ISG, in exchange for all of the outstanding stock of
ISG. In connection with this merger, we entered into an employment agreement with Mr.
Spinner, under which he was appointed as senior vice president of HBDC II, LLC. Mr.
Spinners employment as our senior Vice President terminated on March 28, 2008.
|
|
|
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In April 2006, our wholly-owned subsidiary, HBDC II, Inc., entered into an Asset
Purchase Agreement with Healthplan Choice, Inc. and Horace Richard Priester III,
pursuant to which among other things, HBDC II, Inc. acquired all of the operating assets
of Healthplan Choice, Inc. As consideration for the asset purchase, we made a cash
payment of $100,000 and issued 80,000 shares of our common stock to Mr. Priester.
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In May 2006, we and Insurint Corporation, our wholly-owned subsidiary, entered into a
software and services agreement with Realtime, under which Realtime granted to Insurint
Corporation a worldwide, transferable, non-exclusive, perpetual and irrevocable license
to use, display, copy, modify, enhance, create derivate works within, and access
Realtimes Straight Through Processing software and all associated documentation, source
code and object code, for use in the marketing, promotion and sale of health benefits or
insurance products. As consideration for the grant of the rights and licenses to
Insurint Corporation under the agreement, we agreed to pay Realtime a license fee in the
form of 216,612 unregistered shares of our common stock upon the later delivery of the
licensed software and related materials.
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On July 17, 2006, we entered into an Internet Domain Name Purchase and Assignment
Agreement with Dickerson Employee Benefits, or Dickerson, to purchase the Internet
domain name www.healthbenefitsdirect.com. As consideration for the purchase, we made a
cash payment of $50,000 and issued 50,000 shares of our unregistered common stock to
Dickerson.
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On March 30, 2007, we completed a private placement of an aggregate of 5,000,000
shares of our common stock and warrants to purchase 2,500,000 shares of our common stock
to certain institutional and individual accredited investors. We sold 5,000,000
investment units in the private placement at a per unit purchase price equal to $2.25,
for gross proceeds to us of $11.25 million. Mr. Clemens, our Co-Chairman and former CEO,
purchased 1,000,000 units in the private placement. Each unit sold in the private
placement consisted of one share of our common stock and a warrant to purchase one-half
(1/2) of one share of common stock at an exercise price of $3.00 per share, subject to
adjustment. In connection with the private placement, we also issued to Oppenheimer &
Co. Inc., Sanders Morris Harris Inc. and Roth Capital Partners, as partial consideration
for acting as placement agents, warrants to purchase in the aggregate 350,000 shares of
our common stock at an exercise price of $2.80 per share.
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On October 1, 2007, we acquired InsPro Technologies, LLC, formerly known as Atiam
Technologies, L.P., pursuant to an Agreement and Plan of Merger, whereby System
Consulting Associates, Inc., or SCA, the majority owner of InsPro, was merged with and
into one of our subsidiaries. We paid an aggregate amount of $2 million for all
outstanding shares of capital stock of SCA, which amount consisted of $850,000 in cash
and a total of 515,697 unregistered shares of our common stock, which number of shares
had a value of $1,150,000 based on the average closing price per share ($2.23) of our
common stock on the OTCBB on the five consecutive trading days preceding the closing
date of the acquisition.
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II-2
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Immediately prior to the closing of the merger with SCA, we also entered into an
Agreement to Transfer Partnership Interests with the former partners of BileniaTech,
L.P., or Bilenia, whereby one of our subsidiaries purchased all of the outstanding
general and limited partnership interests of InsPro owned by Bilenia, the minority owner
of InsPro. We paid a total of $1 million to the former partners of Bilenia for the InsPro partnership
interests, which amount consisted of $500,000.00 in cash and 224,216 unregistered shares
of our common stock, which number of shares had an aggregate value of $500,000 based on
the average closing price per share ($2.23) of our common stock on the OTCBB on the five
consecutive trading days preceding the closing date of the acquisition.
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In connection with each of the acquisitions, we entered into Registration Rights
Agreements with each of the former stockholders of SCA and with Computer Command and
Control Company, one of the former partners of Bilenia. Under the terms of these
agreements, we granted to the former stockholders of SCA and to Computer Command and
Control Company piggy back registration rights with regard to the shares that were
issued to them.
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On March 31, 2008, we completed a private placement of an aggregate of 6,250,000
shares of our common stock and warrants to purchase 6,250,000 shares of our common stock
to certain institutional accredited investors. We sold 6,250,000 investment units in the
private placement at a per unit purchase price equal to $0.80 for gross proceeds to us
of $5.0 million. These sales were made pursuant to two Securities Purchase Agreements,
in substantially similar form, that we entered into with certain institutional
accredited investors, effective as of March 31, 2008. Each unit sold in the private
placement consisted of one share of our common stock and a warrant to purchase one share
of our common stock at an exercise price of $0.80, subject to adjustment.
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On January 15, 2009, we completed a private placement with Co-Investment Fund II,
L.P., a Delaware limited partnership, for an aggregate of 1,000,000 shares of our Series
A preferred stock and warrants to purchase 1,000,000 shares of our Series A preferred
stock. We sold 1,000,000 investment units in the private placement at a per unit
purchase price equal to $4.00 for gross proceeds to us of $4.0 million. The sale was
made pursuant to a Securities Purchase Agreement that we entered into on January 14,
2009. Each unit sold in the private placement consisted of one share of Series A
preferred stock and a warrant to purchase one share of Series A preferred stock at an
initial exercise price of $4.00 per share, subject to adjustment.
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No underwriters were involved in the above sales of securities. The securities described above
in this Item 15 were issued to investors in the United States in reliance on the exemption from the
registration requirements of the Securities Act, as set forth in Section 4(2) under the Securities
Act and/or Rule 506 of Regulation D promulgated under the Securities Act relative to sales by an
issuer not involving any public offering.
During the last three fiscal years, we also have issued the following securities that were not
registered under the Securities Act:
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As of December ___, 2009, we had granted, pursuant to our 2008 Equity Compensation Plan and
Directors Compensation Plan, options to purchase a total of 8,758,050 shares of common stock
at a weighted average exercise price of $1.55 per share. Also as of December ___, 2009, we had
granted, pursuant to our 2008 Equity Compensation Plan, 364,010 restricted shares of common
stock at a weighted average per share price of $2.43 per share and 414,010 shares of common
stock at a weighted average per share price of $0.73. The issuance of stock options and the
common stock issuable upon the exercise of such options as described in this Item 15 were
issued pursuant to written compensatory plans or arrangements with the registrants
employees, directors and consultants, in reliance on the exemption provided by Rule 701
under the Securities Act.
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II-3
Item 16. Exhibits and Financial Statement Schedules.
The following is a list of exhibits filed as part of this registration statement. Where so
indicated by footnote, exhibits that were previously filed are incorporated by reference. For
exhibits incorporated by reference, the location of the exhibit in the previous filing is
indicated.
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Exhibit
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Number
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Description
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2.1
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Agreement and Plan of Merger, dated November 23, 2005, among Darwin Resources Corp., Health
Benefits Direct Corporation, and HBDC II, Inc. (incorporated by reference to Exhibit 2.1 to the
Registrants Current Report on Form 8-K filed with the Commission on November 30, 2005).
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2.2
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Agreement and Plan of Merger, dated as of September 21, 2007, by and among the Company, HBDC
Acquisition, LLC, System Consulting Associates, Inc. and the stockholders of System Consulting
Associates, Inc. party thereto (incorporated by reference from Exhibit 2.1 to the Companys
current report on From 8-K, filed with the Commission on September 26, 2007).
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3.1
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Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrants
Current Report on Form 8-K filed with the Commission on November 22, 2005).
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3.2
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Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registrants Current
Report on Form 8-K filed with the Commission on December 3, 2007).
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3.3
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Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit
3.3 to the Registrants Current Report on Form 8-K filed with the Commission on November 30,
2005).
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3.4
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Certificate of Merger of HBDC II, Inc. with and into Health Benefits Direct Corporation
(incorporated by reference to Exhibit 3.4 to the Registrants Current Report on Form 8-K filed
with the Commission on November 30, 2005).
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3.5
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Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit
3.5 to the Registrants Registration Statement on Form SB-2, filed with the Commission on
February 1, 2008).
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3.6
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Certificate of Designation with respect to shares of Series A Preferred Stock (incorporated by
reference to Exhibit 3.1 to the Registrants Current Report on Form 8-K filed with the Commission
on January 21, 2009).
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3.7
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Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit
3.7 to the Registrants Annual Report on Form 10-K filed with the Commission on March 31, 2009).
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4.1
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Form of Common Stock Purchase Warrant Certificate (incorporated by reference to Exhibit 4.1 to
the Registrants Current Report on Form 8-K filed with the Commission on November 30, 2005).
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4.2
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Warrant to Purchase Common Stock issued to Alvin H. Clemens (incorporated by reference to Exhibit
4.2 to the Registrants Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005,
filed with the Commission on March 31, 2006).
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4.3
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Securities Purchase Agreement, dated March 30, 2007, by and between Health Benefits Direct
Corporation and the Investors party thereto (incorporated by reference to Exhibit 4.1 to the
Registrants Current Report on Form 8-K, filed with the Commission on March 30, 2007).
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II-4
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Exhibit
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Number
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Description
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4.4
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Registration Rights Agreement, dated March 30, 2007, by and between Health Benefits Direct
Corporation and the Investors party thereto (incorporated by reference to Exhibit 4.2 to the
Registrants Current Report on Form 8-K, filed with the Commission on March 30, 2007).
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4.5
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Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrants Current Report on
Form 8-K, filed with the Commission on March 30, 2007).
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4.6
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Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.4 to the Registrants
Current Report on Form 8-K, filed with the Commission on March 30, 2007).
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4.7
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Registration Rights Agreement, dated October 1, 2007, by and between Health Benefits Direct
Corporation and Computer Command and Control Company (incorporated by reference from Exhibit 4.1
to the Companys current report on From 8-K, filed with the Commission on October 4, 2007).
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4.8
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Registration Rights Agreement, dated October 1, 2007, by and among Health Benefits Direct
Corporation and Robert J. Oakes, Jeff Brocco, Tim Savery and Lisa Roetz (incorporated by
reference from Exhibit 4.2 to the Companys current report on From 8-K, filed with the Commission
on October 4, 2007).
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4.9
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Securities Purchase Agreement, dated March 31, 2008, by and between Health Benefits Direct
Corporation and the Investor party thereto (incorporated by reference from Exhibit 4.1 to the
Registrants Current Report on Form 8-K, filed with the Commission on March 31, 2008).
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4.10
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Securities Purchase Agreement, dated March 31, 2008, by and between Health Benefits Direct
Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the
Registrants Current Report on Form 8-K, filed with the Commission on March 31, 2008).
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4.11
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Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrants Current Report on
Form 8-K, filed with the Commission on March 31, 2008).
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4.12
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Form of Registration Rights Agreement, dated March 31, 2008, by and among Health Benefits Direct
Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.4 to the
Companys current report on From 8-K, filed with the Commission on March 31, 2008).
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4.13
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Form of Registration Rights Agreement, dated March 31, 2008, by and among Health Benefits Direct
Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.3 to the
Companys current report on From 8-K, filed with the Commission on March 31, 2008)
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4.14
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Board Representation Agreement, date March 31, 2008, between the Company and The Co-Investment
Fund II, L.P. (incorporated by reference from Exhibit 4.5 to the Registrants Current Report on
Form 8-K, filed with the Commission on March 31, 2008).
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4.15
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Securities Purchase Agreement, dated January 14, 2009, by and between Health Benefits Direct
Corporation and the Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.1 to
the Registrants Current Report on Form 8-K, filed with the Commission on January 21, 2008).
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4.16
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Registration Rights Agreement, dated January 14, 2009, by and between Health Benefits Direct
Corporation and the Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.2 to
the Registrants Current Report on Form 8-K, filed with the Commission on January 21, 2008).
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II-5
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Exhibit
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Number
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Description
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4.17
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Preferred Warrant (incorporated by reference from Exhibit 4.3 to the Registrants Current Report
on Form 8-K, filed with the Commission on January 21, 2008).
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4.18**
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Form of Subscription Rights Certificate
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4.19**
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Form of Warrant
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5.1**
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Opinion of Morgan, Lewis & Bockius LLP
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10.1
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Health Benefits Direct Corporation Compensation Plan for Directors (incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on Form 8-K filed with the Commission on March
20, 2006).
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10.2
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Lease Agreement, dated February 9, 2004, between Case Holding Co. and Platinum Partners, LLC
(incorporated by reference to Exhibit 10.7 to the Registrants Form 8-K filed with the Commission
on November 30, 2005).
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10.3
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Lease between Health Benefits Direct Corporation and FG2200, LLC, effective March 15, 2006
(incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed
with the Commission on March 6, 2006).
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10.4
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Employment Agreement, dated November 18, 2005, between Health Benefits Direct Corporation and
Charles A. Eissa (incorporated by reference to Exhibit 10.14 to the Registrants Current Report
on Form 8-K filed with the Commission on November 30, 2005).
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10.5
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Amendment 2008-1 to Employment Agreement, dated March 31, 2008, between Health Benefits Direct
Corporation and Charles A. Eissa (incorporated by reference to Exhibit 10.4 to the Registrants
Current Report on Form 8-K filed with the Commission on March 31, 2008).
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10.6
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Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.1
to the Registrants Current Report on Form 8-K filed with the Commission on January 17, 2006).
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10.7
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Securities Contribution Agreement, dated September 9, 2005, among Health Benefits Direct
Corporation, Marlin Capital Partners I, LLC, Scott Frohman, Charles A. Eissa, Platinum Partners
II LLC and Dana Boskoff (incorporated by reference to Exhibit 10.22 to the Registrants Current
Report on Form 8-K filed with the Commission on November 30, 2005).
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10.8
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Merger Agreement, dated April 3, 2006, among Health Benefits Direct Corporation, ISG Merger
Acquisition Corp., Insurance Specialist Group Inc. and Ivan M. Spinner (incorporated by reference
to the Registrants Current Report on Form 8-K filed with the Commission on April 6, 2006).
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10.9
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Employment Agreement, dated April 3, 2006, between HBDC II, Inc. and Ivan M. Spinner
(incorporated by reference to the Registrants Current Report on Form 8-K filed with the
Commission on April 6, 2006).
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10.10
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Health Benefits Direct Corporation 2008 Equity Compensation Plan (incorporated by reference to
the Registrants Current Report on Form 8-K filed with the Commission on March 31, 2008).
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II-6
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Exhibit
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Number
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Description
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10.11
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Health Benefits Direct Corporation 2008 Equity Compensation Plan Form of Nonqualified Stock
Option Grant (incorporated by reference to the Registrants Current Report on Form 8-K filed with
the Commission on March 28, 2008).
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10.12
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Sublease, dated March 7, 2006, between Health Benefits Direct Corporation and World Travel
Partners I, LLC Form of Nonqualified Stock Option Grant (incorporated by reference to the
Registrants Current Report on Form 8-K filed with the Commission on May 19, 2006).
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10.13
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First Amendment to Sublease, dated April 18, 2006, between Health Benefits Direct Corporation ad
World Travel Partners I, LLC (incorporated by reference to the Registrants Current Report on
Form 8-K filed with the Commission on May 19, 2006).
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10.14
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Letter Agreement, dated April 18, 2006, among World Travel Partners I, LLC, Health Benefits
Direct Corporation, and 1120 Avenue of the Americas, LLC (incorporated by reference to the
Registrants Current Report on Form 8-K filed with the Commission on May 19, 2006).
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10.15
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Software and Services Agreement, dated May 31, 2006, among Health Benefits Direct Corporation,
Insurint Corporation, and Realtime Solutions Group, L.L.C. (incorporated by reference to the
Registrants Current Report on Form 8-K filed with the Commission on June 2, 2006).
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10.16
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Lease, dated July 7, 2006, between Health Benefits Direct Corporation and Radnor Properties-SDC,
L.P. (incorporated by reference to the Registrants Current Report on Form 8-K filed with the
Commission on July 10, 2006)
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10.17
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Separation Agreement, dated December 7, 2006, between Health Benefits Direct Corporation and
Scott Frohman (incorporated by reference to the Registrants Current Report on Form 8-K filed
with the Commission on December 11, 2006).
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10.18
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Amendment No. 1 to Option, dated as of February 15, 2007, delivered by Health Benefits Direct
Corporation to Daniel Brauser (incorporated by reference to the Registrants Current Report on
Form 8-K filed with the Commission on February 16, 2007).
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10.19
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Consent and Lock-Up Agreement, dated April 5, 2007, between Health Benefits Direct Corporation
and Scott Frohman (incorporated by reference to the Registrants Current Report on Form 8-K filed
with the Commission on April 6, 2007).
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10.20
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Amended and Restated Employment Agreement, dated November 27, 2007, between Health Benefits
Direct Corporation and Alvin H. Clemens (incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed with the Commission on December 3, 2007).
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10.21
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Amended and Restated Employment Agreement, dated November 27, 2007, between Health Benefits
Direct Corporation and Anthony R. Verdi (incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K filed with the Commission on December 3, 2007).
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10.22
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Amendment 2008-1 to Amended and Restated Employment Agreement, dated March 31, 2008, between
Health Benefits Direct Corporation and Anthony R. Verdi (incorporated by reference to Exhibit
10.3 to the Registrants Current Report on Form 8-K filed with the Commission on March 31, 2008).
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II-7
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Exhibit
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Number
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Description
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10.23
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Amended and Restated Employment Agreement, dated November 27, 2007, between Health Benefits
Direct Corporation and Ivan M. Spinner (incorporated by reference to Exhibit 10.3 to the
Registrants Current Report on Form 8-K filed with the Commission on December 3, 2007).
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10.24
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Client Transition Agreement, between Health Benefits Direct Corporation, HBDC II, Inc. and
eHealthInsurance Services, Inc. (incorporated by reference to Exhibit 10.31 to the Registrants
Annual Report on Form 10-K filed with the Commission on March 31, 2009).
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10.25
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Loan Agreement, dated December 22, 2009, by and among Health Benefits Direct Corporation, Insurance Specialist Group, Inc., HBDC II, Inc., Insurint Corporation, Platinum Partners, LLC, InsPro Technologies, LLC and The Co-Investment Fund II, L.P. (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed with the Commission on December 29, 2009).
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10.26
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Secured Promissory Note, dated December 22, 2009, by and among Health Benefits Direct Corporation, Insurance Specialist Group, Inc., HBDC II, Inc.,
Insurint Corporation, Platinum Partners, LLC, InsPro Technologies, LLC and The
Co-Investment Fund II, L.P. (incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K filed with the Commission on December 29, 2009).
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14
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Amended and Restated Code of Business Conduct and Ethics (incorporated by reference to Exhibit
14.1 to the Registrants Current Report on Form 8-K filed with the Commission on February 4,
2008).
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21*
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Subsidiaries of Health Benefits Direct Corporation
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23.1**
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Consent of Sherb & Co., LLP.
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23.2**
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Consent of Morgan, Lewis & Bockius LLP (included in Exhibit 5.1 Opinion)
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99.1**
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Form of Instructions for Use of Health Benefits Direct Corporation Subscription Rights Certificate
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99.2**
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Form of Notice of Guaranteed Delivery
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99.3**
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Form of Letter to Security Dealers, Commercial Banks, Trust Companies and Other Nominees
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99.4**
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Form of Letter to Clients
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99.5**
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Form of Notice to Stockholders of Subscription Rights
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99.6**
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Form of Beneficial Owner Election Form
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99.7**
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Form of Nominee Holder Certification
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*
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Previously filed
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**
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Filed herewith
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II-8
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the Calculation of Registration Fee table in the effective
registration statement;
(iii) To include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to such information in
the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the offering.
(4) That, for purposes of determining any liability under the Securities Act of 1933,each
filing of the registrants annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plans
annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(5) To supplement the prospectus, after the expiration of the subscription period, to set
forth the results of the subscription offer, the transactions by the underwriters during the
subscription period, the amount of unsubscribed securities to be purchased by the underwriters, and
the terms of any subsequent reoffering thereof. If any public offering by the underwriters is to be
made on terms differing from those set forth on the cover page of the prospectus, a post-effective
amendment will be filed to set forth the terms of such offering.
(6) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy as expressed in
the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(7) For the purpose of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
II-9
Registrant pursuant to
rule 424(b)(1), or (4), or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(8) For the purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering thereof.
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the requirements for
filing on Form S-1 and authorizes this Amendment No. 1 to registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Radnor, Commonwealth of Pennsylvania, on
this 31st day of December, 2009.
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HEALTH BENEFITS DIRECT CORPORATION
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By:
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/s/ ANTHONY R. VERDI
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Anthony R. Verdi
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Principal Executive Officer, Chief Financial
Officer and Chief Operating Officer
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Pursuant to the requirements of the Securities Act of 1933, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
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Donald R. Caldwell
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Chairman
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December 31, 2009
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/s/ Anthony R. Verdi
Anthony R. Verdi
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Chief Financial Officer,
Chief Operating Officer
and
Director (Principal
Executive Officer,
Principal
Financial and Accounting
Officer)
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December 31, 2009
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Warren V. Musser
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Director
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December 31, 2009
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John Harrison
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Director
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December 31, 2009
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Robert Oakes
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Director
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December 31, 2009
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Paul Soltoff
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Director
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December 31, 2009
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L.J. Rowell
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Director
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December 31, 2009
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Sanford Rich
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Director
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December 31, 2009
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Frederick C. Tecce
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Director
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December 31, 2009
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Edmond Walters
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Director
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December 31, 2009
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*
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By:
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/s/ Anthony R. Verdi
Anthony R. Verdi, Attorney-in-fact
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EXHIBIT INDEX
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Exhibit
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Number
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Description
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2.1
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Agreement and Plan of Merger, dated November 23, 2005, among Darwin Resources Corp., Health
Benefits Direct Corporation, and HBDC II, Inc. (incorporated by reference to Exhibit 2.1 to the
Registrants Current Report on Form 8-K filed with the Commission on November 30, 2005).
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2.2
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Agreement and Plan of Merger, dated as of September 21, 2007, by and among the Company, HBDC
Acquisition, LLC, System Consulting Associates, Inc. and the stockholders of System Consulting
Associates, Inc. party thereto (incorporated by reference from Exhibit 2.1 to the Companys
current report on From 8-K, filed with the Commission on September 26, 2007).
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3.1
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Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrants
Current Report on Form 8-K filed with the Commission on November 22, 2005).
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3.2
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Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registrants Current
Report on Form 8-K filed with the Commission on December 3, 2007).
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3.3
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Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit
3.3 to the Registrants Current Report on Form 8-K filed with the Commission on November 30,
2005).
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3.4
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Certificate of Merger of HBDC II, Inc. with and into Health Benefits Direct Corporation
(incorporated by reference to Exhibit 3.4 to the Registrants Current Report on Form 8-K filed
with the Commission on November 30, 2005).
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3.5
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Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit
3.5 to the Registrants Registration Statement on Form SB-2, filed with the Commission on
February 1, 2008).
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3.6
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Certificate of Designation with respect to shares of Series A Preferred Stock (incorporated by
reference to Exhibit 3.1 to the Registrants Current Report on Form 8-K filed with the Commission
on January 21, 2009).
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3.7
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Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit
3.7 to the Registrants Annual Report on Form 10-K filed with the Commission on March 31, 2009).
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4.1
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Form of Common Stock Purchase Warrant Certificate (incorporated by reference to Exhibit 4.1 to
the Registrants Current Report on Form 8-K filed with the Commission on November 30, 2005).
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4.2
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Warrant to Purchase Common Stock issued to Alvin H. Clemens (incorporated by reference to Exhibit
4.2 to the Registrants Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005,
filed with the Commission on March 31, 2006).
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4.3
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Securities Purchase Agreement, dated March 30, 2007, by and between Health Benefits Direct
Corporation and the Investors party thereto (incorporated by reference to Exhibit 4.1 to the
Registrants Current Report on Form 8-K, filed with the Commission on March 30, 2007).
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4.4
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Registration Rights Agreement, dated March 30, 2007, by and between Health Benefits Direct
Corporation and the Investors party thereto (incorporated by reference to Exhibit 4.2 to the
Registrants Current Report on Form 8-K, filed with the Commission on March 30, 2007).
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Exhibit
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Number
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Description
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4.5
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Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrants Current Report on
Form 8-K, filed with the Commission on March 30, 2007).
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4.6
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Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.4 to the Registrants
Current Report on Form 8-K, filed with the Commission on March 30, 2007).
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4.7
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Registration Rights Agreement, dated October 1, 2007, by and between Health Benefits Direct
Corporation and Computer Command and Control Company (incorporated by reference from Exhibit 4.1
to the Companys current report on From 8-K, filed with the Commission on October 4, 2007).
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4.8
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Registration Rights Agreement, dated October 1, 2007, by and among Health Benefits Direct
Corporation and Robert J. Oakes, Jeff Brocco, Tim Savery and Lisa Roetz (incorporated by
reference from Exhibit 4.2 to the Companys current report on From 8-K, filed with the Commission
on October 4, 2007).
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4.9
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Securities Purchase Agreement, dated March 31, 2008, by and between Health Benefits Direct
Corporation and the Investor party thereto (incorporated by reference from Exhibit 4.1 to the
Registrants Current Report on Form 8-K, filed with the Commission on March 31, 2008).
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4.10
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Securities Purchase Agreement, dated March 31, 2008, by and between Health Benefits Direct
Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.2 to the
Registrants Current Report on Form 8-K, filed with the Commission on March 31, 2008).
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4.11
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Form of Warrant (incorporated by reference to Exhibit 4.3 to the Registrants Current Report on
Form 8-K, filed with the Commission on March 31, 2008).
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4.12
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Form of Registration Rights Agreement, dated March 31, 2008, by and among Health Benefits Direct
Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.4 to the
Companys current report on From 8-K, filed with the Commission on March 31, 2008).
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4.13
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Form of Registration Rights Agreement, dated March 31, 2008, by and among Health Benefits Direct
Corporation and the Investors party thereto (incorporated by reference from Exhibit 4.3 to the
Companys current report on From 8-K, filed with the Commission on March 31, 2008)
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4.14
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Board Representation Agreement, date March 31, 2008, between the Company and The Co-Investment
Fund II, L.P. (incorporated by reference from Exhibit 4.5 to the Registrants Current Report on
Form 8-K, filed with the Commission on March 31, 2008).
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4.15
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Securities Purchase Agreement, dated January 14, 2009, by and between Health Benefits Direct
Corporation and the Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.1 to
the Registrants Current Report on Form 8-K, filed with the Commission on January 21, 2008).
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4.16
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Registration Rights Agreement, dated January 14, 2009, by and between Health Benefits Direct
Corporation and the Co-Investment Fund II, L.P. (incorporated by reference from Exhibit 4.2 to
the Registrants Current Report on Form 8-K, filed with the Commission on January 21, 2008).
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4.17
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Preferred Warrant (incorporated by reference from Exhibit 4.3 to the Registrants Current Report
on Form 8-K, filed with the Commission on January 21, 2008).
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4.18**
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Form of Subscription Rights Certificate
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Exhibit
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Number
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Description
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4.19**
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Form of Warrant
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5.1**
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Opinion of Morgan, Lewis & Bockius LLP
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10.1
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Health Benefits Direct Corporation Compensation Plan for Directors (incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on Form 8-K filed with the Commission on March
20, 2006).
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10.2
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Lease Agreement, dated February 9, 2004, between Case Holding Co. and Platinum Partners, LLC
(incorporated by reference to Exhibit 10.7 to the Registrants Form 8-K filed with the Commission
on November 30, 2005).
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10.3
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Lease between Health Benefits Direct Corporation and FG2200, LLC, effective March 15, 2006
(incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed
with the Commission on March 6, 2006).
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10.4
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Employment Agreement, dated November 18, 2005, between Health Benefits Direct Corporation and
Charles A. Eissa (incorporated by reference to Exhibit 10.14 to the Registrants Current Report
on Form 8-K filed with the Commission on November 30, 2005).
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10.5
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Amendment 2008-1 to Employment Agreement, dated March 31, 2008, between Health Benefits Direct
Corporation and Charles A. Eissa (incorporated by reference to Exhibit 10.4 to the Registrants
Current Report on Form 8-K filed with the Commission on March 31, 2008).
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10.6
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Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.1
to the Registrants Current Report on Form 8-K filed with the Commission on January 17, 2006).
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10.7
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Securities Contribution Agreement, dated September 9, 2005, among Health Benefits Direct
Corporation, Marlin Capital Partners I, LLC, Scott Frohman, Charles A. Eissa, Platinum Partners
II LLC and Dana Boskoff (incorporated by reference to Exhibit 10.22 to the Registrants Current
Report on Form 8-K filed with the Commission on November 30, 2005).
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10.8
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Merger Agreement, dated April 3, 2006, among Health Benefits Direct Corporation, ISG Merger
Acquisition Corp., Insurance Specialist Group Inc. and Ivan M. Spinner (incorporated by reference
to the Registrants Current Report on Form 8-K filed with the Commission on April 6, 2006).
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10.9
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Employment Agreement, dated April 3, 2006, between HBDC II, Inc. and Ivan M. Spinner
(incorporated by reference to the Registrants Current Report on Form 8-K filed with the
Commission on April 6, 2006).
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10.10
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Health Benefits Direct Corporation 2008 Equity Compensation Plan (incorporated by reference to
the Registrants Current Report on Form 8-K filed with the Commission on March 31, 2008).
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10.11
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Health Benefits Direct Corporation 2008 Equity Compensation Plan Form of Nonqualified Stock
Option Grant (incorporated by reference to the Registrants Current Report on Form 8-K filed with
the Commission on March 28, 2008).
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10.12
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Sublease, dated March 7, 2006, between Health Benefits Direct Corporation and World Travel
Partners I, LLC Form of Nonqualified Stock Option Grant (incorporated by reference to the
Registrants Current Report on Form 8-K filed with the Commission on May 19, 2006).
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Exhibit
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Number
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Description
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10.13
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First Amendment to Sublease, dated April 18, 2006, between Health Benefits Direct Corporation ad
World Travel Partners I, LLC (incorporated by reference to the Registrants Current Report on
Form 8-K filed with the Commission on May 19, 2006).
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10.14
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Letter Agreement, dated April 18, 2006, among World Travel Partners I, LLC, Health Benefits
Direct Corporation, and 1120 Avenue of the Americas, LLC (incorporated by reference to the
Registrants Current Report on Form 8-K filed with the Commission on May 19, 2006).
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10.15
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Software and Services Agreement, dated May 31, 2006, among Health Benefits Direct Corporation,
Insurint Corporation, and Realtime Solutions Group, L.L.C. (incorporated by reference to the
Registrants Current Report on Form 8-K filed with the Commission on June 2, 2006).
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10.16
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Lease, dated July 7, 2006, between Health Benefits Direct Corporation and Radnor Properties-SDC,
L.P. (incorporated by reference to the Registrants Current Report on Form 8-K filed with the
Commission on July 10, 2006)
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10.17
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Separation Agreement, dated December 7, 2006, between Health Benefits Direct Corporation and
Scott Frohman (incorporated by reference to the Registrants Current Report on Form 8-K filed
with the Commission on December 11, 2006).
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10.18
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Amendment No. 1 to Option, dated as of February 15, 2007, delivered by Health Benefits Direct
Corporation to Daniel Brauser (incorporated by reference to the Registrants Current Report on
Form 8-K filed with the Commission on February 16, 2007).
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10.19
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Consent and Lock-Up Agreement, dated April 5, 2007, between Health Benefits Direct Corporation
and Scott Frohman (incorporated by reference to the Registrants Current Report on Form 8-K filed
with the Commission on April 6, 2007).
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10.20
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Amended and Restated Employment Agreement, dated November 27, 2007, between Health Benefits
Direct Corporation and Alvin H. Clemens (incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed with the Commission on December 3, 2007).
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10.21
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Amended and Restated Employment Agreement, dated November 27, 2007, between Health Benefits
Direct Corporation and Anthony R. Verdi (incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K filed with the Commission on December 3, 2007).
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10.22
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Amendment 2008-1 to Amended and Restated Employment Agreement, dated March 31, 2008, between
Health Benefits Direct Corporation and Anthony R. Verdi (incorporated by reference to Exhibit
10.3 to the Registrants Current Report on Form 8-K filed with the Commission on March 31, 2008).
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10.23
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Amended and Restated Employment Agreement, dated November 27, 2007, between Health Benefits
Direct Corporation and Ivan M. Spinner (incorporated by reference to Exhibit 10.3 to the
Registrants Current Report on Form 8-K filed with the Commission on December 3, 2007).
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10.24
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Client Transition Agreement, between Health Benefits Direct Corporation, HBDC II, Inc. and
eHealthInsurance Services, Inc. (incorporated by reference to Exhibit 10.31 to the Registrants
Annual Report on Form 10-K filed with the Commission on March 31, 2009).
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10.25
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Loan Agreement, dated December 22, 2009, by and among Health Benefits Direct Corporation, Insurance Specialist Group, Inc., HBDC II, Inc., Insurint Corporation, Platinum Partners, LLC, InsPro Technologies, LLC and The Co-Investment Fund II, L.P. (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed with the Commission on December 29, 2009).
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10.26
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Secured Promissory Note, dated December 22, 2009, by and among Health Benefits Direct Corporation, Insurance Specialist Group, Inc., HBDC II, Inc.,
Insurint Corporation, Platinum Partners, LLC, InsPro Technologies, LLC and The
Co-Investment Fund II, L.P. (incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K filed with the Commission on December 29, 2009).
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Exhibit
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Number
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Description
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14
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Amended and Restated Code of Business Conduct and Ethics (incorporated by reference to Exhibit
14.1 to the Registrants Current Report on Form 8-K filed with the Commission on February 4,
2008).
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21*
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Subsidiaries of Health Benefits Direct Corporation
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23.1**
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Consent of Sherb & Co., LLP.
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23.2**
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Consent of Morgan, Lewis & Bockius LLP (included in Exhibit 5.1 Opinion)
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99.1**
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Form of Instructions for Use of Health Benefits Direct Corporation Subscription Rights Certificate
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99.2**
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Form of Notice of Guaranteed Delivery
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99.3**
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Form of Letter to Security Dealers, Commercial Banks, Trust Companies and Other Nominees
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99.4**
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Form of Letter to Clients
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99.5**
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Form of Notice to Stockholders of Subscription Rights
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99.6**
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Form of Beneficial Owner Election Form
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99.7**
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Form of Nominee Holder Certification
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*
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Previously filed
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**
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Filed herewith
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