FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

(Mark one)
x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2006

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from to

Commission file number: 0-23598

NWH, INC.
(Exact name of registrant as specified in its charter)

Delaware	13-3735316
(State or other jurisdiction of incorporation)	(IRS Employer Identification No.)

156 West 56 Street, Suite 2001, New York, NY	10019
(Address of principal executive offices)	(Zip Code)

(212) 582 1212
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. (as defined in Rule 12b-2 of the Exchange Act)

Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.01 par value: 2,910,859 shares as of May 30, 2006.

NWH, Inc.
Index

Part I — Financial Information

Item 1. Unaudited Consolidated Financial Statements

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

NWH, Inc.
Consolidated Balance Sheets

	April 30, 2006			October 31, 2005
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	18,879,783		$	21,622,468
Trade and other receivables, net of allowances of $40,000 as of April 30, 2006 and October 31, 2005, respectively	3,201,311			3,297,684
Prepaid expenses and other current assets	550,931			417,664
Deferred income taxes	579,120			69,518
Refundable income taxes	146,042			61,120
Total current assets	23,357,186			25,468,454

Property and equipment, net of accumulated depreciation of $2,031,578 and $3,508,633, respectively	735,312			822,844
Internally developed software, net of accumulated amortization of $4,530,504 and $3,732,341, respectively	3,718,502			3,452,066
Goodwill	3,682,977			3,762,187
Other assets	418,993			425,131
Total assets	$	31,912,970		$	33,930,682

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable and accrued expenses	$	1,659,580		$	2,015,506
Deferred revenue	506,838			556,125
Dividends payable	1,460,816			1,461,816
Total current liabilities	3,627,233			4,033,447
Note Payable	140,000			140,000
Deferred income taxes	1,416,269			1,212,365
Total liabilities	5,183,502			5,385,812

Stockholders’ equity
Preferred stock, $0.01 par value: 1,000,000 shares authorized, no shares issued or outstanding	—			—
Common stock, $0.01 par value: 20,000,000 shares authorized, 3,342,231 shares issued	33,422			33,422
Additional paid-in capital	23,200,077			23,195,991
Retained earnings	8,756,673			10,421,696
Treasury stock, 431,372 and 418,600 shares at cost, respectively	(5,260,704		)	(5,106,239		)
Total stockholders’ equity	26,729,468			28,544,870
Total liabilities and stockholders’ equity	$	31,912,970		$	33,930,682

See accompanying notes to unaudited consolidated financial statements.

NWH, Inc.
Consolidated Statements of Income
(Unaudited)

	For the Three Months						For the Six Months
	Ended April 30,						Ended April 30,
	2006			2005			2006			2005
Service revenue	$	4,919,738		$	4,770,308		$	9,559,964		$	9,418,088
Other income	—						262,729			—
Total revenue	4,919,738			4,770,308			9,822,693			9,418,088

Cost of services	2,364,904			2,255,419			4,636,485			4,600,800
Professional fees	198,700			253,410			344,380			579,666
General and administrative	1,942,697			2,139,293			4,030,739			4,197,813
Depreciation and amortization not included in cost of services	92,258			89,594			184,823			176,803
Total operating expenses	4,602,746			4,737,716			9,204,800			9,555,082

Income (loss) from operations	316,993			32,592			617,893			(136,994		)

Other income (expense):
Dividend income	198,110			137,551			395,714			137,551
Interest income	21,795			34,015			62,401			153,671
Interest expense	(1,036		)	(3,093		)	(2,203		)	(6,766		)
	218,868			168,473			456,039			284,456

Income before provision (benefit) for income taxes	535,861			201,065			1,073,932			147,462

Provision (benefit) for income taxes	(410,427		)	74,000			(193,311		)	(164,000		)

Net income	$	946,288		$	127,065		$	1,267,243		$	311,462

Net income per common share
Basic	$	0.32		$	0.04		$	0.43		$	0.11
Diluted	$	0.32		$	0.04		$	0.43		$	0.11
Weighted average number of common shares outstanding
Basic	2,912,843			2,923,631			2,917,873			2,924,139
Diluted	2,921,356			2,926,954			2,924,900			2,927,624

See accompanying notes to unaudited consolidated financial statements.

NWH, Inc.
Consolidated Statements of Cash Flows
(Unaudited)

	For the Six Months Ended April 30,
	2006			2005
Cash flows from operating activities
Net income	$	1,267,243		$	311,462
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,045,551			835,432
Accretion of interest	—			(61,274		)
Change in deferred taxes	(305,698		)	(139,000		)
Bad debt expense	14,456			23,572
Changes in assets and liabilities:
Trade and other receivables	81,916			(281,945		)
Refundable income taxes	(84,922		)	(190,924		)
Prepaid expenses and other current assets	(133,266		)	(214,532		)
Other assets	85,349			(73,795		)
Deferred revenue	(49,286		)	(42,813		)
Income taxes payable	—			(147,035		)
Accounts payable and accrued expenses	(355,248		)	269,289
Net cash provided by operating activities	1,566,095			288,437

Cash flows from investing activities
Acquisition of property and equipment	(238,192		)	(259,826		)
Additions to internally developed software	(1,064,599		)	(508,042		)
Proceeds from sale of marketable securities	—			14,988,011
Cash received from asset sale	74,107			—
Net cash (used in) provided by investing activities	(1,228,684		)	14,220,143

Cash flows from financing activities
Dividends paid	(2,925,631		)	(2,924,632		)
Principal payments of debt	—			(7,638		)
Purchase of treasury stock	(154,465		)	(14,605		)
Net cash used in financing activities	(3,080,096		)	(2,946,875		)

Net (decrease) increase in cash and cash equivalents	(2,742,685		)	11,561,705
Cash and cash equivalents:
Beginning of period	21,622,468			12,137,155
End of period	$	18,879,783		$	23,698,860

See accompanying notes to unaudited consolidated financial statements.

NWH, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of NWH, Inc. (the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, consisting solely of normal recurring accruals necessary for a fair presentation of the financial statements for these interim periods, have been recorded. Operating results for the interim period are not necessarily indicative of the results that may be expected for a full year. These financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2005.

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates.

2. Reclassification

Certain reclassifications have been made in prior period’s financial statements to conform to classifications used in the current year.

3. Critical Accounting Policies

The Company capitalizes purchased software which is ready for service and development costs for software incurred from the time the preliminary project stage is completed until the software is ready for use. Under the provisions of Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use” (SOP 98-1), the Company capitalizes costs associated with software developed or obtained for internal use when both the preliminary project state is completed and the Company management has authorized further funding for the project which it deems probable to be completed and used to perform the function intended. Capitalized costs include only (1) external direct costs of materials and services consumed in developing or obtaining internal-use software, (2) payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal-use software project, and (3) interest costs incurred, when material, while developing internal-use software. Capitalization of such costs ceases no later than the point at which the project is substantially complete and ready for its intended purpose. Capitalized software development costs are amortized using the straight-line method generally over four years, not to exceed the expected life of the product or related contract. The carrying value of capitalized software development costs is regularly reviewed by the Company, and a loss is recognized if the value of estimated undiscounted cash flows related to the asset falls below the unamortized costs.

Research and development costs and computer software maintenance costs related to software development are expensed as incurred.

4. Stock Options and Stock Based Compensation

Effective November 1, 2005, the Company adopted SFAS No. 123R, “Share Based Payment” (SFAS 123R) utilizing the modified prospective method of adoption which does not require restatement of prior periods. Prior to the adoption of SFAS 123R, the Company accounted for stock option grants in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees” (the intrinsic value method), and accordingly, recognized no compensation expense for stock options granted that had an exercise price equal to the fair market value of the underlying common stock at the date of grant. There was no pro-forma net income or net income per share effect, as if the fair value method in FASB Statement No. 123 had been used in the prior period to account for share-based compensation because all outstanding options during the period were insignificant.

Under the modified prospective approach, SFAS No. 123R applies to new awards and to awards that were outstanding on November 1, 2005 that are substantially modified, repurchased or cancelled. Under the modified prospective approach, compensation cost to be recognized in fiscal 2006 includes compensation cost for all share-based payments granted prior to, but not yet vested as of November 1, 2005 based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123, and compensation cost for all share-based payments granted subsequent to November 1, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. Compensation cost recognized in the six month period ended April 30, 2006 was $4,086. Under APB Opinion No. 25, there would have been no compensation expense for stock option grants for the six months ended April 30, 2005.

On April 30, 2006, the Company had three share-based compensation plans, which are described below. The Company has a policy of satisfying option exercises with newly issued shares.

The Black-Scholes option pricing formula was used to estimate the fair value of awards under share-based payment arrangements. Expected volatilities are based on historical volatility of the Company’s Common Stock. The Company uses historical data to estimate option exercises within the valuation model. The expected term of options represent the period of time that options granted are expected to be outstanding. The risk free rate for periods within the contractual life of the option is based on the current U.S. Treasury yield in effect at each period end. The more significant assumptions underlying the determination of such fair value for options granted in 2005 and 2006 include: (i) weighted average risk-free interest rates of 4.3% in 2005 and 4.0% in 2006; (ii) weighted average expected option life of 5 years; (iii) an expected volatility of 19% in 2005 and 2006; (iv) an expected dividend yield of 14% in 2005 and 16% in 2006; and (v) annual dividend of $2 per share which is not an indication of future dividend policy but an assumption based on historical payment of dividends.

The 1993 Stock Option Plan, as amended, and the 1997 Equity Incentive Plan (collectively, the “Plans”) permit the grant of options to key employees (including officers), directors, advisors, and independent consultants to the Company or to any of its subsidiaries. The vesting period is at the discretion of the Board of Directors. For options currently outstanding under the Plans, there are no service requirements as all options are fully vested upon issuance. Although 50,000 options remain outstanding under the 1993 Stock Option Plan, no further grants may be made under such Plan. The Company originally authorized 300,000 shares of Common Stock for option issuances under the 1997 Equity Incentive Plan. At April 30, 2006 the Company had 71,154 options available for grant under the Plans. Options granted to employees may be designated as incentive stock options (“ISO’s”) or non-qualified stock options (“NQSO’s”), as defined by the Internal Revenue Service. Options granted to independent consultants and other non-employees may only be designated NQSO’s.

The exercise price of options granted under the Plans may not be less than 100% of the fair market value of the Common Stock on the date of grant. Generally, options will be exercisable for a term that will not exceed ten years from the date of grant. Options outstanding under the Plans have a five year life.

A summary of option activity under the Plans as of April 30, 2006, and changes during the six months then ended is presented below:

							Weighted
							Average
			Weighted		Weighted		Remaining	Aggregate
			Average		Average Grant		Contractual	Intrinsic
	Share Options		Exercise Price		Date Fair Value		Term (Years)	Value

Outstanding, October 31, 2005	165,769		$	15.98	$	1.78
Issued	65,000		$	13.05	$	0.07
Expired	(86,154	)	$	17.14	$	1.87
Outstanding, April 30, 2006	144,615		$	13.97	$	0.95	2.75	—
Exercisable, April 30, 2006	144,615		$	13.97	$	0.95	2.75	—

In March 2000, the Company adopted the 2000 Director Option Plan (Director Plan) covering an aggregate of up to 70,000 shares of Common Stock, pursuant to which the Company shall grant 5 year options for 5,000 shares upon the appointment of an outside director and 2,500 shares annually to each outside director on the date of the annual stockholders meeting. The exercise price of options granted under the this plan may not be less than 100% of the fair market value of the Common Stock on the date of grant. These options have a five year life. Options granted upon appointment vest ratably over three years beginning with the grant date. Options granted annually vest immediately. There are no service requirements for options under this plan. At April 30, 2006 the Company had 22,500 options available for grant under the Director Plan.

A summary of option activity under the Director Plan as of April 30, 2006, and changes during the six months then ended is presented below:

							Weighted
							Average
			Weighted		Weighted		Remaining	Aggregate
			Average		Average Grant		Contractual	Intrinsic
	Share Options		Exercise Price		Date Fair Value		Term (Years)	Value
Outstanding, October 31, 2005	50,000		$	15.86	$	1.39
Expired	(7,500	)	$	12.75	$	1.63
Outstanding, April 30, 2006	42,500		$	16.40	$	1.34	2.71	—
Exercisable, April 30, 2006	42,500		$	16.40	$	1.34	2.71	—

A summary of the status of the Company’s non-vested shares under the Director Plan for the six months ended April 30, 2006 is presented below:

Non-Vested Shares		Shares
Balance, October 31, 2005	5,000
Vested	(5,000		)
Balance, April 30, 2006	—

No cash was received from option exercises under any option plans for the quarter and six months ended April 30, 2006.

5. Earnings Per Share

Basic earnings per share is computed as net income divided by the weighted average number of common shares outstanding for the period. Diluted earnings per share includes the dilutive effect of the assumed exercise of stock options. Reconciliation of the weighted average shares outstanding for basic and diluted earnings per share is as follows:

	For the Three Months		For the Six Months
	Ended April 30,		Ended April 30,
	2006	2005	2006	2005

Weighted average common shares outstanding:
Basic EPS shares	2,912,843	2,923,631	2,917,873	2,924,139
Dilutive effect of stock options	8,513	3,323	7,027	3,485
Diluted EPS shares	2,921,356	2,926,954	2,924,900	2,927,624

6. Segment Information

The Company currently operates in two segments: the holding company, including certain investments which are currently not material; and its investments in ENS.

Segments were determined based on services provided by each segment. Accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on profit or loss from operations before income taxes not including net interest and dividends, depreciation, amortization, and gain on securities transactions.

The following table summarizes the financial information of the operating segments as of and for the three and six months ended April 30, 2006 and 2005:

	NWH and Other			ENS			Segment Totals			Eliminations			Consol. Totals
Three months ended April 30, 2006
Revenues from external customers	$	—		$	4,919,738		$	4,919,738		$	—		$	4,919,738
Cost of services (excluding depreciation and amortization), professional fees, and general and administrative	$	(465,360	)	$	(3,610,109	)	$	(4,075,468	)	$	—		$	(4,075,468	)
Segment (loss) income	$	(465,360	)	$	1,309,630		$	844,270		$	—		$	844,270

Expenditure for segment assets	$	—		$	513,630		$	513,630		$	—		$	513,630



Three months ended April 30, 2005
Revenues from external customers	$	—		$	4,770,308		$	4,770,308		$	—		$	4,770,308

Cost of services (excluding depreciation and amortization), professional fees, and general and adminstrative	$	(563,154	)	$	(3,745,655	)	$	(4,308,809	)	$	—		$	(4,308,809	)
Segment (loss) income	$	(563,154	)	$	1,024,653		$	461,499		$	—		$	461,499

Expenditure for segment assets	$	9,071		$	455,117		$	464,188		$	—		$	464,188

Six months ended April 30, 2006
Revenues from external customers	$	—		$	9,822,693		$	9,822,693		$	—		$	9,822,693

Cost of services (excluding depreciation and amortization), professional fees, and general and administrative	$	(879,734	)	$	(7,279,515	)	$	(8,159,250	)	$	—		$	(8,159,250	)
Segment (loss) income	$	(879,734	)	$	2,543,178		$	1,663,444		$	—		$	1,663,444

Expenditure for segment assets	$	54,806		$	1,247,985		$	1,302,791		$	—		$	1,302,791

Segment assets	$	29,042,310		$	8,114,662		$	37,156,972		$	(5,234,452	)	$	31,922,520
Segment liabilities	$	3,008,709		$	6,029,736		$	9,038,445		$	(3,924,603	)	$	5,113,842


Six months ended April 30, 2005
Revenues from external customers	$	—		$	9,418,088		$	9,418,088		$	—		$	9,418,088

Cost of services (excluding depreciation and amortization), professional fees, and general and adminstrative	$	(1,144,059	)	$	(7,575,590	)	$	(8,719,649	)	$	—		$	(8,719,649	)
Segment (loss) income	$	(1,144,059	)	$	1,842,498		$	698,439		$	—		$	698,439

Expenditure for segment assets	$	9,071		$	758,796		$	767,867		$	—		$	767,867

Segment assets	$	37,817,230		$	7,766,515		$	45,583,745		(9,840,913		)	$	35,742,832
Segment liabilities	$	2,927,119		$	8,582,053		$	11,509,172		$	(6,608,960	)	$	4,900,212

The following represents the reconciliation of segment (loss) income and (loss) income before income taxes:

	NWH and Other			ENS			Segment Totals			Eliminations			Consol. Totals
Three months ended April 30, 2006
Segment (loss) income	(465,360		)	1,309,630			844,270			—			844,270
Depreciation and amortization	(7,678		)	(519,600		)	(527,278		)	—			(527,278		)
Dividend income	198,110			—			198,110			—			198,110
Interest income	31,662			10,272			41,934			(20,139		)	21,795
Interest expense	—			(23,420		)	(23,420		)	22,384			(1,036		)
(Loss) income before income taxes	$	(243,266	)	$	776,882		$	533,616		$	2,245		$	535,861


Three months ended April 30, 2005
Segment (loss) income	$	(563,154	)	$	1,024,653		$	461,499		$	—		$	461,499
Depreciation and amortization	(3,941		)	(424,966		)	(428,907		)	—			(428,907		)
Dividend income	137,551			—			137,551			—			137,551
Interest income	53,190			11,209			64,399			(30,384		)	34,015
Interest expense	—			(44,807		)	(44,807		)	41,714			(3,093		)
(Loss) income before income taxes	$	(376,354	)	$	566,089		$	189,735		$	11,330		$	201,065

Six months ended April 30, 2006
Segment (loss) income	(879,734		)	2,543,178			1,663,444			—			1,663,444
Depreciation and amortization	(15,356		)	(1,030,195		)	(1,045,551		)	—			(1,045,551		)
Dividend income	395,714			—			395,714			—			395,714
Interest income	88,281			19,867			108,148			(45,747		)	62,401
Interest expense	—			(51,214		)	(51,214		)	49,138			(2,076		)
(Loss) income before income taxes	$	(411,095	)	$	1,481,636		$	1,070,541		$	3,391		$	1,073,932


Six months ended April 30, 2005
Segment (loss) income	$	(1,144,059	)	$	1,842,498		$	698,439		$	—		$	698,439
Depreciation and amortization	(6,749		)	(828,684		)	(835,433		)	—			(835,433		)
Dividend income	137,551			—			137,551			—			137,551
Interest income	240,456			19,996			260,452			(106,781		)	153,671
Interest expense	(201		)	(127,305		)	(127,506		)	120,740			(6,766		)
(Loss) income before income taxes	$	(773,002	)	$	906,505		$	133,503		$	13,959		$	147,462

Expenditures for segment assets include property and equipment and internally developed software including capitalized lease obligations.

Adjustments represent the elimination of the notes payable from ENS to NWH and the related interest and NWH’s investment in ENS and other subsidiaries.

7. Dividends

On November 3, 2005, the Board of Directors of the Company declared a quarterly dividend of $0.30 per share, plus a special dividend of $0.20 per share. The dividend, aggregating $0.50 per share, was paid on February 3, 2006 to the shareholders of record at the close of business on January 27, 2006.

On February 13, 2006, the Board of Directors of the Company declared a quarterly dividend of $0.30 per share, plus a special dividend of $0.20 per share. The dividend, aggregating $0.50 per share, was paid in cash on May 10, 2006 to the shareholders of record at the close of business on April 27, 2006.

8. Arbitration Award

The Company’s arbitration with a major customer over additional business opportunities was resolved with an award of $1,000,757 to ENS, which was paid in August, 2005. ENS received an additional award of $262,729 representing recovery of a portion of the related legal costs which has been reflected in the first quarter of fiscal 2006.

In connection with this matter and in accordance with the terms of the Company’s services agreement with this customer, this customer terminated the services agreement effective October 31, 2006. ENS may continue to provide business services after October 31, 2006 for this customer for electronic transactions. Paper services for this customer accounted for 29%, 31% and 25% of ENS’ total revenues in fiscal years 2005, 2004 and 2003. There is no assurance that this customer will continue any ENS services past October 31, 2006.

9. Income Taxes

The benefit for income taxes for the six months ending April 30, 2006 includes the release of tax reserves as a result of utilizing federal net operating loss carryforwards of $428,000. The benefit also includes the revision of prior year tax estimates of $111,000.

10. Subsequent Event

On May 25, 2006, the Company announced that it had entered into an Agreement and Plan of Merger dated as of May 25, 2006 (the “Merger Agreement”), with Ingenix, Inc., a Delaware corporation (“Parent”), and Mogul Acquisition Corporation, a Delaware corporation and a direct wholly owned subsidiary of Parent (“Merger Sub”). Pursuant to the terms of the Merger Agreement, Merger Sub will merge with and into the Company, with the Company surviving as a wholly-owned subsidiary of Parent.

The Merger Agreement includes customary representations, warranties and covenants of the parties to the merger. The merger is conditioned on the approval of the Company’s stockholders and certain other closing conditions.

Parent will pay $18.24 per share of the Company’s common stock at the closing as merger consideration to the Company’s stockholders. The parties also intend to cancel all of the Company’s outstanding stock options at the closing, with payments to holders in respect of such cancellations in lump sum cash payments, reduced, but not below zero, by any exercise prices and tax withholdings. The Company and Parent currently expect the merger to close in the third calendar quarter of 2006.

In addition, the Company has agreed, among other things and subject to certain exceptions as described in the Merger Agreement, (i) to conduct its business in the ordinary course consistent with past practice during the interim period between the execution of the Merger Agreement and consummation of the merger, (ii) not to engage in certain transactions during such period and (iii) to cause a special stockholder meeting to be held to consider approval of the merger and the other transactions contemplated by the Merger Agreement.

The Merger Agreement prohibits the Company from soliciting or entertaining alternative business acquisition proposals, subject to certain exceptions for proposals that are determined in good faith to constitute or to be reasonably likely to constitute a superior proposal. The Merger Agreement also contains certain termination rights for both the Company and Parent. Either party may terminate the Merger Agreement if the merger is not consummated on or before September 30, 2006, if the merger is not approved by the Company’s stockholders or upon other customary events. Parent may terminate the Merger Agreement if the Company’s Board of Directors changes or does not reaffirm its recommendation of the merger. Upon termination of the Merger Agreement under specified circumstances, the Company may be required to pay Parent a termination fee of approximately $2.15 million.

Parent has also executed voting agreements with stockholders who hold approximately 16.6% of the outstanding voting stock of the Company, pursuant to which the stockholders have given Parent a proxy to vote all of the shares of the Company’s common stock that the stockholders beneficially own in favor of adoption of the Merger Agreement and approval of the merger and against any alternative business acquisition proposal.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NWH, Inc. (“NWH” or the “Company”) owns and operates Electronic Network Systems, Inc. (“ENS”), a payer services organization that connects healthcare payers and providers using state of the art proprietary software and telecommunications services for most healthcare payment and insurance validation transactions. The Company focuses its efforts on the development of ENS’ business and continues its business of acquiring and disposing of interests in healthcare and other business areas that will enhance the operations of ENS.

The Company was incorporated in Delaware under the name National Wireless Holdings Inc. on August 31, 1993. The Company’s fiscal year ends on October 31. ENS’ fiscal year ends on September 30.

ENS is a healthcare payer and provider services organization that connects payers (i.e., insurance companies and third party administrators) and providers (i.e., doctors, group practices and other healthcare providers) using state of the art proprietary software and telecommunications services for most healthcare payment and insurance validation transactions. ENS provides a state of the art technology platform for web based graphical user interfaces on a national basis, which enables its clients, both payers and providers, to comply fully with applicable regulatory requirements such as those imposed by HIPAA. ENS’ service offerings address the full array of evolving industry needs in this focused area with a complete cycle of services from a single point of entry (a personal computer in the client’s office) for both providers and payers, compatible with multiple system and database operating environments. These services include an Internet transactions portal, payer transactions hosting, electronic data interchange, pre-adjudication software services (PASStm), scanning, optical character recognition and data entry of paper claims and correspondence and mailroom services. ENS generates revenue through recurring subscriptions, flat or per transaction fees and revenue sharing.

Over 72,000 providers are connected to ENS’ e-commerce and Internet services which represents a 34% increase over the prior year primarily due to more connections with gateways. Through payer arrangements, ENS also currently conducts daily paper to e-commerce claim conversion for another 185,000 healthcare providers. ENS also experienced a 19% increase in contracted billable provider sites over the prior year. All of ENS’ growth was obtained through internal sales versus acquisition. As of May 30, 2006, ENS was connected to over 1,500 payers, including commercial healthcare plans, managed care organizations, Blue Cross/Blue Shield plans, Medicare, Medicaid and CHAMPUS. Approximately 90% of all electronic claims received by ENS are directly submitted to contracted payers.

We focus on the current and future connectivity and transactions processing requirements of the healthcare industry. We provide healthcare providers with a secure infrastructure for web-based and private network transactions consisting of, among others, electronic medical claims processing, electronic claims tracking and patient eligibility verification. We also provide health care payers e-commerce connectivity with their provider constituency as well as paper claims conversion, pre-adjudication, reporting, education and marketing support to increase utilization of e-commerce in this industry. Our strategy for the future is to facilitate the migration of provider and payer clients from their current inefficient, non-integrated transactions processing environments to efficient, seamlessly integrated applications utilizing the transactions processing capabilities of Health-e Networkâ. Traditional applications linked to on-all-the-time Internet capabilities or Application Service Provider (ASP) environments will be able to route real-time transactions to and from all payers utilizing Health-e Networkâ. We believe that the transition to these new levels of integrated transactions processing capabilities will drastically change how the business of healthcare is conducted among healthcare participants. We plan to continue to expand this transactions infrastructure as management believes these applications will continue to evolve into more viable and widely used systems.

ENS Services — Health-e Networkâ

ENS’ Health-e Networkâ suite of services addresses all of the healthcare industry’s administrative transaction processing needs, both e-commerce and paper. As a provider of full-cycle payer and provider e-commerce services, ENS enhances the providers’ and payers’ administrative efficiency. The service offerings range from a front-end data capture/transmission software and simple mailroom services to advanced pre-adjudication software. ENS mailroom and data capture offerings are offered through strategic partnerships. ENS currently provides e-commerce connectivity to over 1,500 payers for the e-commerce claims component of Health-e Networkâ and provides a growing number of payers with connectivity for the entire suite of HIPAA-mandated administrative transactions between payers and providers.

Health-e Networkâ includes the following:

· Healthcare e-Commerce Transactions Processing ENS delivers multiple applications that enable healthcare providers to conduct key healthcare transactions easily with many payers. ENS provides these e-commerce applications through the Internet and on multiple operating systems. ENS also delivers transaction processing capabilities to strategic partners, such as physician management software vendors which, with their own software, access payers to conduct electronic business transactions via use of ENS’ Software Developer’s Kit (SDK). ENS currently processes and routes medical and hospital claims, eligibility requests and responses, claims status, claims tracking, claim payment remittance information, reporting, referral and authorization transactions. ENS services support all of the HIPAA-defined transactions and deliver to providers various methods of conducting those transactions with payers.

· Provider Connectivity (Xpedite™ ) enables ENS to identify the paper and manual transaction volumes of a payer’s provider groups, target high paper submitters, track internal progress, and market specifically to selected healthcare transaction submitters. Based on payer specific criteria, ENS assigns different levels of internal resources to convert these providers to electronic business processes with the payer. The Xpediteä conversion program then goes beyond the sales process and combines efforts of all ENS internal departments. The purpose of Xpediteä is to connect providers on behalf of payer organizations to make the participants more efficient through e-commerce.

· Automated Document ServicesÔ (ADSÔ) provides payers the complete front-end handling and conversion (imaging/scanning) of paper claims forms to an e-commerce format. Paper claims now constitute from 25-30% of provider claims volume industry-wide to commercial payers. As the claims are converted to an electronic format, ENS or an ENS partner captures the names of all paper-submitting providers in order to convert them for other e-commerce services with the payer’s support. Utilization of Health-e Networkâ (which includes ADSÔ) provides a payer with the opportunity to have 100% e-commerce claims receipts. With ENS as their partner and core e-commerce strategy implementer, payers can increase e-commerce transactions from their provider constituency. With the continually decreasing number of paper claim transactions received by payers, and the reduced pricing and margins in paper conversion services across the industry, ENS utilizes the services of business partners to process paper transactions in order to improve efficiencies and profitability. We are strategically focused on our higher margin core electronic transaction services and will continue to enhance our service offerings. ENS will continue to support its proven complete cycle model through strategic business partners wherever it is financially and strategically prudent.

· Pre-Adjudication Software SystemÔ (PASSÔ) provides a single, HIPAA-compliant connectivity entry point to a payer for all claims transactions, including transactions received via the Internet, through private e-commerce networks, and received on paper. PASSä channels the claims by utilizing customized and algorithm-based logic, and conducts the vital claims processing function of provider and member matching, including real-time eligibility verification, a critical payer requirement for increased claims paying accuracy and efficiency. ENS’ PASSÔ is an open, flexible solution that is used with the vast majority of today’s payer operating environments.

· HIPAA Payer Portal and Hosting (Health-e XchangeÔ) ENS’ transactions infrastructure receives data from providers in virtually any file format and translates to any healthcare Payers’ file specifications, facilitating HIPAA transactions compliance. ENS delivers transactions compliance for Providers, Payers, and Application Service Providers. ENS provides compliance, connectivity, and routing on all HIPAA-defined administrative healthcare transactions with a participating Payer including: healthcare claims or encounter information; health plan eligibility; healthcare claim status; referral certification and authorization; healthcare payment and remittance advice; health plan enrollments; and health plan premium payments.

ENS also provides transaction hosting for Payers so they can outsource their transaction processing needs. ENS’ transaction hosting capabilities provide for compliance, connectivity, routing, and processing of the transaction for the Payer on the following HIPAA-defined administrative healthcare transactions: health plan eligibility; healthcare claim status; referral certification and authorization.

· Eligibility is an ENS service that provides physician practices with immediate access to participating payers plus various regional and governmental payers for determining member plan eligibility. This service is delivered over the Internet and receives constant updating.

· Electronic Claims Tracking (ECTÔ) provides immediate Internet-based tracking of both e-commerce claims and, for those payers utilizing Health-e Networkâ, up-dated status on the paper claims that have been converted to an e-commerce format. ENS believes that this is the first tool that affords providers the opportunity to utilize an Internet application to track claims forwarded to payers electronically.

· Direct-Payer e-Commerce provides network connectivity for HIPAA-defined transactions to and from payer organizations from existing physicians and gateways.

· Customer Service. As an adjunct to its transaction processing services, we maintain customer service facilities with help desks for real-time customer inquiries. We offer on-line and personal technical support. Client support employs a modern call tracking and response system that is directly connected to the processing center.

As of May 30, 2006, in excess of 72,000 physicians were actively submitting electronic healthcare transactions via Health-e Networkâ suite of services with over an additional 532 contracted provider sites scheduled to be installed in 2006.

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q, including, without limitation, statements containing the words “believes,” “anticipates,” “expects” and words of similar import, constitute “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission in its rules, regulations and releases, regarding the Company’s financial and business prospects and capital requirements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: the limited nature of the Company’s operations and the risk of the Company’s failure to acquire additional businesses; the uncertain acceptance of Health-e Networkâ; competition; existing government regulations and changes in, or the failure to comply with, government regulations; the ability of the Company to sustain, manage or forecast its growth; dependence on significant customers and the potential loss thereof; the ability to attract and retain qualified personnel; risk of technological obsolescence, and other factors referenced in this Quarterly Report on Form 10-Q including, without limitation, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Certain of these factors are discussed in more detail in the Company’s Annual Report on Form 10-K for the year ended October 31, 2005, including, without limitation, under the caption “Business” and Exhibit 99.1 thereto. Given these uncertainties, undue reliance should not be placed on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained or incorporated by reference herein to reflect future events or developments.

Results of Operations

Three months ended April 30, 2006 as compared to three months ended April 30, 2005:

Service Revenue:

Service revenue increased from $4,770,308 for the three months ended April 30, 2005 to $4,919,738 for the three months ended April 30, 2006 (or approximately 3.1%), primarily reflecting growth in sales to new and existing providers and related payer income as well as growth in PASSTM transactions. ENS has increased its number of direct provider connections by 20.7% and increased its number of direct e-commerce connections with payers from March 31, 2005 to March 31, 2006. These trends were offset by market wide pricing pressures on payer income from EDI transactions and declining claim volumes from a significant customer (see ENS — Liquidity and Capital Resources for a discussion of this customer). This significant customer makes up approximately 99% of the Company’s revenue in the area of processing paper claim transactions. With the continually decreasing number of paper claim transactions received by payers, and the reduced pricing and margins in paper conversion services across the industry, ENS utilizes the services of business partners to process paper transactions in order to improve efficiencies and profitability and does not endeavor to grow this aspect of ENS’ business. We remain strategically focused on growing our higher margin core electronic transaction services and will continue to enhance our service offerings in this area. ENS will continue to support its proven complete cycle model through strategic business partners wherever it is financially and strategically prudent. See below for a discussion of ENS results of operations.

Cost of Services:

Cost of services increased from $2,255,419 in the three months ended April 30, 2005 to $2,364,904 in the three months ended April 30, 2006 (or approximately 4.9%). Included in cost of services for the three months ended April 30, 2005 and April 30, 2006 is amortization of proprietary software used to provide services directly to specific customers, and depreciation of furniture and equipment, of $339,313 and $430,833, respectively (an increase of approximately 27.0%). Cost of sales exclusive of depreciation and amortization increased approximately 0.9% reflecting a 2.9% increase in wages capitalized to software development due to an increase in signed contracts requiring development, declining costs related to declining transaction volumes from a significant customer offset by increased revenue sharing costs for EDI transaction processing.

Professional Fees:

Aggregate professional fees decreased from $253,410 in the three months ended April 30, 2005 to $198,700 in the three months ended April 30, 2006 (or approximately 21.6%) due to the resolution of the arbitration proceedings. The professional fees relating to the Company, independent of ENS’ business, decreased from $156,710 in the three months ended April 30, 2005 to $107,050 in the three months ended April 30, 2006 (or approximately 31.7%), as a result of reduced fees due to use of internal staff to reduce external accounting and legal services.

Selling, General and Administrative:

Selling, general and administrative expense decreased from $2,139,293 in the three months ended April 30, 2005 to $1,942,697 in the three months ended April 30, 2006 (or approximately 9.2%), as a result of lower office and equipment rental costs, decreased postage costs related to lower volumes of claims mailed for third parties and other cost containment measures. The selling, general and administrative expense relating to operations of the Company, independent of ENS’ business, decreased from $406,444 in the three months ended April 30, 2005 to $358,310 in the three months ended April 30, 2006 (or approximately 11.8%) due to cost containment initiatives.

Depreciation and Amortization:

Depreciation and amortization increased from $89,594 in the three months ended April 30, 2005 to $92,258 in the three months ended April 30, 2006 (or approximately 3.0%), due to the addition of internally used computer equipment.

Income from Operations:

As a result of the foregoing events, income from operations increased from $32,592 for the three months ended April 30, 2005 to $316,993 for the three months ended April 30, 2006.

Interest and Dividend Income:

Interest income decreased from $34,015 for the three months ended April 30, 2005 to $21,795 for the three months ended April 30, 2006 (or approximately 35.9%) and dividend income increased from $137,551 in the three months ended April 30, 2005 to $198,110 in the three months ended April 30, 2006 (or approximately 44.0%), due to our investment in various preferred index funds during 2006 which generate dividends versus interest income.

Interest Expense:

Interest expense decreased from $3,093 in the three months ended April 30, 2005 to $1,036 in the three months ended April 30, 2006 (or approximately 66.5%), primarily due to ENS’ repayment of all capital leases.

Income Before Provision for Income Taxes:

Income before provision for income taxes increased from $201,065 for the three months ended April 30, 2005 to $535,861 for the three months ended April 30, 2006, primarily as a result of the increase in income from operations and increases in dividend and interest income, as described above.

Provision (Benefit) for Income Taxes:

Provision for income taxes was $74,000 for the three months ended April 30, 2005, as compared to a benefit of $410,427 for the three months ended April 30, 2006, which reflected the utilization of federal net operating loss carryforwards of $428,000 and the revision of prior year tax estimates of $111,000.

Net Income:

Net income increased from $127,065 for the three months ended April 30, 2005 to $946,288 for the three months ended April 30, 2006, as a result of the foregoing events.

Six months ended April 30, 2006 as compared to six months ended April 30, 2005:

Service Revenue:

Service revenue increased from $9,418,088 for the six months ended April 30, 2005 to $9,559,964 for the six months ended April 30, 2006 (or approximately 1.5%), primarily reflecting growth in sales to new and existing providers and related payer income as well as growth in PASSTM transactions. ENS has increased its number of direct provider connections by 20.7% and increased its number of direct e-commerce connections with payers from March 31, 2005 to March 31, 2006. These trends were offset by market wide pricing pressures on payer income from EDI transactions and declining claim volumes from a significant customer (see ENS — Liquidity and Capital Resources for a discussion of this customer). This significant customer makes up approximately 99% of the Company’s revenue in the area of processing paper claim transactions. With the continually decreasing number of paper claim transactions received by payers, and the reduced pricing and margins in paper conversion services across the industry, ENS utilizes the services of business partners to

process paper transactions in order to improve efficiencies and profitability and does not endeavor to grow this aspect of ENS’ business. We remain strategically focused on growing our higher margin core electronic transaction services and will continue to enhance our service offerings in this area. ENS will continue to support its proven complete cycle model through strategic business partners wherever it is financially and strategically prudent. See below for a discussion of ENS results of operations.

Other Income:

The Company’s arbitration with a major customer over additional business opportunities was resolved with an award of $1,000,757 to ENS, which was paid in August, 2005. During the quarter ended January 31, 2006, ENS received an additional award of $262,729 representing recovery of a portion of the related legal costs.

Cost of Services:

Cost of services increased from $4,600,800 in the six months ended April 30, 2005 to $4,636,485 in the six months ended April 30, 2006 (or approximately 0.8%). Included in cost of services for the six months ended April 30, 2005 and April 30, 2006 is amortization of proprietary software used to provide services directly to specific customers, and depreciation of furniture and equipment, of $658,629 and $852,355, respectively (an increase of approximately 29.4%). Cost of sales exclusive of depreciation and amortization decreased approximately 4.0% reflecting a 22.8% increase in wages capitalized to software development due to an increase in signed contracts requiring development, declining costs related to declining transaction volumes from a significant customer offset by increased revenue sharing costs for EDI transaction processing.

Professional Fees:

Aggregate professional fees decreased from $579,666 in the six months ended April 30, 2005 to $344,380 in the six months ended April 30, 2006 (or approximately 40.6%) due to the resolution of the arbitration proceedings. The professional fees relating to the Company, independent of ENS’ business, decreased from $391,966 in the six months ended April 30, 2005 to $170,680 in the six months ended April 30, 2006 (or approximately 56.5%), as a result of reduced fees due to use of internal staff to reduce external accounting and legal services.

Selling, General and Administrative:

Selling, general and administrative expense decreased from $4,179,813 in the six months ended April 30, 2005 to $4,030,739 in the six months ended April 30, 2006 (or approximately 4.0%), as a result of lower office and equipment rental costs, decreased postage costs related to lower volumes of claims mailed for third parties and other cost containment measures. The selling, general and administrative expense relating to operations of the Company, independent of ENS’ business, decreased from $752,093 in the six months ended April 30, 2005 to $709,054 in the six months ended April 30, 2006 (or approximately 5.7%) due to general cost containment initiatives.

Depreciation and Amortization:

Depreciation and amortization increased from $176,803 in the six months ended April 30, 2005 to $184,823 in the six months ended April 30, 2006 (or approximately 4.5%), due to the addition of internally used computer equipment and office furniture.

Income (Loss) from Operations:

As a result of the foregoing events, income (loss) from operations increased from a loss of $136,994 for the six months ended April 30, 2005 to income of $617,893 for the six months ended April 30, 2006.

Interest and Dividend Income:

Interest income decreased from $153,671 for the six months ended April 30, 2005 to $62,401 for the six months ended April 30, 2006 (or approximately 59.4%) and dividend income increased from $137,551 in the six months ended April 30, 2005 to $395,714 in the six months ended April 30, 2006 (or approximately 187.7%), due to our investment in various preferred index funds during 2006 which generate dividends versus interest income.

Interest Expense:

Interest expense decreased from $6,766 in the six months ended April 30, 2005 to $2,203 in the six months ended April 30, 2006 (or approximately 67.4%), primarily due to ENS’ repayment of all capital leases.

Income Before Provision for Income Taxes:

Income before provision for income taxes increased from $147,462 for the six months ended April 30, 2005, to $1,073,932 for the six months ended April 30, 2006, primarily as a result of the increase in income from operations and increases in dividend and interest income, as described above.

Provision (Benefit) for Income Taxes:

Benefit for income taxes was $164,000 for the six months ended April 30, 2005 as compared to $193,311 for the six months ended April 30, 2006 which reflected the utilization of federal net operating loss carryforwards of $428,000.and the revision of prior year tax estimates of $111,000 and the prior quarter tax estimates of $44,000.

Net Income:

Net income increased from $311,462 for the six months ended April 30, 2005 to $1,267,243 for the six months ended April 30, 2006, as a result of the foregoing events.

ENS—Results of Operations:

ENS - Three months ended March 31, 2006 as compared to three months ended March 31, 2005:

Service Revenue:

Service revenue increased from $4,770,308 for the three months ended March 31, 2005 to $4,919,738 for the three months ended March 31, 2006 (or approximately 3.1%), primarily reflecting growth in sales to new and existing providers and related payer income as well as growth in PASSTM transactions. ENS has increased its number of direct provider connections by 20.7% and increased its number of direct e-commerce connections with payers from March 31, 2005 to March 31, 2006. These trends were offset by market wide pricing pressures on payer income from EDI transactions and declining claim volumes from a significant customer (see ENS — Liquidity and Capital Resources for a discussion of this customer). This significant customer makes up approximately 99% of the Company’s revenue in the area of processing paper claim transactions. With the continually decreasing number of paper claim transactions received by payers, and the reduced pricing and margins in paper conversion services across the industry, ENS utilizes the services of business partners to process paper transactions in order to improve efficiencies and profitability and does not endeavor to grow this aspect of ENS’ business. We remain strategically focused on growing our higher margin core electronic transaction services and will continue to enhance our service offerings in this area. ENS will continue to support its proven complete cycle model through strategic business partners wherever it is financially and strategically prudent.

Cost of Services:

Cost of services increased from $2,255,419 in the three months ended March 31, 2005 to $2,364,904 in the three months ended March 31, 2006 (or approximately 4.9%). Included in cost of services for the three months ended March 31, 2005 and March 31, 2006 is amortization of proprietary software used to provide services directly to specific customers, and depreciation of furniture and equipment, of $339,313 and $430,833, respectively (an increase of approximately 27.0%). Cost of sales exclusive of depreciation and amortization increased approximately 0.9% reflecting a 2.9% increase in wages capitalized to software development due to an increase in signed contracts requiring development, declining costs related to declining transaction volumes from a significant customer offset by increased revenue sharing costs for EDI transaction processing.

Professional Fees:

Professional fees decreased from $96,700 in the three months ended March 31, 2005 to $91,650 in the three months ended March 31, 2006 (or approximately 5.2%) as a result of the completion of the arbitration proceedings against a major customer. See Other Income for a further discussion of the arbitration award received by ENS.

Selling, General and Administrative:

Selling, general and administrative expense decreased from $1,829,550 in the three months ended March 31, 2005 to $1,676,038 in the three months ended March 31, 2006 (or approximately 8.4%) as a result of lower office and equipment rental costs, decreased postage costs related to lower volumes of claims mailed for third parties and other cost containment measures. These amounts include professional fees as noted above.

Depreciation and Amortization:

Depreciation and amortization increased from $85,653 in the three months ended March 31, 2005 to $88,767 in the three months ended March 31, 2006 (or approximately 3.6%), due to the purchase of additional computer equipment.

Income from Operations:

As a result of the foregoing and the following, income from operations increased from $599,687 for the three months ended March 31, 2005 (12.6% of revenue) to $790,030 (16.1% of revenue) for the three months ended March 31, 2006.

Interest Expense:

Interest expense, exclusive of interest payable to NWH, decreased from $3,093 in the three months ended March 31, 2005 to $1,036 in the three months ended March 31, 2006 (or approximately 66.5%), primarily due to ENS’ repayment of all capital leases in fiscal 2005. For the three months ended March 31, 2006, $22,384 of interest expense was recognized by ENS as payable to NWH and was eliminated in consolidation.

Segment Income:

Segment income increased from $1,024,653 for the three months ended March 31, 2005 to $1,309,630 for the three months ended March 31, 2006 (or approximately 27.8%) primarily as a result of the increase in services revenues, overall gain from operations and cost containment measures. We calculate segment income as income before income taxes excluding interest, depreciation and amortization. See Note 6 to the Consolidated Financial Statements for a presentation of segment income.

ENS - Six months ended March 31, 2006 as compared to six months ended March 31, 2005:

Service Revenue:

Service revenue increased from $9,418,088 for the six months ended March 31, 2005 to $9,559,964 for the six months ended March 31, 2006 (or approximately 1.5%), primarily reflecting growth in sales to new and existing providers and related payer income as well as growth in PASSTM transactions. ENS has increased its number of direct provider connections by 20.7% and increased its number of direct e-commerce connections with payers from March 31, 2005 to March 31, 2006. These trends were offset by market wide pricing pressures on payer income from EDI transactions and declining claim volumes from a significant customer (see ENS — Liquidity and Capital Resources for a discussion of this customer). This significant customer makes up approximately 99% of the Company’s revenue in the area of processing paper claim transactions. With the continually decreasing number of paper claim transactions received by payers, and the reduced pricing and margins in paper conversion services across the industry, ENS utilizes the services of business partners to process paper transactions in order to improve efficiencies and profitability and does not endeavor to grow this aspect of ENS’ business. We remain strategically focused on growing our higher margin core electronic transaction services and will continue to enhance our service offerings in this area. ENS will continue to support its proven complete cycle model through strategic business partners wherever it is financially and strategically prudent.

Other Income:

The Company’s arbitration with a major customer over additional business opportunities was resolved with an award of $1,000,757 to ENS, which was paid in August, 2005. During the quarter ended December 31, 2005, ENS received an additional award of $262,729 representing recovery of a portion of the related legal costs.

Cost of Services:

Cost of services increased from $4,600,800 in the six months ended March 31, 2005 to $4,636,485 in the six months ended March 31, 2006 (or approximately 0.8%). Included in cost of services for the six months ended March 31, 2005 and March 31, 2006 is amortization of proprietary software used to provide services directly to specific customers, and depreciation of furniture and equipment, of $658,629 and $852,355, respectively (an increase of approximately 29.4%). Cost of sales exclusive of depreciation and amortization decreased approximately 4.0% reflecting a 22.8% increase in wages capitalized to software development due to an increase in signed contracts requiring development, declining costs related to declining transaction volumes from a significant customer offset by increased revenue sharing costs for EDI transaction processing.

Professional Fees:

Professional fees decreased from $187,700 in the six months ended March 31, 2005 to $173,700 in the six months ended March 31, 2006 (or approximately 7.5%) as a result of the completion of the arbitration proceedings against a major customer. See Other Income for a further discussion of the arbitration award received by ENS.

Selling, General and Administrative:

Selling, general and administrative expense decreased from $3,633,421 in the six months ended March 31, 2005 to $3,495,385 in the six months ended March 31, 2006 (or approximately 3.8%) as a result of lower office and equipment rental costs, decreased postage costs related to lower volumes of claims mailed for third parties and other cost containment measures. These amounts include professional fees as noted above.

Depreciation and Amortization:

Depreciation and amortization increased from $170,054 in the six months ended March 31, 2005 to $177,840 in the six months ended March 31, 2006 (or approximately 4.6%), due to the purchase of additional computer equipment.

Income from Operations:

As a result of the foregoing and the following, income from operations increased from $1,013,814 for the six months ended March 31, 2005 (10.8% of revenue) to $1,512,983 (15.4% of revenue) for the six months ended March 31, 2006.

Interest Expense:

Interest expense, exclusive of interest payable to NWH, decreased from $6,565 in the six months ended March 31, 2005 to $2,203 in the six months ended March 31, 2006 (or approximately 66.4%), primarily due to ENS’ repayment of all capital

leases in fiscal 2005. For the six months ended March 31, 2006, $49,011 of interest expense was recognized by ENS as payable to NWH and was eliminated in consolidation.

Segment Income:

Segment income increased from $1,842,498 for the six months ended March 31, 2005 to $2,543,178 for the six months ended March 31, 2006 (or approximately 38.0%) primarily as a result of the increase in services revenues, overall gain from operations and receipt of the arbitration award, as discussed above. We calculate segment income as income before income taxes excluding interest, depreciation and amortization. See Note 6 to the Consolidated Financial Statements for a presentation of segment income.

LIQUIDITY AND CAPITAL RESOURCES

As of April 30, 2006, we had approximately $18.9 million in cash and cash equivalents. Our assets have been used for, and are currently reserved to fund development of our healthcare e-commerce business and development and acquisition of new technologies and businesses in other areas. Such amount, with earnings thereon, is expected to be sufficient to implement this business plan through January 2007, or for a shorter period if we decide to invest a substantial portion of our assets in major acquisitions, equity investments or stock repurchases. We actively seek to acquire or invest in healthcare e-commerce and other businesses in unrelated areas.

Our board of directors authorized the repurchase of up to 20% of our common stock because we believe, under current market conditions, the repurchase is a favorable investment. The repurchased shares will also be available for issuance upon exercise of outstanding options. We repurchased 11,772 shares in the quarter ended April 30, 2006 for an aggregate cost of $140,795. Through April 30, 2006, we have repurchased an aggregate of 431,372 shares for an aggregate cost of $5,260,704.

In the first two quarters of fiscal year 2006, each of the four quarters of fiscal years 2005 and 2004 and the last two quarters of fiscal year 2003, the Board of Directors of the Company declared a quarterly dividend of $0.30 per share plus a special dividend of $0.20 per share, with each such dividend being paid in cash to all holders of record as of the close of business on a specific date. On February 13, 2006, the Board of Directors of the Company declared a quarterly dividend of $0.30 per share plus a special dividend of $0.20 per share. The dividend, aggregating $0.50 per share, was paid in cash on May 10, 2006, to holders of record at the close of business on April 27, 2006. The Company reviews its dividend policy on a quarterly basis.

During the six months ended April 30, 2006, the Company spent $1,302,107 on fixed assets, including $1,064,599 for internally developed software and $237,508 for computer and office equipment required for increased transaction processing, new payer contracts and other business growth. The expenditures for internally developed software increased 109.5% over the second quarter of fiscal 2005 due to additional new payer contracts for EDI and PASS services requiring higher levels of development, development of ECT, an Internet based electronic claims tracking system, and the Company’s Internet claims processing system.

Operating overhead costs of ENS have increased at a slightly slower rate than revenue as a result of cost cutting measures and production efficiencies gained. Due to the expiration of a significant contract in October 2006 as discussed below, we anticipate pressure on revenue growth over the next two years. However, as we transition our business away from the less profitable paper business, of which the significant contract mentioned below made up 99%, and toward the more profitable EDI and PASSÔ businesses in which we have many contracts, we anticipate that our marginal profitability will improve.

ENS - Liquidity and Capital Resources:

ENS’ early operations were financed principally through equity investments by NWH (for this purpose, the “Parent Company”) and loans from the Parent Company, and these loans totaled $2,588,228 through March 31, 2006 (including previously accrued interest of $1,258,985 that had been converted to principal). During the six months ended March 31, 2006, ENS repaid $1,150,000 of these loans to the Parent Company and anticipates making additional repayments for the foreseeable future. ENS plans additional investment in its technology enhancements, including further development and implementation of XpediteTM, its full contact management operating system; its Internet claims processing system; hosting of additional HIPAA transactions; ECT, an Internet based electronic claims tracking system; additional payer connectivity; and enhancements to broaden the transactions processing infrastructure.

With the continually decreasing number of paper claims transactions received by payers, and the reduced pricing and margins in paper conversion services across the industry, ENS utilizes the services of business partners to process paper transactions in order to improve efficiencies and profitability. We remain strategically focused on our higher margin core electronic transaction services and will continue to enhance our service offerings. ENS will continue to support its proven complete cycle model through strategic business partners wherever it is financially and strategically prudent.

In accordance with the terms of the Company’s services agreement with Fiserv Health, Inc. (FHI), one of ENS’ largest paper customers, FHI terminated the services agreement effective October 31, 2006. In 2004, ENS initiated arbitration proceedings against FHI alleging that FHI had breached the services agreement. The matter was arbitrated in 2005 and, as a result ENS was awarded $1,000,757 in an initial award and an additional $262,729 of costs in the final award. The arbitration panel found that “Fiserv breached the agreement. The breach was material.” In addition, the arbitration panel did find “in favor of ENS” as it relates to Fiserv’s willful misconduct. Paper services for FHI accounted for 31%, 29% and 25% of ENS’ revenues in fiscal years 2004 and 2005 and the six months ended March 31, 2006. However, there is no assurance that FHI will continue any ENS services past October 31, 2006. We anticipate that this customer will generate approximately 24% and 1% of ENS’ revenues in fiscal years 2006 and 2007 with revenues declining gradually throughout fiscal 2006 and dropping dramatically in the first quarter of fiscal 2007. We expect the costs of these services to decline correspondingly as all costs are variable with production volumes. We anticipate that the termination of this agreement will have little effect on ENS’ overall profitability due to the recent signing of two new contracts for pre-adjudication and EDI services. The systems development required for these contracts has been completed. While the revenues generated by these contracts are not expected to make up for the revenues lost from the terminated agreement, the profits generated by the transactions to be processed by these systems are anticipated to replace and, eventually, exceed the profits lost by the terminated agreement. We believe that ENS’ results will continue to improve, reflecting the quality of its services, in fiscal 2006 and into 2007.

Although we believe that ENS may need to obtain additional financing to accelerate its strategic business plan, based upon existing contracts with physicians, other providers, payers and management companies and current expense levels, management expects ENS to continue profitable operations through fiscal 2006.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

	Payments due by period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-Term Debt Obligations	$	140,000	$	—	$	140,000	$	—	$	—
Capital Lease Obligations	—		—		—		—		—
Operating Lease Obligations	298,551		244,703		53,848		—		—
Purchase Obligations	—		—		—		—		—
Other Long-Term Liabilities Reflected on the Registrant’s Balance Sheet under GAAP	—		—		—		—		—

Total	$	438,551	$	244,703	$	193,848	$	—	$	—

CRITICAL ACCOUNTING POLICIES

Research and development costs and computer software maintenance costs related to software development are expensed as incurred.

RECENT ACCOUNTING PRONOUNCEMENTS

All recent accounting pronouncements have either been adopted or are currently not applicable.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of our investment activities, other than activities relating to ENS and potential acquisitions, is to preserve principal and maintain liquidity, while at the same time maximizing the yield we receive from our investment portfolio.

Changes in prevailing interest rates will cause the yield on our investments to fluctuate. To minimize this risk, we maintain our portfolio of cash equivalents, short-term investments and marketable securities in commercial paper, non-government debt securities, money market funds, highly liquid U.S. Treasury notes and federal agency notes and other low risk investments. We view these high grade securities within our portfolio as having similar market risk characteristics. The weighted-average interest rate of the portfolio was 4.4% at April 30, 2006.

Currently almost all our revenues and expenses are denominated in U.S. dollars and, as a result, we have experienced no significant foreign exchange gains and losses to date. We conduct only limited transactions in foreign currencies, and we do not anticipate that foreign exchange gains or losses will be significant in the foreseeable future. We have not engaged in foreign currency hedging activities to date.

ITEM 4. CONTROLS AND PROCEDURES

As of April 30, 2006, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures was carried out under the supervision and with the participation of the Company’s management. Based on that evaluation, management has concluded that the Company’s disclosure controls and procedures are effective to ensure that material information relating to the Company and its consolidated subsidiaries is made known to them, as of April 30, 2006. There have been no changes in the Company’s internal control over financial reporting during the fiscal quarter ended April 30, 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

The Company is a party to various claims in the ordinary course of business. Management believes that the aggregate impact of such claims, if any, will not have a material impact on the financial position, results of operations, or liquidity of the Company.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

Item 5. OTHER INFORMATION

Item 6. EXHIBITS

(a)	Exhibits:
	Exhibit 31:	Certification of Periodic Report by Principal Executive Officer and
		Principal Financial Officer under Section 302 of the Sarbanes Oxley Act of 2002

	Exhibit 32:	Certification of Periodic Report by Principal Executive Officer and Principal Financial Officer under Section 906 of the Sarbanes Oxley Act of 2002

SIGNATURE

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

Date: May 31, 2006

		NWH, INC.
		(Registrant)


		By:		/s/ TERRENCE S. CASSIDY
		Terrence S. Cassidy, President and Principal Accounting Officer

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

NWH INC 10-Q