United
  States 
  SECURITIES AND EXCHANGE COMMISSION 
  Washington, D.C. 20549

FORM
  10-Q

|þ | QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the
quarterly period ended September 30, 2006

OR

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

For the
transition period from ___________ to ___________

Commission
file number 0-13591

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

|Pennsylvania                                                                | 23-2214195                                       
|--------------------------------------------------------------------------- | -------------------------------------------------
|(State
      or other jurisdiction of 
      incorporation or organization) | (I.R.S. Employer
      
      Identification No.)

7301
  N. State Highway 161, Suite 300, Irving, Texas 75039(Address of principal executive offices) 
  (Zip Code)

Registrant's
  telephone number, including area code: (972) 443-5000

Former name,
former address and former fiscal year, if changed since last report: N/A

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.
þ Yes o No

Indicate
by check mark whether the registrant is a large  accelerated  filer, an accelerated
filer,  or a  non-accelerated  filer.  See definition of  accelerated filer and
large accelerated filer in Rule 12b-2 of the Exchange Act.  (Check one):  Large
accelerated filer o  Accelerated filer o  Non-accelerated filer þ

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).  o Yes  þ No

Indicate the
number of shares outstanding of each of the issuer's classes of common stock, as of the
latest practicable date: 8,149,612 shares of common stock,  par value $.10, outstanding
as of November 3, 2006.



---

Healthaxis
Inc.

Table
  of Contents

|PART I
      Financial Information |                                                                                             | Page
|---------------------------------- | ------------------------------------------------------------------------------------------- | ----
|                                   |                                                                                             |     
|Item 1.                            | Financial
      Statements                                                                  |     
|                                   | Consolidated
      Balance Sheets                                                           |     
|                                   | Consolidated
      Statements of Operations                                                 |     
|                                   | Consolidated
      Statements of Cash Flows                                                 |     
|                                   | Notes
      to Consolidated Financial Statements                                            |     
|                                   |                                                                                             |     
|Item 2.                            | Managements
      Discussion and Analysis of Financial Condition and Results of Operations |     
|                                   |                                                                                             |     
|Item 3.                            | Quantitative
      and Qualitative Disclosures About Market Risk                            |     
|                                   |                                                                                             |     
|Item 4.                            | Controls
      and Procedures                                                               |     
|                                   |                                                                                             |     
|PART II
      Other Information    |                                                                                             |     
|                                   |                                                                                             |     
|Items
      1-5                    |                                                                                             | 17  
|                                   |                                                                                             |     
|Item
      6. Exhibits             |                                                                                             | 17  
|                                   |                                                                                             |     
|Signatures                         |                                                                                             | 18  
|                                   |                                                                                             |     
|Exhibit
      Index                |                                                                                             | 19  

2



---

PART I.
FINANCIAL INFORMATION

Item 1.
Consolidated Financial Statements

Healthaxis
  Inc. and Subsidiaries 
  Consolidated Balance Sheets

(In thousands
except share and per share data) (Unaudited)

|                                                                                                        |  |  | September 30,
    2006 |          | December 31, 
    2005 |  
|------------------------------------------------------------------------------------------------------- |  |  | ---------------------- | -------- | ---------------------- | -
|                                                                                                        |  |  |                        |          |                        |  
|Assets                                                                                                  |  |  |                        |          |                        |  
|Current
      assets:                                                                                   |  | 
|Cash
      and cash equivalents                                                                         |  |  | $                      | 3,273    |                        | $
|Accounts
      receivable, net of allowance for doubtful accounts of $7 each period                     |  |  |                        | 3,015    |                        |  
|Prepaid
      expenses                                                                                  |  |  |                        | 672      |                        |  
|                                                                                                        |  |  |                        |          |                        |  
|Total
      current assets                                                                              |  |  |                        | 6,960    |                        |  
|                                                                                                        |  |  |                        |          |                        |  
|Property,
      equipment and software, less accumulated depreciation and                               |  |  |                        |          |                        |  
|amortization
      of $6,385 and $5,943, respectively                                                   |  |  |                        | 1,599    |                        |  
|Contract
      start-up costs, less accumulated amortization of $1,939 and $1,681, respectively         |  |  |                        | 1,248    |                        |  
|Goodwill                                                                                                |  |  |                        | 11,276   |                        |  
|Other
      assets                                                                                      |  |  |                        | 291      |                        |  
|                                                                                                        |  |  |                        |          |                        |  
|Total
      assets                                                                                      |  |  | $                      | 21,374   |                        | $
|                                                                                                        |  |  |                        |          |                        |  
|Liabilities
      and Stockholders Equity                                                              |  |  |                        |          |                        |  
|Current
      liabilities:                                                                              |  |  |                        |          |                        |  
|Accounts
      payable                                                                                  |  |  | $                      | 1,497    |                        | $
|Accrued
      liabilities                                                                               |  |  |                        | 947      |                        |  
|Deferred
      revenues                                                                                 |  |  |                        | 1,532    |                        |  
|Note
      payable, current portion                                                                     |  |  |                        | 739      |                        |  
|Current
      portion, equipment line of credit                                                         |  |  |                        | 70       |                        |  
|Current
      portion, post retirement and employment liabilities                                       |  |  |                        | 106      |                        |  
|Working
      capital line of credit                                                                    |  |  |                        | 500      |                        |  
|Current
      portion, capital lease obligations                                                        |  |  |                        | 114      |                        |  
|                                                                                                        |  |  |                        |          |                        |  
|Total
      current liabilities                                                                         |  |  |                        | 5,505    |                        |  
|                                                                                                        |  |  |                        |          |                        |  
|Post
      retirement and employment liabilities                                                        |  |  |                        | 788      |                        |  
|Note
      payable, net of current portion                                                              |  |  |                        | 285      |                        |  
|Equipment
      line of credit, net of current portion                                                  |  |  |                        | 281      |                        |  
|Capital
      lease obligations                                                                         |  |  |                        | --       |                        |  
|Other
      liabilities                                                                                 |  |  |                        | 102      |                        |  
|                                                                                                        |  |  |                        |          |                        |  
|Total
      liabilities                                                                                 |  |  |                        | 6,961    |                        |  
|                                                                                                        |  |  |                        |          |                        |  
|Commitments
      and contingencies                                                                     |  |  |                        |          |                        |  
|                                                                                                        |  |  |                        |          |                        |  
|Stockholders
      Equity:                                                                             |  |  |                        |          |                        |  
|Preferred
      stock, par value $1.00: authorized 100,000,000 shares:                                  |  |  |                        |          |                        |  
|Series
      A Convertible, 740,401 and 2,751,658 shares issued and outstanding, respectively
      (no |  |  |                        |          |                        |  
|liquidation
      preference)                                                                           |  |  |                        | 740      |                        |  
|Common
      stock, par value $.10: authorized 1,900,000,000 shares,                                    |  |  |                        |          |                        |  
|issued
      and outstanding 8,149,612 and 6,088,855 shares, respectively                               |  |  |                        | 815      |                        |  
|Note
      receivable from employees                                                                    |  |  |                        | (23      | )                      |  
|Additional
      paid-in capital                                                                        |  |  |                        | 450,394  |                        |  
|Accumulated
      deficit                                                                               |  |  |                        | (437,513 | )                      |  
|                                                                                                        |  |  |                        |          |                        |  
|Total
      stockholders equity                                                                        |  |  |                        | 14,413   |                        |  
|                                                                                                        |  |  |                        |          |                        |  
|Total
      liabilities and stockholders equity                                                        |  |  | $                      | 21,374   |                        | $
|                                                                                                        |  |  |                        |          |                        |  

See notes to
unaudited consolidated financial statements.

3



---

Healthaxis
  Inc. and Subsidiaries 
  Consolidated Statements of Operations

(In
thousands, except share and per share data) (Unaudited)

|                                                                      |  |  | Three Months Ended 
        September 30, |           | Nine
        Months Ended 
        September 30, |  
|--------------------------------------------------------------------- |  |  | ----------------------------------------- | --------- | ------------------------------------------------ | -
|                                                                      |  |  |                                           |           |                                                  |  
|                                                                      |  |  | 2006                                      |           | 2005                                             |  
|                                                                      |  |  |                                           |           |                                                  |  
|Revenue                                                               |  |  | $                                         | 4,354     |                                                  | $
|                                                                      |  |  |                                           |           |                                                  |  
|Expenses:                                                             |  |  |                                           |           |                                                  |  
|Cost
      of revenues                                                |  |  |                                           | 3,507     |                                                  |  
|Sales
      and marketing                                             |  |  |                                           | 283       |                                                  |  
|General
      and administrative                                      |  |  |                                           | 559       |                                                  |  
|Reversal
      of contingent tax liability                            |  |  |                                           | --        |                                                  |  
|Lease
      abandonment charge                                        |  |  |                                           | --        |                                                  |  
|Amortization
      of intangibles                                     |  |  |                                           | --        |                                                  |  
|                                                                      |  |  |                                           |           |                                                  |  
|Total
      expenses                                                  |  |  |                                           | 4,349     |                                                  |  
|                                                                      |  |  |                                           |           |                                                  |  
|                                                                      |  |  |                                           |           |                                                  |  
|Operating
      income (loss)                                         |  |  |                                           | 5         |                                                  |  
|                                                                      |  |  |                                           |           |                                                  |  
|                                                                      |  |  |                                           |           |                                                  |  
|Interest
      and other income, net                                  |  |  |                                           | 36        |                                                  |  
|Interest
      expense                                                |  |  |                                           | (48       | )                                                |  
|                                                                      |  |  |                                           |           |                                                  |  
|                                                                      |  |  |                                           |           |                                                  |  
|Loss
      before income taxes                                        |  |  |                                           | (7        | )                                                |  
|Income
      tax benefit                                              |  |  |                                           | 324       |                                                  |  
|                                                                      |  |  |                                           |           |                                                  |  
|Net income
      (loss)                                               |  |  | $                                         | 317       |                                                  | $
|                                                                      |  |  |                                           |           |                                                  |  
|                                                                      |  |  |                                           |           |                                                  |  
|Net income
      (loss) per share of common stock (basic and diluted) |  |  | $                                         | 0.04      |                                                  | $
|                                                                      |  |  |                                           |           |                                                  |  
|                                                                      |  |  |                                           |           |                                                  |  
|Weighted
      average common shares and equivalents used in          |  |  |                                           |           |                                                  |  
|computing
      income (loss) per share                               |  |  |                                           |           |                                                  |  
|Basic                                                                 |  |  |                                           | 7,721,689 |                                                  |  
|Diluted                                                               |  |  |                                           | 8,883,018 |                                                  |  
|                                                                      |  |  |                                           |           |                                                  |  

See notes to
unaudited consolidated financial statements.

4



---

Healthaxis
  Inc. and Subsidiaries 
  Consolidated Statements of Cash Flows

(In
thousands) (Unaudited)

|                                                                                  |  |  | Nine Months Ended 
        September 30, |       
|--------------------------------------------------------------------------------- |  |  | ---------------------------------------- | ------
|                                                                                  |  |  |                                          |       
|                                                                                  |  |  | 2006                                     |       
|                                                                                  |  |  |                                          |       
|Cash
      flows from operating activities                                        |  |  |                                          |       
|Net
      loss                                                                    |  |  | $                                        | (411  
|Adjustments
      to reconcile net loss to net cash used in operating activities: |  |  |                                          |       
|Depreciation
      and amortization                                               |  |  |                                          | 823   
|Bad
      debt reserve                                                            |  |  |                                          | --    
|Restricted
      stock compensation                                               |  |  |                                          | 62    
|Loss
      on disposition of assets                                               |  |  |                                          | 2     
|Reversal
      of tax accrual                                                     |  |  |                                          | (324  
|Change
      in:                                                                  |  | 
|Accounts
      receivable                                                         |  |  |                                          | (1,263
|Prepaid
      expenses and other current assets                                   |  |  |                                          | (44   
|Other
      assets                                                                |  |  |                                          | (211  
|Accounts
      payable and accrued liabilities                                    |  |  |                                          | 338   
|Accrued
      charge on lease abandonment                                         |  |  |                                          | --    
|Deferred
      revenues                                                           |  |  |                                          | 906   
|Other
      liabilities                                                           |  |  |                                          | (145  
|                                                                                  |  |  |                                          |       
|Net
      cash used in operating activities                                       |  |  |                                          | (267  
|                                                                                  |  |  |                                          |       
|                                                                                  |  |  |                                          |       
|Cash
      flows from investing activities                                        |  |  |                                          |       
|Investment
      in capitalized software and contract start-up costs              |  |  |                                          | (1,055
|Purchases
      of property, equipment and software                               |  |  |                                          | (440  
|Proceeds
      from sale of property, equipment, and software                     |  |  |                                          | --    
|                                                                                  |  |  |                                          |       
|Net
      cash used in investing activities                                       |  |  |                                          | (1,495
|                                                                                  |  |  |                                          |       
|                                                                                  |  |  |                                          |       
|Cash
      flows from financing activities                                        |  |  |                                          |       
|Proceeds
      from lines of credit                                               |  |  |                                          | 851   
|Net
      (payments) proceeds from issuance of common stock                       |  |  |                                          | (45   
|Payments
      on note payable                                                    |  |  |                                          | (500  
|                                                                                  |  |  |                                          |       
|Net
      cash generated in financing activities                                  |  |  |                                          | 306   
|                                                                                  |  |  |                                          |       
|(Decrease)
      increase in cash and cash equivalents                            |  |  |                                          | (1,456
|Cash
      and cash equivalents, beginning of period                              |  |  |                                          | 4,729 
|                                                                                  |  |  |                                          |       
|Cash
      and cash equivalents, end of period                                    |  |  | $                                        | 3,273 
|                                                                                  |  |  |                                          |       
|                                                                                  |  |  |                                          |       
|Non-cash
      financing activities                                               |  |  |                                          |       
|Accounts
      receivable applied to note and interest payable in lieu of cash    |  |  | $                                        | 585   
|                                                                                  |  |  |                                          |       
|Fixed
      assets purchased on a capital lease                                   |  |  | $                                        | --    
|                                                                                  |  |  |                                          |       

See notes to
unaudited consolidated financial statements.

5



---

Healthaxis
Inc. and Subsidiaries  
Notes to Unaudited Consolidated Financial Statements  
September
30, 2006

Note A  Description
of business and basis of presentation

Unaudited
Financial Information

The
unaudited consolidated  financial statements have been prepared by Healthaxis Inc. and
its subsidiaries  (Healthaxis, the "Company," we, our or
us),  pursuant to the rules and regulations of the Securities and Exchange
Commission and reflect all adjustments  consisting of normal  recurring  entries,  which,
in the opinion of the Company,  are necessary to present fairly the results for the
interim periods.  The interim  financial  statements do not include all  disclosures
provided in fiscal year end financial  statements  prepared in  accordance  with
accounting  principles  generally  accepted in the United States of  America,  although
the Company believes that the  accompanying  disclosures are adequate to make the
information  presented not misleading.  Results of operations  for the three and
nine-month  periods ended  September 30, 2006, are not  necessarily  indicative of the
results that may be expected for the year ending December  31, 2006. These financial
statements  should be read in conjunction with the financial  statements and notes
thereto  contained in the Company's Annual Report on  Form 10-K for the year ended
December 31, 2005.

Earnings Per
Share

Basic
  income (loss) per share is computed using only the weighted average number of
  common shares outstanding during the respective periods. Diluted earnings per
  share is computed to show the dilutive effect, if any, of convertible preferred
  stock, stock options and warrants using the treasury stock method based on the
  average market price of the stock during the respective periods. In certain
  of the periods presented, the Company reported a net loss and the effect of
  including the convertible preferred stock, stock options and warrants in the
  computation of diluted earnings per share would be anti-dilutive for each of
  those periods, thus these items have not been included in the computation. Following
  is a summary of these potentially dilutive securities:

|                                       |  |  | As
        of September 30, |          
|-------------------------------------- |  |  | --------------------------- | ---------
|                                       |  |  |                             |          
|                                       |  |  | 2006                        |          
|                                       |  |  |                             |          
|Options                                |  |  |                             | 1,198,603
|Restricted
      stock                 |  |  |                             | 184,500  
|Warrants                               |  |  |                             | 7,229,186
|Preferred
      stock                  |  |  |                             | 740,401  
|                                       |  |  |                             |          
|Total
      common shares if converted |  |  |                             | 9,352,690
|                                       |  |  |                             |          

From
June through August 2006, 2.0 million shares of Series A Convertible Preferred Stock were
converted into 2.0 million shares of Common Stock at  the holders request.  On May 10,
2006, the Company granted 234,000 shares of restricted stock to its directors, officers,
and certain key employees. The  restricted stock has been valued at $292,500, which
represents the trading value of the stock as quoted on NASDAQ May 10, 2006.  The
shares of restricted stock  granted to directors vest over the calendar year of service
and the shares of restricted stock granted to officers and key employees vest according
to  performance criteria related to Company objectives.  The value of directors shares
that have vested has been reflected as common stock issued and outstanding  and recorded
as compensation expense in general and administrative expenses with an offsetting amount
as deferred stock compensation, which is a component of  additional paid in capital.  The
deferred stock compensation amount related to officers and key employees shares
is recognized when it is deemed probable that  the performance criteria will be achieved.
Non-cash stock based compensation in the accompanying statement of operations related to
these grants for the three  and nine months ended September 30, 2006 was $21,000 and
$62,000, respectively.

6



---

Note
  B  Recently Adopted Accounting Pronouncements

In
December  2004,  the FASB issued a revision of  Statement of Financial  Accounting
Standards  No. 123 (SFAS  123R),  Accounting  for  Stock-Based  Compensation which
requires  companies to use SFAS 123R instead of Accounting  Principles  Board Opinion No.
25 Accounting  for Stock Issued to Employees (APB  25) which  allowed
companies  to measure and record the cost of employee  services  received in exchange
for an award of equity  instruments  based on intrinsic  value. SFAS 123R requires
companies to measure the cost of employee services  received in exchange for an award of
equity  instruments  (typically stock options)  based on grant-date fair value of the
award.  The fair value is estimated  using  option-pricing  models.  The resulting cost
is recognized over the period during  which an employee is required to provide  service
in exchange  for the award,  usually the vesting  period.  Prior to the adoption of SFAS
123R,  this  accounting  treatment was optional with pro forma disclosures required.

We
adopted SFAS 123R effective  January 1, 2006 using the modified  prospective  transition
method.  SFAS 123R is effective for all stock options and  other awards we grant
beginning  January 1, 2006 and any stock  options or other awards  previously  granted
but that vest in 2006 or in the future.  In November  2005, the Compensation  Committee
of the Board of Directors  approved the acceleration of vesting of all unvested  options,
the exercise price for which exceeded  the then current stock price,  thus there is no
compensation  expense  required  related to prior stock option grants.  This action was
taken in  consideration of  the interest of the Companys  shareholders in having
the Companys  earnings  impacted by the  approximately  $181,000 in  compensation
expense that the Company  would  otherwise  have  recorded  over four years  beginning
in the first  quarter of 2006,  upon the  adoption  of  FAS123(R).  The Board of
Directors  and the  Compensation  Committee also weighed the potential  detrimental
effect of early vesting on the employee  retention value of the current vesting schedules
for the  affected options and employees in taking this action.  No new option grants were
made in the first nine months of 2006.

The
table below summarizes stock option activity pursuant to our plans for the nine months
ended September 30, 2006:

|                                         |  |  | Number of 
        Shares |           | Weighted 
        Average 
        Exercise Price |  
|---------------------------------------- |  |  | ------------------------- | --------- | ------------------------------------------------- | -
|                                         |  |  |                           |          
|Outstanding
      at beginning of period |  |  |                           | 1,366,843 |                                                   | $
|Granted                                  |  |  |                           | --        |                                                   |  
|Exercised                                |  |  |                           | --        |                                                   |  
|Forfeited                                |  |  |                           | 98,339    |                                                   |  
|Expired                                  |  |  |                           | 69,901    |                                                   |  
|                                         |  |  |                           |          
|Outstanding
      at end of period       |  |  |                           | 1,198,603 |                                                   | $
|                                         |  |  |                           |          
|Exercisable
      at end of period       |  |  |                           | 1,198,603 |                                                   | $

Shares
available for future stock grants to employees and directors under existing plans were
871,431 at September 30, 2006.  At September 30, 2006,  the exercise price of all
outstanding options exceeded the current market price, thus there was no intrinsic value
of options outstanding or exercisable.

7



---

The
following table summarizes the range of exercise prices and weighted average remaining
contractual life of the options  outstanding and the range  of exercise prices for the
options exercisable at September 30, 2006:

|Outstanding Options           |  | Exercisable Options |       
|----------------------------- |  | ------------------- | ------
|                              |  |                     |       
|Exercise 
        Price Range |  |                     | Number
|                              |  |                     |       
|$1.72
     2.25              |  |                     |       
|$2.26
         5.00          |  |                     |       
|$5.01
     10.00             |  |                     |       
|$10.01
         87.50        |  |                     |       

The
following  table  illustrates  the pro forma effect on net loss and loss per share for
the three and nine months ended  September 30, 2005, had we  applied the fair value
recognition provisions of SFAS No. 123, Accounting for Stock-based Compensation (table
in thousands, except per share data):

|                                                                                      |  |  | 2005                 |      
|------------------------------------------------------------------------------------- |  |  | -------------------- | -----
|                                                                                      |  |  |                      |      
|                                                                                      |  |  | Three
        Months |      
|                                                                                      |  |  |                      |      
|Net
      loss, as reported                                                           |  |  | $                    | (511 
|Pro forma
      stock based compensation expense computed under the fair value method |  |  |                      | (34  
|                                                                                      |  |  |                      |      
|Pro forma
      net loss                                                              |  |  | $                    | (545 
|                                                                                      |  |  |                      |      
|Loss per share of common stock, basic and diluted as reported                         |  |  | $                    | (0.09
|                                                                                      |  |  |                      |      
|Pro
      forma                                                                       |  |  | $                    | (0.09
|                                                                                      |  |  |                      |      

The
Company  granted 24,000  options in the third quarter of 2005. The fair value of the
options  granted are estimated on the date of grant using the  Black-Scholes  option
pricing model. The major assumptions used include no dividends paid, a weighted average
expected life of 7 years,  expected stock volatility  of 122% and risk free interest
rates of 4.3%. The weighted-average grant-date fair value of options granted during 2005
was $0.84.

Note C  Post
Retirement Benefits

Healthaxis
has an obligation to provide certain post retirement benefits,  primarily lifetime
health,  dental and life insurance coverage,  to a group  of individuals  consisting of
three former executives and 17 retired employees of Provident American  Corporation,
which became  Healthaxis.  The following table  sets forth the components of net
post-retirement benefit expense for all plans:

|                                         |  |  | (Table in $000s)                          |   
|---------------------------------------- |  |  | ----------------------------------------- | --
|                                         |  |  | Three Months Ended 
        September 30, |   
|                                         |  |  |                                           |   
|                                         |  |  | 2006                                      |   
|                                         |  |  |                                           |   
|Interest
      cost                      |  |  | $                                         | 13
|Transition
      obligation amortization |  |  |                                           | 15
|                                         |  |  |                                           |   
|Net post
      retirement expense        |  |  | $                                         | 28
|                                         |  |  |                                           |   

8



---

Note D  Significant
Customer Concentrations

For
the three months ended September 30, 2006 and 2005, four customers accounted for $3.1
million (70%) and $2.6 million (68%),  respectively,  of the  Companys total
revenues.  For the nine months ended  September 30, 2006 and 2005,  these four customers
accounted for $8.7 million (70%) and $8.1 million (67%),  respectively,  of the Companys
total  revenues.  At September  30, 2006 and December 31, 2005,  two  customers
individually  accounted for more than 10% of the  Companys accounts receivable:

|                 |  |  | September
        30, 2006 |           | December
        31, 2005 | 
|---------------- |  |  | -------------------------- | --------- | ------------------------- | 
|                 |  |  |                            |           |                           | 
|                 |  |  | Amount                     |           | %
        of total        | 
|                 |  |  |                            |           |                           | 
|Customer
      A |  |  | $                          | 668,000   |                           | 
|Customer
      B |  |  | $                          | 1,010,000 |                           | 

These
customers are making  payments in accordance  with the terms of their  contracts.  For
Customer B, nearly half of the receivable  balance  results from the  Company  providing
extended payment terms for professional  services billings related to  implementation.
To the extent extended payment terms extend beyond one  year, the long-term  portion of
the receivable is classified as Other assets in the noncurrent assets section
of the accompanying  Consolidated  Balance Sheets.  The balance of the long-term
receivable was approximately $211,000 as of September 30, 2006.  There was no long-term
receivable as of December 31, 2005.

Note E  Other
Liabilities and Contingencies

Other
liabilities  included a $324,000  contingent tax liability at December 31, 2005 which was
reversed when the statute of  limitations  expired in the quarter  ended September 30,
2006.

Note  F
 Related Party Transactions

As
described in our 2005 Form 10-K, the Company  entered into a five year Remote  Resourcing
Agreement  with  Healthcare BPO Partners L.P., a company  affiliated with Tak Investments
and owned by Mr. Tak.  Healthcare BPO Partners,  based in Jaipur,  India,  provides
personnel and infrastructure  that is utilized  by the Company to provide  business
process  outsourcing  services  and other  software  development  and  technical  support
services to support the  Companys  operations.  The resources provided by
Healthcare BPO Partners  supplement the Companys existing  wholly-owned  operations
in Utah, Texas and Jamaica.  As a part  of the Resourcing  Agreement,  Healthcare BPO
Partners also provides data center hosting  services,  at a Vienna Virginia  facility,
to Healthaxis.  For the nine  months ended September 30, 2006, the Company incurred costs
of approximately  $790,000 related to the Resourcing  Agreement and at September 30,
2006, the Company  had accounts payable to Healthcare BPO Partners of approximately
$92,000.

Note G  Debt

Effective
July 31, 2006,  the Company  extended its note payable to  HealthMarkets  (formerly
known as UICI).  Under the prior  promissory  note, the  balance of  approximately  $1.5
million  would have been due at its maturity  date of September  30, 2006.  Under the
renewal  promissory  note,  Healthaxis  paid  HealthMarkets  $500,000 in August 2006 and
continues  to make  monthly  payments  equal to the greater of $65,000 or one-half of the
monthly  invoice  amount for  services  rendered to an affiliate of  HealthMarkets.  A
final  installment in the amount of all  outstanding  principal plus accrued  interest is
due and payable  February 1, 2008.

9



---

On
August 14, 2006, the Company executed a Loan and Security Agreement (the LSA)
with Silicon Valley Bank (SVB), with respect to a revolving line  and
equipment advances. Under the LSA, the Company may borrow (a) up to the lesser of (i) $5
million or (ii) 80% of eligible accounts receivable subject to  certain adjustments and
(b) up to $750,000 for equipment purchases. The LSA also provides for certain treasury
management services, including letters of credit,  foreign currency exchange contracts,
and various cash management services. Based on the calculation of the borrowing base as
of September 30, 2006, we would  have been eligible to draw up to approximately $2.0
million under the working capital line of credit.  The Company borrowed $500,000 under
the working capital  line in August 2006 for the required HealthMarkets payment and drew
$351,000 on the equipment line related to equipment purchases made during 2006.

Advances
under the LSA bear interest at SVBs prime rate plus 1.0% for revolving advances or
1.5% for equipment advances. The LSA contains customary  affirmative and negative
covenants, and requires that the Company maintain specified Adjusted Quick Ratio (ratio
of certain current assets to certain  liabilities as defined in the LSA), EBITDA, and
debt service coverage requirements. The advances under the LSA are secured by a first
priority lien on  substantially all the assets of the Company, including intellectual
property. The revolving line matures August 13, 2007 and the equipment line matures
September 1, 2009.

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

Forward-Looking
Statements

All
statements other than statements of historical fact contained in this report,  including
statements in this "Management's  Discussion and Analysis  of Financial Condition
and Results of Operations" concerning the Company's financial position and
liquidity,  results of operations,  prospects for future growth,  and other matters are
forward-looking  statements.  These statements may be identified with words such as
"anticipate,"  "believe," "plan," "estimate,"
"expect,"  "intend,"  "should,"  "could,"
"goal,"  "target,"  "designed,"  "on track,"
"comfortable  with,"  "optimistic"  and other similar  expressions,
and  constitute  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  forward-looking  statements are subject to known and unknown
risks,  uncertainties  and other  factors,  which may cause actual results to be
materially  different from those  contemplated  by the  forward-looking  statements.
Such factors  include the risks and  uncertainties  identified in Healthaxis  documents
filed with, or furnished to, the Securities and Exchange  Commission,  including without
limitation those identified under the caption "Risk Factors" in  the Companys
Form 10-K for the year ended December 31, 2005. The Company  undertakes no obligation to
publicly update or revise any  forward-looking  statements,  whether as a result of new
information, future events or otherwise.  Readers are cautioned not to place undue
reliance on forward-looking statements.

Overview

Healthaxis
Inc. is a Pennsylvania  corporation,  which was organized in 1982.  Healthaxis common
stock trades on the NASDAQ Capital Market under the  symbol  HAXS. The
operations of Healthaxis are conducted  through its  subsidiary,  Healthaxis,  Ltd.
Unless  otherwise  indicated,  or the context  otherwise  requires,  all references in
this document to the "Company,"  "Healthaxis,"  "we,"
"our" or "us" include  Healthaxis Inc. and all of its subsidiaries.
Healthaxis  maintains a website at  www.healthaxis.com.  The Healthaxis Code of Conduct
can be found on the Healthaxis  website.  Information found on the Healthaxis  website
is not a part of this report.

The
Company  reported revenue of $4.4 million and operating income of $5,000 in the third
quarter of 2006.  Revenue was  approximately  $511,000 (13%)  higher than the third
quarter of 2005, and was the third  consecutive  quarter of sequential  revenue growth.
The third quarter of 2006 is the first quarter that  Healthaxis  generated an operating
profit since it reorganized from its predecessor firm (Provident  American) in 1999.
Operating  results for the third quarter  of 2006  improved  approximately  $494,000 as
compared  to the third  quarter of 2005 and the Company  generated  positive  cash flow
driven by cash  provided by  operations.

10



---

Year-to-date,
revenue is up 3% and we have  reduced  the  operating  loss by nearly $1  million as
compared  to the prior year  period.  Comparisons  between the current and prior years
operating loss  understate  the magnitude of the  improvement in the financial  condition
of the Company  because  financial  results for the nine months  ended  September  30,
2005  include a net  $456,000  benefit of two  non-recurring  events:  a) the Company was
able to gain from the  reversal of a $979,000 contingent tax liability and b) the Company
recorded a $523,000 lease abandonment charge related to moving the headquarters office.

Other
important points include:

| | o | The
Company  continues  its  large-scale  customer  implementation  that has already  added a
significant  number of  revenue-generating  lives to our  systems.  In  addition,  we
have added new  customers  and we have  renewed  contracts  with a number of  existing
customers.  Due to the  subscription  nature of our business,  these customer wins do not
immediately  impact the operating  results,  but are expected to provide  additional
revenue in future periods.  Due to the sensitive  nature of system changes within our
customers client bases,  new customers  often  request  that we do not  announce
the change.  There is a  perception  in our  industry  that any  significant
implementation  or  conversion  might result in significant  disruption to the customer
and the clients it serves,  thus many new Healthaxis  customers do not  want us to
announce that they are migrating systems.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | In
July 2006, we announced the expansion of our Ultimate TPATM  Solution.  The Ultimate TPA
Solution is Healthaxis unique  combination of technology  and BPO services that
help TPAs gain  operational  efficiency and reduce costs.  The packaged suite of
technology and services is offered  as a turnkey solution that benefits  smaller to
midsize  organizations  the most. The Ultimate TPA enables growth minded  organizations
to  pursue their expansion objectives with both minimal capital and infrastructure
investment, and affordable ongoing costs.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | From
June through August of 2006, two of our preferred  shareholders  converted  approximately
2 million shares of their  preferred stock into common  stock.  Some of these shares were
immediately sold in privately negotiated transactions.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Effective
July 31, 2006,  the Company  extended its note payable to  HealthMarkets  (formerly
known as UICI).  Under the prior  promissory  note, the  balance of  approximately  $1.5
million  would have been due at its  maturity  date of September  30, 2006.  Under the
renewal  promissory  note,  Healthaxis  paid  HealthMarkets  $500,000 in August 2006 and
continues to make monthly  payments equal to the greater of $65,000 or  one-half of the
monthly invoice amount for services  rendered to an affiliate of  HealthMarkets.  A final
installment in the amount of all  outstanding principal plus accrued interest is due and
payable February 1, 2008.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | The
Company has secured lines of credit for working capital and equipment  purchases that
have expanded our available  liquidity and  strengthened our  financial condition to
support continuing growth.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Critical
Accounting Policies

Critical
accounting  policies are those which are most  important  to the  financial  statement
presentation  and that  require the most  difficult,  subjective  complex  judgments.  As
described in Note B to the financial  statements,  the Company adopted SFAS 123R in the
first quarter of 2006. There have been  no other changes in the Companys critical
accounting policies as described in the Companys Form 10-K for the year ended
December 31, 2005.

11



---

Results of
Operations

Three
months ended September 30, 2006 compared to three months ended September 30, 2005

|                       |  |  | (Table in thousands) 
        Three Months Ended September 30, |       |      |  
|---------------------- |  |  | -------------------------------------------------------------- | ----- | ---- | -
|                       |  |  | 2006                                                           |       | 2005 |  
|                       |  |  |                                                                |       |      |  
|Revenues               |  |  | $                                                              | 4,354 |      | $
|Cost
      of revenues |  |  |                                                                | 3,507 |      |  
|                       |  |  |                                                                |       |      |  
|Gross
      profit     |  |  | $                                                              | 847   |      | $
|                       |  |  |                                                                |       |      |  
|%
      of revenue     |  |  |                                                                | 19    | %    |  

Revenues
  were approximately $511,000 (13%) higher in the three months ended September
  30, 2006 compared to the same period in 2005. Transaction fees were up approximately
  17% and license fees were up approximately 5% due to increases in lives and
  transactions, primarily from customer implementations. Data Capture revenue
  was up approximately 22% as volume from new customers and groups offset a) a
  decrease in transactions from existing customers and b) the continuing trend
  towards a higher volume of electronic claims. Professional Services revenue
  increased 17% due to higher volumes of new projects from existing customers.
  Additionally, a significant portion of our billable professional services relates
  to customer implementations, for which revenue is not recognized currently but
  is deferred to future periods. Deferred revenues increased approximately $259,000
  during the third quarter of 2006.

Cost
  of revenues includes all expenses directly associated with the production
  of revenue, and consists primarily of salaries and related benefits, rent, amortization
  and depreciation, system expenses such as maintenance and repair, as well as
  other related consumables. Cost of revenues increased $75,000 (2%) in the three
  months ended September 30, 2006 compared to the same period in 2005. Cost of
  revenues was 81% of revenues in the 2006 period compared to 89% in the 2005
  period. The increase in cost consisted of approximately a) $169,000 increase
  in variable costs related to higher transaction fee revenues, b) $200,000 higher
  personnel and contractor costs resulting from implementation costs of a significant
  new customer partially offset by c) $230,000 in increased capitalizable costs
  due to 2006 implementation and development projects, and d) $61,000 in lower
  depreciation and amortization expense as equipment and prior capitalized costs
  became fully amortized.

|                                         |  |  | (Table in thousands) 
        Three Months Ended September 30, |     |      |  
|---------------------------------------- |  |  | -------------------------------------------------------------- | --- | ---- | -
|                                         |  |  | 2006                                                           |     | 2005 |  
|                                         |  |  |                                                                |     |      |  
|Sales
      and marketing expense        |  |  | $                                                              | 283 |      | $
|General
      and administrative expense |  |  |                                                                | 559 |      |  
|Lease
      abandonment charge           |  |  |                                                                | --  |      |  
|Interest
      and other income, net     |  |  |                                                                | 36  |      |  
|Interest
      expense                   |  |  |                                                                | (48 | )    |  
|Income
      tax benefit                 |  |  |                                                                | 324 |      |  

12



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Sales
  and marketing expenses consist primarily of employee salaries and related
  benefits, as well as promotional costs such as direct mailing campaigns, trade
  shows and media advertising. Sales and marketing expenses decreased $43,000
  (13%) in the three months ended September 30, 2006 compared to the same quarter
  of 2005. This decrease was due to lower personnel costs and the related reduction
  in benefits and travel related to changes in the sales and marketing team over
  the past year as well as reduced spending for marketing expenses. We expect
  to increase sales and marketing expenses in the future as we focus on increasing
  revenues at a faster pace.

General
  and administrative expenses include executive management, accounting, legal
  and human resources compensation and related benefits, as well as expenditures
  for applicable overhead costs. These expenses increased $8,000 (1%) in the three
  months ended September 30, 2006 compared to the same quarter of 2005. This includes
  a non-cash equity compensation charge of approximately $21,000 resulting from
  the vesting of restricted stock granted to members of the board of directors.

Lease
  abandonment charge consists of expenses related to the Companys former
  headquarters, which was abandoned in favor of a new office lease in June 2005.
  The $23,000 charge in the three months ended September 30, 2005 includes relocation
  costs incurred in that period. There was no such charge in 2006.

Interest
  and other income, net increased $2,000 (6%) in the three months ended September
  30, 2006 compared to the same quarter of 2005 due primarily to higher balances
  of cash resulting from the 2005 sale of common stock and an increase in interest
  rates.

Interest
  expense decreased $8,000 (14%) in the three months ended September 30, 2006
  compared to the same quarter of 2005. Interest accrued on the note payable to
  UICI was lower due to the declining principal balance.

Income
  tax benefit in the third quarter of 2006 was the result of the reversal
  of a contingent income tax liability upon the expiration of the statute of limitations.
  There was no income tax benefit or expense in 2005.

Nine
months ended September 30, 2006 compared to nine months ended September 30, 2005

|                       |  |  | (Table in thousands) 
        Nine Months Ended 
        September 30, |        |      |  
|---------------------- |  |  | ---------------------------------------------------------------------- | ------ | ---- | -
|                       |  |  | 2006                                                                   |        | 2005 |  
|                       |  |  |                                                                        |        |      |  
|Revenues               |  |  | $                                                                      | 12,386 |      | $
|Cost
      of revenues |  |  |                                                                        | 10,292 |      |  
|                       |  |  |                                                                        |        |      |  
|Gross
      profit     |  |  | $                                                                      | 2,094  |      | $
|                       |  |  |                                                                        |        |      |  
|%
      of revenue     |  |  |                                                                        | 17     | %    |  
|                       |  |  |                                                                        |        |      |  

13



---

**Revenues**were  approximately  $406,000 (3%) higher in the nine months ended September 30, 2006
compared to the same period in 2005.  Transaction  fees  increased 7% and license fees
increased  2% due to  increases in lives and  transactions,  primarily  due to customer
implementations  but  partially  offset by  existing  customers that have lost business.
Data Capture  revenue was up 10% as volume from new customers and groups offset a) a
decrease in  transactions  from  existing  customers  and b) the  continuing  trend
towards a higher  volume of  electronic  claims.  Professional  Services  revenue
declined  $238,000  because  significant  work  performed  thus far this year was
focused on a  significant  implementation,  and thus the  related  revenue is  deferred.
Deferred  revenues  increased  $906,000  during the first nine months of 2006. In the
prior year, we worked on several  projects that were billable and could be recognized as
revenue  as services were performed.

**Cost
of revenues**  declined  $932,000 (8%) in the nine months ended  September  30, 2006
compared to the same period in 2005.  Cost of revenues was 83%  of revenues in the 2006
period  compared to 94% in the 2005  period.  The  decrease in cost  consisted of
approximately  (a) $797,000 in increased  capitalizable  costs related to 2006
implementation  projects,  (b) $340,000 reduction related to facilities costs from the
June 2005 headquarters  relocation,  and (c) $273,000  in lower  depreciation  and
amortization  expense as equipment and prior  capitalized  costs became fully  amortized.
These decreases were partially offset by a  $260,000  increase in variable  costs related
to higher  transaction  fee revenues and $187,000 in increased  fees for personnel  and
sub-contractors  engaged in  implementing a large new client.

|                                           |  |  | (Table in thousands) 
        Nine Months Ended 
        September 30, |       |      |  
|------------------------------------------ |  |  | ---------------------------------------------------------------------- | ----- | ---- | -
|                                           |  |  | 2006                                                                   |       | 2005 |  
|                                           |  |  |                                                                        |       |      |  
|Sales
      and marketing expense          |  |  | $                                                                      | 976   |      | $
|General
      and administrative expense   |  |  |                                                                        | 1,800 |      |  
|Reversal
      of contingent tax liability |  |  |                                                                        | --    |      |  
|Lease
      abandonment charge             |  |  |                                                                        | --    |      |  
|Amortization
      of intangibles          |  |  |                                                                        | --    |      |  
|Interest
      and other income, net       |  |  |                                                                        | 92    |      |  
|Interest
      expense                     |  |  |                                                                        | (145  | )    |  
|Income
      tax benefit                   |  |  |                                                                        | 324   |      |  

Sales
  and marketing expenses increased $183,000 (23%) in the nine months ended
  September 30, 2006 compared to the same period of 2005. This increase was due
  to higher personnel costs and the related increase in benefits and travel related
  to the changes in the sales and marketing team over the past year.

General
  and administrative expenses decreased $208,000 (10%) in the nine months
  ended September 30, 2006 compared to the same period of 2005. The majority of
  the decrease is attributable to the reduction in facilities costs, insurance
  and professional fees, partially offset by a non-cash equity compensation charge
  of approximately $62,000 resulting from the vesting of restricted stock granted
  to members of the board of directors.

Reversal
  of contingent tax liability of $979,000 was recorded as a credit to the
  Statement of Operations in the nine months ended September 30, 2005. This was
  a result of the expiration of the applicable statute of limitations period in
  the second quarter 2005 for an operations-based tax as opposed to an income
  tax. There was no such credit for 2006.

14



---

Lease
  abandonment charge consists of expenses related to the Companys former
  headquarters, which was abandoned in favor of a new office lease in June 2005.
  The $523,000 charge in the nine months ended September 30, 2005 includes relocation
  costs incurred to that point and the write-off of certain assets abandoned in
  the move, plus an accrual for the future rent and certain rent related obligations
  of the former headquarters. There was no such charge in 2006.

Amortization
  of intangibles declined $84,000 in the nine months ended September 30, 2006
  compared to the same period of 2005, as these intangible assets were fully amortized
  in January 2005.

Interest
  and other income, net increased $30,000 (48%) in the nine months ended September
  30, 2006 compared to the same period of 2005 due primarily to higher balances
  of cash resulting from the 2005 sale of common stock and higher interest rates.

Interest
  expense decreased $38,000 (21%) in the nine months ended September 30, 2006
  compared to the same period of 2005. Interest accrued on the note payable to
  UICI was lower due to the declining principal balance.

Income
  tax benefit in the third quarter of 2006 was the result of the reversal
  of a contingent income tax liability upon the expiration of the statute of limitations.
  There was no income tax benefit or expense in 2005.

Liquidity
and Capital Resources

Overview of
Cash Resources

At
September 30, 2006,  our cash and cash  equivalents  amounted to $3.3 million  compared
to $4.7 million at December 31, 2005.  The sources and uses  of cash during the first
nine months of 2006 are  described  more fully in Analysis of Cash Flows below.
We believe that the Company will  maintain  sufficient  liquidity  to fund  operations
for at least the next 12 months.  As discussed in our 2005 Form 10-K,  the Company has a
note payable to  HealthMarkets  (formerly  known as UICI),  the balance of which is
approximately  $1.0 million as of September 30, 2006.  Effective  July 31, 2006, the
Company  successfully  extended the  note payable to  HealthMarkets.  Under the prior
promissory  note, a balance of  approximately  $1.5 million would have been due at its
maturity date of September  30, 2006. Under the renewal  promissory note,  Healthaxis
paid  HealthMarkets  $500,000 in August 2006 and continues to make monthly payments equal
to the greater  of $65,000 or  one-half  of the monthly  invoice  amount for  services
rendered  to an  affiliate  of  HealthMarkets.  A final  installment  in the amount of
all  outstanding  principal plus accrued  interest is due and payable  February 1, 2008.
In August 2006, the Company  secured  working  capital and equipment  lines of  credit
that expand our available liquidity and strengthens our financial condition to support
continuing growth.

As
part of a contract executed in the fourth quarter of 2005, the Company is expending
substantial  resources,  in the form of both human and capital  expenditures,  during the
implementation  phase of a significant  customer  contract which is expected to continue
for as long as the next 5 months. As a result,  the Company expects a continued negative
short-term impact on cash flow until deferred collection  provisions present in the
contract are fulfilled.  The Company  has already  realized  additional  revenue and
margin from the portion of the  business  that has been  implemented  and expects the
revenue and margin  impact to  further  increase as the  implementation  continues.  The
Company  does not believe that the  short-term  impact of this  project  implementation
will impact the  Companys ability to maintain sufficient  liquidity to fund
operations for at least the next 12 months. The implementation  effort and terms of this
agreement are  typical for Healthaxis contracts of this scope and nature.

15



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Analysis of
Cash Flows

Cash
  used in operating activities for the nine months ended September 30, 2006
  was approximately $267,000 as compared to $1.8 million for the same period in
  2005. The improvement was primarily the result of the reduced net loss in 2006
  and the aforementioned 2005 reversal of contingent tax liability partially offset
  by a net negative change in various working capital accounts, primarily accounts
  receivable and deferred revenues. Changes in working capital accounted for a
  $419,000 use of cash in the 2006 period as opposed to a $200,000 use of cash
  for the comparable period in 2005. Though it creates a short-term negative impact
  on cash flows from operations, we view the increase in accounts receivable and
  deferred revenues as a positive leading indicator since the increase in accounts
  receivable results from the increase in revenue and the increase in deferred
  revenues will result in higher recognized revenue in future periods. For the
  third quarter of 2006, the Company generated positive cash flow from operations
  of $433,000 resulting from the slight operating profit combined with a reduction
  of days sales outstanding.

Cash
  used in investing activities for the nine months ended September 30, 2006
  was $1.5 million as compared to $597,000 for the same period in 2005. The Companys
  investing activities continue to be primarily in the areas of developing software
  enhancements, contract start-up activities and acquisition of property, equipment
  and software, with most of the increase resulting from capitalized start up
  costs tied to the largest of the ongoing implementations.

Cash
  generated in financing activities for the nine months ended September 30,
  2006 was $306,000 related to the proceeds from the new lines of credit partially
  offset by the debt payment to HealthMarkets and the cost to register shares
  previously sold to Tak Investments, while cash from financing activities for
  the nine months ended September 30, 2005 was $4.3 million as a result of proceeds
  from the Tak financing transaction.

Recently
Adopted Accounting Pronouncements

See
Note B to the Consolidated  Financial  Statements  herein for a discussion of the impact
on the Companys  financial  statements of new accounting  standards.

Item 3.
Quantitative and Qualitative Disclosures About Market Risk

Exposure
to market risk for changes in interest  rates relate  primarily to short-term
investments.  The Company does not use  derivative  financial  instruments.  The primary
objective of its investment  activities is to preserve principal while maximizing yields
without  significantly  increasing risk. Due to  the nature of the Companys
investments, we believe that there is no material risk exposure.

Our
cash  equivalents and other  investment  instruments are exposed to financial  market
risk due to fluctuation in interest rates,  which may affect  our interest income.  These
instruments are not entered into for trading purposes.  We do not expect our interest
income to be significantly  affected by a sudden  change in market interest rates.

The
dividend  rate on our  preferred  stock is fixed at a  nominal  rate of  $0.0001  per
share of the new  preferred  stock,  payable  semi-annually  (aggregating  less than
$1,000 in dividend  payments to all  preferred  shareholders  annually).  The  interest
rate on our note payable is fixed at 6%. The fair  value of these instruments is
therefore subject to market fluctuation as interest rates change.

Item 4.
Controls and Procedures

As
of the end of the  period  covered  by this  quarterly  report,  the  Company  carried
out an  evaluation,  under  the  supervision  and  with the  participation of the Company
management,  including the Companys Chief Executive  Officer and Chief Financial
Officer,  of the  effectiveness of the design and  operation of the Companys
disclosure  controls and procedures  pursuant to Securities  Exchange Act Rule 13a-15.
Based on that evaluation,  the Chief Executive  Officer and the Chief  Financial  Officer
have concluded that these  disclosure  controls and procedures are effective as of the
end of the period covered by this  report.  There has been no change in the Companys
internal  control over  financial  reporting  that occurred  during the period covered by
this report that has  materially affected, or is reasonably likely to materially affect,
the Companys internal control over financial reporting.

16



---

PART II. OTHER
INFORMATION

Item 1.
Legal Proceedings.

The
Company is involved in  litigation  arising in the ordinary  course of its  business.
Management  is of the opinion that no currently  pending litigation will have a material
adverse effect on the Companys results of operations or financial position.

Item 1A.
Risk Factors

We
face a number of significant risks and  uncertainties in our business,  which are
detailed under Risk Factors in our Annual Report on  Form 10-K for the year
ended December 31, 2005.  These risks and  uncertainties  may affect our current
position and future  prospects,  and should be considered  carefully in evaluating us and
an investment in our common stock.  We have not  identified  any material  changes to the
Risk Factors  detailed in our most recent  Annual Report on Form 10-K.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.
Defaults Upon Senior Securities.

None.

Item 4.
Submission of Matters to a Vote of Security Holders.

None.

Item 5.
Other Information.

None.

Item 6.
Exhibits

| | (10.1) | Renewal
Promissory  Note of the  Company  dated  as of  July  31,  2006  payable  to
HealthMarkets  Inc.  f/k/a  UICI,  Inc.  (incorporated by reference to Exhibit 10.1 to
Form 8-K filed August 1, 2006).
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (10.2) | Loan
and Security  Agreement  between the Company and Silicon Valley Bank dated August 14,
2006  (incorporated by reference to  Exhibit 10.1 to Form 8-K filed August 17, 2006).
| | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (31.1) | Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
filed herewith.
| | ------ | -------------------------------------------------------------------------------------------------------------------

| | (31.2) | Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
filed herewith.
| | ------ | -------------------------------------------------------------------------------------------------------------------

| | (32.1) | Certifications
of Chief Executive Officer and Chief Financial  Officer Pursuant to Section 906 of the
Sarbanes-Oxley  Act of  2002, furnished herewith.
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------

17



---

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.

|                              | Healthaxis
      Inc.                                                                             
|----------------------------- | --------------------------------------------------------------------------------------------------
|                              |                                                                                                   
|                              |                                                                                                   
|Date: November 13,
      2006 | By:                                                                                               
|                              |                                                                                                   
|                              | John
      M. Carradine, President and Chief Executive Officer (Principal Executive
      Officer)
|                              |                                                                                                   
|                              |                                                                                                   
|                              | By:                                                                                               
|                              |                                                                                                   
|                              | Ronald
      K. Herbert, Chief Financial Officer (Principal Financial Officer)                    

18



---

Exhibit
Index

|(10.1) | Renewal
Promissory  Note of the  Company  dated as of July 31,  2006  payable  to  HealthMarkets
Inc.  f/k/a  UICI,  Inc.  (incorporated by reference to Exhibit 10.1 to Form 8-K filed
August 1, 2006).
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10.2) | Loan
and Security Agreement between the Company and Silicon Valley Bank dated August 14, 2006
(incorporated by reference  to Exhibit 10.1 to Form 8-K filed August 17, 2006).
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(31.1) | Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
filed herewith.
|------ | -------------------------------------------------------------------------------------------------------------------

|(31.2) | Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
filed herewith.
|------ | -------------------------------------------------------------------------------------------------------------------

|(32.1) | Certifications
of Chief Executive Officer and Chief Financial  Officer Pursuant to Section 906 of the
Sarbanes-Oxley  Act  of 2002, furnished herewith.
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------

19