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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

|                               |  |               
|------------------------------ |  | --------------
|For the quarterly period ended |  | March 31, 2002

OR

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

5215 N. OConnor Blvd., 800 Central Tower, 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.

Yes X  No

Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date: 53,711,070 shares of common
stock, par value $.10, outstanding as of April 16, 2002.

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TABLE OF CONTENTS



|                                                                                              |                                                                      |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                                                                
|Item 1. Condensed Consolidated Financial Statements                                          
|                                                                                              | Condensed Consolidated Balance Sheets                               
|                                                                                              | Condensed Consolidated Statements of Operations                     
|                                                                                              | Condensed Consolidated Statements of Changes in Stockholders Equity
|                                                                                              | Condensed Consolidated Statements of Cash Flows                     
|                                                                                              | Notes to Consolidated Financial Statements                          
|Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|PART II. OTHER INFORMATION                                                                   
|Item 1. Legal Proceedings.                                                                   
|Item 2. Changes in Securities and Use of Proceeds.                                           
|Item 3. Defaults Upon Senior Securities.                                                     
|Item 4. Submission of Matters to a Vote of Security Holders.                                 
|Item 5. Other Information.                                                                   
|Item 6. Exhibits and Reports on Form 8-K.                                                    
|Signature                                                                                    
|EX-10.1 Change in Control Employment Agreement                                               
|EX-10.2 Third Amendment to Agreement                                                         



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Healthaxis Inc.
Table of Contents

|                                                                                              |                                                                      |  |      |   | 
|--------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- |  | ---- | - | 
|                                                                                              |                                                                      |  | Page
|                                                                                              |                                                                      |  |     
|PART I Financial Information                                                                  |                                                                      |  |      |  
|Item 1. Condensed Consolidated Financial Statements                                           |                                                                      |  |      |  
|                                                                                              | Condensed Consolidated Balance Sheets                                |  |      | 3 | 
|                                                                                              | Condensed Consolidated Statements of Operations                      |  |      | 4 | 
|                                                                                              | Condensed Consolidated Statements of Changes in Stockholders Equity |  |      | 5 | 
|                                                                                              | Condensed Consolidated Statements of Cash Flows                      |  |      | 6 | 
|                                                                                              | Notes to Condensed Consolidated Financial Statements                 |  |      | 7 | 
|Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations |                                                                      |  | 12   |  
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                                      |  | 19   |  
|PART II Other Information                                                                     |                                                                      |  |      |  
|Items 1-5                                                                                     |                                                                      |  | 20   |  
|Item 6. Reports on Form 8-K                                                                   |                                                                      |  | 20   |  
|Signatures                                                                                    |                                                                      |  | 21   |  
|Exhibit Index                                                                                 |                                                                      |  | 22   |  

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Healthaxis Inc. and Subsidiaries
Condensed Consolidated Balance Sheets

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

|                                                                                                                       |                                                                  |                           |                                            |   |          |        |             |   |        |        | 
|---------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ------------------------- | ------------------------------------------ | - | -------- | ------ | ----------- | - | ------ | ------ | 
|                                                                                                                       |                                                                  |                           |                                            |   | March 31 |        | December 31
|                                                                                                                       |                                                                  |                           |                                            |   | 2002     |        | 2001       
|                                                                                                                       |                                                                  |                           |                                            |   |          |        |            
|Assets                                                                                                                 |                                                                  |                           |                                            |   |          |        |             |  
|Cash and cash equivalents                                                                                              |                                                                  | $                         | 12,581                                     |   |          | $      | 13,149      |  
|Accounts receivable, net of allowance for doubtful accounts of $54 and $50, respectively                               |                                                                  |                           | 2,411                                      |   |          |        | 2,594       |  
|Accounts receivable from affiliates                                                                                    |                                                                  |                           | 2,675                                      |   |          |        | 3,286       |  
|Prepaid expenses and other current assets                                                                              |                                                                  |                           | 529                                        |   |          |        | 412         |  
|Notes receivable                                                                                                       |                                                                  |                           | 144                                        |   |          |        | 119         |  
|                                                                                                                       |                                                                  |                           |                                            |   |          |        |             |  
|                                                                                                                       |                                                                  | Total current assets      |                                            |   | 18,340   |        |             |   | 19,560 |       
|Property, equipment and software, less accumulated depreciation and
amortization of $10,889 and $10,311, respectively  |                                                                  |                           | 2,936                                      |   |          |        | 3,451       |  
|Capitalized software and contract start-up costs, less accumulated
amortization of $1,545 and $1,327, respectively     |                                                                  |                           | 2,566                                      |   |          |        | 2,525       |  
|Customer base, less accumulated amortization of $2,926 and $2,379, respectively                                        |                                                                  |                           | 6,196                                      |   |          |        | 6,743       |  
|Goodwill, net                                                                                                          |                                                                  |                           | 24,308                                     |   |          |        | 24,308      |  
|Notes receivable from employees                                                                                        |                                                                  |                           | 268                                        |   |          |        | 311         |  
|Notes receivable                                                                                                       |                                                                  |                           | 343                                        |   |          |        | 308         |  
|Investment in Digital Insurance, Inc.                                                                                  |                                                                  |                           | 227                                        |   |          |        | 227         |  
|Other assets                                                                                                           |                                                                  |                           | 153                                        |   |          |        | 155         |  
|                                                                                                                       |                                                                  |                           |                                            |   |          |        |             |  
|                                                                                                                       |                                                                  |                           | Total assets                               |   | $        | 55,337 |             |   | $      | 57,588 | 
|                                                                                                                       |                                                                  |                           |                                            |   |          |        |             |  
|Liabilities and Stockholders Equity                                                                                   |                                                                  |                           |                                            |   |          |        |             |  
|Accounts payable                                                                                                       |                                                                  | $                         | 819                                        |   |          | $      | 1,188       |  
|Accrued liabilities                                                                                                    |                                                                  |                           | 1,778                                      |   |          |        | 2,920       |  
|Deferred revenues                                                                                                      |                                                                  |                           | 1,340                                      |   |          |        | 1,867       |  
|Obligations under capital leases                                                                                       |                                                                  |                           |                                           |   |          |        | 8           |  
|                                                                                                                       |                                                                  |                           |                                            |   |          |        |             |  
|                                                                                                                       |                                                                  | Total current liabilities |                                            |   | 3,937    |        |             |   | 5,983  |       
|Convertible debentures                                                                                                 |                                                                  |                           | 27,158                                     |   |          |        | 27,134      |  
|Post retirement and employment liabilities                                                                             |                                                                  |                           | 988                                        |   |          |        | 995         |  
|Other liabilities                                                                                                      |                                                                  |                           | 1,085                                      |   |          |        | 1,087       |  
|                                                                                                                       |                                                                  |                           |                                            |   |          |        |             |  
|                                                                                                                       |                                                                  |                           | Total liabilities                          |   |          | 33,168 |             |   |        | 35,199 | 
|Commitments and contingencies                                                                                          |                                                                  |                           |                                            |   |          |        |             |  
|Stockholders Equity:                                                                                                  |                                                                  |                           |                                            |   |          |        |             |  
|Preferred stock, par value $1: authorized 100,000,000 shares:                                                          |                                                                  |                           |                                            |   |          |        |             |  
|                                                                                                                       | Series A cumulative convertible, no shares issued or outstanding |                           |                                            |   |          |        |             |  |       
|                                                                                                                       | Series B cumulative convertible, no shares issued or outstanding |                           |                                            |   |          |        |             |  |       
|Common stock, par value $.10: authorized 1,900,000,000 shares,
issued and outstanding 53,710,359 and 52,978,613 shares |                                                                  |                           | 5,371                                      |   |          |        | 5,298       |  
|Additional paid-in capital                                                                                             |                                                                  |                           | 433,957                                    |   |          |        | 433,386     |  
|Accumulated deficit                                                                                                    |                                                                  |                           | (417,070                                   | ) |          |        | (416,069    | )
|Unearned compensation                                                                                                  |                                                                  |                           | (89                                        | ) |          |        | (226        | )
|                                                                                                                       |                                                                  |                           |                                            |   |          |        |             |  
|                                                                                                                       |                                                                  |                           | Total stockholders equity                 |   |          | 22,169 |             |   |        | 22,389 | 
|                                                                                                                       |                                                                  |                           |                                            |   |          |        |             |  
|                                                                                                                       |                                                                  |                           | Total liabilities and stockholders equity |   | $        | 55,337 |             |   | $      | 57,588 | 
|                                                                                                                       |                                                                  |                           |                                            |   |          |        |             |  

See notes to consolidated financial statements.

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Healthaxis Inc. and Subsidiaries
Condensed Consolidated Statements of Operations

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

|                                                                                |                                    |   |                    |            |           |   |        |            |  
|------------------------------------------------------------------------------- | ---------------------------------- | - | ------------------ | ---------- | --------- | - | ------ | ---------- | -
|                                                                                |                                    |   | Three Months Ended
|                                                                                |                                    |   |                   
|                                                                                |                                    |   | March 31,          |            | March 31,
|                                                                                |                                    |   | 2002               |            | 2001     
|                                                                                |                                    |   |                    |            |          
|Revenue                                                                         |                                    | $ | 9,792              |            |           | $ | 10,837 |           
|                                                                               
|Expenses:                                                                       |                                    |   |                    |            |           |   |        |           
|                                                                                | Cost of revenues                   |   |                    | 9,348      |           |   |        | 11,989     |  
|                                                                                | Sales and marketing                |   |                    | 366        |           |   |        | 1,887      |  
|                                                                                | General and administrative         |   |                    | 279        |           |   |        | 8,505      |  
|                                                                                | Research and development           |   |                    | 117        |           |   |        | 562        |  
|                                                                                | Amortization of intangibles        |   |                    | 619        |           |   |        | 6,570      |  
|                                                                                |                                    |   |                    |            |           |   |        |           
|                                                                                | Total expenses                     |   |                    | 10,729     |           |   |        | 29,513     |  
|                                                                                |                                    |   |                    |            |           |   |        |           
|                                                                                | Operating loss                     |   |                    | (937       | )         |   |        | (18,676    | )
|                                                                                | Interest and other income, net     |   |                    | 115        |           |   |        | 432        |  
|                                                                                | Interest expense                   |   |                    | (179       | )         |   |        | (367       | )
|                                                                                |                                    |   |                    |            |           |   |        |           
|                                                                                | Loss before minority interest      |   |                    | (1,001     | )         |   |        | (18,611    | )
|Minority interest in loss of subsidiary                                         |                                    |   |                   |            |           |   | 3,080  |           
|                                                                                |                                    |   |                    |            |           |   |        |           
|                                                                                | Net loss before extraordinary item |   |                    | (1,001     | )         |   |        | (15,531    | )
|Extraordinary gain  convertible debt restructuring                             |                                    |   |                   |            |           |   | 1,681  |           
|                                                                                |                                    |   |                    |            |           |   |        |           
|                                                                                | Net loss                           |   | $                  | (1,001     | )         |   | $      | (13,850    | )
|                                                                                |                                    |   |                    |            |           |   |        |           
|Loss per share of common stock (basic and diluted)                             
|                                                                                | Continuing operations              |   | $                  | (0.02      | )         |   | $      | (0.37      | )
|                                                                                | Extraordinary gain                 |   |                    |           |           |   |        | 0.04       |  
|                                                                                |                                    |   |                    |            |           |   |        |           
|                                                                                | Net loss                           |   | $                  | (0.02      | )         |   | $      | (0.33      | )
|                                                                                |                                    |   |                    |            |           |   |        |           
|Weighted average common shares and equivalents
used in computing loss per share
|                                                                                | Basic and diluted                  |   |                    | 53,483,000 |           |   |        | 41,759,000 |  

See notes to consolidated financial statements.

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Healthaxis Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders Equity
(In thousands) (Unaudited)

|                                                 |  |                 |   |              |  |            |   |             |  |          |        |         |  |              |       |       |  |   |         |   |  |   |          |   |  |   |      |   |  |   |        |  
|------------------------------------------------ |  | --------------- | - | ------------ |  | ---------- | - | ----------- |  | -------- | ------ | ------- |  | ------------ | ----- | ----- |  | - | ------- | - |  | - | -------- | - |  | - | ---- | - |  | - | ------ | -
|                                                 |  | Preferred Stock |   | Common Stock |  | Additional |   | Accumulated |  | Unearned |        |         |  |             
|                                                 |  | Shares          |   | Amount       |  | Shares     |   | Amount      |  | Capital  |        | Deficit |  | Compensation |       | Total
|                                                 |  |                 |   |              |  |            |   |             |  |          |        |         |  |              |       |      
|BALANCE, DECEMBER 31, 2001                       |  |                 |  |              |  |            |  |             |  |          | 52,979 |         |  | $            | 5,298 |       |  | $ | 433,386 |   |  | $ | (416,069 | ) |  | $ | (226 | ) |  | $ | 22,389 |  
|Net loss                                         |  |                 |   |              |  |            |   |             |  |          |        |         |  |              |       |       |  |   |         |   |  |   | (1,001   | ) |  |   |      |   |  |   | (1,001 | )
|Common stock issued in lieu of severance         |  |                 |   |              |  |            |   |             |  |          | 358    |         |  |              | 36    |       |  |   | 319     |   |  |   |          |   |  |   |      |   |  |   | 355    |  
|Amortization/forfeiture of unearned
compensation |  |                 |   |              |  |            |   |             |  |          |        |         |  |              |       |       |  |   | (66     | ) |  |   |          |   |  |   | 137  |   |  |   | 71     |  
|Stock based compensation                         |  |                 |   |              |  |            |   |             |  |          |        |         |  |              |       |       |  |   | 78      |   |  |   |          |   |  |   |      |   |  |   | 78     |  
|Common stock issued in lieu of interest          |  |                 |  |              |  |            |  |             |  |          | 373    |         |  |              | 37    |       |  |   | 240     |   |  |   |         |   |  |   |     |   |  |   | 277    |  
|                                                 |  |                 |   |              |  |            |   |             |  |          |        |         |  |              |       |       |  |   |         |   |  |   |          |   |  |   |      |   |  |   |        |  
|BALANCE, MARCH 31, 2002                          |  |                 |  |              |  |            |  |             |  |          | 53,710 |         |  | $            | 5,371 |       |  | $ | 433,957 |   |  | $ | (417,070 | ) |  | $ | (89  | ) |  | $ | 22,169 |  
|                                                 |  |                 |   |              |  |            |   |             |  |          |        |         |  |              |       |       |  |   |         |   |  |   |          |   |  |   |      |   |  |   |        |  

See notes to consolidated financial statements.

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Healthaxis Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands) (Unaudited)

|                                                  |                                                                             |                                                          |   |                                                 |        |                    |      |           |        |   |       |  
|------------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------------------------- | - | ----------------------------------------------- | ------ | ------------------ | ---- | --------- | ------ | - | ----- | -
|                                                  |                                                                             |                                                          |   |                                                 |        | Three Months Ended
|                                                  |                                                                             |                                                          |   |                                                 |        |                   
|                                                  |                                                                             |                                                          |   |                                                 |        | March 31,          |      | March 31,
|                                                  |                                                                             |                                                          |   |                                                 |        | 2002               |      | 2001     
|                                                  |                                                                             |                                                          |   |                                                 |        |                    |      |          
|Cash flows from operating activities              |                                                                             |                                                          |   |                                                 |        |                    |      |          
|                                                  | Net loss                                                                    |                                                          | $ | (1,001                                          | )      |                    | $    | (13,850   | )     
|                                                  | Adjustments to reconcile net loss to net cash used in
operating activities: |                                                          |   |                                                 |        |                    |      |           |       
|                                                  |                                                                             | Depreciation and amortization                            |   |                                                 | 1,343  |                    |      |           | 7,720  |  
|                                                  |                                                                             | Amortization of unearned compensation                    |   |                                                 | 71     |                    |      |           | 408    |  
|                                                  |                                                                             | Bad debt reserve                                         |   |                                                 | 4      |                    |      |           | 17     |  
|                                                  |                                                                             | Minority interest in loss of subsidiary                  |   |                                                 |       |                    |      |           | (3,080 | )
|                                                  |                                                                             | Gain on convertible debt restructuring                   |   |                                                 |       |                    |      |           | (1,681 | )
|                                                  |                                                                             | Gain on settlement of severance obligation               |   |                                                 | (1,345 | )                  |      |           |       |  
|                                                  |                                                                             | Stock option compensation                                |   |                                                 | 78     |                    |      |           | 5,323  |  
|                                                  |                                                                             | Stock issued in lieu of severance                        |   |                                                 | 355    |                    |      |           |       |  
|                                                  |                                                                             | Gain on disposition of assets                            |   |                                                 |       |                    |      |           | (22    | )
|                                                  |                                                                             | Payment of interest with common stock                    |   |                                                 | 277    |                    |      |           | 101    |  
|                                                  |                                                                             | Interest on convertible debt                             |   |                                                 | 24     |                    |      |           | (45    | )
|                                                  |                                                                             | Change in:                                               |   |                                                 |        |                    |      |           |        |  
|                                                  |                                                                             |                                                          |   | Accounts receivable                             |        |                    | 790  |           |        |   | (257  | )
|                                                  |                                                                             |                                                          |   | Prepaid expenses and other current assets       |        |                    | (117 | )         |        |   | 224   |  
|                                                  |                                                                             |                                                          |   | Other assets, current and deferred income taxes |        |                    |     |           |        |   | (6    | )
|                                                  |                                                                             |                                                          |   | Accounts payable and accrued liabilities        |        |                    | (165 | )         |        |   | (68   | )
|                                                  |                                                                             |                                                          |   | Deferred revenues                               |        |                    | (527 | )         |        |   | 1,809 |  
|                                                  |                                                                             |                                                          |   | Other liabilities                               |        |                    | (9   | )         |        |   | (6    | )
|                                                  |                                                                             |                                                          |   |                                                 |        |                    |      |          
|                                                  | Net cash used in operating activities                                       |                                                          |   | (222                                            | )      |                    |      | (3,413    | )     
|                                                  |                                                                             |                                                          |   |                                                 |        |                    |      |          
|Cash flows from investing activities              |                                                                             |                                                          |   |                                                 |        |                    |      |          
|                                                  |                                                                             | Collection (advances) of notes receivable                |   |                                                 | (17    | )                  |      |           | 266    |  
|                                                  |                                                                             | Investment in capitalized software and contract start-up |   |                                                 | (258   | )                  |      |           | (1,274 | )
|                                                  |                                                                             | Proceeds from the sale of equipment                      |   |                                                 |       |                    |      |           | 318    |  
|                                                  |                                                                             | Payment of acquisition costs                             |   |                                                 |       |                    |      |           | (480   | )
|                                                  |                                                                             | Purchases of property, equipment and software            |   |                                                 | (63    | )                  |      |           | (484   | )
|                                                  |                                                                             |                                                          |   |                                                 |        |                    |      |          
|                                                  | Net cash used in investing activities                                       |                                                          |   | (338                                            | )      |                    |      | (1,654    | )     
|                                                  |                                                                             |                                                          |   |                                                 |        |                    |      |          
|Cash flows from financing activities              |                                                                             |                                                          |   |                                                 |        |                    |      |          
|                                                  | Payments on capital leases                                                  |                                                          |   | (8                                              | )      |                    |      | (93       | )     
|                                                  |                                                                             |                                                          |   |                                                 |        |                    |      |          
|                                                  | Net cash used in financing activities                                       |                                                          |   | (8                                              | )      |                    |      | (93       | )     
|                                                  |                                                                             |                                                          |   |                                                 |        |                    |      |          
|                                                  | Decrease in cash and cash equivalents                                       |                                                          |   | (568                                            | )      |                    |      | (5,160    | )     
|                                                  | Cash and cash equivalents, beginning of period                              |                                                          |   | 13,149                                          |        |                    |      | 17,170    |       
|                                                  |                                                                             |                                                          |   |                                                 |        |                    |      |          
|                                                  | Cash and cash equivalents, end of period                                    |                                                          | $ | 12,581                                          |        |                    | $    | 12,010    |       
|                                                  |                                                                             |                                                          |   |                                                 |        |                    |      |          
|Supplemental disclosure of cash flow information: |                                                                             |                                                          |   |                                                 |        |                    |      |          
|                                                  | Interest paid                                                               |                                                          | $ | 19                                              |        |                    | $    | 147       |       
|                                                  |                                                                             |                                                          |   |                                                 |        |                    |      |          

See notes to consolidated financial statements.

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Healthaxis Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands except share and per share data)
March 31, 2002

Note A  Description of business and basis of presentation

Unaudited Financial Information

The unaudited condensed consolidated financial statements have been
prepared by Healthaxis Inc. and its subsidiaries (Healthaxis or the
Company), 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, although the Company believes that the accompanying disclosures
are adequate to make the information presented not misleading. Results of
operations for the three-month period ended March 31, 2002, are not necessarily
indicative of the results that may be expected for the year ending December 31,
2002.

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, 2001.

General

Healthaxis is an emerging technology services firm committed to providing
innovative and configurable web-based connectivity and applications solutions
for health benefit distribution and administration. These solutions, which are
comprised of software products and related services, are designed to assist
health insurance payers, third party administrators, intermediaries and
employers provide enhanced services to members, employees and providers through
the application of Healthaxis flexible technology to legacy systems, either on
a fully integrated or on an Application Service Provider (ASP) basis.
Healthaxis believes that its solutions enable a client to reduce their
administrative costs, enhance their customer service and improve their
profitability.

Healthaxis is a Pennsylvania corporation organized in 1982. Healthaxis
common stock trades on the Nasdaq National Market under the symbol HAXS. The
operations of Healthaxis during 2001 were conducted primarily through its
subsidiary, Healthaxis.com, Inc. In the fourth quarter of 2001 the Company
reorganized and formed a new subsidiary, Healthaxis, Ltd., through which all
operations are now conducted. Unless otherwise indicated, or the context
otherwise requires, all references in this document to the Company or
Healthaxis include Healthaxis Inc. and all of its subsidiaries.

On January 26, 2001, the stockholders of Healthaxis and Healthaxis.com
approved the merger of Healthaxis.com into a newly formed, wholly owned
subsidiary of Healthaxis. This transaction is referred to herein as the HAXS
Merger.

Earnings Per Share

Basic earnings per share is computed only on the weighted average number
of common shares outstanding during the respective periods, and the dilutive
effect of stock options and warrants is excluded. Diluted earnings per share
is computed to show the dilutive effect, if any, of stock options and warrants
using the treasury stock method based on the average market price of the stock
during the respective periods. The effect of including the stock options,
warrants and shares issuable upon conversion of the Companys convertible
debentures into the

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computation of diluted earnings per share would be anti-dilutive. Accordingly,
these items have not been included in the computation.

Note B  Recently Adopted Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, Business Combinations and No. 142,
Goodwill and Other Intangible Assets. SFAS No. 141 supersedes Accounting
Principles Board Opinion No. 16 Business Combinations and SFAS No. 38
Accounting for Pre-acquisition Contingencies, and eliminates the
pooling-of-interests method of accounting for business combinations except for
qualifying business combinations that were initiated prior to July 1, 2001.
SFAS No. 141 also includes new criteria to recognize intangible assets
separately from goodwill. The requirements of SFAS 141 are effective for any
business combination accounted for by the purchase method that is completed
after June 30, 2001 (i.e., the acquisition date is July 1, 2001 or after).

SFAS No. 142, supersedes APB Opinion No. 17, Intangible Assets, and
states that goodwill and intangible assets with indefinite lives are no longer
amortized but are reviewed for impairment annually, or more frequently if
impairment indicators arise. Separable intangible assets that are not deemed to
have an indefinite life will continue to be amortized over their useful lives.
The discontinuing of amortization provisions under SFAS No. 142 of goodwill and
indefinite lived intangible assets apply to assets acquired after June 30,
2001. In addition, the impairment provisions of SFAS No. 142 apply to assets
acquired prior to July 1, 2001 upon adoption of SFAS No. 142. The Company is
evaluating the impact of SFAS No. 142 and expects to record any impairment
indicated, if any, in the second quarter of 2002 as a cumulative effect of the
accounting change as of January 1, 2002.

In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be disposed of. The primary objectives of SFAS No. 144 is to develop one
accounting model based on the framework established in SFAS No. 121 for
long-lived assets to be disposed of by sale, and to address significant
implementation issues. The provisions of this statement are effective for
fiscal years beginning after December 15, 2001. There has been no significant
impact resulting from the adoption of SFAS No. 144.

Note C  Related Party Transactions

The Company conducts a significant amount of business with a major
shareholder, UICI. The Company is currently economically dependent upon UICI.
Any change in the Companys relationship with UICI could have a material,
adverse effect on the Companys operations. At March 31, 2002, UICI owned
approximately 46% of the Companys outstanding common stock and owns warrants
to purchase 222,396 shares of the Companys common stock at prices ranging from
$3.01 to $12.00 per share. UICI also owns $1,666, face value, of the Companys
convertible debentures that are convertible into 185,185 common shares.

The Company currently provides services to a number of UICI subsidiaries
and affiliates pursuant to written agreements ranging from one to five years,
with annual renewable options thereafter. These services include the use of
certain of its proprietary workflow and business applications, as well as
systems integration and technology management. The most significant of the
agreements is the UICI outsourcing agreement (Technology Outsourcing
Agreement), which is generally a cost plus ten percent contract, with an
initial term of five years commencing January 1, 2000. The agreement is
terminable without cause by UICI, or the Company, at anytime upon not less than
180 days notice to the other party. The agreement contains no minimum or
maximum commitments on behalf of UICI and its affiliates, and UICI and its
affiliates are free to obtain the services provided by Healthaxis from an
unrelated third party during the term of the agreement.

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UICI and its subsidiaries and affiliates constitute, in the aggregate, the
Companys largest customer. For the three months ended March 31, 2002 and 2001,
UICI and its subsidiaries and affiliates accounted for an aggregate of $5,343
(55%) and $7,153 (66%), respectively, of the Companys total revenues.
Approximately $1,288 of this quarterly reduction is due to the sale of UICI
Administrators, Inc. by UICI to American Administrative Group, Inc. (AAG) in
January 2002. AAG is not affiliated with either UICI or Healthaxis. Revenue
received from AAG in 2002 is therefore excluded from the UICI total. As of
March 31, 2002, Healthaxis had accounts receivable due from UICI and its
subsidiaries and affiliates totaling $2,675, which represented 53% of the
Companys total accounts receivable.

Note D  Amortization of Intangibles

Amortization of intangibles is comprised of the following for the three
months ended March 31, 2002 and 2001:

|                                   |  |      |     |      |  |   |       | 
|---------------------------------- |  | ---- | --- | ---- |  | - | ----- | 
|                                   |  | 2002 |     | 2001
|                                   |  |      |     |     
|Amortization of goodwill           |  | $    |    |      |  | $ | 5,365 | 
|Amortization of customer base      |  |      | 547 |      |  |   | 873   | 
|Amortization of developed software |  |      | 72  |      |  |   | 332   | 
|                                   |  |      |     |      |  |   |       | 
|                                   |  | $    | 619 |      |  | $ | 6,570 | 
|                                   |  |      |     |      |  |   |       | 

The allocation of assets following our adoption of SFAS No. 142 is summarized
in the following table:

|                                 |          |                   |                |                |                |                   |   |        |       |              |   |        |       |  |   |       |       | 
|-------------------------------- | -------- | ----------------- | -------------- | -------------- | -------------- | ----------------- | - | ------ | ----- | ------------ | - | ------ | ----- |  | - | ----- | ----- | 
|                                 |          |                   |                | March 31, 2002 |                | December 31, 2001
|                                 |          |                   |                |                |                |                  
|                                 |          |                   | Gross Carrying | Accumulated    | Gross Carrying | Accumulated      
|                                 |          |                   |                | Amount         |                | Amortization      |   | Amount |       | Amortization
|                                 |          |                   |                |                |                |                   |   |        |       |             
|Intangibles no longer amortized: |          |                   |                |                |                |                   |   |        |       |              |   |        |       |  |   |      
|                                 | Goodwill |                   | $              | 24,308         |                |                   | $ |       |       |              | $ | 25,841 |       |  | $ | 1,533 |      
|Amortizable intangibles:         |          |                   |                |                |                |                   |   |        |       |              |   |        |       |  |   |      
|                                 |          | Customer base     |                |                | 9,122          |                   |   |        | 2,926 |              |   |        | 9,122 |  |   |       | 2,379 | 
|                                 |          | Software acquired |                |                | 1,372          |                   |   |        | 846   |              |   |        | 1,372 |  |   |       | 774   | 

The estimated future annual amortization expense for customer base and
developed software is as follows:

|       |  |       |  |   |       |          |       |           |     |   |     | 
|------ |  | ----- |  | - | ----- | -------- | ----- | --------- | --- | - | --- | 
|       |  |       |  |   |       | Customer |       | Developed
|       |  |       |  |   |       | Base     |       | Software 
|       |  |       |  |   |       |          |       |          
|2002 * |  |       |  |   |       | $        | 2,188 |           |     | $ | 288 | 
|2003   |  |       |  |   |       |          | 2,188 |           |     |   | 288 | 
|2004   |  |       |  |   |       |          | 2,188 |           |     |   | 22  | 
|2004   |  |       |  |   |       |          | 179   |           |     |   |    | 
|       |  |       |  |   |       |          |       |           |     |   |     | 
|       |  | Total |  | $ | 6,743 |          |       | $         | 598 |  
|       |  |       |  |   |       |          |       |           |     |   |     | 



---

|* |  | Includes the three months ending March 31, 2002
|- |  | -----------------------------------------------

Following is a presentation of the results of operations, adjusted to exclude
goodwill amortization:

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|                                            |  |                              |        |      |  |   |         |  
|------------------------------------------- |  | ---------------------------- | ------ | ---- |  | - | ------- | -
|                                            |  | Three Months Ended March 31,
|                                            |  |                             
|                                            |  | 2002                         |        | 2001
|                                            |  |                              |        |     
|Reported net loss before extraordinary item |  | $                            | (1,001 | )    |  | $ | (15,531 | )
|Reported net loss                           |  | $                            | (1,001 | )    |  | $ | (13,850 | )
|Add back: amortization of goodwill          |  |                              |       |      |  |   | 5,365   |  
|                                            |  |                              |        |      |  |   |         |  
|Adjusted net loss before extraordinary item |  | $                            | (1,001 | )    |  | $ | (10,166 | )
|                                            |  |                              |        |      |  |   |         |  
|Adjusted net loss                           |  | $                            | (1,001 | )    |  | $ | (8,485  | )
|                                            |  |                              |        |      |  |   |         |  
|Basic and diluted earnings per share:       |  |                              |        |      |  |   |         |  
|Reported net loss before extraordinary item |  | $                            | (0.02  | )    |  | $ | (0.37   | )
|Reported net loss                           |  | $                            | (0.02  | )    |  | $ | (0.33   | )
|Add back: amortization of goodwill          |  |                              |       |      |  |   | 0.13    |  
|                                            |  |                              |        |      |  |   |         |  
|Adjusted net loss before extraordinary item |  | $                            | (0.02  | )    |  | $ | (0.24   | )
|                                            |  |                              |        |      |  |   |         |  
|Adjusted net loss                           |  | $                            | (0.02  | )    |  | $ | (0.20   | )
|                                            |  |                              |        |      |  |   |         |  

Note E  Segment Reporting

In May of 2001, the Company implemented a restructuring plan which, among other
things, created four separate business units, each with accountability for
operations beginning July 1, 2001. Each business unit is deemed to be a
reporting segment. Assets are not allocated to business units for internal
reporting purposes and are therefore not included in the segment information
below.

The Companys operating segments are:



| |  |  | Outsourcing Group  provides system technology support services on an
outsourcing basis to the Companys largest client, UICI.                                                                                                                                                                                                                                                           
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Web Technology Group  provides web-enabled connectivity platforms
and solutions for self service (broker, employer, employee and
providers), large group enrollment and small group enrollment,
sale/distribution and post-sale administration of group and individual
insurance policies including health, life and dental insurance, and
solutions for enabling compliance with HIPAA.
|
| |  |  | Benefit Administrator Solutions Group (formerly Application Solutions
Group)  provides web-enabled systems for enrollment, administration and
processing of health insurance claims on an ASP basis.                                                                                                                                                                                    
|
| |  |  | Imaging Services Group  provides electronic data capture, imaging,
storage and retrieval of health insurance claims, attachments and other
correspondence.                                                                                                                                                                                                                              

Each business segment generally sells its products and services to the
same constituent users, generally located in the United States, namely
healthcare payers, which include insurance companies, third party
administrators, brokers / intermediaries, Blue Cross/Blue Shield plans and
self-insured employers.

All revenue is specifically associated with a separate business unit and,
therefore, there are no reconciling items. Portions of revenue generated from
UICI and its subsidiaries that are earned under contracts or agreements other
than the Technology Outsourcing Agreement are included in the appropriate
business unit. Earnings before

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income tax, depreciation and amortization (EBITDA) is the primary
measurement used by management to make decisions regarding the segments.
EBITDA, as defined by the Company, also excludes restructuring, severance and
non-cash stock based compensation charges (EBITDA As Defined). Corporate
overhead includes executive management, accounting, legal and human resources,
and other expenses. Operating income does not include any cost allocations for
corporate overhead except in the case of the Outsourcing Group. Corporate
overhead costs are generally fixed and therefore do not necessarily fluctuate
with either an increase or decease in outsourcing revenue.

|                                  |  |             |       |            |  |           |        |               |  |          |       |           |  |              |       |   |  |   |         |   |  |   |         |  
|--------------------------------- |  | ----------- | ----- | ---------- |  | --------- | ------ | ------------- |  | -------- | ----- | --------- |  | ------------ | ----- | - |  | - | ------- | - |  | - | ------- | -
|                                  |  |             |       |            |  |           |        |               |  | Benefit  |       |           |  |              |       |   |  |   |         |   |  |  
|                                  |  |             |       |            |  | Web       |        | Administrator |  | Imaging  |       | Corporate |  | Consolidated
|                                  |  | Outsourcing |       | Technology |  | Solutions |        | Services      |  | Overhead |       | Total    
|                                  |  |             |       |            |  |           |        |               |  |          |       |          
|Three Months Ended March 31, 2002 |  |             |       |            |  |           |        |               |  |          |       |           |  |              |       |   |  |   |         |   |  |   |         |  
|Revenue                           |  | $           | 4,500 |            |  | $         | 1,087  |               |  | $        | 3,167 |           |  | $            | 1,038 |   |  | $ |        |   |  | $ | 9,792   |  
|EBITDA As Defined                 |  |             | 841   |            |  |           | (463   | )             |  |          | 769   |           |  |              | (303  | ) |  |   | (1,634  | ) |  |   | (790    | )
|Depreciation and amortization     |  |             |      |            |  |           | 277    |               |  |          | 183   |           |  |              | 205   |   |  |   | 678     |   |  |   | 1,343   |  
|Operating income (loss)           |  |             | 408   |            |  |           | (741   | )             |  |          | 586   |           |  |              | (508  | ) |  |   | (682    | ) |  |   | (937    | )
|                                 
|Three Months Ended March 31, 2001 |  |             |       |            |  |           |        |               |  |          |       |           |  |              |       |   |  |   |         |   |  |   |         |  
|Revenue                           |  | $           | 5,249 |            |  | $         | 1,238  |               |  | $        | 3,021 |           |  | $            | 1,329 |   |  | $ |        |   |  | $ | 10,837  |  
|EBITDA As Defined                 |  |             | 1,032 |            |  |           | (1,815 | )             |  |          | 58    |           |  |              | (106  | ) |  |   | (2,024  | ) |  |   | (2,855  | )
|Depreciation and amortization     |  |             | 133   |            |  |           | 295    |               |  |          | 422   |           |  |              | 189   |   |  |   | 6,681   |   |  |   | 7,720   |  
|Operating income (loss)           |  |             | 454   |            |  |           | (2,182 | )             |  |          | (407  | )         |  |              | (315  | ) |  |   | (16,226 | ) |  |   | (18,676 |  

The Outsourcing Group revenues are generated from UICI under the
Technology Outsourcing Agreement. The contract term is 5 years commencing
January 2000 and, generally the services provided under the agreement must be
billed at Healthaxis cost plus ten percent. See Note C above.

The Companys core products are sold through the Benefit Administrator
Solutions Group and the Web Technology Group, and most of the Companys
research and development efforts are concentrated in these areas. The Benefit
Administrator Solutions Group is a mature business with over 20 years history
and client base. The Web Technology Group is a relatively new business, built
to take advantage of the Companys internet expertise and the healthcare
industrys movement to web-enabled legacy systems. The Imaging Services Group
serves as an entry point for new clients, through cost savings, and introduces
cross-selling opportunities for other Company products.

Note F  Employee Termination Agreement

On August 15, 2000, Alvin H. Clemens, the Companys then Chairman, and
Healthaxis entered into an agreement terminating Mr. Clemens employment
contract. The termination agreement became effective upon the consummation of
the HAXS Merger in January 2001. Under the terms of the termination agreement,
Mr. Clemens was to receive aggregate payments totaling $2,125 paid in quarterly
installments over five years beginning in the first quarter of 2001. The
Company, at its option, could make the quarterly payments in shares of
Healthaxis common stock not to exceed a total of 500,000 shares.

On March 6, 2002, the Company and Mr. Clemens entered into an agreement
pursuant to which Mr. Clemens agreed to accept 358,332 shares of the Companys
common stock in full payment and satisfaction of the remainder of the severance
obligation. The Company recorded a gain in the first quarter of 2002 totaling
$1,345 related to the settlement of this liability, which was based upon the
difference between the carrying amount of the liability and the fair value of
the common stock issued to Mr. Clemens.

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

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 BusinessRisk Factors in the Companys Form 10-K for the year
ended December 31, 2001. 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 is an emerging technology services firm committed to providing
innovative and configurable web-based connectivity and applications solutions
for health benefit distribution and administration. These solutions, which are
comprised of software products and related services, are designed to assist
health insurance payers, third party administrators, intermediaries and
employers provide enhanced services to members, employees and providers through
the application of Healthaxis flexible technology to legacy systems, either on
a fully integrated or on an Application Service Provider (ASP) basis.
Healthaxis believes that its solutions enable a client to reduce their
administrative costs and improve profitability.

Management of Healthaxis, as well as the composition of our Board of
Directors, was significantly changed during 2001. James W. McLane became the
President and Chief Executive Officer in February 2001 (and Chairman of the
Board of Directors in July 2001) and John M. Carradine followed as Chief
Financial Officer in March 2001. In the months following, several goals were
accomplished to set the stage for 2002 and re-position the Company for future
growth:



| |  |  | The Companys financial position was improved                             
| | - |  | --------------------------------------------------------------------------
|
| |  |  | Operating expenses were reduced                                           
|
| |  |  | The Company was restructured into four strategic business units           
|
| |  |  | A cohesive market based strategy was developed                            
|
| |  |  | The sales force was reorganized                                           
|
| |  |  | The sales pipeline grew significantly                                     
|
| |  |  | Several meaningful clients were added                                     
|
| |  |  | Strategic partnerships were created with several complementary enterprises
|
| |  |  | The Board of Directors was strengthened                                   
|
| |  |  | A values-based culture was instilled in the Company                       

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| |  |  | To deliver what we promise                          
| | - |  | ----------------------------------------------------
|
| |  |  | To take ownership and accountability for our results
|
| |  |  | To do the right thing  all the time                
|
| |  |  | To understand that relationships determine results  
|
| |  |  | To team and run to win                              

Revenue Model:Healthaxis derives revenue from a number of sources. Set
forth below is a description of our revenues generated by each of our strategic
business units.

Benefit Administrator Solutions Group (formerly, the Application Solutions
Group) revenue is either transaction based or derived from providing
professional services. The transaction revenue is a combination of a
per-employee-per-month (PEPM) fee for the use of our proprietary applications
and a per document fee for the printing and mailing of system output (benefit
checks, EOBs and letters). The transaction revenue is based on an ASP model,
where we host the hardware and software and perform some print and mail
services on behalf of clients. Professional services revenue is generated from
direct billing for our staff time. These billings are generally derived from
converting a clients existing system, client training and tailoring custom
solutions for a client. Professional services generally are billed on a flat
rate per hour. In some cases, a project may be done for a fixed price. For
fixed price projects, revenue is recognized on the percentage completion basis.
Depending upon the nature and expected profitability of certain projects,
professional service fees and associated costs may be deferred and recognized
over the life of the transaction-based contract.

Web Technology Group revenue is derived from licensing of our proprietary
software products and providing professional services. The licensing revenue
is a combination of per-member-per-month (PMPM) fees and fixed price license
fees. The fixed price license fees historically have been recognized over a
period of time, due to contract terms (such as a right of return). In the
future, we may enter into one-time license fee agreements, which fees would be
recognized upon the delivery of the product. Professional service revenue is
generated from direct billing for our staff time. These billings generally are
associated with implementation and integration of our software product into our
clients legacy system. Professional services may be billed on a flat rate per
hour, or a project may be undertaken for a fixed price. Revenue on fixed price
projects is recognized on the percentage completion basis.

Imaging Group Revenue is transaction based. Fees for mail handling,
scanning and converting insurance claims from paper to electronic format, and
image storage and retrieval are priced on a per-document or a per-image basis.
Such revenue is recognized in the month the services are performed. Contracts
generally include an up-front payment intended to recoup the start-up costs
incurred in setting up a new client. Such fees, along with the associated
costs, are generally deferred and recognized over the life of the
transaction-based contract.

Outsourcing Group revenue is derived from system integration and
consulting work for the Companys single largest client, UICI, pursuant to the
Technology Outsourcing Agreement on a cost plus 10% basis. We have a dedicated
staff of employees located at various UICI sites who service this account.
Monthly billings are prepared based upon a multiple of staff salary projected
to cover our costs (including certain overhead costs) plus an additional 10%.
At the end of each quarter, Healthaxis and UICI review and agree upon the final
costs incurred for the quarter and adjust the billings to that required to
yield the cost plus 10% arrangement. Outsourcing Group revenue is recognized
in the month the services are performed.

Restructuring Plan:In May 2001, the Company implemented a restructuring
plan as further described in Note 6 to the Consolidated Financial Statements in
Form 10-K for 2001. In connection with its restructuring and reorganization,
the Company accrued or recorded restructuring charges of $279.6 million in the
second quarter of 2001. Those costs are generally related to impairment of
long-lived assets and goodwill, and severance costs for terminated employees.

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In total, counting the reduction-in-force and other expense reductions,
the initiative was designed to save in excess of $11.0 million annually. Based
upon the results of subsequent quarters, management achieved the anticipated
level of savings. The Company was successful in lowering headcount, eliminating
the development and marketing of certain products, lowering operating costs and
moving its headquarters from Pennsylvania to Texas.

UICI Relationship:The Company conducts a significant amount of business
with its major shareholder, UICI. The Company is currently economically
dependent upon UICI. Any change in the Companys relationship with UICI could
have a material, adverse effect on the Companys operations. At March 31,
2002, UICI owned approximately 46% of the Companys outstanding common stock
and owns warrants to purchase 222,396 shares of the Companys common stock at
prices ranging from $3.01 to $12.00 per share. UICI also owns $1.7 million,
face value, of the Companys convertible debentures that are convertible into
185,185 common shares. As of March 31, 2002, Healthaxis had accounts
receivable due from UICI and its subsidiaries and affiliates totaling $2.7
million, which represented 53% of the Companys total accounts receivable.

The Company currently provides services to a number of UICI subsidiaries
and affiliates pursuant to written agreements ranging from one to five years,
with annual renewable options thereafter. These services include the use of
certain of its proprietary workflow and business applications, as well as
systems integration and technology management. The most significant of the
agreements is the UICI Technology Outsourcing Agreement, which is generally a
cost plus ten percent contract, with an initial term of five years commencing
January 1, 2000. The agreement is terminable without cause by UICI, or the
Company, at anytime upon not less than 180 days notice to the other party. The
agreement contains no minimum or maximum commitments on behalf of UICI and its
affiliates, and UICI and its affiliates are free to obtain the services
provided by Healthaxis from an unrelated third party during the term of the
agreement.

UICI and its subsidiaries and affiliates constitute, in the aggregate, the
Companys largest customer. For the three months ended March 31, 2002 and 2001,
UICI and its subsidiaries and affiliates accounted for an aggregate of $5.3
million (55%) and $7.2 million (66%) of the Companys total revenues,
respectfully. Approximately $1.3 million of the reduction in quarterly revenue
from UICI was due to the sale by UICI of UICI Administrators, Inc. to American
Administrative Group, Inc., as further discussed in Recent Developments below.
The remaining reduction is related to reduced revenues under the Technology
Outsourcing Agreement. UICI has advised Healthaxis that it intends to seek to
further reduce its dependence on Healthaxis for services under the Technology
Outsourcing Agreement due to UICIs strategic objective of regaining control of
and managing its own information technology staff. UICI has also indicated
that it expects that its payments to Healthaxis under the Agreement in 2002
will be less than its payments in 2001, and will likely decline each year
thereafter through the expiration of the agreement in 2005, at which time UICI
has indicated that it does not intend to renew the agreement

Recent Developments

UICI Administrators, Inc.Healthaxis provides certain data capture and
business applications to UICI Administrators, Inc., a UICI subsidiary that
provides third party administrative services, pursuant to a written service
license agreement. Services under this agreement are provided by the Benefit
Administrator Solutions Group and the Imaging Services Group. The agreement
with UICI Administrators was for a three-year term that expired in December
2001.

In January 2002, UICI sold UICI Administrators, Inc. to American
Administrative Group, Inc. (AAG), a party unrelated to either UICI or
Healthaxis. Healthaxis and AAG are currently operating under a temporary
arrangement whereby services continue to be provided under the same terms as
the expired agreement with UICI Administrators, Inc. Healthaxis and AAG are
negotiating a definitive agreement, which is expected to be completed by June
30, 2002. However, there can be no assurances that such an agreement will be
reached.

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For the three months ended March 31, 2002 AAG, through its subsidiary UICI
Administrators, accounted for $1.1 million (11%) of Healthaxis total revenues.
For the three months ended March 31, 2001 UICI Administrators accounted for
$1.3 million (12%) of Healthaxis total revenues. The amounts paid by UICI
Administrators are included in the UICI and subsidiaries numbers above only in
2001.

NASDAQ Listing:On April 12, 2002 Healthaxis received notification from the
Nasdaq Stock Market that, for a period of 30 consecutive trading days,
Healthaxis common stock has closed below the minimum $1.00 per share price
that is required for continued inclusion on the Nasdaq National Market.

Under the notification, Healthaxis has 90 calendar days, or until July 11,
2002, to regain compliance. If, at anytime before July 11, 2002, the bid price
of the Companys common stock closes at $1.00 per share or more for a minimum
of 10 consecutive trading days, Nasdaq staff may provide written notification
that the Company complies with the rules. However, if the Company does not
meet the criterion by July 11, 2002, it may either appeal the application of
the Nasdaq rules or apply for a transfer of its stock to the Nasdaq SmallCap
Market. The Company believes that if it were to apply to transfer its stock to
the Nasdaq SmallCap Market, its application would be approved. However, there
can be no assurance of Nasdaqs approval of this application.

Results of Operations

The Company focuses its cost containment initiatives on operating cash
expenses. Operating depreciation / amortization, stock based compensation and
amortization of intangible assets are all non-cash expenses.

Operating depreciation / amortization is the systematic charge to expense
for tangible fixed assets used in the operation of the business. Stock based
compensation is the result of stock options that were granted at an exercise
price below the market price of the Companys common stock in 2000 and are
charged to expense as vested, options that were repriced in 2000 and are
accounted for as variable options with a mark-to-market expense charge to the
extent the Companys stock price exceeds $2.49, and charges from the vesting of
an Insurdata option plan that was assumed as part of the Companys merger with
Insurdata Incorporated (the Insurdata Merger). Amortization of intangibles
is the systematic expensing of customer base, developed software and, in 2001,
goodwill. The following tables are presented in such a manner that these
significant non-cash expenses are distinguishable from cash expenses.

Three months ended March 31, 2002 compared to three months ended March 31, 2001

|         |                             |                          |   |                                                  |       |               |   |              |     |       |   |         |     |      |       |       |        |  |     |    |     |  
|-------- | --------------------------- | ------------------------ | - | ------------------------------------------------ | ----- | ------------- | - | ------------ | --- | ----- | - | ------- | --- | ---- | ----- | ----- | ------ |  | --- | -- | --- | -
|         |                             |                          |   | Three Months Ended March 31, 2002 (in thousands)
|         |                             |                          |   |                                                 
|         |                             |                          |   |                                                  |       |               |   | Operating    |     | Stock |   |         |     |      |       |       |        | 
|         |                             |                          |   | Operating                                        |       | Depreciation/ |   | Based        |     |       |   |         |     | % of
|         |                             |                          |   | Costs                                            |       | Amortization  |   | Compensation |     | Total |   | Revenue
|         |                             |                          |   |                                                  |       |               |   |              |     |       |   |        
|Revenues |                             |                          |   |                                                  |       |               |   |              |     |       |   |         |     | $    | 9,792 |       |        |  | 100 | % 
|         |                             |                          |   |                                                  |       |               |   |              |     |       |   |         |     |      |       |       |        |  |     |   
|Expenses
|         | Cost of revenues            |                          | $ | 8,587                                            |       |               | $ | 681          |     |       | $ | 80      |     |      | $     | 9,348 |        |  |     | 95 | %  
|         | Sales and marketing         |                          |   | 320                                              |       |               |   | 11           |     |       |   | 35      |     |      |       | 366   |        |  |     | 4  | %  
|         | General and administrative  |                          |   | 205                                              |       |               |   | 32           |     |       |   | 42      |     |      |       | 279   |        |  |     | 3  | %  
|         | Research and development    |                          |   | 125                                              |       |               |   |             |     |       |   | (8      | )   |      |       | 117   |        |  |     | 1  | %  
|         |                             |                          |   |                                                  |       |               |   |              |     |       |   |         |     |      |       |       |        |  |     |   
|         |                             | Subtotal                 |   | $                                                | 9,237 |               |   | $            | 724 |       |   | $       | 149 |      |       |       | 10,110 |  |     |    | 103 | %
|         |                             |                          |   |                                                  |       |               |   |              |     |       |   |         |     |      |       |       |        |  |     |   
|         | Amortization of intangibles |                          |   |                                                  |       |               |   |              |     |       |   |         |     |      |       | 619   |        |  |     | 6  | %  
|         |                             |                          |   |                                                  |       |               |   |              |     |       |   |         |     |      |       |       |        |  |     |   
|         |                             | Total operating expenses |   |                                                  |       |               |   |              |     |       |   |         |     |      |       | $     | 10,729 |  |     |    | 110 | %
|         |                             |                          |   |                                                  |       |               |   |              |     |       |   |         |     |      |       |       |        |  |     |   

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|         |                             |                          |   |                                                  |        |              |   |              |       |       |   |         |       |      |        |        |        |  |     |     |     |  
|-------- | --------------------------- | ------------------------ | - | ------------------------------------------------ | ------ | ------------ | - | ------------ | ----- | ----- | - | ------- | ----- | ---- | ------ | ------ | ------ |  | --- | --- | --- | -
|         |                             |                          |   | Three Months Ended March 31, 2001 (in thousands)
|         |                             |                          |   |                                                 
|         |                             |                          |   |                                                  |        |              |   | Operating    |       | Stock |   |         |       |      |        |        |        | 
|         |                             |                          |   | Operating                                        |        | Deprecation/ |   | Based        |       |       |   |         |       | % of
|         |                             |                          |   | Costs                                            |        | Amortization |   | Compensation |       | Total |   | Revenue
|         |                             |                          |   |                                                  |        |              |   |              |       |       |   |        
|Revenues |                             |                          |   |                                                  |        |              |   |              |       |       |   |         |       | $    | 10,837 |        |        |  | 100 | %  
|         |                             |                          |   |                                                  |        |              |   |              |       |       |   |         |       |      |        |        |        |  |     |    
|Expenses
|         | Cost of revenues            |                          | $ | 10,512                                           |        |              | $ | 1,036        |       |       | $ | 441     |       |      | $      | 11,989 |        |  |     | 111 | %  
|         | Sales and marketing         |                          |   | 884                                              |        |              |   | 9            |       |       |   | 994     |       |      |        | 1,887  |        |  |     | 17  | %  
|         | General and administrative  |                          |   | 4,149                                            |        |              |   | 71           |       |       |   | 4,285   |       |      |        | 8,505  |        |  |     | 78  | %  
|         | Research and development    |                          |   | 518                                              |        |              |   | 34           |       |       |   | 10      |       |      |        | 562    |        |  |     | 5   | %  
|         |                             |                          |   |                                                  |        |              |   |              |       |       |   |         |       |      |        |        |        |  |     |    
|         |                             | Subtotal                 |   | $                                                | 16,063 |              |   | $            | 1,150 |       |   | $       | 5,730 |      |        |        | 22,943 |  |     |     | 212 | %
|         |                             |                          |   |                                                  |        |              |   |              |       |       |   |         |       |      |        |        |        |  |     |    
|         | Amortization of intangibles |                          |   |                                                  |        |              |   |              |       |       |   |         |       |      |        | 6,570  |        |  |     | 61  | %  
|         |                             |                          |   |                                                  |        |              |   |              |       |       |   |         |       |      |        |        |        |  |     |    
|         |                             | Total operating expenses |   |                                                  |        |              |   |              |       |       |   |         |       |      |        | $      | 29,513 |  |     |     | 272 | %
|         |                             |                          |   |                                                  |        |              |   |              |       |       |   |         |       |      |        |        |        |  |     |    

Revenuesdecreased 10% from $10.8 million for the three-months ended March
31, 2001 to $9.8 million for the same period in 2002. The decrease was
primarily the result of reductions in the amounts received from UICI in the
Outsourcing Group and Digital Insurance in the Web Technology Group, and the
loss of a data capture client from the Imaging Services Group.

Cost of revenuesincludes 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. These costs decreased 22% from
$12.0 million for the three months ended March 31, 2001 to $9.3 million for the
same period in 2002. Cost of revenue as a percentage of revenue declined from
111% in 2001 to 95% in 2002. A reduction of amortization, depreciation and
stock based compensation accounted for $716,000 of the decrease. The remainder
was due primarily to a reduced labor force and expense savings pursuant to the
restructuring plan implemented in May 2001 as described above.

Sales and marketing expensesconsist primarily of employee salaries and
related benefits, as well as promotional costs such as direct mailing
campaigns, trade shows and media advertising. These expenses decreased from
$1.9 million for the three-months ended March 31, 2001 to $366,000 for the same
period in 2002. Approximately $1.0 million of the decrease was due to a
reduction of amortization, depreciation and stock based compensation. As a
part of the restructuring plan implemented in May 2001, the sales staff was
reduced and transferred to the operating divisions, which resulted in the
additional savings.

General and administrative expensesinclude executive management,
accounting, legal and human resources compensation and related benefits, as
well as expenditures for applicable overhead costs. These expenses were
approximately $8.5 million for the three months ended March 31, 2001 compared
to $279,000 for the same period in 2002. Stock based compensation of
approximately $4.3 million was included in the 2001 period as compared to
$42,000 in the 2002 period due primarily to the re-measurement of options
exchanged in the HAXS merger. Severance expenses totaling $2.4 million are
included in the 2001 period, as compared to a credit of $1.3 million in 2002,
primarily related to Mr. Clemens severance agreement and settlement as
described in Note F to the Companys Condensed Consolidated Financial
Statements. After adjustment for these items, expenses have decreased
approximately $267,000 as result of the gradual reduction of management and
corporate staff subsequent to the HAXS Merger in January 2001, and the
restructuring plan implemented in May 2001.

Research and development expensesare primarily the salary and related
benefits of personnel engaged directly in the development of new products and
the enhancement of existing products, prior to the establishment of
technological feasibility. These expenses decreased from $562,000 for the
three-months ended March 31, 2001 to $117,000 for the same period in 2002. The
decrease was due to a reduction of Advanced Technology Division staff, and the
redeployment of staff from this division to operating divisions in order to
focus on near term revenue opportunities.

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Amortization of intangiblesExpenses related to the amortization of
intangible assets include the amortization of developed software, customer base
and goodwill. These expenses decreased from $6.6 million for the three-months
ended March 31, 2001 to $619,000 for the same period in 2002. Predominantly
all of the decrease was due to the fact that goodwill is no longer being
amortized, effective January 1, 2002, in accordance with new accounting
guidelines as described in the Recent Accounting Pronouncements section below.

Interest and other income, netdecreased from $432,000 in the three-months
ended March 31, 2001 to $115,000 in the same period in 2002. The decrease was
primarily due to lower cash balances and a reduction of notes receivable on
which interest was earned.

Interest expensedecreased from $367,000 in the three-months ended March
31, 2001 to $179,000 in the same period in 2002. The decrease is due primarily
to the reduction in amortization of the discount on the convertible debentures,
which was revalued on January 26, 2001 in connection with the restructuring of
this debt.

Minority interest in loss of subsidiarywas $3.1 million for the
three-months ended March 31, 2001 compared to none for the same period in 2002.
The minority interest was recorded for approximately one month (until the HAXS
Merger) in 2001. Subsequent to the HAXS Merger, the Company owned 100% of the
Healthaxis.com subsidiary and, therefore, no subsequent minority interest was
recorded.

Convertible debt restructuringof $1.7 million was recorded as an
extraordinary gain in the three- months ended March 31, 2001 as the result of
restructuring the convertible debentures in January 2001. There was no such
gain in the comparable period in 2002.

Liquidity and Capital Resources

General.A major objective of Healthaxis is to maintain sufficient
liquidity to fund growth and meet all cash requirements with cash and
short-term equivalents on hand plus funds generated from operating cash flow.
Our cash balances since January 2001 were as follows:

|                                  
|----------------------------------
|January 1, 2001   $17.2 million  
|March 31, 2001   $12.0 million   
|June 30, 2001   $12.2 million    
|September 30, 2001 - $12.3 million
|December 31, 2001   $13.2 million
|March 31, 2002   $12.6 million   

In the second quarter of 2001, Healthaxis received a $2.0 million lump sum
payment from Digital Insurance. In the fourth quarter of 2001, Healthaxis sold
its building in Pennsylvania for a net cash amount of $2.6 million with an
additional $180,000 due upon final tax filings. Along with these events, the
significant improvement in cash flow from the 2001 first quarter is the result
of cost containment measures put in place following the HAXS Merger in January
2001, and further savings recognized through the restructuring plan implemented
in May 2001.

The Company expects that current cash reserves and the cash generating
from future operations will be sufficient to fund our operations for the
foreseeable future. Funding operations on a longer-term basis will depend upon
the Companys ability to continue controlling costs and to generate new
revenues. There can be no assurances that the Company will be successful in
achieving these goals. If external funds are necessary to support the
Companys business operations, there can be no assurance that under
then-current conditions such funds would be available or, if available, would
not dilute shareholders interests or returns.

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Cash used in operating activitiesfor the three months ended March 31,
2002 was $222,000 as compared to $3.4 million for the same period in 2001. The
reduced cash expenditure was primarily the result of the cost containment
measures put into place following the HAXS Merger in January 2001 and savings
resulting from the restructuring plan implemented in May 2001.

Cash used in investing activitiesfor the three months ended March 31,
2002 was $338,000 as compared to $1.7 million for the comparable period in
2001. The reduced cash expenditure was primarily the result of a reduction in
the purchase of fixed assets and lowering our expenditures on capitalized
software and contract start up.

Cash used from financing activitiesfor the three months ended March 31,
2002 was $8,000 as compared to $93,000 for the comparable period in 2001 as a
result of lower payments on capital leases.

Obligations:In 1999, the Company issued 2% convertible debentures in the
amount of $27.5 million. These debentures, as amended, are due on September
14, 2005 and may be converted into common stock at a conversion price of $9.00
per share at the option of the holder. Interest is paid semi-annually on
January 1 and July 1 of each year and, at the Companys option, may be paid in
cash or in stock.

The Company also has certain capital and operating lease commitments over
the next five years. These leases are primarily for office space and data
processing equipment. We have no other significant cash commitments other than
the day to day operations of the business.

Recently Adopted Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, Business Combinations and No. 142,
Goodwill and Other Intangible Assets. SFAS No. 141 supersedes Accounting
Principles Board Opinion No. 16 Business Combinations and SFAS No. 38
Accounting for Pre-acquisition Contingencies, and eliminates the
pooling-of-interests method of accounting for business combinations except for
qualifying business combinations that were initiated prior to July 1, 2001.
SFAS No. 141 also includes new criteria to recognize intangible assets
separately from goodwill. The requirements of SFAS 141 are effective for any
business combination accounted for by the purchase method that is completed
after June 30, 2001 (i.e., the acquisition date is July 1, 2001 or after).

SFAS No. 142, supersedes APB Opinion No. 17, Intangible Assets, and
states that goodwill and intangible assets with indefinite lives are no longer
amortized but are reviewed for impairment annually, or more frequently if
impairment indicators arise. Separable intangible assets that are not deemed to
have an indefinite life will continue to be amortized over their useful lives.
The discontinuing of amortization provisions under SFAS No. 142 of goodwill and
indefinite lived intangible assets apply to assets acquired after June 30,
2001. In addition, the impairment provisions of SFAS No. 142 apply to assets
acquired prior to July 1, 2001 upon adoption of SFAS No. 142. The Company is
evaluating the impact of SFAS No. 142 and expects to record any impairment
indicated, if any, in the second quarter of 2002 as a cumulative effect of the
accounting change as of January 1, 2002.

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which supersedes SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
disposed of. The primary objectives of SFAS No. 144 is to develop one
accounting model based on the framework established in SFAS No. 121 for
long-lived assets to be disposed of by sale, and to address significant
implementation issues. The provisions of this statement are effective for
fiscal years beginning after December 15, 2001. There has been no significant
impact resulting from the adoption of SFAS No. 144.

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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, it believes that there is no material
risk exposure.

The Companys 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. Healthaxis does not expect its interest income to be
significantly affected by a sudden change in market interest rates.

The convertible debentures outstanding at March 31, 2002 are fixed rate
obligations and would not be exposed to the impact of interest rate
fluctuations. To the extent that the Company seeks to refinance these
instruments, the prevailing market interest rates on replacement debt could
exceed rates currently paid thereby increasing interest expense and increasing
net loss.

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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 2. Changes in 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.

Not Applicable




Item 6. Exhibits and Reports on Form 8-K.

|    |  |                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Exhibits:                                                                                                                                                                                                                           
|   
|    |  | (10.1)                                                                                                                                                                                                                               | Change in Control Employment Agreement between John D. Smith and Registrant dated as of April 1, 2002 filed
herewith.                                                                                                                        
|    |  | (10.2)                                                                                                                                                                                                                               | Third Amendment to Agreement between Healthaxis Imaging
Services LLC and The MEGA Life and Health Insurance
Company and Mid-West National Life Insurance Company of
Tennessee (both subsidiaries of UICI) dated March 5, 2002
filed herewith.
|   
|(b) |  | Reports on Form 8-K:                                                                                                                                                                                                                
|   
|    |  | The Company filed a Current Report on Form 8-K on February 7,
2002 in which it disclosed, under Item 9, a presentation made
by Messrs. McLane and Carradine, on that date, at the UBS
Warburg Global Healthcare Services Conference.

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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: May 14, 2002 |  | By:    /s/ James W. McLaneJames W. McLane, President and Chief Executive Officer                           
|                  
|Date: May 14, 2002 |  | By:   /s/ John CarradineJohn Carradine, Chief Financial Officer
(Principal Financial Officer) and Treasurer

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EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                              
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                                                                                                                              
|NUMBER  |  | DESCRIPTION                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                              
|(10.1)  |  | Change in Control Employment Agreement between John D. Smith and
Registrant dated as of April 1, 2002 filed herewith.                                                                                                                        
|(10.2)  |  | Third Amendment to Agreement between Healthaxis Imaging Services LLC and
The MEGA Life and Health Insurance Company and Mid-West National Life Insurance
Company of Tennessee (both subsidiaries of UICI) dated March 5, 2002 filed
herewith.

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