**United States**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe quarterly period ended. . . . . . . . . . .**March 31, 2007

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

**For the transition period from. . . . . . . . . ... to. . . . . . . . . . .**

**Commissionfile number. . . . . . . . . . .0-13591**

**HEALTHAXIS INC.**

(Exact name of registrantas specified in its charter)

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

 

**7301 N. State Highway161, Suite 300, Irving, Texas 75039**

(Address of principal executive offices)(Zip Code)

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

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

Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  x Yes o No

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

| Large accelerated filer o |   | Accelerated  filer o |   | Non-accelerated  filer x |
|---------------------------|--------|----------------------|--------|--------------------------|

 

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

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date: 8,617,711 shares of common stock, parvalue $.10, outstanding as of May 4, 2007.

 

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**HealthaxisInc.**

**Table ofContents**
|                                    | ** ** | ** **                                                                                  | ** ** | **Page** |
|------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|----------|
| PART  I Financial Information |       |                                                                                        |
| Item 1.                            |       | Financial  Statements                                                                       |       | 3        |
|                               |       | Consolidated Balance Sheets                                                                 |       | 3        |
|                               |       | Consolidated Statements of Operations                                                       |       | 4        |
|                               |       | Consolidated Statements of Cash Flows                                                       |       | 5        |
|                               |       | Notes to Consolidated Financial Statements                                                  |       | 6        |
| Item 2.                            |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |       | 9        |
| Item 3.                            |       | Quantitative  and Qualitative Disclosures About Market Risk                                 |       | 12       |
| Item 4.                            |       | Controls and  Procedures                                                                    |       | 12       |
| PART  II Other Information    |       |                                                                                        |
| Items 1-5                          |       | 13                                                                                          |
| Item 6                             |       | 14                                                                                          |
| Signatures                         |       | 15                                                                                          |
| Exhibit  Index                     |       | 16                                                                                          |

 

2

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# **PART I. FINANCIAL INFORMATION**

**Item 1.  Consolidated Financial Statements**

**HealthaxisInc. and SubsidiariesConsolidated Balance Sheets**

(In thousands except share and per share data)(Unaudited)
| ** **                                                                                                                           | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                           | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| **Assets**                                                                                                                           |       |               |       |                  |       |
| Current assets:                                                                                                                      |       |               |       |                  |       |
| Cash and cash  equivalents                                                                                                           |       | $                  | 3,095      |                  | $          | 3,362 |   |
| Accounts and  note receivable, net of allowance for doubtful accounts of $9 and 7,  respectively                                     |       | 2,869              |       | 2,943                 |       |
| Prepaid expenses                                                                                                                     |       | 605                |       | 544                   |       |
| Total current  assets                                                                                                                |       | 6,569              |       | 6,849                 |       |
| Property, equipment and  software, less accumulated depreciation and amortization of $6,718 and  $6,554, respectively                |       | 1,435              |       | 1,550                 |       |
| Contract start-up  costs, less accumulated amortization of $2,131 and $2,026, respectively                                           |       | 1,498              |       | 1,340                 |       |
| Goodwill                                                                                                                             |       | 11,276             |       | 11,276                |       |
| Other assets                                                                                                                         |       | 236                |       | 303                   |       |
| Total assets                                                                                                                         |       | $                  | 21,014     |                  | $          | 21,318 |   |
| **Liabilities and Stockholders’  Equity**                                                                                       |       |               |       |                  |       |
| Current liabilities:                                                                                                                 |       |               |       |                  |       |
| Accounts payable                                                                                                                     |       | $                  | 1,462      |                  | $          | 1,498 |   |
| Accounts payable  to related parties                                                                                                 |       | 182                |       | 89                    |       |
| Accrued  liabilities                                                                                                                 |       | 440                |       | 509                   |       |
| Deferred  revenues                                                                                                                   |       | 1,559              |       | 1,612                 |       |
| Notes payable,  current portion                                                                                                      |       | 660                |       | 750                   |       |
| Working capital  and equipment lines of credit, current portion                                                                      |       | 103                |       | 655                   |       |
| Current portion,  post retirement and employment liabilities                                                                         |       | 124                |       | 124                   |       |
| Current portion,  capital lease obligations                                                                                          |       | —             |       | 57                    |       |
| Total current  liabilities                                                                                                           |       | 4,530              |       | 5,294                 |       |
| Note payable                                                                                                                         |       | —             |       | 93                    |       |
| Post retirement and  employment liabilities                                                                                          |       | 754                |       | 768                   |       |
| Working capital and  equipment lines of credit                                                                                       |       | 912                |       | 361                   |       |
| Deferred rent                                                                                                                        |       | 345                |       | 306                   |       |
| Other liabilities                                                                                                                    |       | 174                |       | 174                   |       |
| Total  liabilities                                                                                                                   |       | 6,715              |       | 6,996                 |       |
| Commitments and  contingencies                                                                                                       |       |               |       |                  |       |
| Stockholders’ Equity:                                                                                                           |       |               |       |                  |       |
| Preferred stock, par  value $1.00: authorized 100,000,000 shares:                                                                    |       |               |       |                  |       |
| Series A  Convertible 740,401 shares issued and outstanding, for both periods (no  liquidation preference)                           |       | 740                |       | 740                   |       |
| Common stock, par value  $.10: authorized 1,900,000,000 shares, issued and outstanding 8,188,336 and  8,172,112 shares, respectively |       | 819                |       | 817                   |       |
| Note receivable from  employees                                                                                                      |       | (5                 | )          | (23                   | )          |
| Additional paid-in  capital                                                                                                          |       | 450,435            |       | 450,416               |       |
| Accumulated deficit                                                                                                                  |       | (437,690           | )          | (437,628              | )          |
| Total  stockholders’ equity                                                                                                     |       | 14,299             |       | 14,322                |       |
| Total liabilities and  stockholders’ equity                                                                                     |       | $                  | 21,014     |                  | $          | 21,318 |   |

 

See notes tounaudited consolidated financial statements.

3

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**Healthaxis Inc. andSubsidiariesConsolidated Statements of Operations**

(In thousands,except share and per share data) (Unaudited)
| ** **                                                                                         | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                         | ** ** | **March 31,  2007**         | ** ** | **March 31,  2006** | ** ** |
| Revenue                                                                                            |       | $                                | 4,211      |   | $ | 3,918 |   |
| Expenses:                                                                                          |       |                             |       |   |   |
| Cost of revenues                                                                                   |       | 3,438                            |       | 3,376 |   |
| Sales and  marketing                                                                               |       | 248                              |       | 374 |   |
| General and  administrative                                                                        |       | 559                              |       | 609 |   |
| Total expenses                                                                                     |       | 4,245                            |       | 4,359 |   |
| Operating loss                                                                                     |       | (34                              | )          | (441 | ) |
| Interest and  other income, net                                                                    |       | 33                               |       | 28 |   |
| Interest expense                                                                                   |       | (58                              | )          | (49 | ) |
| Loss before income  taxes                                                                          |       | (59                              | )          | (462 | ) |
| Provision for income  taxes                                                                        |       | (3                               | )          | — |   |
| Net loss                                                                                           |       | $                                | (62        | ) | $ | (462 | ) |
| Net loss per share of  common stock (basic and diluted)                                            |       | $                                | (0.01      | ) | $ | (0.08 | ) |
| Weighted average common shares and equivalents used in computing  basic and diluted loss per share |       | 8,171,551                        |       | 6,088,855 |   |

 

See notes tounaudited consolidated financial statements.

4

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#### **Healthaxis Inc.and SubsidiariesConsolidated Statements of Cash Flows**

#### (In thousands) (Unaudited)

| ** **                                                                                 | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                 | ** ** | **March 31,  2007**         | ** ** | **March 31,  2006** | ** ** |
| **Cash flows from operating  activities**                                                  | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net loss                                                                                   |       | $                                | (62        | ) | $ | (462 | ) |
| Adjustments to  reconcile net loss to net cash provided by (used in) operating activities: |       |                             |       |   |   |
| Depreciation and  amortization                                                             |       | 276                              |       | 259 |   |
| Issuance of  restricted stock                                                              |       | 31                               |       | — |   |
| Other                                                                                      |       | (2                               | )          | 2 |   |
| Change in:                                                                                 |       |                             |       |   |   |
| Accounts and  note receivable                                                              |       | (99                              | )          | (642 | ) |
| Prepaid expenses  and other current assets                                                 |       | (61                              | )          | (38 | ) |
| Accounts payable  and accrued liabilities                                                  |       | 27                               |       | 203 |   |
| Deferred  revenues                                                                         |       | (53                              | )          | 369 |   |
| Other assets and  liabilities                                                              |       | (4                               | )          | (54 | ) |
| Net cash  provided by (used in) operating activities                                       |       | 53                               |       | (363 | ) |
| **Cash flows from investing  activities**                                                  |       |                             |       |   |   |
| Investment in  capitalized software and contract start-up costs                            |       | (287                             | )          | (396 | ) |
| Purchases of  property, equipment and software                                             |       | (33                              | )          | (108 | ) |
| Net cash used in  investing activities                                                     |       | (320                             | )          | (504 | ) |
| **Cash flows from financing  activities**                                                  |       | —                           |       | — |   |
| Decrease in cash  and cash equivalents                                                     |       | (267                             | )          | (867 | ) |
| Cash and cash  equivalents, beginning of period                                            |       | 3,362                            |       | 4,729 |   |
| Cash and cash  equivalents, end of period                                                  |       | $                                | 3,095      |   | $ | 3,862 |   |
| Non-cash financing  activities                                                             |       |                             |       |   |   |
| Accounts  receivable applied to note and interest payable in lieu of cash                  |       | $                                | 195        |   | $ | 195 |   |
| Interest paid                                                                              |       | $                                | 25         |   | $ | — |   |

 

See notes to unauditedconsolidated financial statements.

5

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#### **Healthaxis Inc. and SubsidiariesNotes to Unaudited Consolidated Financial Statements**

#### **March31, 2007**

**Note A — Description of business and basis ofpresentation**

*Unaudited Financial Information*

The unaudited consolidatedfinancial statements have been prepared by Healthaxis Inc. and its subsidiaries(“Healthaxis” or the “Company”), pursuant to the rules and regulations of theSecurities and Exchange Commission and reflect all adjustments consisting ofnormal recurring entries, which, in the opinion of the Company, are necessaryto present fairly the results for the interim periods. The interim financialstatements do not include all disclosures provided in fiscal year end financialstatements prepared in accordance with accounting principles generally acceptedin the United States of America, although the Company believes that theaccompanying disclosures are adequate to make the information presented notmisleading.  Results of operations forthe three-month period ended March 31, 2007, are not necessarily indicative ofthe results that may be expected for the year ending December 31, 2007.

These financial statementsshould be read in conjunction with the financial statements and notes theretocontained in the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2006

*Equity Compensation*

TheCompany accounts for equity compensation in accordance with Statement ofFinancial Standards No. 123R, “Share Based Payment” (SFAS 123R).  On January 16, 2007, the Company granted92,500 shares of restricted stock to its directors.  The restricted stock has been valued atapproximately $127,000, which represents the trading value of the stock asquoted on NASDAQ January 16, 2007.  Theshares of stock granted to directors vest over the calendar year of service, thusone-fourth of the shares vested in the quarter ended March 31, 2007, and theCompany recognized compensation expense of approximately $31,000.  No stock options were granted or vested in2006 or during the first three months of 2007.

*Earnings Per Share*

Basic loss pershare is computed using only the weighted average number of common sharesoutstanding during the respective periods. Diluted earnings per share is computed to show the dilutive effect, ifany, of convertible preferred stock, stock options and warrants using thetreasury stock method based on the average market price of the stock during therespective periods.  The effect ofincluding the convertible preferred stock, restricted stock, stock options andwarrants in the computation of diluted earnings per share would beanti-dilutive for each of the periods presented, thus these items have not beenincluded in the computation.  Followingis a summary of these potentially dilutive securities:

|                                  | ** ** | **As of March 31,** | ** ** |
|----------------------------------|------------|------------------------------------|------------|
| ** **                       | ** ** | **2007**                           | ** ** | **2006** | ** ** |
| Options                          |       | 1,181,248                          |       | 1,299,328 |   |
| Restricted stock                 |       | 219,375                            |       | — |   |
| Warrants                         |       | 7,229,186                          |       | 7,229,186 |   |
| Preferred stock                  |       | 740,401                            |       | 2,751,658 |   |
| Total common shares if converted |       | 9,370,310                          |       | 11,280,172 |   |

 

6

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**Note B — Significant Customer Concentrations**

For the threemonths ended March 31, 2007 and 2006, three customers accounted for $2.7million (64%) and $2.4 million (61%), respectively, of the Company’s totalrevenues.  At March 31, 2007 and December31, 2006, three customers individually accounted for more than 10% of theCompany’s accounts receivable as shown in the table below.  Thesecustomers are making payments in accordance with the terms of their contracts.

|            | ** ** | **Percent of accounts and notes receivable** | ** ** |
|------------|------------|-----------------------------------------------------------------------|------------|
| ** ** | ** ** | **March 31, 2007**                                          | ** ** | **Dec. 31, 2006** | ** ** |
| Customer A |       | 33                                                                    | %          | 30 | % |
| Customer B |       | 22                                                                    | %          | 28 | % |
| Customer C |       | 11                                                                    | %          | 10 | % |

 

**Note  C — Related Party Transactions**

TheCompany is a party to a Remote Resourcing Agreement with Healthcare BPOPartners L.P., a company affiliated with a significant shareholder.  Healthcare BPO Partners, based in Jaipur,India, provides personnel and infrastructure that is utilized by the Company toprovide business process outsourcing services and other software developmentand technical support services to support the Company’s operations.  The resources provided by Healthcare BPOPartners supplement the Company’s existing wholly-owned operations in Utah,Texas and Jamaica.  As a part of theResourcing Agreement, Healthcare BPO Partners also provides data center hostingservices, at a Vienna Virginia facility, to Healthaxis.  For the three months ended March 31, 2007,the Company incurred costs of approximately $269,000 related to the ResourcingAgreement and at March 31, 2007, the Company had accounts payable to HealthcareBPO Partners of approximately $182,000.

**Note D — Recent Accounting Pronouncements**

                InJuly 2006, the FASB issued FASB Interpretation No. 48, “Accounting forUncertainty in Income Taxes” (“FIN 48”), an interpretation of FASB StatementNo. 109, “Accounting for Income Taxes.” FIN 48 requires that a position taken or expected to be taken in a taxreturn be recognized in the financial statements when it is more likely thannot (i.e. a likelihood of more than fifty percent) that the position would besustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount ofbenefit that is greater than fifty percent likely of being realized uponultimate settlement.  The Company issubject to the provisions of FIN 48 as of January 1, 2007.  The Company believes that its income taxfiling positions and deductions will be sustained on audit and does notanticipate any adjustments that will result in a material change to itsfinancial position.  Therefore, no reserves for uncertainincome tax positions have been recorded pursuant to FIN 48.

          InSeptember 2006, FASB Statement 157, “Fair Value Measurements” (“SFAS 157”)was issued.  SFAS 157 establishes aframework for measuring fair value by providing a standard definition of fairvalue as it applies to assets and liabilities. SFAS 157, which does not require any new fair value measurements,clarifies the application of other accounting pronouncements that require orpermit fair value measurements.  Theeffective date for the Company is January 1, 2008.  The adoption of SFAS 157 is not anticipatedto have a material impact on our Consolidated Financial Statements.

7

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**Note E - Subsequent Event**

On April 16, 2007, the Company entered into anamendment to its Loan and Security Agreement (“LSA”) with Silicon ValleyBank.  Under the original LSA, therevolving line would have expired in August 2007.  As a result of the amendment, 1) theexpiration of the revolving line is extended to April 2009, 2) the availableborrowing limit and the draw period under the equipment line were increased,and 3) certain covenants were modified. The Company elected to reduce the maximum amount available under therevolving line to avoid paying higher unused revolving line facility fees.  The classification of the lines of credit onthe March 31, 2007 balance sheet as current or non-current is based on theamended maturity date.  Based on thecalculation of the borrowing base as of March 31, 2007, we would have beeneligible to draw up to approximately $2.3 million under the revolving line, ofwhich $500,000 had been drawn as of that date.

8

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**Item 2.   Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

##### **Forward-Looking Statements**

Allstatements other than statements of historical fact contained in this report,including statements in this “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” concerning the Company’s financialposition and liquidity, results of operations, prospects for future growth, andother 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, andconstitute forward-looking statements within the meaning of Section 27A of theSecurities Act of 1933, as amended, and Section 21E of the Securities ExchangeAct of 1934, as amended. These forward-looking statements are subject to knownand unknown risks, uncertainties and other factors, which may cause actualresults to be materially different from those contemplated by theforward-looking statements.  Such factorsinclude the risks and uncertainties identified in Healthaxis documents filedwith, or furnished to, the Securities and Exchange Commission, includingwithout limitation those identified under the caption “Risk Factors” in theCompany’s Form 10-K for the year ended December 31, 2006.  The Company undertakes no obligation topublicly update or revise any forward-looking statements, whether as a resultof new information, future events or otherwise. Readers are cautioned not to place undue reliance on forward-lookingstatements.

**Overview**

Healthaxis Inc. is a Pennsylvania corporation, whichwas organized in 1982. Healthaxis’ common stock trades on the NASDAQ CapitalMarket under the symbol “HAXS.”  Theoperations of Healthaxis are conducted through its subsidiary, Healthaxis,Ltd.  Unless otherwise indicated, or thecontext otherwise requires, all references in this document to the “Company,” “Healthaxis,”“we,” “our” or “us” include Healthaxis Inc. and all of its subsidiaries.  Healthaxis maintains a website atwww.healthaxis.com.  The Healthaxis Codeof Conduct can be found on the Healthaxis website.  Information found on the Healthaxis websiteis not a part of this report.

    The Company reported revenue of $4.2 million and an operating loss of $34,000 in the first quarter of 2007.  Revenue was approximately $293,000 more than the first quarter of 2006 and the operating loss for the first quarter of 2007 improved approximately $407,000 as compared to the first quarter of 2006.  The Company is completing a large-scale customer implementation that has added a significant number of revenue-generating lives to our systems and we are implementing or have implemented three additional new customers that we have announced so far this year.  Due to the subscription nature of our business, these customer wins do not immediately impact operating results, but are expected to provide additional revenue in future periods.

*Critical Accounting Policies*

Critical accountingpolicies are those which are most important to the financial statementpresentation and that require the most difficult, subjective complexjudgments.  There have been no changes inthe Company’s critical accounting policies as described in the Company’s Form10-K for the year ended December 31, 2006, other than as described in Note D tothe Consolidated Financial Statements.

9

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## **Results of Operations**

**Three months ended March 31, 2007compared to three months ended March 31, 2006**

|                                       | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------|------------|------------------------------------------------------|------------|
| ** **                            | ** ** | **2007**                                             | ** ** | **2006** | ** ** | **Change** | ** ** |
| ** **                            | ** ** | **(Table in thousands)**                   | ** ** |
| Revenues                              |       | $                                                    | 4,211      |   | $ | 3,918 |   | $ | 293 |   |
| Cost of revenues                      |       | 3,438                                                |       | 3,376 |   | (62 | ) |
| Gross profit                          |       | $                                                    | 773        |   | $ | 542 |   | $ | 231 |   |
|     %  of revenue |       | 18                                                   | %          | 14 | % |   |   |

 

**Revenues**were approximately $293,000 (7%) higher in the three monthsended March 31, 2007 compared to the same period in 2006.  Revenue from transaction fees, ASP licensefees, and professional services are higher as we have added a significantnumber of participant lives to our systems as the result of new customerInsur-Admin© and Insur-Claims© implementations.   In addition to the major implementation overthe past year, we are implementing or have implemented three additional newcustomers that we have announced so far this year.  BPO services revenues increased six percentdue to the additional participant lives on our systems combined with theaddition of two BPO services-only customers in 2006.

**Cost ofrevenues**includes all expenses directly associated with theproduction of revenue, and consists primarily of salaries and related benefits,rent, amortization and depreciation, system expenses such as maintenance andrepair, as well as other related consumables. Cost of revenues increased $62,000 (2%) in the three months ended March31, 2007 compared to the same period in 2006. Cost of revenues was 82% of revenues in the 2007 period compared to 86%in the 2006 period.  The increase in costresulted primarily from higher transaction processing costs from vendorpartners related to the increase in transaction fee revenue.

|                                     | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------------------------|------------|------------------------------------------------------|------------|
| ** **                          | ** ** | **2007**                                             | ** ** | **2006** | ** ** | **Change** | ** ** |
| ** **                          | ** ** | **(Table in thousands)**                   | ** ** |
| Sales and marketing  expense        |       | $                                                    | 248        |   | $ | 374 |   | (126 | ) |
| General and  administrative expense |       | 559                                                  |       | 609 |   | (50 | ) |
| Interest and other  income, net     |       | 33                                                   |       | 28 |   | 5 |   |
| Interest expense                    |       | (58                                                  | )          | (49 | ) | (9 | ) |
| Provision for income taxes          |       | (3                                                   | )          | — |   | (3 | ) |
|                                     |            |                                                      |            |  |  |  |  |  |  |

 

**Sales andmarketing expenses**consist primarily of employee salaries andrelated benefits, as well as promotional costs such as direct mailingcampaigns, trade shows and media advertising.  Sales and marketing expenses decreased $126,000 (34%) in the threemonths ended March 31, 2007 compared to the same quarter of 2006.  This decrease was due to reduced personnelrelated to a transition in the sales and marketing team in the first half of2006.

**Generaland administrative expenses**include executive management,accounting, legal and human resources compensation and related benefits, aswell as expenditures for applicable overhead costs.  These expenses decreased $50,000 (8%) in thethree months ended March 31, 2007 compared to the same quarter of 2006.  The majority of the decrease is related to adecrease in professional fees, but was partially offset by non-cash equitycompensation expense of $31,000.

10

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**Interestand other income, net** increased $5,000 (18%) in the threemonths ended March 31, 2007 compared to the same quarter of 2006 due primarilyto higher interest rates on depository accounts after the Company changed banksin the third quarter of 2006.

**Interestexpense** increased slightly in the three months ended March31, 2007 compared to the same quarter of 2006. Interest on the lines of capital and working capital borrowings werepartially offset by reduced interest expense on the note payable toHealthMarkets due to the declining principal balance.

**Provisionfor income taxes** was $3,000 for the three months ended March31, 2007 compared to zero in the same quarter of 2006.  Effective January 1, 2007, the Company isaccruing an estimate of the tax due under the new margin tax enacted by theState of Texas.

**Liquidity and Capital Resources**

*Overviewof Cash Resources*

**               **AtMarch 31, 2007, our cash and cash equivalents amounted to $3.1 million comparedto $3.4 million at December 31, 2006. The sources and uses of cash during the first quarter of 2007 aredescribed more fully in “Analysis of Cash Flows” below.  We believe that the Company will maintainsufficient liquidity to fund operations for at least the next 12 months.

On April 16, 2007,the Company entered into an amendment to its Loan and Security Agreement (“LSA”)with Silicon Valley Bank.  Under theoriginal LSA, the revolving line would have expired in August 2007.  As a result of the amendment, 1) theexpiration of the revolving line is extended to April 2009, 2) the availableborrowing limit and the draw period under the equipment line were increased,and 3) certain covenants were modified. The Company elected to reduce the maximum amount available under therevolving line to avoid paying higher unused revolving line facility fees.

*Analysisof Cash Flows*

*Cash provided by operating activities*****for the three months ended March 31, 2007 was approximately$53,000 as compared to a use of $363,000 for the same period in 2006.  The improvement was primarily the result ofthe reduced net loss in 2007 and changes in various working capital accounts,primarily accounts and notes receivable.

*Cash used in investing activities*for the three months ended March 31, 2007 was $320,000 as compared to $504,000for the same period in 2006.  The Company’sinvesting activities continue to be primarily in the areas of developingsoftware enhancements, contract start-up activities and acquisition ofproperty, equipment and software.

*Cash used in financing**activities* for thethree months ended March 31, 2007 and March 31, 2006 were both zero.

**RecentlyAdopted Accounting Pronouncements**

See Note D to the Consolidated Financial Statements hereinfor a discussion of the impact on the Company’s financial statements of newaccounting standards.

11

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**Item 3. Quantitative and Qualitative Disclosures About Market Risk**

 Exposure tomarket risk for changes in interest rates relate primarily to short-terminvestments. The Company does not use derivative financial instruments. Theprimary objective of its investment activities is to preserve principal whilemaximizing yields without significantly increasing risk. Due to the nature ofthe Company’s investments, we believe that there is no material risk exposure.

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

The dividend rate on our preferred stock is fixed at anominal rate of $0.0001 per share of preferred stock, payable semi-annually(aggregating less than $1,000 in dividend payments to the preferredshareholder(s) annually).  The interestrate on our note payable to HealthMarkets is fixed at 6%.    The fair value of these instruments istherefore subject to fluctuation as market interest rates change.  Advances under the Company’s lines of creditbear interest at the lender’s prime rate plus 1.0% for revolving advances or1.5% for equipment advances.

**Item4. Controls and Procedures**

As of the end of the period covered by this quarterlyreport, the Company carried out an evaluation, under the supervision and withthe participation of the Company management, including the Company’s ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of thedesign and operation of the Company’s disclosure controls and procedurespursuant to Securities Exchange Act Rule 13a-15.  Based on that evaluation, the Chief ExecutiveOfficer and the Chief Financial Officer have concluded that these disclosurecontrols and procedures are effective as of the end of the period covered bythis report.  There has been no change inthe Company’s internal control over financial reporting that occurred duringthe period covered by this report that has materially affected, or isreasonably likely to materially affect, the Company’s internal control overfinancial reporting.

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**PART II. OTHER INFORMATION**

**Item 1.          LegalProceedings**.

We are not currently aparty to any material legal proceedings and we are not aware of any pending orthreatened litigation that would have a material adverse effect on us or ourbusiness.

**Item 1A.       RiskFactors**

We face a number ofsignificant risks and uncertainties in our business, which are detailed under “RiskFactors” in our Annual Report on Form 10-K for the year ended December 31,2006.  These risks and uncertainties mayaffect our current position and future prospects, and should be consideredcarefully in evaluating us and an investment in our common stock.  We have not identified any material changesto the Risk Factors detailed in our most recent Annual Report on Form 10-K.

**Item 2.          UnregisteredSales of Equity Securities and Use of Proceeds.**

(c)  FirstQuarter 2007 Issuer Purchases of Equity Securities
| **Period**    | ** ** | ** ** | ** ** | **(a) Total  Number of  Shares  Purchased(1)** | ** ** | **(b) Average Price  Paid per Share** | ** ** | **(c) Total Number  of Shares  Purchased as  Part of Publicly  Announced Plans  or Programs** | ** ** | **(d) Maximum  Number (or  Approximate  Dollar Value) of  Shares that May  Yet Be  Purchased Under  the Plans or  Programs** | ** ** |
|---------------|------------|------------|------------|----------------------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| January 2007  |       | —     |       | —                                                   |       | —                                                    |       | —                                                                                                                                |       |
| February 2007 |       | 901        |       | $                                                        | 1.78       |                                                      | —     |                                                                                                                                  | —     |                                                                                                                                                                           |
| March 2007    |       | —     |       | —                                                   |       | —                                                    |       | —                                                                                                                                |       |
|               |            |            |            |                                                          |            |                                                           |            |                                                                                                                                       |            |                                                                                                                                                                                |            |  |

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(1)           These purchases were not madepursuant to a publicly announced repurchase plan or program.  Represents 901 shares of common stocksurrendered to Healthaxis to pay withholding taxes on shares of restrictedstock vesting under the 2005 Stock Incentive Plan.
| **Item 3.** | ** ** | **Defaults Upon Senior  Securities.**                     |
|-------------|------------|-----------------------------------------------------------|
|        |       | None.                                                     |
| **Item 4.** | ** ** | **Submission  of Matters to a Vote of Security Holders.** |
|        |       | None.                                                     |   |   |
| **Item 5.** | ** ** | **Other  Information.**                                   |
|        |       | None.                                                     |

 

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| **Item 6.** | ** ** | **Exhibits** |
|-------------|------------|--------------|
|        |       | (31.1)       |   | Certification of Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,  filed herewith. |
|        |       | (31.2)       |   | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. |
|        |       | (32.1)       |   | Certifications of Chief Executive Officer and Chief  Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,  furnished herewith. |

 

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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 theundersigned thereunto duly authorized.
|                   |   | Healthaxis Inc. |
|-------------------|--------|-----------------|
| Date: May 9, 2007 |   | By:             |   | /s/ John M. Carradine |
|              |   |            |   | John M. Carradine, President and Chief Executive  Officer (Principal Executive Officer) |
|              |   | By:             |   | /s/ Ronald K. Herbert |
|              |   |            |   | Ronald K. Herbert, Chief Financial Officer  (Principal Financial Officer) |

 

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#### **Exhibit Index**

| (31.1) |   | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes Oxley Act of 2002, filed herewith.                                   |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
| (31.2) |   | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes Oxley Act of 2002, filed herewith.                                   |
| (32.1) |   | Certifications of Chief Executive Officer and Chief  Financial Officer Pursuant to Section 906 of the Sarbanes Oxley Act of 2002,  furnished herewith. |

 

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