United States SECURITIES AND EXCHANGE
COMMISSIONWashington, D.C. 20549




FORM 10-Q/A


|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                    SECURITIES EXCHANGE ACT OF
1934 For the quarterly period ended . . . . . . . . . . . . . . . . March 31,
2005
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



OR


|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                    SECURITIES EXCHANGE ACT OF
1934For the transition period from . . . . . . . . . . . . . . . . to
.. . . . . . . . . . . . . . . .                        
Commission file number . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0-13591
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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







|Pennsylvania                    |  |  |  | 23-2214195         
|------------------------------- |  |  |  | -------------------
|(State or other
jurisdiction of |  |  |  | (I.R.S. Employer   
|incorporation
or organization)  |  |  |  | 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 by
check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).




Yes [  ] No [X]




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




Yes [  ] No [X]




Indicate the
number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 3,766,633 shares of common stock,
par value $.10, outstanding as of May 5, 2005.




Page 1 of 23


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Healthaxis Inc.




Table of Contents


|                                                                         |  |  |  | Page
|------------------------------------------------------------------------ |  |  |  | ----
|PART I  Financial Information                                            |  | 
|                                                                        
|Item
1.   Consolidated Financial Statements                              |  |  |  |     
|Consolidated
Balance Sheets                                              |  |  |  |     
|Consolidated
Statements of Operations                                    |  |  |  |     
|Consolidated
Statements of Cash Flows                                    |  |  |  |     
|Notes to
Consolidated Financial Statements                               |  |  |  |     
|Item
2.  Managements Discussion and Analysis of Financial Condition and |  |  |  |     
|Results of
Operations                                                    |  |  |  |     
|Item
4.  Controls and Procedures                                         |  |  |  |     
|                                                                        
|PART II  Other Information                                               |  | 
|                                                                        
|Item
6.  Exhibits                                                        |  |  |  |     
|                                                                        
|Signatures                                                               |  |  |  |     
|                                                                        
|Exhibit
Index                                                            |  |  |  |     



EXPLANATORY NOTE




This Form 10-Q/A amends the
quarterly report of Healthaxis Inc. on Form 10-Q for the three-months ended March 31, 2005, filed with the SEC on May 16, 2005, to reflect a
reclassification in the Companys Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2005 and
2004.




The adjustment relates to the
classification of our payments on a promissory note issued on September 30, 2003, which were netted against accounts receivable for services rendered
to the note holder. An adjustment to reflect this offset as a non-cash financing transaction is made to the Consolidated Statements of Cash Flows for
the three-month periods ended March 31, 2005 and 2004, in the amounts of $197,000 and $195,000 respectively. The restated item is described more fully
in Note H of the Consolidated Financial Statements herein and in the Companys Form 8-K filed with the SEC on October 27, 2005.




As a result of this restatement,
this Form 10-Q/A contains changes to: Item 1  Consolidated Financial Statements; Item 2  Managements Discussion and Analysis of
Financial Condition and Results of Operations; and Item 4  Controls and Procedures. In addition, pursuant to the rules of the SEC, Item 6 of this
Form 10-Q/A contains the currently dated certificates from our Chief Executive Officer and our Chief Financial Officer, as required by Sections 302 and
906 of the Sarbanes-Oxley Act of 2002. The certifications of our Chief Executive Officer and our Chief Financial Officer are attached to this Form
10-K/A as Exhibits 31.1, 31.2, and 32.1, respectively.




This amendment is limited in
scope to the portions of the Form 10-Q identified above that reflect the effects of the restatement, and does not amend, update or change any other
items or disclosures contained in the Form 10-Q.




Page 2 of 23


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PART I. FINANCIAL INFORMATION




Item 1. Consolidated Financial
Statements




Healthaxis Inc. and Subsidiaries Consolidated Balance
Sheets




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


|                                                                                                                                   |  |  |  | March 31, 2004 |          | December 31, 2004
|---------------------------------------------------------------------------------------------------------------------------------- |  |  |  | -------------- | -------- | -----------------
|Assets                                                                                                                             |  |  |  |                |          |                  
|Current
assets:                                                                                                                    |  |  |  |                |          |                  
|Cash and cash
equivalents                                                                                                          |  |  |  | $              | 2,569    |                  
|Accounts
receivable, net of allowance for doubtful accounts of $48 and $48, respectively                                           |  |  |  |                | 2,543    |                  
|Prepaid
expenses                                                                                                                   |  |  |  |                | 918      |                  
|Total current
assets                                                                                                               |  |  |  |                | 6,030    |                  
|Property,
equipment and software, less accumulated depreciation and amortization of $6,779 and $6,661, respectively                |  |  |  |                | 1,139    |                  
|Contract
start-up costs, less accumulated amortization of $1,340 and $1,199, respectively                                          |  |  |  |                | 548      |                  
|Capitalized
software, less accumulated amortization of $2,793 and $2,760, respectively                                             |  |  |  |                | 409      |                  
|Customer base,
less accumulated amortization of $4,214 and $4,130, respectively                                                    |  |  |  |                |         |                  
|Goodwill                                                                                                                           |  |  |  |                | 11,276   |                  
|Notes
receivable                                                                                                                   |  |  |  |                | 23       |                  
|Other
assets                                                                                                                       |  |  |  |                | 54       |                  
|Total
assets                                                                                                                       |  |  |  | $              | 19,479   |                  
|Liabilities and Stockholders Equity                                                                                               |  |  |  |                |          |                  
|Current
liabilities:                                                                                                               |  |  |  |                |          |                  
|Accounts
payable                                                                                                                   |  |  |  | $              | 1,408    |                  
|Accrued
liabilities                                                                                                                |  |  |  |                | 488      |                  
|Deferred
revenues                                                                                                                  |  |  |  |                | 878      |                  
|Notes payable,
current portion                                                                                                     |  |  |  |                | 646      |                  
|Current
portion, post retirement and employment liabilities                                                                        |  |  |  |                | 128      |                  
|Total current
liabilities                                                                                                          |  |  |  |                | 3,548    |                  
|Notes
payable                                                                                                                      |  |  |  |                | 1,874    |                  
|Post
retirement and employment liabilities                                                                                         |  |  |  |                | 796      |                  
|Other
liabilities                                                                                                                  |  |  |  |                | 1,397    |                  
|Total
liabilities                                                                                                                  |  |  |  |                | 7,615    |                  
|Commitments
and contingencies                                                                                                      |  |  |  |                |          |                  
|Stockholders Equity:                                                                                                              |  |  |  |                |          |                  
|Preferred
stock, par value $1.00: authorized 100,000,000 shares:                                                                   |  |  |  |                |          |                  
|Series A
Convertible, 2,851,658 and 3,100,000 shares issued and outstanding, respectively (no liquidation preference)              |  |  |  |                | 2,852    |                  
|Common stock,
par value $.10: authorized 1,900,000,000 shares, issued and outstanding 3,766,633 and 3,518,291 shares, respectively |  |  |  |                | 377      |                  
|Additional
paid-in capital                                                                                                         |  |  |  |                | 444,444  |                  
|Accumulated
deficit                                                                                                                |  |  |  |                | (435,809 | )                
|Total
stockholders equity                                                                                                         |  |  |  |                | 11,864   |                  
|Total
liabilities and stockholders equity                                                                                         |  |  |  | $              | 19,479   |                  



See notes to unaudited consolidated financial
statements.




Page 3 of 23


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Healthaxis Inc. and Subsidiaries Consolidated
Statements of Operations




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


|                                                                                |  |  |  | Three Months Ended |          
|------------------------------------------------------------------------------- |  |  |  | ------------------ | ---------
|
|Revenue                                                                         |  |  |  | $                  | 4,126    
|                                                                               
|Expenses:                                                                       |  |  |  |                    |          
|Cost of
revenues                                                                |  |  |  |                    | 4,096    
|Sales and
marketing                                                             |  |  |  |                    | 213      
|General and
administrative                                                      |  |  |  |                    | 644      
|Amortization
of intangibles                                                     |  |  |  |                    | 84       
|Total
expenses                                                                  |  |  |  |                    | 5,037    
|                                                                               
|Operating
loss                                                                  |  |  |  |                    | (911     
|                                                                               
|Interest and
other income, net                                                  |  |  |  |                    | 8        
|Interest
expense                                                                |  |  |  |                    | (55      
|                                                                               
|Net
loss                                                                        |  |  |  |                    | (958     
|                                                                               
|Preferred
stock dividends                                                       |  |  |  |                    |         
|                                                                               
|Net loss
attributable to common shareholders                                    |  |  |  | $                  | (958     
|                                                                               
|Net loss per
share of common stock (basic and diluted)                          |  |  |  | $                  | (0.26    
|                                                                               
|Weighted
average common shares and equivalents used in computing loss per share |  |  |  |                    |          
|Basic and
diluted                                                               |  |  |  |                    | 3,697,649



See notes to unaudited consolidated financial
statements.




Page 4 of 23


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Healthaxis Inc. and Subsidiaries Consolidated
Statements of Cash Flows




(In thousands)
(Unaudited)


|                                                                            |  |  |  | Three Months Ended |       
|--------------------------------------------------------------------------- |  |  |  | ------------------ | ------
|
|
|Cash flows
from operating activities                                        |  |  |  |                    |       
|Net
loss                                                                    |  |  |  | $                  | (958  
|Adjustments to
reconcile net loss to net cash used in operating activities: |  |  |  |                    |       
|Depreciation
and amortization                                               |  |  |  |                    | 465   
|Bad debt
reserve                                                            |  |  |  |                    |      
|Stock option
compensation                                                   |  |  |  |                    |      
|Change
in:                                                                  |  |  |  |                    |       
|Accounts
receivable                                                         |  |  |  |                    | (333  
|Prepaid
expenses and other current assets                                   |  |  |  |                    | (281  
|Accounts
payable and accrued liabilities                                    |  |  |  |                    | (16   
|Deferred
revenues                                                           |  |  |  |                    | (45   
|Other
liabilities                                                           |  |  |  |                    | (25   
|Net cash used
in operating activities                                       |  |  |  |                    | (1,193
|Cash flows
from investing activities                                        |  |  |  |                    |       
|Collection of
notes receivable                                              |  |  |  |                    |      
|Investment in
capitalized software and contract start-up costs              |  |  |  |                    | (34   
|Purchases of
property, equipment and software                               |  |  |  |                    | (134  
|Net cash used
in investing activities                                       |  |  |  |                    | (168  
|Cash flows
from financing activities                                        |  |  |  |                    |       
|Payment of
preferred stock dividends                                        |  |  |  |                    |      
|Exercise of
stock options                                                   |  |  |  |                    |      
|Net cash used
in financing activities                                       |  |  |  |                    |      
|Decrease in
cash and cash equivalents                                       |  |  |  |                    | (1,361
|Cash and cash
equivalents, beginning of period                              |  |  |  |                    | 3,930 
|Cash and cash
equivalents, end of period                                    |  |  |  | $                  | 2,569 
|Non-cash
financing activities:                                              |  |  |  |                    |       
|Accounts
receivable applied to note and interest payable in lieu of cash    |  |  |  | $                  | 197   



See notes to unaudited consolidated financial
statements.




Page 5 of 23


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Healthaxis Inc. and Subsidiaries Notes to Unaudited
Consolidated Financial Statements March 31, 2005




Note A  Description of business and basis of
presentation




Unaudited Financial Information




The unaudited consolidated
financial statements have been prepared by Healthaxis Inc. and its subsidiaries (Healthaxis 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
of America, although the Company believes that the accompanying disclosures are adequate to make the information presented not misleading. Results of
operations for the three-month period ended March 31, 2005, are not necessarily indicative of the results that may be expected for the year ending
December 31, 2005.




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 and Form 10-K/A for
the year ended December 31, 2004.




General




Healthaxis is a
technology-enhanced provider of fully integrated solutions and services for health benefit administrators and health insurance claim processors. These
solutions, which are comprised of software products and related business process services, are designed to assist health insurance payers, third party
administrators (TPA) and preferred provider organizations (PPO) provide enhanced claims related services to members, employees,
employers and providers at lower cost. These services are provided through the application of Healthaxis flexible technology on an Application
Service Provider (ASP) basis. These technology solutions are complemented by Healthaxis web-based capabilities and Business Process
Outsourcing (BPO) services, which are offered to the Companys ASP clients and on a stand-alone basis. BPO solutions include the
automated capture, imaging, storage and retrieval of electronic claims, attachments, and related correspondence, in addition to rules-based claims
pre-adjudication and editing and automated PPO routing (via electronic data interchange or EDI) and repricing. Healthaxis uses its deep
domain expertise in health insurance operations to surround the payment of a health insurance claim, to customize services to meet the specific needs
of its customers and to produce value for those customers by tapping unrealized potential in the customers operations to achieve best
results.




Earnings Per Share




Basic loss per share is computed
only on the weighted average number of common shares outstanding during the respective periods. Diluted earnings per share is computed to show the
dilutive effect, if any, of convertible preferred stock, stock options and warrants using the treasury stock method based on the average market price
of the stock during the respective periods. The effect of including the convertible preferred stock, stock options and warrants, totaling 4,979,423 and
2,359,580 as of March 31, 2005 and 2004 respectively, into the computation of diluted earnings per share would be anti-dilutive. Accordingly, these
items have not been included in the computation. Following is a summary of these securities:




Page 6 of 23


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|                                 |  |  |  | As of March 31, |          
|-------------------------------- |  |  |  | --------------- | ---------
|
|Options                          |  |  |  |                 | 1,043,694
|Warrants                         |  |  |  |                 | 1,084,071
|Preferred
stock                  |  |  |  |                 |         
|Preferred
stock  new            |  |  |  |                 | 2,851,658
|Total common
shares if converted |  |  |  |                 | 4,979,423



Stock-Based Compensation




The Company has elected to
continue to utilize the accounting method prescribed by APB Opinion No. 25 Accounting for Stock Issued to Employees (APB 25), and provide
the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123), as amended by SFAS No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure (SFAS 148). Although the Company selected an
accounting policy which requires only the excess of the market value of its common stock over the exercise price of options granted to be recorded as
compensation expense (intrinsic method), pro forma information regarding net loss is required as if the Company had accounted for its employee stock
options under the fair value method of SFAS 123. Pro forma net loss applicable to the options granted is not likely to be representative of the effects
on reported net loss for future periods. The fair value for these options is estimated at the date of grant using a Black-Scholes option pricing model.
Stock compensation determined under the intrinsic method is recognized over the vesting period using the straight-line method.




Had compensation cost for the
Companys stock option grants been determined based on the fair value at the date granted in accordance with the provisions of SFAS 123, the
Companys net loss and net loss per common share would have been increased to the following pro forma amounts (table in thousands, except per
share data):


|                                                                                |  |  |  | Three Months ended March 31, |       
|------------------------------------------------------------------------------- |  |  |  | ---------------------------- | ------
|
|Net loss, as
reported                                                           |  |  |  | $                            | (958  
|Dividends on
preferred stock                                                    |  |  |  |                              |      
|Stock based
compensation expense recorded under the intrinsic value method      |  |  |  |                              |      
|Pro forma
stock based compensation expense computed under the fair value method |  |  |  |                              | (55   
|Pro forma net
loss                                                              |  |  |  | $                            | (1,013
|                                                                               
|Loss per share
of common stock, basic and diluted as reported                   |  |  |  | $                            | (0.26 
|Pro
forma                                                                       |  |  |  | $                            | (0.27 



The Company granted 200 options
in the first quarter 2005. The fair value of the options and warrants granted are estimated on the date of grant using the Black-Scholes option pricing
model. The major assumptions used include no dividends paid, a weighted average expected life of three years, expected stock volatility of 69% and risk
free interest rates of 4.09%. The weighted-average grant-date fair value of options granted during 2005 was $1.10.




Page 7 of 23


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Note B  Recently Adopted Accounting
Pronouncements




In December 2005 the FASB issued
a revision of Statement of Financial Accounting Standards No. 123 (SFAS 123R), Accounting for Stock-Based Compensation. This statement
supersedes APB Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees. Historically, the Company has accounted for employee
stock based compensation using the intrinsic method under APB 25 as further described in Note A  Stock-Based Compensation
above. SFAS 123R requires that the compensation cost relating to share-based payment transactions, including grants of employee stock options, be
recognized in the financial statements. The effect of the statement will be to require entities to measure the cost of employee services received in
exchange for stock options based upon the grant-date fair value of the award, and to recognize the cost over the period the employee is required to
provide services for the award. The Company will be required to apply FAS 123R as of the beginning of its first fiscal year that begins after June 15,
2005, which will be the year beginning January 1, 2006.




The impact of this Statement will
depend upon the transition method selected by the Company and various other factors including our future compensation strategy. The pro-forma costs
presented in the table above and in prior filings for the Company have been calculated using a Black-Scholes option pricing model and may not be
indicative of the amount which should be expected in the future. No decisions have been made as to which option-pricing model is most appropriate for
the Company for future awards.




Note C  Post Retirement Benefits




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


|                                   |  |  |  | (Table in $000s) Three Months Ended March
31, |   
|---------------------------------- |  |  |  | --------------------------------------------- | --
|
|Interest
cost                      |  |  |  | $                                             | 13
|Transition
obligation amortization |  |  |  |                                               | 14
|Net post
retirement expense        |  |  |  | $                                             | 27



Note E  Significant Customer
Concentrations




For the three months ended March
31, 2005 and 2004, four customers accounted for $2.7 million (64%) and $2.7 million (63%), respectively, of the Companys total revenues. At March
31, 2005 and December 31, 2004, one customer accounted for $803,000 (32%) and $822,000 (35%) of the Companys accounts receivable, respectively.
This customer is making payments in accordance with the terms of its contract.




Note F  Other Liabilities and
Contingencies




Other liabilities include $1.3
million of contingent tax liabilities at March 31, 2005 and December 31, 2004.




Note G  Subsequent Event




Following approval by the
Companys common shareholders, on May 13, 2005 the Company closed a financing transaction with Tak Investments, Inc. (the Investor), a
Delaware corporation owned by Mr. Sharad Tak. Under the terms and
conditions of the Stock and Warrant Purchase Agreement with the Investor (the




Page 8 of 23


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Purchase Agreement), the Company issued to the Investor
2,222,222 shares of common stock at a per share purchase price of $2.25 for an aggregate initial investment of $5.0 million. The Investor also received
at the Closing three warrants (the Warrants). The first Warrant, which provides for an exercise price of $2.25 per share of common stock
and a term of two years, permits the Company to call the exercise of up to 3,333,333 shares of common stock (for an aggregate of up to $7.5 million)
under certain conditions, but only permits the Investor to exercise the Warrant for up to 2,222,222 shares of common stock (for an aggregate of $5.0
million). The Companys ability to call the exercise of the first Warrant is subject to the satisfaction of certain conditions, including
unanimous approval of such action by the Companys Board of Directors (which requires the approval of the Investors designees to the Board,
as referenced below). The Investor also received two additional warrants representing the right to purchase additional shares of common stock at prices
of $2.70 and $3.15 per share. The number of shares of common stock subject to these two additional Warrants is dependent upon the amount ultimately
invested under the first Warrant, but could total up to an additional 2,777,778 shares of common stock and could provide an additional cash investment
in the Company of up to $8.1 million.




In connection with the Closing,
the Company and the Investor entered into a number of related agreements. Under the terms of an Investor Rights Agreement, the securities purchased by
the Investor are subject to limited transfer restrictions, and the Investor has the right to approve certain fundamental corporate activities, the
right to participate in other Healthaxis equity financings and, depending upon the size of the Companys Board of Directors and the
Investors continuing ownership position in the Company, the right to designate one to three nominees for election to the Companys Board of
Directors. The Company expects that the Investor will be electing to invoke its right to initially designate up to two additional members to the Board
of Directors, at which point the Company will be obligated to expand its Board and add the Investors designees to the Board. The parties also
entered into a Registration Rights Agreement under which the Company agrees to file a registration statement covering the resale of the shares of
common stock purchased under the Purchase Agreement or through exercise of the Warrants.




As a part of the Closing, the
Company also entered into a five year Remote Resourcing Agreement (the Resourcing Agreement) with Healthcare BPO Partners L.P., a company
affiliated with the Investor and owned by Mr. Tak. Healthcare BPO Partners will provide India-based personnel and infrastructure that will be utilized
by the Company to provide business process outsourcing services and other software development and technical support services to support the
Companys operations. The Indian operations, which will be dedicated for the Companys exclusive use, will be managed by the Company and
based in Jaipur, India. These new Indian operations will supplement the Companys existing operations in Utah, Texas and Jamaica.




Note H  Restatement of Financial
Statements




The Company has restated certain
portions of these consolidated financial statements for the three-month periods ended March 31, 2005 and 2004 to correct an item and reflect the
corresponding changes described below.




The Company has a promissory note
payable to UICI. Because UICI is also a customer of the Company, the promissory note provides for monthly payments to be made to UICI through an offset
provision against Healthaxis accounts receivable. Therefore, the Company nets the periodic debt payment it owes to UICI against accounts receivable
from UICI for services rendered. The Company previously reported this repayment procedure in its Consolidated Statements of Cash Flows by reporting a
collection in accounts receivable as an increase in working capital, and a source of operating cash flows. It reported the same amount, net of
interest, as a payment on the long-term debt as a financing transaction. Payments made in this fashion should be netted against accounts receivable and
reflected as non-cash financing transactions. The Company has reclassified payments accordingly in the Consolidated Statements of Cash Flows, as
summarized in the table below:




Page 9 of 23


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|                                                            |  |  |  | For the Three Months Ended March
31, |       
|----------------------------------------------------------- |  |  |  | ------------------------------------ | ------
|
|
|Cash Flows
from Operating Activities                        |  |  |  |                                      |       
|Changes in
operating assets an liabilities:                 |  |  |  |                                      |       
|Accounts
receivable                                         |  |  |  | $                                    | (175  
|Net cash used
in operating activities                       |  |  |  |                                      | (1,035
|                                                           
|Cash Flows
from Financing Activities                        |  |  |  |                                      |       
|Payments on
note payable to UICI                            |  |  |  |                                      | (158  
|Net cash used
in financing activities                       |  |  |  |                                      | (158  
|                                                           
|Non-cash
Financing Activities                               |  |  |  |                                      |       
|Accounts
receivable applied to note payable in lieu of cash |  |  |  | $                                    |      



There is no impact to the
Companys Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004, and there is no impact to the Consolidated Statements of
Operations for the three-month periods ended March 31, 2005 and 2004 for the restatement described above.




Page 10 of 23


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



Forward-Looking Statements




All statements other than
statements of historical fact contained in this report, including statements in this Managements Discussion and Analysis of Financial
Condition and Results of Operations concerning the Companys financial position and liquidity, results of operations, prospects for future
growth, and other matters are forward-looking statements. These statements may be identified with words such as anticipate,
believe, plan, estimate, expect, intend, should, could,
goal, target, designed, on track, comfortable with, optimistic and other
similar expressions, and constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are subject to known and unknown risks, uncertainties and
other factors, which may cause actual results to be materially different from those contemplated by the forward-looking statements. Such factors
include the risks and uncertainties identified in Healthaxis documents filed with, or furnished to, the Securities and Exchange Commission, including
without limitation those identified under the caption Business  Risk Factors in the Companys Form 10-K for the year ended
December 31, 2004, and under the caption Risk Factors in the Companys Registration Statement on Form S-3 filed with the Securities
and Exchange Commission on June 27, 2005. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as
a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on forward-looking
statements.




Overview




Healthaxis is a
technology-enhanced provider of fully integrated solutions and services for health benefit administrators and health insurance claim processors. These
solutions, which are comprised of software products and related business process services, are designed to assist health insurance payers, third party
administrators (TPA) and preferred provider organizations (PPO) provide enhanced claims related services to members, employees,
employers and providers at lower cost. These services are provided through the application of Healthaxis flexible technology on an Application
Service Provider (ASP) basis. These technology solutions are complemented by Healthaxis web-based capabilities and Business Process
Outsourcing (BPO) services, which are offered to the Companys ASP clients and on a stand-alone basis. BPO solutions include the
automated capture, imaging, storage and retrieval of electronic claims, attachments, and related correspondence, in addition to rules-based claims
pre-adjudication and editing and automated PPO routing (via electronic data interchange or EDI) and repricing. Healthaxis uses its deep
domain expertise in health insurance operations to surround the payment of a health insurance claim, to customize services to meet the specific needs
of its customers and to produce value for those customers by tapping unrealized potential in the customers operations to achieve best
results.




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




Revenue Model




The Companys revenues
consist primarily of application service provider (ASP) fees, transaction fees and professional service fees, as further described below. The ASP
services are substantially dependent on the Companys proprietary software, and agreements with customers contain a license for the use of the
relevant software. However, the customer does not have the contractual right to take possession of the software. The




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customers access to the
Companys hosted software is through dedicated data lines or the Internet. With some exceptions, the Company has not historically licensed its
benefits administration and claims processing software for installation on customers systems. No new such licenses have been granted in 2005 or
2004.




A significant portion of the
Companys revenue is based on providing ASP services to our health insurance company, third-party administrator and self-insured plan customers.
The ASP service includes a license to use our benefits administration and claims processing software, including hosting, maintenance and support, which
is typically charged on a per-employee-per-month (PEPM), or per-member-per-month (PMPM) basis. In addition, the Company surrounds these hosted
software-use rights with such BPO services as imaging, data capture and retrieval, EDI and print and mail services, as well as PPO routing and
repricing services, and claims editing services. These services are typically charged on a transaction fee basis, such as per claim, per image and per
document. Due to the long-term nature of the ASP arrangement and because all revenue elements included in the collective services are typically not
sold separately, the ASP and BPO service revenues are recognized ratably over the term of the agreement and/or as transaction services are
provided.




In preparation for providing
services under these multi-year ASP contracts, the Company also usually agrees to perform certain start-up activities directly related to customizing
and configuring the licensed software and loading insurance plan data for performance under the contract. The Company defers costs and revenues
relating to these start-up activities and recognizes such costs and revenues ratably over the term of the ASP contract.




Periodically, while an ASP
contract is in place, the Company also performs professional services upon request and recognizes the related revenue on a time and materials basis as
services are performed. Such professional services are not sold in conjunction with a software license included in the original ASP contract or other
revenue elements and, therefore, are accounted for separately from the ASP contact.




The Company uses contract
accounting for contracts where significant software modification is performed or where services are performed that are essential to the functionality
of the delivered software. Generally, contracts that include significant software modification are accounted for using the percentage of completion
method with progress measured based on the cost-to-cost method. Contracts with significant customer acceptance provisions are recognized using the
completed contract method upon achieving customer acceptance of the completed project. The Company currently has no contracts in progress for which
contract accounting is being applied.




Financing Transaction:




Following approval by the
Companys common shareholders, on May 13, 2005 the Company closed a financing transaction with Tak Investments, Inc. (the Investor), a
Delaware corporation owned by Mr. Sharad Tak. Under the terms and conditions of the Stock and Warrant Purchase Agreement with the Investor (the
Purchase Agreement), the Company issued to the Investor 2,222,222 shares of common stock at a per share purchase price of $2.25 for an
aggregate initial investment of $5.0 million. The Investor also received at the Closing three warrants (the Warrants). The first Warrant,
which provides for an exercise price of $2.25 per share of common stock and a term of two years, permits the Company to call the exercise of up to
3,333,333 shares of common stock (for an aggregate of up to $7.5 million) under certain conditions, but only permits the Investor to exercise the
Warrant for up to 2,222,222 shares of common stock (for an aggregate of $5.0 million). The Companys ability to call the exercise of the first
Warrant is subject to the satisfaction of certain conditions, including unanimous approval of such action by the Companys Board of Directors
(which requires the approval of the Investors designees to the Board, as referenced below). The Investor also received two additional warrants
representing the right to purchase additional shares of common stock at prices of $2.70 and $3.15 per share. The number of shares of common stock
subject to these two additional Warrants is dependent upon the amount ultimately




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invested under the first
Warrant, but could total up to an additional 2,777,778 shares of common stock and could provide an additional cash investment in the Company of up to
$8.1 million.




In connection with the Closing,
the Company and the Investor entered into a number of related agreements. Under the terms of an Investor Rights Agreement, the securities purchased by
the Investor are subject to limited transfer restrictions, and the Investor has the right to approve certain fundamental corporate activities, the
right to participate in other Healthaxis equity financings and, depending upon the size of the Companys Board of Directors and the
Investors continuing ownership position in the Company, the right to designate one to three nominees for election to the Companys Board of
Directors. The Company expects that the Investor will be electing to invoke its right to initially designate up to two additional members to the Board
of Directors, at which point the Company will be obligated to expand its Board and add the Investors designees to the Board. The parties also
entered into a Registration Rights Agreement under which the Company agrees to file a registration statement covering the resale of the shares of
common stock purchased under the Purchase Agreement or through exercise of the Warrants.




As a part of the Closing, the
Company also entered into a five year Remote Resourcing Agreement (the Resourcing Agreement) with Healthcare BPO Partners L.P., a company
affiliated with the Investor and owned by Mr. Tak . Healthcare BPO Partners will provide India-based personnel and infrastructure that will be utilized
by the Company to provide business process outsourcing services and other software development and technical support services to support the
Companys operations. The Indian operations, which will be dedicated for the Companys exclusive use, will be managed by the Company and
based in Jaipur, India. These new Indian operations will supplement the Companys existing operations in Utah, Texas and Jamaica.




Preferred Stock:




On June 30, 2004, Healthaxis
consummated a transaction modifying the terms of its Series A Convertible preferred stock and providing for the issuance to its preferred shareholders
of warrants to purchase shares of the Companys common stock. Under the terms of the agreements with the preferred shareholders, shares of the
preferred stock are convertible into shares of the Companys common stock on a one-for-one basis. The preferred shareholders also received
warrants with a term of five years entitling them to purchase shares of common stock, on a one-for-one basis, at an exercise price of $5.50 per share
(subject to a cashless exercise feature that applies under some circumstances). As of May 16, 2005, there are 2,851,658 preferred shares and 1,000,000
warrants outstanding. The shares of common stock into which the shares of preferred stock are convertible and with respect to which the warrants are
exercisable represent approximately 23% of our common stock on a fully diluted basis as of that date. Holders of the preferred stock have no
liquidation preference, no voting rights except as required by law, the right to receive a nominal dividend of $0.0001 per share semi-annually
(aggregating less than $1,000 per year in total) and otherwise on a pro-rata basis to the extent that dividends are paid to holders of common stock,
limited anti-dilution rights in the context of stock splits, stock dividends and similar transactions, and no redemption rights.




The shares of preferred stock are
convertible into shares of common stock at the option of a preferred shareholder at any time, and in any amount, on or after June 30, 2005, but prior
to that date may only be converted if the preferred shareholder desiring to effect the conversion will not hold as a result of the conversion more than
750,000 shares of common stock, or if the common stock is trading on a national stock market and has had a closing price of $8.00 or more for 20 out of
the 30 trading days immediately preceding the conversion date (in which case, any number of shares may be converted). Notwithstanding the foregoing, in
the event of the transfer of shares of preferred stock in accordance with the terms of the agreements with the preferred shareholders, the preferred
stock automatically converts into shares of common stock. Healthaxis may compel conversion of the preferred stock or exercise of the warrants granted
to the preferred shareholders under some circumstances.




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Under the agreements with the
preferred shareholders, Healthaxis agreed that it will not issue any equity securities in a transaction implying a pre-money valuation of Healthaxis of
less than $14.5 million or at a per share price of less than $2.15 (these restrictions do not apply to the grant of stock options to Healthaxis
employees or directors in most circumstances). Further, until June 30, 2005, the preferred shareholders have a right of first refusal to match the
terms upon which any third party proposes to purchase from Healthaxis any equity securities having an aggregate purchase price of at least $1.0 million
and to match the terms upon which Healthaxis proposes an offering of its common stock. The preferred shareholders waived this right of first refusal
with respect to the financing transaction with the Investor described above.




As required by the agreements
with the preferred shareholders, Healthaxis has registered for resale the shares of common stock issuable upon conversion of the preferred stock or
exercise of the warrants. However, these agreements also place certain restrictions on the private sale or transferability of the securities held by
the preferred shareholders, and restrict the number of shares of common stock that may be sold in the public markets below a price of $3.50 per share.
These stock transfer restrictions lapse on June 30, 2005.




Critical Accounting Policies




Critical accounting policies are
those which are most important to the financial statement presentation and that require the most difficult, subjective complex judgments. There have
been no changes in the Companys critical accounting policies as described in the Companys Form 10-K for the year ended December 31,
2004.




Results of Operations




Three months ended March 31, 2005 compared to three months
ended March 31, 2004


|                 |  |  |  | (Table in thousands)Three Months Ended March
31, |      
|---------------- |  |  |  | ------------------------------------------------ | -----
|
|Revenues         |  |  |  | $                                                | 4,126
|Cost of
revenues |  |  |  |                                                  | 4,096
|Gross
profit     |  |  |  | $                                                | 30   
|% of
revenue     |  |  |  |                                                  | 1    



Revenues were down
approximately $123,000 (3%) in the three months ended March 31, 2005 compared to the same period in 2004. Data capture service revenue declined
$194,000 primarily as a result of two customers in a run-off stage. This reduction was partially offset by an increase of $71,000 in recurring PEPM
license fees due to ordinary rate increases with certain existing customers, as well as the migration of more business onto our claims system by
certain other customers. Smaller changes in professional services, transaction and other revenue were offset each other.




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Cost of revenues includes
all expenses directly associated with the production of revenue, and consists primarily of salaries and related benefits, rent, amortization and
depreciation, system expenses such as maintenance and repair, as well as other related consumables. Cost of revenues declined $257,000 (6%) in the
three months ended March 31, 2005 compared to the same period in 2004. Cost of revenues was 99% of revenues in the 2005 period compared to 102% in the
2004 period. Approximately $181,000 of the decrease in costs was due to lower personnel and contractor costs resulting from staff reductions. An
additional $47,000 of the decline in costs was due to reduced costs of travel and entertainment, supplies and other costs related to the staff
reductions.


|                                   |  |  |  | (Table in thousands)Three Months Ended March
31, |    
|---------------------------------- |  |  |  | ------------------------------------------------ | ---
|
|Sales and marketing expense        |  |  |  | $                                                | 213
|General and
administrative expense |  |  |  |                                                  | 644
|Amortization
of intangibles        |  |  |  |                                                  | 84 
|Interest and
other income, net     |  |  |  |                                                  | 8  
|Interest
expense                   |  |  |  |                                                  | 55 



Sales and marketing
expenses consist primarily of employee salaries and related benefits, as well as promotional costs such as direct mailing campaigns, trade shows
and media advertising. Sales and marketing expenses decreased $80,000 (27%) in the three months ended March 31, 2005 compared to the same quarter of
2004. Approximately $30,000 of the decrease was due to reduced consulting fees paid for product and market analysis and sales leads. The remaining
decrease in expenses was the result of lower personnel costs and the related decrease in benefits, travel and collateral material.




General and administrative
expenses include executive management, accounting, legal and human resources compensation and related benefits, as well as expenditures for
applicable overhead costs. These expenses decreased $324,000 (33%) in the three months ended March 31, 2005 compared to the same quarter of 2004.
Professional fees for accounting, legal and consulting services were reduced by $255,000 and personnel costs were reduced by $68,000. Other savings in
insurance and travel expenses were offset by increased property taxes.




Amortization of
intangibles includes the amortization of developed software and customer base acquired in the January 2001 Healthaxis merger. These expenses were
reduced $192,000 (70%) in the three months ended March 31, 2005 compared to the same quarter of 2004, as these intangible assets were fully amortized
in January 2005.




Interest and other income,
net decreased $19,000 (70%) in the three months ended March 31, 2005 compared to the same quarter of 2004 due primarily to lower balances of cash
and interest bearing notes receivable.




Interest expense decreased
slightly in the three months ended March 31, 2005 compared to the same quarter of 2004. Interest payments on the note payable to UICI were lower due to
the declining principal balance.




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Liquidity and Capital Resources




Overview of Cash Resources




At March 31, 2005, our cash and
cash equivalents amounted to $2.6 million compared to $3.9 million at December 31, 2004. The sources and uses of cash during the first quarter of 2005
are described more fully in   Analysis of Cash Flows below. We have experienced repeated losses, with the result that our cash
resources have declined. The Companys focus is on positive cash generation. We have been taking measures to address our liquidity needs,
including increasing our marketing and sales efforts, implementing further productivity improvements and seeking new sources of capital. To this end,
the Company entered into a Purchase Agreement with Tak Investments, Inc., which closed on May 13, 2005, and which provided the Company with an
additional source of liquidity as more fully described in  Overview  Financing Transaction above. Upon closing, the Company
received $5.0 million in gross proceeds in exchange for 2,222,222 shares of the Companys common stock. We believe that the Company will maintain
sufficient liquidity to fund operations for at least the next 12 months.




Analysis of Cash Flows




Cash used in operating
activities for the three months ended March 31, 2005 was approximately $1.2 million as compared to $723,000 for the same period in 2004. The
reduced net loss in 2005 was offset by changes in various working capital accounts, primarily accounts receivable and prepaid expenses. Changes in
working capital accounted for a $700,000 use of cash in the 2005 period as opposed to $245,000 cash generated for the comparable period in
2004.




Cash used in investing
activities for the three months ended March 31, 2005 was $168,000 as compared to $149,000 for the same period in 2004. The Companys investing
activities continue to be primarily in the areas of developing software enhancements, contract start-up activities and acquisition of property,
equipment and software.




Cash used in financing
activities for the three months ended March 31, 2005 was $0 as compared to $221,000 for the same period in 2004. The decreased use of cash was due
primarily to $223,000 payments on preferred stock dividends made in January of 2004. In June 2004, the terms of the preferred stock were amended and
now contain only a nominal dividend aggregating to less than $1,000 per year. See -Overview  Preferred Stock above. Principle and
interest payments on our note payable to UICI of $197,000 during 2005 and $195,000 in the comparable period in 2004 were netted against accounts
receivable from UICI and are therefore reflected as non-cash financing transactions in the Consolidated Statements of Cash Flows for all periods
presented. See  Note Payable to UICI below and Note H to the Consolidated Financial Statements.




Note Payable to UICI




On September 30, 2003, the
Company purchased all Healthaxis securities held by UICI for $3.9 million. The UICI holdings included 2,585,769 shares of Healthaxis common stock, or
48.3% of the Companys then outstanding common stock; 1,424 shares of Series A Convertible preferred stock, or 6.1% of the then outstanding
preferred stock; and warrants to purchase 22,240 shares of common stock. The repurchased securities were retired. The total purchase price of $3.9
million included $500,000 cash at closing, and a $3.4 million promissory note, which is due over three years and bears interest at 6%. The promissory
note will be paid through deductions from the monthly invoices for services provided by the Company to certain UICI subsidiaries. The amount of the
monthly payment is equal to the greater of one half of the invoice amount for such services or $65,000. A balloon principal payment is due at the
maturity of the note if the note has not been paid through the monthly payments.




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During the three-month period
ended March 31, 2005, the Company netted against accounts receivable an aggregate of $197,000 under the promissory note, of which $158,000 was
principal and $39,000 was interest. This is reflected as a non-cash financing transaction in the Companys Consolidated Statements of Cash Flows.
As of March 31, 2005, the balance due under the promissory note is $2.5 million (of which $646, 000 is classified as short-term).




Lease and Other Commitments




Healthaxis has certain capital
and operating lease commitments over the next five years. These leases are primarily for office space and data processing equipment. In April 2005, the
Company entered into a lease for approximately 20,000 square feet of office space located at 7301 North State Highway 161, Irving, Texas. The new lease
was entered into with the intent of relocating the corporate headquarters from the present location at 5215 North OConnor Blvd, Irving, Texas,
where the Company occupies approximately 31,300 square feet. Lease payments on the new lease will start on January 1, 2006, which coincides with the
termination of the North OConnor Blvd. lease on December 31, 2005. The new lease also provides terms under which ownership of certain furniture
and equipment will be conveyed to the Company in April 2007, providing that the Company has met its obligations under the lease at that time. While the
Company plans to continue to make payments on the North OConnor lease until its expiration in December 2005, the relocation of employees,
equipment and related materials is scheduled to take place in the second quarter of 2005. As such, the Company anticipates accruing a loss on the
abandonment of the North OConnor Blvd. property, based upon the future lease payment obligation as of the cease-use date plus other relocation
expenses. Based upon the reduced square footage and the lower rental rate per square foot of the new facility, the Company expects a cash savings of
over $700,000 per year, including lease expenses, utilities, parking, and property taxes, commencing in January 2006.




Healthaxis has no other
significant cash commitments other than those required by the normal day-to-day operation of its business.




Recently Adopted Accounting
Pronouncements




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




Item 4. Controls and Procedures




As of the end of the period
covered by this quarterly report, the Company carried out an evaluation, under the supervision and with the participation of the Company management,
including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-14. Based on that evaluation, the Chief Executive
Officer and the Chief Financial Officer have concluded that these disclosure controls and procedures are effective as of the end of the period covered
by this report. There has been no change in the Companys internal control over financial reporting that occurred during the period covered by
this report that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial
reporting.




We have re-evaluated our
disclosure controls and procedures in light of the factors that led us to make the restatements in this report. Based on our review and discussion with
our audit committee, we determined that the reclassifications are necessary to reflect the non-cash financing transaction and have amended our
financial statements included in this Form 10-Q/A to present them on a comparable basis with subsequent reports. We continue to believe our disclosure
controls and procedures were effective at March 31, 2005. This conclusion is based upon the following: 1) The Company views its internal controls over
financial reporting as a component of its overall disclosure controls and procedures. 2) The Company believes that the reclassification related to the
UICI debt payments should not change the readers view on the overall sources and uses of cash for the accounting




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periods reported, or the
readers opinion of the Companys overall cash position, future obligations or liquidity. Furthermore, the netting process that lead to the
reclassifications in the Consolidated Statements of Cash Flows was fully disclosed in Managements Discussion and Analysis of Financial
Condition and Results of Operations  Overview  Note Payable to UICI. 3) The restatements had no effect on the Companys
Consolidated Statements of Operations or Consolidated Balance Sheets for the periods reported herein.




Limitations on Effectiveness of Controls




A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their
costs. The likelihood of achieving the objectives of a control system is affected by limitations inherent in such controls and procedures, including
the fact that human judgment in decision-making can be faulty and that breakdowns in internal controls can occur because of human failures such as
simple errors or mistakes or intentional circumvention of the established process. The Companys management, including the Chief Executive Officer
and Chief Financial Officer, do not expect that the Companys disclosure controls or internal controls for financial reporting will prevent all
error and all fraud. Due to the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be
detected.




PART II. OTHER INFORMATION


|Item 6. |  | Exhibits | 
|------- |  | -------- | 
|        |  | (10.1)   | 
|        |  | (31.1)   | 
|        |  | (31.2)   | 
|        |  | (32.1)   | 



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Signature




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


|                       |  |  |  |                                                                                              |  | 
|---------------------- |  |  |  | -------------------------------------------------------------------------------------------- |  | 
|                       |  |  |  |                                                                                              |  | 
|                       |  |  |  | Healthaxis Inc.                                                                             
|                       |  |  |  |                                                                                             
|                       |  |  |  |                                                                                             
|Date: November
9, 2005 |  |  |  | By:
/s/ John M. CarradineJohn M. Carradine, President and Chief Executive Officer           
|                       |  |  |  | (Principal Executive Officer)                                                               
|                       |  |  |  |                                                                                             
|                       |  |  |  |                                                                                             
|                       |  |  |  | By:
/s/ Jimmy D. TaylorJimmy D. Taylor, Chief Financial Officer(Principal Financial Officer)



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Exhibit Index


|(10.1) |  |  |  | Sublease Agreement effective April 1, 2005 between BearingPoint,Inc. and Registrant, , previously filed with the Quarterly Report on Form 10-Q
on May 16, 2005.
|------ |  |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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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