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




FORM 10-Q/A


|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended . . . . . . . . . . . . . . . . . .  June 30, 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.)



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




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




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




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




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: 5,988,855 shares of common stock, par value $.10,
outstanding as of August 5, 2005.




Page 1 of 27


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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 June 30, 2005, filed with the SEC on August 15, 2005, to reflect an
adjustment to the Companys Consolidated Statements of Operations for the three-month and six-month periods ended June 30, 2004. There is no
impact or change to the financial results, as reported, for the three-month or six-month periods ended June 30, 2005.




The adjustment relates to the
calculation of the fair value of the modified preferred stock and warrants, as modified and issued on June 30, 2004. This adjustment changes the net
loss attributable to common shareholders from $1.5 million ($.54 per share) to $5.7 million ($2.07 per share) on the Consolidated Statements of
Operations for the three-month period ended June 30, 2004, and from $3.3 million ($1.19 per share) to $7.5 million ($2.72 per share) for the six-month
period then ended. There is no impact to the Consolidated Balance Sheets, Consolidated Statements of Cash Flows, or to the Companys net loss as
reported for all periods included herein. The restated items are described more fully in Note G of the Consolidated Financial Statements 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 27


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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)


|                                                                                                                                   |  |  |  | June 30, 2005 |          | December 31, 2004
|---------------------------------------------------------------------------------------------------------------------------------- |  |  |  | ------------- | -------- | -----------------
|Assets                                                                                                                             |  |  |  |               |          |                  
|Current assets:                                                                                                                    |  |  |  |               |          |                  
|Cash and cash
equivalents                                                                                                          |  |  |  | $             | 6,453    |                  
|Accounts
receivable, net of allowance for doubtful accounts of $48                                                                 |  |  |  |               | 2,374    |                  
|Prepaid
expenses                                                                                                                   |  |  |  |               | 813      |                  
|Total current
assets                                                                                                               |  |  |  |               | 9,640    |                  
|                                                                                                                                  
|Property,
equipment and software, less accumulated depreciation and amortization of $8,843 and $9,421, respectively                |  |  |  |               | 1,727    |                  
|Contract
start-up costs, less accumulated amortization of $1,472 and $1,199, respectively                                          |  |  |  |               | 441      |                  
|Customer base,
less accumulated amortization of $4,214 and $4,130, respectively                                                    |  |  |  |               |         |                  
|Goodwill                                                                                                                           |  |  |  |               | 11,276   |                  
|Other
assets                                                                                                                       |  |  |  |               | 80       |                  
|Total
assets                                                                                                                       |  |  |  | $             | 23,164   |                  
|                                                                                                                                  
|Liabilities and Stockholders Equity                                                                                               |  |  |  |               |          |                  
|Current
liabilities:                                                                                                               |  |  |  |               |          |                  
|Accounts
payable                                                                                                                   |  |  |  | $             | 1,526    |                  
|Accrued
liabilities                                                                                                                |  |  |  |               | 677      |                  
|Accrued charge
on lease abandonment                                                                                                |  |  |  |               | 440      |                  
|Deferred
revenues                                                                                                                  |  |  |  |               | 780      |                  
|Current
portion of notes payable                                                                                                   |  |  |  |               | 657      |                  
|Current
portion of post retirement and employment liabilities                                                                      |  |  |  |               | 124      |                  
|Current
portion of capital lease obligations                                                                                       |  |  |  |               | 117      |                  
|Total current
liabilities                                                                                                          |  |  |  |               | 4,321    |                  
|                                                                                                                                  
|Notes payable,
net of current portion                                                                                              |  |  |  |               | 1,694    |                  
|Post
retirement and employment liabilities, net of current portion                                                                 |  |  |  |               | 794      |                  
|Capital lease
obligations, net of current portion                                                                                  |  |  |  |               | 144      |                  
|Other
liabilities                                                                                                                  |  |  |  |               | 406      |                  
|Total
liabilities                                                                                                                  |  |  |  |               | 7,359    |                  
|                                                                                                                                  
|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 5,988,855 and 3,518,291 shares, respectively |  |  |  |               | 599      |                  
|                                                                                                                                  
|Additional
paid-in capital                                                                                                         |  |  |  |               | 448,510  |                  
|Notes
receivable from employees                                                                                                    |  |  |  |               | (23      | )                
|Accumulated
deficit                                                                                                                |  |  |  |               | (436,133 | )                
|Total
stockholders equity                                                                                                         |  |  |  |               | 15,805   |                  
|Total
liabilities and stockholders equity                                                                                         |  |  |  | $             | 23,164   |                  



See notes to unaudited consolidated financial
statements.




Page 3 of 27


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Healthaxis Inc. and Subsidiaries Consolidated
Statements of Operations




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


|                                                                                     |  |  |  | Three Months Ended June 30, |           | Six Months Ended June 30, | 
|------------------------------------------------------------------------------------ |  |  |  | --------------------------- | --------- | ------------------------- | 
|
|
|Revenues                                                                             |  |  |  | $                           | 4,011     |                           | 
|                                                                                    
|Expenses:                                                                            |  |  |  |                             |           |                           | 
|Costs of
revenue                                                                     |  |  |  |                             | 3,696     |                           | 
|Sales and
marketing                                                                  |  |  |  |                             | 254       |                           | 
|General and
administrative                                                           |  |  |  |                             | 813       |                           | 
|Reversal of
contingent tax liability                                                 |  |  |  |                             | (979      | )                         | 
|Lease
abandonment charge                                                             |  |  |  |                             | 500       |                           | 
|Amortization
of intangibles                                                          |  |  |  |                             | -         |                           | 
|Total
expenses                                                                       |  |  |  |                             | 4,284     |                           | 
|                                                                                    
|Operating
loss                                                                       |  |  |  |                             | (273      | )                         | 
|                                                                                    
|Interest
income and other income, net                                                |  |  |  |                             | 20        |                           | 
|Interest
expense                                                                     |  |  |  |                             | (72       | )                         | 
|                                                                                    
|Net
loss                                                                             |  |  |  |                             | (325      | )                         | 
|Add: Preferred
stock dividend reversal                                               |  |  |  |                             |          |                           | 
|Less: Fair
value of consideration transferred over carrying value of preferred stock |  |  |  |                             |          |                           | 
|Net loss
attributable to common shareholders                                         |  |  |  | $                           | (325      | )                         | 
|                                                                                    
|Net loss per
share of common stock (basic and diluted)                               |  |  |  | $                           | (0.07     | )                         | 
|                                                                                    
|Weighted
average common shares used in computing loss per share                      |  |  |  |                             |           |                           | 
|Basic and
diluted                                                                    |  |  |  |                             | 4,938,794 |                           | 



See notes to unaudited consolidated financial
statements.




Page 4 of 27


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Healthaxis Inc. and Subsidiaries Consolidated
Statements of Cash Flows




(In thousands)
(Unaudited)


|                                                                            |  |  |  | Six Months Ended |       
|--------------------------------------------------------------------------- |  |  |  | ---------------- | ------
|
|Cash flows
from operating activities                                        |  |  |  |                  |       
|Net
loss                                                                    |  |  |  | $                | (1,283
|Adjustments
to reconcile net loss to net cash used in operating activities: |  |  |  |                  |       
|Depreciation
and amortization                                               |  |  |  |                  | 834   
|Bad debt
reserve                                                            |  |  |  |                  |      
|Loss on
disposal of fixed assets                                            |  |  |  |                  | 2     
|Reversal of
tax accrual                                                     |  |  |  |                  | (979  
|Stock option
compensation                                                   |  |  |  |                  |      
|Change
in:                                                                  |  |  |  |                  |       
|Accounts
receivable                                                         |  |  |  |                  | (333  
|Prepaid
expenses and other current assets                                   |  |  |  |                  | (178  
|Other
assets                                                                |  |  |  |                  | (24   
|Accounts
payable and accrued liabilities                                    |  |  |  |                  | 291   
|Accrued
charge on lease abandonment                                         |  |  |  |                  | 440   
|Deferred
revenues                                                           |  |  |  |                  | (143  
|Other
liabilities                                                           |  |  |  |                  | (35   
|Net cash used
in operating activities                                       |  |  |  |                  | (1,408
|                                                                           
|Cash flows
from investing activities                                        |  |  |  |                  |       
|Collection on
notes receivable                                              |  |  |  |                  |      
|Capitalized
software and contract start-up costs                            |  |  |  |                  | (59   
|Purchases of
property, equipment and software                               |  |  |  |                  | (307  
|Proceeds from
sale of property, equipment and software                      |  |  |  |                  | 9     
|Net cash used
in investing activities                                       |  |  |  |                  | (357  
|                                                                           
|Cash flows
from financing activities                                        |  |  |  |                  |       
|Net proceeds
from issuance of common stock                                  |  |  |  |                  | 4,288 
|Payment of
preferred stock dividends                                        |  |  |  |                  |      
|Other                                                                       |  |  |  |                  |      
|Net cash
generated (used) in financing activities                           |  |  |  |                  | 4,288 
|Increase
(decrease) in cash and cash equivalents                            |  |  |  |                  | 2,523 
|Cash and cash
equivalents, beginning of period                              |  |  |  |                  | 3,930 
|Cash and cash
equivalents, end of period                                    |  |  |  | $                | 6,453 
|                                                                           
|Non-cash
financing activities:                                              |  |  |  |                  |       
|Accounts
receivable applied to note and interest payable in lieu of cash    |  |  |  | $                | 403   



See notes to unaudited consolidated financial
statements.




Page 5 of 27


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Healthaxis Inc. and Subsidiaries Notes to Unaudited
Consolidated Financial Statements June 30, 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 and six-month periods ended June 30, 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.




Reclassification of prior year
amounts




Certain prior year amounts have
been reclassified to conform with the current year presentation or in accordance with applicable accounting requirements.




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 11,436,211
and 6,092,598 shares at June 30, 2005 and 2004




Page 6 of 27


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respectively, in 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:


|                                 |  |  |  | 2005 |            | 2004
|-------------------------------- |  |  |  | ---- | ---------- | ----
|Options                          |  |  |  |      | 1,333,816  |     
|Warrants                         |  |  |  |      | 7,250,737  |     
|Preferred
stock                  |  |  |  |      | 2,851,658  |     
|Total common
shares if converted |  |  |  |      | 11,436,211 |     



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:


|                                                                                |  |  |  | (In thousands, except per share
data) |      
|------------------------------------------------------------------------------- |  |  |  | ------------------------------------- | -----
|
|
|
|Net loss,
attributable to common shareholders                                   |  |  |  | $                                     | (325 
|Stock based
compensation expense recorded under the intrinsic value method      |  |  |  |                                       |     
|Pro forma
stock based compensation expense computed under the fair value method |  |  |  |                                       | (168 
|                                                                               
|Pro forma net
loss                                                              |  |  |  | $                                     | (493 
|                                                                               
|Loss per share
of common stock, basic and diluted                               |  |  |  |                                       |      
|As
reported                                                                     |  |  |  | $                                     | (0.07
|Pro
forma                                                                       |  |  |  | $                                     | (0.10



Page 7 of 27


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The Company granted 329,000
options in the second quarter 2005, 275,000 of which were granted to employees simultaneous with the closing of the financing transaction described in
Note E below. 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 2.8 years, expected stock volatility of 69% and risk free
interest rates of 3.71%. The weighted-average grant-date fair value of options granted during 2005 was $.80.




Note B  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 thousands) |   
|---------------------------------- |  |  |  | -------------------- | --
|
|
|Interest
cost                      |  |  |  | $                    | 14
|Transition
obligation amortization |  |  |  |                      | 14
|Net post
retirement expense        |  |  |  | $                    | 28



Note C  Significant Customer
Concentrations




For the three months ended June
30, 2005 and 2004, each of four customers represented greater than 10% of revenues, totaling $2.7 million (67%) and $2.5 million (63%), respectively,
of the Companys total revenues. For the six months ended June 30, 2005 and 2004, these four customers accounted for $5.3 million (66%) and $5.1
million (63%), respectively, of the Companys total revenues. At June 30, 2005 and December 31, 2004, one customer accounted for $817,000 (34%)
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 D  Other Liabilities and
Contingencies




Other liabilities include
$324,000 and $1.3 million of contingent tax liabilities at June 30, 2005 and December 31, 2004. In the period ending June 30, 2005, the Company
reversed a contingent tax liability of approximately $979,000 as the related limitation period has expired.




Page 8 of 27


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Note E  Financing Transaction




In May 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 agreement with the Investor, 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 three warrants at the closing. 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 under certain conditions, but only permits the Investor to exercise the warrant for up to 2,222,222 shares of common stock. The second
warrant, which has an exercise price of $2.70 and a three-year term, permits the Investor to purchase up to 1,388,889 additional shares of common
stock. Of that total, 555,556 shares are immediately available to be exercised by the Investor and 833,333 shares are dependent upon the amount
ultimately invested under the first warrant. The third warrant, which has an exercise price of $3.15 and a four-year term, permits the Investor to
purchase up to 1,388,889 additional shares of common stock. Of that total, 555,556 shares are immediately available to be exercised by the Investor and
833,333 shares are dependent upon the amount ultimately invested under the first warrant.




As a part of the closing, the
Company also entered into a five year Remote Resourcing Agreement with Healthcare BPO Partners L.P., a company affiliated with the Investor and owned
by Mr. Tak. Healthcare BPO Partners, based in Jaipur India, provides personnel and infrastructure that is utilized by the Company to provide business
process outsourcing services and other software development and technical support services to support the Companys operations. The services
outsourced to this offshore vendor supplement the Companys existing wholly-owned operations in Utah, Texas and Jamaica. For the three and six
months ended June 30, 2005, the Company incurred $80,000 of costs related to this agreement, which is included in accounts payable at June 30,
2005.




Note F Real Estate Lease




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 for the purpose 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.




In June 2005, the Company
substantially completed the move of its headquarters and incurred certain costs related to the relocation of personnel and equipment and recorded a
lease abandonment charge of $500,000 as of the cease-use date in the second quarter 2005. This charge consists of relocation costs incurred to date and
the write-off of certain assets abandoned in the move, plus a $440,000 accrual for the future rent and rent related obligations of the former
headquarters. The accrued rent and rent related obligations will be paid on a monthly basis through December 31, 2005 in accordance with the lease
terms. Future expenses related to the abandonment, such as the Companys pro-rata share of utility costs and possible equipment de-installation
charges will be expensed as incurred in the lease abandonment charge.




Lease payment obligations under
the new lease start in January 2006 and end in June 2010. Rental expense will be based upon the total rental payments taken on a straight-line basis
over the 63-month term of the lease, including the rent abatement period from April to December 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. A capital lease obligation of $254,000 was recorded in the second quarter of 2005 to recognize that portion of the total
payments, which are allocated to the acquisition of the furniture and equipment. Allocation of the total lease payment between the office space and
the




Page 9 of 27


---



furniture and equipment
acquisition was based upon a third-party appraisal of the fair market value of the furniture and equipment.




Note G  Restatement of Financial
Statements




In June 2004, Healthaxis closed 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. The Company initially recorded this transaction using the estimated fair value that it calculated
by performing a valuation of the modified preferred stock and warrants issued in the transaction. The valuation was supported by an independent expert
engaged by the Company. The Company has now concluded that the estimated fair value of the preferred stock (convertible into shares of common stock on
a one-for-one basis) should be based upon the quoted market price of the Companys common stock on the date of the transaction, in accordance with
SFAS No. 107, Disclosures about Fair Value of Financial Instruments. The impact of this change to the Consolidated Statement of Operations
is summarized below:


|(Table in $000s except per share
data)                                              |  |  |  | Three-Months EndedJune 30, 2004 |        | Six-Months EndedJune 30, 2004 | 
|------------------------------------------------------------------------------------ |  |  |  | ------------------------------- | ------ | ----------------------------- | 
|
|Net
loss                                                                             |  |  |  | $                               | (1,877 | )                             | 
|Add: Preferred
stock dividend reversal                                               |  |  |  |                                 | 110    |                               | 
|Add: Carrying
value of preferred stock over fair value of consideration transferred  |  |  |  |                                 | 261    |                               | 
|Less: Fair
value of consideration transferred over carrying value of preferred stock |  |  |  |                                 |        |                               | 
|Net loss
attributable to common shareholders                                         |  |  |  | $                               | (1,506 | )                             | 
|                                                                                    
|Income (loss)
per share of common stock (Basic and fully diluted):                   |  |  |  | $                               | (0.54  | )                             | 



As noted above, there was no
change to the Companys reported net loss as a result of this adjustment. Additionally, there was no change to the Companys Consolidated
Balance Sheets or to its Consolidated Statements of Cash Flows.




Page 10 of 27


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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. These licenses provide for use of the software in the Companys hosted environment and do not give the




Page 11 of 27


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customer the contractual
right to take possession of the software. The 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 and no new such licenses have been granted in 2005 or 2004.




A significant portion of the
Companys revenues 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 three warrants (the Warrants) at the Closing. 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




Page 12 of 27


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exercised under the first
Warrant, but could total up to an additional 2,777,778 shares of common stock and could provide additional cash to 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. In accordance with the terms of the Investor Rights Agreement, the Investor recently designated and the Board of Directors elected two
additional members to the Board of Directors. 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, based in Jaipur India, provides personnel and infrastructure that is
utilized by the Company to provide business process outsourcing services and other software development and technical support services to support the
Companys operations. Services outsourced to this offshore vendor supplement the Companys existing wholly-owned 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 August 5, 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 22% 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. However,
the agreements restrict the number of shares of common stock that may be sold in the public markets below a price of $3.50 per share. 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.




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.




Page 13 of 27


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Results of Operations




Three months ended June 30, 2005 compared to three months
ended June 30, 2004


|                 |  |  |  | (Table in thousands)Three Months Ended June
30, |      
|---------------- |  |  |  | ----------------------------------------------- | -----
|
|Revenues         |  |  |  | $                                               | 4,011
|Cost of
revenues |  |  |  |                                                 | 3,696
|Gross
profit     |  |  |  | $                                               | 315  
|% of
revenue     |  |  |  |                                                 | 8%   



Revenues were up
approximately $117,000 (3%) in the three months ended June 30, 2005 compared to the same period in 2004. Increases in professional services revenue of
$90,000, transaction revenue of $52,000 and recurring PEPM license fee revenue of $148,000 were primarily the result of the expansion and increased
number of covered lives with one of our larger clients. This increase was partially offset by a decline of $145,000 in data capture revenue primarily
the result of a customer in a run-off stage.




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 $328,000 (8%) in the
three months ended June 30, 2005 compared to the same period in 2004. Cost of revenues was 92% of revenues in the 2005 period compared to 103% in the
2004 period. Approximately $257,000 of the decrease in costs was due to lower personnel and contractor costs resulting from staff reductions. An
additional $62,000 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 June
30, |     
|------------------------------------ |  |  |  | ----------------------------------------------- | ----
|
|Sales and
marketing expense          |  |  |  | $                                               | 254 
|General and
administrative expense   |  |  |  |                                                 | 813 
|Reversal of
contingent tax liability |  |  |  |                                                 | (979
|Lease
abandonment charge             |  |  |  |                                                 | 500 
|Amortization
of intangibles          |  |  |  |                                                 |    
|Interest and
other income, net       |  |  |  |                                                 | 20  
|Interest
expense                     |  |  |  |                                                 | (72 



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 $87,000 (26%) in the three months ended June 30, 2005 compared to the same quarter of
2004 due to changes in the sales staff. Lower personnel costs, consulting fees and the related decrease in travel resulted in a decline of $111,000.
This decline in expenses was partially offset by an increase of $32,000 in increased marketing expenses, including collateral material and trade show
attendance.




Page 14 of 27


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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 $293,000 (26%) in the three months ended June 30, 2005 compared to the same quarter of 2004. The
decline as due to a reduction in outside professional fees for legal, accounting and consulting related to expenses incurred in 2004 for the preferred
stock conversion.




Reversal of contingent tax
liability of $979,000 was recorded as a credit to the Statement of Operations in the three months ended June 30, 2005. This was a result of the
expiration of the applicable statute of limitation period in the second quarter 2005. There was no such credit for in 2004.




Lease abandonment charge
consists of expenses related to the Companys former headquarters, which was abandoned in favor of a new office lease in June 2005. The $500,000
charge in the three months ended June 30, 2005 includes relocation costs incurred to date and the write-off of certain assets abandoned in the move,
plus an accrual for the future rent and certain rent related obligations of the former headquarters. There was no such charge in 2004.




Amortization of
intangibles includes the amortization of developed software and customer base acquired in the January 2001 Healthaxis merger. These expenses were
reduced $252,000 in the three months ended June 30, 2005 compared to the same quarter of 2004, as these intangible assets were fully amortized in
January 2005.




Interest and other income,
net increased $7,000 (54%) in the three months ended June 30, 2005 compared to the same quarter of 2004 due primarily to higher balances of cash
resulting from the financing transaction completed in May 2005.




Interest expense increased
$11,000 in the three months ended June 30, 2005 compared to the same quarter of 2004. Interest expense is primarily related to the note payable to
UICI.




Six months ended June 30, 2005 compared to six months
ended June 30, 2004


|                 |  |  |  | (Table in thousands) Six Months Ended June
30, |      
|---------------- |  |  |  | ---------------------------------------------- | -----
|
|Revenues         |  |  |  | $                                              | 8,137
|Cost of
revenues |  |  |  |                                                | 7,792
|Gross
profit     |  |  |  | $                                              | 345  
|% of
revenue     |  |  |  |                                                | 4%   



Revenues were down $6,000 in the six months ended June 30, 2005 compared to the same period in 2004.




The loss of a data capture
client, now in a run-off stage, resulted in a $339,000 reduction in data capture revenue.




This decline was offset by
increases in professional services revenue of $144,000 and recurring PEPM license fee revenue of $220,000, which was primarily the result of the
expansion and increased number of covered lives with one of our larger clients, as well as increased project work with several other clients. Small
declines in other revenues account for the remaining net reduction for the comparable periods.




Page 15 of 27


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Cost of revenues declined
$585,000 (7%) in the six months ended June 30, 2005 compared to the same period in 2004. Cost of revenues was 96% of revenues in 2005 compared to 103%
in 2004. Approximately $438,000 of the decrease in costs was due to lower personnel and contractor costs resulting from staff reductions. An additional
$124,000 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)Six Months Ended June
30, |      
|------------------------------------ |  |  |  | --------------------------------------------- | -----
|
|Sales and
marketing expense          |  |  |  | $                                             | 467  
|General and
administrative expense   |  |  |  |                                               | 1,457
|Reversal of
contingent tax liability |  |  |  |                                               | (979 
|Lease
abandonment charge             |  |  |  |                                               | 500  
|Amortization
of intangibles          |  |  |  |                                               | 84   
|Interest and
other income, net       |  |  |  |                                               | 28   
|Interest
expense                     |  |  |  |                                               | (127 



Sales and marketing
expenses decreased $167,000 (26%) in the six months ended June 30, 2005 compared to the same period of 2004. Lower personnel costs, consulting fees
and the related decrease in travel and supplies resulted in a decline of $193,000. This decline in expenses was partially offset by an increase of
$29,000 in increased marketing expenses, including collateral material and trade show attendance.




General and administrative
expenses decreased $617,000 (30%) in the six months ended June 30, 2005 compared to the same period of 2004. The decline was due primarily to a
reduction in outside professional fees for legal, accounting and consulting services. Approximately $373,000 of that decline was specifically related
to expenses incurred in 2004 for the preferred stock conversion.




Reversal of contingent tax
liability of $979,000 was recorded as a credit to the Statement of Operations in the six months ended June 30, 2005. This was a result of the
expiration of the applicable statute of limitation period in the second quarter 2005. There was no such credit for in 2004.




Lease abandonment charge
consists of expenses related to the Companys former headquarters, which was abandoned in June 2005 in favor of a new office lease completed in
April 2005. The $500,000 charge in the six months ended June 30, 2005 includes relocation costs incurred to date and the write-off of certain assets
abandoned in the move, plus an accrual for the future rent and certain rent related obligations of the former headquarters. There was no such charge in
2004.




Amortization of
intangibles was reduced $444,000 (84%) in the six months ended June 30, 2005 compared to the same period of 2004, as the developed software and
customer base were fully amortized in January 2005.




Interest and other income,
net decreased $12,000 in the six months ended June 30, 2005 compared to the same period of 2004 due to lower cash balances during most of the 2005
period, prior to the financing transaction in May, and lower balances on notes receivable resulting from the normal course of
collections.




Interest expense was
relatively unchanged during the six months ended June 30, 2005 compared to the same period of 2004. Interest expense is primarily related to the note
payable to UICI.




Page 16 of 27


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Liquidity and Capital Resources




Overview of Cash Resources




At June 30, 2005, our cash and
cash equivalents amounted to $6.5 million compared to $3.9 million at December 31, 2004 and $2.6 million at March 31, 2005. The sources and uses of
cash during the first six months of 2005 are described more fully in  Analysis of Cash Flows below. 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 and warrants. Additionally, the Company has taken other actions to address
its operating losses, which have historically resulted in declining cash balances. These steps include increasing the Companys marketing and
sales efforts and implementing further productivity improvements. The Companys focus is on revenue generation and positive cash flow, however
there can be no assurances if or when that will occur. 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 six months ended June 30, 2005 was approximately $1.4 million as compared to $1.5 million for the same period in 2004. The
reduced net loss in 2005 was offset by changes in various working capital accounts, primarily accounts receivable. Changes in working capital generated
$18,000 cash in the 2005 period as opposed to $739,000 million cash generated for the comparable period in 2004.




Cash used in investing
activities for the six months ended June 30, 2005 was $357,000 as compared to $354,000 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. The primary use of cash in the 2005 period was $307,000 of property, equipment and software. This excludes $254,000 of
furniture and fixtures acquired with a capital lease in connection with the new office lease, entered into in April 2005, for relocation of the
Companys headquarters. See Lease and Other Commitments below.




Cash generated in financing
activities for the six months ended June 30, 2005 was approximately $4.3 million as compared to cash used of $221,000 for the same period in 2004.
Proceeds from the sale of common stock in May 2005 as further described in   Overview  Financing Transaction above was the
source of $4.3 million in cash, net of all closing and transaction costs. In addition, $223,000 preferred stock dividend payments were made in January
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 $403,000 during 2005 and $398,000 in
the comparable period in 2004 were netted against accounts receivable from UICI. The Consolidated Statements of Cash Flows for the six months ended
June 30, 2004 have been reclassified to reflect this as a non-cash financing activity. See   Note Payable to UICI
below.




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%. Monthly payments
on the promissory note are paid through




Page 17 of 27


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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. During the six-month period ended June 30, 2005, the Company netted against accounts receivable an aggregate of $403,000 under
the promissory note, of which $327,000 was principal and $76,000 was interest. This is reflected as a non-cash financing transaction in the
Companys Consolidated Statements of Cash Flows. As of June 30, 2005, the balance due under the promissory note is $2.4 million (of which $657,000
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 was substantially completed in the second quarter of 2005. As such, the Company accrued a lease abandonment charge,
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




None




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 properly present the fair value of the modified preferred stock and
warrants 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 June 30, 2005.




Page 18 of 27


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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 restatement related to the recording of the modified preferred stock transaction was the result of a different
interpretation of the relevant accounting guidance, specifically with respect to the calculation of fair value of the modified preferred stock, and
that the hiring of an independent valuation expert to support the Companys internally calculated fair value reflects the Companys efforts
to record an accurate fair value. Furthermore, this transaction is not one that the Company encounters in its normal course of business and is not
expected to be a recurring event. 3) The restatements had no effect on the Companys reported net loss on the Statement of Operations, and had no
effect on the Consolidated Balance Sheets or Consolidated Statements of Cash Flows.




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.




Page 19 of 27


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PART II. OTHER INFORMATION


|Item
      6. |  | Exhibits | 
|------------- |  | -------- | 
|              |  | 10.1     | 
|              |  | 10.2     | 
|              |  | 10.3     | 
|              |  | 10.4     | 
|              |  | 10.5     | 
|              |  | 10.6     | 
|              |  | 10.7     | 
|              |  | 10.8     | 
|              |  | 10.9     | 
|              |  | 10.10    | 
|              |  | 10.11    | 



Page 20 of 27


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|Item
      6. |  | Exhibits | 
|------------- |  | -------- | 
|              |  | 10.12    | 
|              |  | 31.1     | 
|              |  | 31.2     | 
|              |  | 32.1     | 



Page 21 of 27


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Signature




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


|                       |  |  |  | Healthaxis Inc.                                                                                               
|---------------------- |  |  |  | --------------------------------------------------------------------------------------------------------------
|                       |  |  |  |                                                                                                               
|                       |  |  |  |                                                                                                               
|Date: 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 (PrincipalFinancial Officer)                  



Page 22 of 27


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Exhibit Index


|10.2  | Stock
        and Warrant Purchase Agreement dated as of February 23, 2005, between
        Healthaxis Inc. and Tak Investments, Inc. (incorporated by reference to
        Exhibit 10.1 to the Form 8-K filed May 17, 2005).
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|10.2  | Warrant (#1) executed by Healthaxis Inc. in favor of Tak Investments,
        Inc. for up to 3,333,333 common shares (incorporated by reference to Exhibit
        10.2 to the Form 8-K filed May 17, 2005).                 
|     
|10.3  | Warrant (#2) executed by Healthaxis Inc. in favor of Tak Investments,
        Inc. for up to 1,388,889 common shares (incorporated by reference to Exhibit
        10.3 to the Form 8-K filed May 17, 2005).                 
|     
|10.4  | Warrant (#3) executed by Healthaxis Inc. in favor of Tak Investments,
        Inc. for up to 1,388,889 common shares (incorporated by reference to Exhibit
        10.4 to the Form 8-K filed May 17, 2005).                 
|     
|10.5  | Investor Rights Agreement dated as of May 13, 2005 between Healthaxis
        Inc. and Tak Investments, Inc. (incorporated by reference to Exhibit 10.5
        to the Form 8-K filed May 17, 2005).                         
|     
|10.6  | Registration Rights Agreement dated as of May 13, 2005 between Healthaxis
        Inc. and Tak Investments, Inc. (incorporated by reference to Exhibit 10.6
        to the Form 8-K filed May 17, 2005).                     
|     
|10.7  | Remote Resourcing Agreement dated as of May 13, 2005 between Healthaxis,
        Ltd. and Healthcare BPO Partners, L.P. (incorporated by reference to Exhibit
        10.7 to the Form 8-K filed May 17, 2005).              
|     
|10.8  | Amendment to Change in Control Employment Agreement dated May 13, 2005
        between Healthaxis, Ltd. and James W. McLane (incorporated by reference
        to Exhibit 10.8 to the Form 8-K filed May 17, 2005).          
|     
|10.9  | Amendment to Change in Control Employment Agreement dated May 13, 2005
        between Healthaxis, Ltd. and John M. Carradine (incorporated by reference
        to Exhibit 10.9 to the Form 8-K filed May 17, 2005).        
|     
|10.10 | Amendment to Change in Control Employment Agreement dated May 13, 2005
        between Healthaxis, Ltd. and J. Brent Webb (incorporated by reference
        to Exhibit 10.10 to the Form 8-K filed May 17, 2005).           
|     
|10.11 | Amendment to Change in Control Employment Agreement dated May 13, 2005
        between Healthaxis, Ltd. and Jimmy D. Taylor (incorporated by reference
        to Exhibit 10.11 to the Form 8-K filed May 17, 2005).         
|     
|10.12 | Employment Agreement between Healthaxis, Ltd. and Lawrence F. Thompson dated May 13, 2005 (incorporated by reference to Exhibit 10.1 to the
Form 8-K filed May 18, 2005).                                                    
|     



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|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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