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**UnitedStates**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**x****        QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF THE**

**SECURITIES EXCHANGE ACT OF 1934**

** **

**For the quarterly period ended September 30, 2008**

 

**OR**

** **

**o****        TRANSITION REPORT PURSUANT TO SECTION 13OR 15(D) OF THE**

**SECURITIES EXCHANGE ACT OF 1934**

** **

**For the transition period from                to                **

 

**Commission file number 0-13591**

 

**HEALTHAXIS INC.**

(Exact name of registrant as specified in its charter)

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

 

**7301 N. State Highway 161, Suite 300, Irving,Texas 75039**

(Address of principal executive offices)

(Zip Code)

 

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

 

Former name, former address and former fiscal year, ifchanged since last report: **N/A**

 

Indicate by checkmark whether the Registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.   xYes   o No

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer.  Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act.  (Check one):

 
| Large  accelerated filer o | Accelerated  filer o | Non-accelerated  filer o | Smaller  reporting company x |
|----------------------------|----------------------|--------------------------|------------------------------|

 

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

oYes   x No

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date: 8,816,088 shares of common stock, par value $.10,outstanding as of November 3, 2008.

 

 

 

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Healthaxis Inc.

 

Table of Contents

 
| ** **         | ** **                                                                                  | ** ** | **Page** |
|--------------------|---------------------------------------------------------------------------------------------|------------|----------|
|               |                                                                                        |       |     |
| PART I        | Financial Information                                                                       |       |     |
|               |                                                                                        |       |     |
| Item 1.            | Financial Statements                                                                        |       | 3        |
|               | Consolidated  Balance Sheets                                                                |       | 3        |
|               | Consolidated  Statements of Operations                                                      |       | 4        |
|               | Consolidated  Statements of Cash Flows                                                      |       | 5        |
|               | Notes to Consolidated Financial Statements                                                  |       | 6        |
|               |                                                                                        |       |     |
| Item 2.            | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |       | 9        |
|               |                                                                                        |       |     |
| Item 3.            | Quantitative  and Qualitative Disclosures About Market Risk                                 |       | 14       |
|               |                                                                                        |       |     |
| Item 4.            | Controls and  Procedures                                                                    |       | 14       |
|               |                                                                                        |       |     |
| PART II       | Other Information                                                                           |       |     |
|               |                                                                                        |       |     |
| Items 1-5          |                                                                                        |       | 15       |
|               |                                                                                        |       |     |
| Item 6.            | Exhibits                                                                                    |       | 16       |
|               |                                                                                        |       |     |
| Signatures         |                                                                                        | 17         |
|               |                                                                                        |       |
| Exhibit Index |                                                                                        | 18         |

 

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# **PART I. FINANCIAL INFORMATION**

#  

**Item1.   Consolidated Financial Statements**

 

**Healthaxis Inc. and Subsidiaries**

#### **Consolidated Balance Sheets**

#### ** **

(In thousandsexcept share and per share data) (Unaudited)

 
| ** **                                                                                                                                                       | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                       | ** ** | **2008**               | ** ** | **2007**              | ** ** |
| **Assets**                                                                                                                                                       |       |                   |       |                  |       |
| Current assets:                                                                                                                                                  |       |                   |       |                  |       |
| Cash and cash  equivalents                                                                                                                                       |       | $                      | 2,191      |                  | $          | 2,621 |   |
| Accounts and  note receivable, net of allowance for doubtful accounts of $5 and $109,  respectively                                                              |       | 2,413                  |       | 2,630                 |       |
| Prepaid expenses                                                                                                                                                 |       | 1,074                  |       | 510                   |       |
| Total current  assets                                                                                                                                            |       | 5,678                  |       | 5,761                 |       |
|                                                                                                                                                             |       |                   |       |                  |       |
| Property,  equipment and software, less accumulated depreciation and amortization of  $7,665 and $7,213, respectively                                            |       | 1,148                  |       | 1,361                 |       |
| Contract  start-up costs, less accumulated amortization of $3,006 and $2,599,  respectively                                                                      |       | 889                    |       | 1,214                 |       |
| Goodwill                                                                                                                                                         |       | 3,870                  |       | 11,276                |       |
| Other assets                                                                                                                                                     |       | 139                    |       | 80                    |       |
| Total assets                                                                                                                                                     |       | $                      | 11,724     |                  | $          | 19,692 |   |
|                                                                                                                                                             |       |                   |       |                  |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                   |       |                   |       |                  |       |
| Current  liabilities:                                                                                                                                            |       |                   |       |                  |       |
| Accounts payable                                                                                                                                                 |       | $                      | 1,520      |                  | $          | 1,215 |   |
| Accounts payable  to related parties                                                                                                                             |       | 129                    |       | 84                    |       |
| Accrued  liabilities                                                                                                                                             |       | 682                    |       | 640                   |       |
| Deferred  revenues                                                                                                                                               |       | 924                    |       | 1,309                 |       |
| Note payable,  current portion                                                                                                                                   |       | —                 |       | 93                    |       |
| Working capital  and equipment lines of credit, current portion                                                                                                  |       | 1,725                  |       | 313                   |       |
| Post retirement  and employment liabilities, current portion                                                                                                     |       | 121                    |       | 121                   |       |
| Total current  liabilities                                                                                                                                       |       | 5,101                  |       | 3,775                 |       |
|                                                                                                                                                             |       |                   |       |                  |       |
| Post retirement  and employment liabilities                                                                                                                      |       | 648                    |       | 704                   |       |
| Working capital  and equipment lines of credit, net of current portion                                                                                           |       | 162                    |       | 1,192                 |       |
| Deferred rent                                                                                                                                                    |       | 188                    |       | 267                   |       |
| Other  liabilities                                                                                                                                               |       | 202                    |       | 202                   |       |
| Total  liabilities                                                                                                                                               |       | 6,301                  |       | 6,140                 |       |
|                                                                                                                                                             |       |                   |       |                  |       |
| Commitments and  contingencies                                                                                                                                   |       |                   |       |                  |       |
|                                                                                                                                                             |       |                   |       |                  |       |
| Stockholders’  Equity:                                                                                                                                      |       |                   |       |                  |       |
| Preferred stock,  par value $1.00: authorized 100,000,000 shares: Series A Convertible,  740,401 shares issued and outstanding, (no liquidation preference) |       | 740                    |       | 740                   |       |
| Common stock,  par value $.10: authorized 1,900,000,000 shares, issued and outstanding  8,435,963 and 8,319,805 shares, respectively                             |       | 844                    |       | 832                   |       |
| Note receivable  from employees                                                                                                                                  |       | —                 |       | (5                    | )          |
| Additional  paid-in capital                                                                                                                                      |       | 450,773                |       | 450,618               |       |
| Accumulated  deficit                                                                                                                                             |       | (446,934               | )          | (438,633              | )          |
| Total  stockholders’ equity                                                                                                                                 |       | 5,423                  |       | 13,552                |       |
| Total  liabilities and stockholders’ equity                                                                                                                 |       | $                      | 11,724     |                  | $          | 19,692 |   |

 

See notes to unaudited consolidatedfinancial statements.

 

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**Healthaxis Inc. and Subsidiaries**

#### **Consolidated Statementsof Operations**

#### ** **

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

 
| ** **                                                                                            | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                            | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                                                            | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                                                  |       |                             |       |                            |       |   |   |   |   |
| Revenue                                                                                               |       | $                                | 3,676      |                            | $          | 3,853 |   | $ | 11,615 |   | $ | 12,067 |   |
|                                                                                                  |       |                             |       |                            |       |   |   |   |   |
| Expenses:                                                                                             |       |                             |       |                            |       |   |   |   |   |
| Cost of revenues                                                                                      |       | 3,373                            |       | 3,354                           |       | 10,295 |   | 10,249 |   |
| Sales and  marketing                                                                                  |       | 48                               |       | 193                             |       | 494 |   | 676 |   |
| General and  administrative                                                                           |       | 484                              |       | 582                             |       | 1,592 |   | 1,840 |   |
| Goodwill  impairment                                                                                  |       | 7,406                            |       | —                          |       | 7,406 |   | — |   |
| Total expenses                                                                                        |       | 11,311                           |       | 4,129                           |       | 19,787 |   | 12,765 |   |
|                                                                                                  |       |                             |       |                            |       |   |   |   |   |
| Operating loss                                                                                        |       | (7,635                           | )          | (276                            | )          | (8,172 | ) | (698 | ) |
|                                                                                                  |       |                             |       |                            |       |   |   |   |   |
| Interest and  other income, net                                                                       |       | 4                                |       | 26                              |       | 19 |   | 78 |   |
| Interest expense                                                                                      |       | (39                              | )          | (67                             | )          | (126 | ) | (176 | ) |
|                                                                                                  |       |                             |       |                            |       |   |   |   |   |
| Loss before  income taxes                                                                             |       | (7,670                           | )          | (317                            | )          | (8,279 | ) | (796 | ) |
| Income tax  provision                                                                                 |       | (8                               | )          | (3                              | )          | (22 | ) | (9 | ) |
| Net loss                                                                                              |       | $                                | (7,678     | )                               | $          | (320 | ) | $ | (8,301 | ) | $ | (805 | ) |
|                                                                                                  |       |                             |       |                            |       |   |   |   |   |
| Net loss per  share of common stock (basic and diluted)                                               |       | $                                | (0.91      | )                               | $          | (0.04 | ) | $ | (0.99 | ) | $ | (0.10 | ) |
|                                                                                                  |       |                             |       |                            |       |   |   |   |   |
| Weighted average  common shares and equivalents used in computing loss per share (basic and  diluted) |       | 8,427,295                        |       | 8,287,128                       |       | 8,385,149 |   | 8,234,728 |   |

 

#### **See notes to unaudited consolidated financialstatements.**

#### ** **

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#### **Healthaxis Inc.and Subsidiaries**

#### **ConsolidatedStatements of Cash Flows**

#### ** **

#### **(In thousands) (Unaudited)**

** **
| ** **                                                                                    | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                    | ** ** | **September 30,**          | ** ** |
| ** **                                                                                    | ** ** | **2008**                        | ** ** | **2007** | ** ** |
| **Cash flows from operating activities**                                  | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Net loss                                                                                      |       | $                               | (8,301     | ) | $ | (805 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities:                  |       |                            |       |   |   |
| Depreciation and  amortization                                                                |       | 859                             |       | 840 |   |
| Restricted stock  compensation                                                                |       | 185                             |       | 246 |   |
| Other                                                                                         |       | —                          |       | (2 | ) |
| Goodwill  impairment                                                                          |       | 7,406                           |       | — |   |
| Change in:                                                                                    |       |                            |       |   |   |
| Accounts  receivable                                                                          |       | 221                             |       | (498 | ) |
| Prepaid expenses  and other current assets                                                    |       | (564                            | )          | (84 | ) |
| Other assets                                                                                  |       | (71                             | )          | 189 |   |
| Accounts payable  and accrued liabilities                                                     |       | 308                             |       | (9 | ) |
| Deferred  revenues                                                                            |       | (328                            | )          | (241 | ) |
| Other  liabilities                                                                            |       | (56                             | )          | (80 | ) |
| Net cash used in  operating activities                                                        |       | (341                            | )          | (444 | ) |
|                                                                                          |       |                            |       |   |   |
| **Cash  flows from investing activities**                                                     |       |                            |       |   |   |
| Contract  start-up costs                                                                      |       | (82                             | )          | (555 | ) |
| Purchases of  property, equipment and software and internally developed capitalized  software |       | (296                            | )          | (120 | ) |
| Net cash used in  investing activities                                                        |       | (378                            | )          | (675 | ) |
|                                                                                          |       |                            |       |   |   |
| **Cash flows from financing activities**                                  | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Proceeds from  lines of credit                                                                |       | 2,800                           |       | 259 |   |
| Payments on note  payable, lines of credit                                                    |       | (2,511                          | )          | (146 | ) |
| Net cash  generated in financing activities                                                   |       | 289                             |       | 113 |   |
| Decrease in cash  and cash equivalents                                                        |       | (430                            | )          | (1,006 | ) |
| Cash and cash  equivalents, beginning of period                                               |       | 2,621                           |       | 3,362 |   |
| Cash and cash  equivalents, end of period                                                     |       | $                               | 2,191      |   | $ | 2,356 |   |
|                                                                                          |       |                            |       |   |   |
| Non-cash  financing activities                                                                |       |                            |       |   |   |
| Accounts receivable  applied to note and interest payable in lieu of cash                     |       | $                               | —     |   | $ | 412 |   |
|                                                                                          |       |                            |       |   |   |
| Interest paid                                                                                 |       | $                               | 90         |   | $ | 99 |   |

 

#### **See notes to unauditedconsolidated financial statements.**

 

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#### **Healthaxis Inc. and Subsidiaries**

**Notes to Unaudited ConsolidatedFinancial Statements**

**September 30, 2008**

 

**Note A –Description of business and basis of presentation**

 

*Unaudited Financial Information*

 

The unauditedconsolidated financial statements have been prepared by Healthaxis Inc. and itssubsidiaries (“Healthaxis,” the “Company,” “we,” “our” or “us”), pursuant tothe rules and regulations of the Securities and Exchange Commission andreflect all adjustments consisting of normal recurring entries, which, in theopinion of the Company, are necessary to present fairly the results for theinterim periods. The interim financial statements do not include all disclosuresprovided in fiscal year end financial statements prepared in accordance withaccounting principles generally accepted in the United States of America,although the Company believes that the accompanying disclosures are adequate tomake the information presented not misleading. Results of operations for the three and nine-month periods ended September 30,2008, are not necessarily indicative of the results that may be expected forthe year ending December 31, 2008. These financial statements should be read in conjunction with thefinancial statements and notes thereto contained in the Company’s Annual Reporton Form 10-K for the year ended December 31, 2007.

 

*Earnings Per Share*

 

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

 
| ** **                       | ** ** | **As of September 30,** | ** ** |
|----------------------------------|------------|----------------------------------------|------------|
| ** **                       | ** ** | **2008**                               | ** ** | **2007** | ** ** |
|                             |       |                                   |       |   |   |
| Options                          |       | 879,126                                |       | 1,163,453 |   |
| Restricted stock                 |       | 380,125                                |       | 313,125 |   |
| Warrants                         |       | 5,800,277                              |       | 7,229,186 |   |
| Preferred stock                  |       | 740,401                                |       | 740,401 |   |
| Total common shares if converted |       | 7,799,929                              |       | 9,446,165 |   |

 

*Equity Compensation*

 

TheCompany accounts for equity compensation in accordance with Statement ofFinancial Standards No. 123R, “Share Based Payment” (SFAS 123R).  TheCompany uses stock options and restricted stock as a method of compensation forits employees and directors.  While no stock options were granted orvested in 2007 or 2008, the Company has granted and vested restricted stockduring those periods.  The value of restricted stock is calculated basedon the trading value of the stock as quoted on NASDAQ on the date ofgrant.  Shares of stock granted to directors vest over the calendar yearof service, while shares granted to employees vest either over a specifiedperiod of time or based on certain performancecriteria.  Additionally, in March 2008, the Company entered intoan Employment Separation Agreement with one of its officers whereby 34,750shares of restricted stock previously granted to the officer becamefully vested.  The Company recorded a charge of $53,000 in March 2008to reflect the immediate vesting of these shares.  The Company recognized total compensation expenserelated to the vesting 

 

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ofrestricted stock of approximately $43,000 and $160,000 for the three monthsended September 30, 2008, and 2007, respectively, and $184,000 and$191,000 for the nine months ended September 30, 2008, and2007, respectively.  All shares of restricted stock granted by the Companyvest upon a change of control.

 

**Note B –Significant Customer Concentrations**

 

For the three months ended September 30, 2008and 2007, three customers accounted for $2.3 million (62%) and $2.5 million(66%), respectively, of the Company’s total revenues.  For the nine months ended September 30,2008 and 2007, these three customers accounted for $7.2 million (62%), and $7.8million (65%), respectively, of the Company’s total revenues.  At September 30, 2008 and December 31,2007, these three customers individually accounted for more than 10% of theCompany’s accounts receivable as shown in the table below.

 
| ** ** | ** ** | **Percent of accounts and notes receivable** | ** ** |
|------------|------------|-----------------------------------------------------------------------|------------|
| ** ** | ** ** | **September 30, 2008**                                      | ** ** | **December 31, 2007** | ** ** |
| Customer A |       | 19                                                                    | %          | 32 | % |
| Customer B |       | 22                                                                    | %          | 21 | % |
| Customer C |       | 14                                                                    | %          | 9 | % |

 

**Note C – Related PartyTransactions**

 

The Company is a party to a RemoteResourcing Agreement with Healthcare BPO Partners L.P., a company affiliatedwith a significant shareholder. Healthcare BPO Partners, based in Jaipur, India, provides personnel andinfrastructure that is utilized by the Company to provide business processoutsourcing services and other software development and technical supportservices to support the Company’s operations. The resources provided by Healthcare BPO Partners supplement the Company’sexisting wholly-owned operations in Utah, Texas and Jamaica.  As a part of the Resourcing Agreement,Healthcare BPO Partners also provided data center hosting services, at aVienna, Virginia facility, to Healthaxis during 2006 and through September 12,2007.  For the three months ended September 30,2008 and September 30, 2007, the Company incurred costs of approximately$129,000 and $220,000, respectively, and for the nine months ended September 30,2008 and September 30, 2007, the Company incurred costs of approximately$382,000 and $784,000, respectively, related to the Resourcing Agreement.  At September 30, 2008 and December 31,2007, the Company had accounts payable to Healthcare BPO Partners ofapproximately $129,000 and $84,000, respectively.

 

 **Note D –Recent Accounting Pronouncements**

 

In July 2006,the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes” (“FIN 48”), an interpretation of FASB Statement No. 109, “Accountingfor Income Taxes.”  FIN 48 requires thata position taken or expected to be taken in a tax return be recognized in thefinancial statements when it is more likely than not (i.e. a likelihood of morethan fifty percent) that the position would be sustained upon examination bytax authorities.  A recognized tax positionis then measured at the largest amount of benefit that is greater than fiftypercent likely of being realized upon ultimate settlement.  The Company is subject to the provisionsof FIN 48 as of January 1, 2007. The Company believes that its income tax filing positions and deductionswould be sustained on audit and does not anticipate any adjustments that wouldresult in a material change to its financialposition.  Therefore, no reserves for uncertain income taxpositions have been recorded pursuant to FIN 48.

 

In September 2006,FASB Statement 157, “Fair Value Measurements” (“SFAS 157”) was issued.  SFAS 157 establishes a framework formeasuring fair value by providing a standard definition of fair value as itapplies to assets and liabilities.  SFAS157, which does not require any new fair value measurements, clarifies theapplication of other accounting pronouncements that require or permit fairvalue measurements.  The effective date 

 

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for the Company is January 1,2008.  The adoption of SFAS 157 did nothave a material impact on our Consolidated Financial Statements.

 

In December 2007,FASB Statement 141(R), “Business Combinations” (“SFAS 141(R)”) was issued.  The objective of this statement is to improvethe relevance and comparability of the information that a reporting entityprovides in its financial reports about a business combination and its effects.SFAS No. 141(R) presents several significant changes from currentaccounting practices for business combinations, most notably the following:revised definition of a business; a shift from the purchase method to theacquisition method; expensing of acquisition-related transaction costs; recognitionof contingent consideration and contingent assets and liabilities at fairvalue; and capitalization of acquired in-process research and development. Thisstatement applies prospectively to business combinations for which theacquisition date is on or after the beginning of the first annual reportingperiod beginning on or after December 15, 2008. We will adopt thisstatement for acquisitions consummated after its effective date.

 

**Note E – Lines ofCredit**

 

On April 16,2007, the Company entered into an amendment to its Loan and Security Agreement(“LSA”) with Silicon Valley Bank.  As aresult of the amendment, certain covenants were modified.  Based on the calculation of the borrowingbase as of September 30, 2008, we would have been eligible to draw up toapproximately $1.7 million under the revolving line, of which $1.4 million hadbeen drawn as of that date.

 

**Note F – PendingMerger with BPO Management Services, Inc.**

 

On September 5, 2008, Healthaxisentered into an Agreement and Plan of Merger with BPO Management Services, Inc.,a Delaware corporation (“BPOMS”), which was then amended on October 21,2008 (as amended, the “Merger Agreement”). Under the terms of the merger transaction contemplated by the MergerAgreement (the “Merger”), the Company will issue shares of its common stock (“CommonStock”) and shares of a new series of preferred stock, designated as HealthaxisSeries B Convertible Preferred Stock (“Series B Preferred Stock”), inexchange for the outstanding stock and certain warrants held by BPOMSsecurityholders (the “Merger Stock Issuance”). The Company has also agreed with BPOMS that all BPOMS options andcertain warrants will henceforth be exercisable for shares of the Company’sCommon Stock.  Based on the fixedexchange ratios contained in the Merger Agreement, it is expected thatimmediately following the closing of the Merger, current BPOMS securityholderswill own approximately 75% of the Company and current Healthaxissecurityholders will own approximately 25% of the Company, on a fully-dilutedbasis.  Following the Merger, currentBPOMS preferred stockholders will through their ownership of Healthaxis Series BPreferred Stock hold a liquidation preference of approximately $24.4 million($1.155 per share).  The surviving publiccompany will be re-named “BPO Management Services, Inc.”

 

Consummationof the Merger is subject to various conditions, including, among others, thecompletion of certain pre-merger steps by both Healthaxis and BPOMS and theapproval of the transactions contemplated by the Merger Agreement by thestockholders of both Healthaxis and BPOMS.

 

**Note G – Goodwill**

 

TheCompany performs its annual goodwill impairment review in the fourth quarter ofeach year based upon an October 1 date or when events and circumstances indicatethat goodwill may be impaired.  As of September 30,2008, management reviewed the carrying value of goodwill as required because ofthe pending transaction with BPO Management Services, Inc. and determinedthat goodwill impairment was probable and reasonably estimable.  The Company recognized an impairment chargeof $7.4 million as of September 30, 2008, which represents management’spreliminary estimate pending final outside valuation of the fair value of theCompany’s assets and liabilities.

 

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

 

##### **Forward-LookingStatements**

##### ** **

All statements other thanstatements of historical fact contained in this report, including statements inthis “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations” concerning the Company’s financial position and liquidity,results of operations, prospects for future growth, and other matters areforward-looking statements.  Thesestatements may be identified with words such as “anticipate,” “believe,” “plan,”“estimate,” “expect,” “intend,” “should,” “could,” “goal,” “target,” “designed,”“on track,” “comfortable with,” “optimistic” and other similar expressions, andconstitute forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the Securities ExchangeAct of 1934, as amended. These forward-looking statements are subject to knownand unknown risks, uncertainties and other factors, which may cause actualresults to be materially different from those contemplated by theforward-looking statements.  Such factorsinclude the risks and uncertainties identified in Healthaxis documents filedwith, or furnished to, the Securities and Exchange Commission, includingwithout limitation those identified under the caption “Risk Factors” in theCompany’s Form 10-K for the year ended December 31, 2007.  The Company undertakes no obligation topublicly update or revise any forward-looking statements, whether as a resultof new information, future events or otherwise. Readers are cautioned not to place undue reliance on forward-lookingstatements.

 

**Overview**

** **

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

 

For the third quarter of 2008, the Company reported revenue of $3.7 million and an operating loss of $7.7 million, of which $7.4 million was due to the impairment of goodwill.  Revenue was approximately $177,000 less than the third quarter of 2007 and the operating loss for the third quarter of 2008 was comparable to the operating loss for the third quarter of 2007, but for the negative impact of the $7.4 million goodwill impairment charge.  Year-to-date, revenues of $11.6 million decreased $450,000 over last year and the operating loss of $8.2 million was an increase of $7.5 million over 2007, due to the impairment of goodwill previously noted.

 

*CriticalAccounting Policies*

 

Criticalaccounting policies are those which are most important to the financialstatement presentation and that require the most difficult, subjective complexjudgments.  There have been no changes inthe Company’s critical accounting policies as described in the Company’s Form 10-Kfor the year ended December 31, 2007, other than as described in Note D tothe Unaudited Consolidated Financial Statements.

 

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## **Results ofOperations**

## ** **

**Threemonths ended September 30, 2008 compared to three months ended September 30,2007**

** **

| ** **       | ** ** | **(Table in thousands)**                   | ** ** | ** ** | ** ** |
|------------------|------------|------------------------------------------------------|------------|------------|------------|
| ** **       | ** ** | **Three Months Ended  September 30,** | ** ** | ** ** | ** ** |
| ** **       | ** ** | **2008**                                             | ** ** | **2007**   | ** ** | **Change** | ** ** |
|             |       |                                                 |       |       |       |   |   |
| Revenues         |       | $                                                    | 3,676      |       | $          | 3,853 |   | $ | (177 | ) |
| Cost of revenues |       | 3,373                                                |       | 3,354      |       | (19 | ) |
| Gross profit     |       | $                                                    | 303        |       | $          | 499 |   | $ | (196 | ) |
| % of revenue     |       | 8                                                    | %          | 13         | %          |   |   |

 

**Revenues**were approximately $177,000 lower in thethree months ended September 30, 2008 compared to the same period in2007.  Professional services revenueswere $156,000 lower than the prior year period as the combined effect of (a) customers’cutting their budgets and reducing their spending in light of current economicconditions and (b) in 2007 we generated professional services revenuesupporting a customer that became insolvent in 2008 and is no longer acustomer.  BPO services revenuesincreased approximately $52,000 as revenue generated by our new initiative toprovide BPO services in accounts payable outsourcing more than offset other BPOservices revenue declines resulting from fewer paper-based healthcare claims toprocess as a result of the combined impact of fewer lives on our systems fromsome existing customers and a continuing shift in the healthcare industry frompaper claims to higher volumes of electronic claims. Application ServiceProvider (“ASP”) license fees decreased approximately $47,000, primarilybecause our customers experienced a net loss in the number of lives theyservice.  Transaction fees increasedslightly due to an increase in claims-related print and distribution activity.  A customer representing approximately twentypercent of Healthaxis’ revenue has informally notified us that they will not berenewing their contract when it expires in the first quarter of 2009.  Thus far we have not experienced a reductionin our revenues resulting from the indicated transition away from our services,but may begin to see a decline in the fourth quarter of 2008.  The timing and amount of the decline iscurrently uncertain because it is dependent on the customer’s transitiontimeline and ability to meet their milestones.

 

**Cost ofrevenues**includesall expenses directly associated with the production of revenue, and consistsprimarily of salaries and related benefits, rent, amortization anddepreciation, system expenses such as maintenance and repair, as well as otherrelated consumables and are partially reduced by the capitalization of certaincosts incurred (primarily employee compensation) for new customerimplementations and software development projects.  Cost of revenues increased $19,000 in thethree months ended September 30, 2008 compared to the same period in 2007resulting from an increase in employee benefits costs and other variableexpense items.  Cost of revenues alsocontains non-cash equity compensation of $12,000 resulting from the vesting ofrestricted stock in the 2008 period, versus $10,000 in the 2007 period.

 

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| ** **                          | ** ** | **(Table in thousands)**                   | ** ** | ** ** | ** ** |
|-------------------------------------|------------|------------------------------------------------------|------------|------------|------------|
| ** **                          | ** ** | **Three Months Ended  September 30,** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **2008**                                             | ** ** | **2007**   | ** ** | **Change** | ** ** |
|                                |       |                                                 |       |       |       |   |   |
| Sales and  marketing expense        |       | $                                                    | 48         |       | $          | 193 |   | $ | 145 |   |
| General and  administrative expense |       | 484                                                  |       | 582        |       | 98 |   |
| Goodwill  impairment                |       | 7,406                                                |       | —     |       | (7,406 | ) |
| Interest and  other income, net     |       | 4                                                    |       | 26         |       | (22 | ) |
| Interest expense                    |       | (39                                                  | )          | (67        | )          | 28 |   |
| Income tax  expense                 |       | (8                                                   | )          | (3         | )          | (5 | ) |
|                                     |            |                                                      |            |            |            |  |  |  |  |  |

 

**Sales and marketing expenses**consist primarily of employee salariesand related benefits, as well as promotional costs such as direct mailingcampaigns, trade shows and media advertising.  Sales and marketing expenses decreased $145,000 in the three monthsended September 30, 2008 compared to the same quarter of 2007.  This decrease was due to lower personnelcosts and the related reduction in benefits and travel related to changes inthe sales and marketing team over the past year as well as reduced spending formarketing expenses.

 

**General and administrative expenses**include executive management, accounting,legal and human resources compensation and related benefits, as well asexpenditures for applicable overhead costs. These expenses decreased $98,000 in the three months ended September 30,2008 compared to the same quarter of 2007. This is primarily due to a decrease in total professional service feesfrom auditors, attorneys, and Sarbanes-Oxley consulting costs.  Non-cash equity compensation recorded ingeneral and administrative expense was $31,000 for the third quarter of 2008 ascompared to $32,000 for the third quarter of 2007.

 

**Goodwill impairment was** $7.4 million for the three months ended September 30,2008 as compared to no such charge for the 2007 period.  As of September 30, 2008, managementreviewed the carrying value of goodwill and determined that the fair value ofgoodwill, based on the Company’s stock price and as required because of thepending transaction with BPO Management Services, Inc., was less than thecarrying value.  In accordance with U.S.Generally Accepted Accounting Principles, the Company thus recorded a non-cashimpairment charge of $7.4 million in the third quarter of 2008.

 

**Interestand other income, net** decreased $22,000 for the three months ended September 30, 2008compared to the same quarter of 2007 due primarily to lower balances of cash.

 

**Interest expense** decreased $28,000 in the three monthsended September 30, 2008 compared to the same quarter of 2007.  Interest was less due to payments on theequipment line of credit, and by reduced interest on the prior note payable toHealthMarkets due to the declining principal balance.

 

**Provision for income taxes** was $8,000 for the three months ended September 30,2008 compared to a cost of $3,000 in the same quarter of 2007.  Effective January 1, 2007, the Companyis accruing an estimate of the tax due under the new margin tax enacted by theState of Texas.

 

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**Ninemonths ended September 30, 2008 compared to nine months ended September 30,2007**

** **
| ** **       | ** ** | **(Table in thousands)**                  | ** ** | ** ** | ** ** |
|------------------|------------|-----------------------------------------------------|------------|------------|------------|
| ** **       | ** ** | **Nine Months Ended  September 30,** | ** ** | ** ** | ** ** |
| ** **       | ** ** | **2008**                                            | ** ** | **2007**   | ** ** | **Change** | ** ** |
|             |       |                                                |       |       |       |   |   |
| Revenues         |       | $                                                   | 11,615     |       | $          | 12,067 |   | $ | (452 | ) |
| Cost of revenues |       | 10,295                                              |       | 10,249     |       | (46 | ) |
| Gross profit     |       | $                                                   | 1,320      |       | $          | 1,818 |   | $ | (498 | ) |
| % of revenue     |       | 11                                                  | %          | 15         | %          |   |   |

 

**Revenues**were approximately $452,000 lower for thenine months ended September 30, 2008 compared to the same period in2007.  BPO services revenues decreasedapproximately $419,000 due to the 2007 mid-year loss of a BPO services customerthat was acquired by a larger organization. BPO services revenue generated by our new initiative to provide BPOservices in accounts payable outsourcing more than offset other BPO servicesrevenue declines resulting from fewer paper-based healthcare claims to processas a result of the combined impact of fewer lives on our systems from someexisting customers and a continuing shift in the healthcare industry from paperclaims to higher volumes of electronic claims. Application Service Provider (“ASP”)license fees increased slightly from new service offerings, though in total ourcustomers experienced a net loss in the number of lives they service, whiletransaction fees decreased approximately $45,000 due to the change in coveredlives.  Professional services revenuedecreased approximately $92,000 as the combined effect of (a) customers’reducing their spending in light of current economic conditions and (b) in2007 we generated professional services revenue supporting a customer thatbecame insolvent in 2008 and is no longer a customer. A customer representingapproximately twenty percent of Healthaxis’ revenue has informally notified usthat they will not be renewing their contract when it expires in the firstquarter of 2009.  Thus far we have notexperienced a reduction in our revenues resulting from the indicated transitionaway from our services, but may begin to see a decline in the fourth quarter of2008.  The timing and amount of declineis currently uncertain because it is dependent on the customer’s transitiontimeline and ability to meet their milestones.

 

**Cost of revenues**increased $46,000 for the nine months ended September 30,2008 compared to the same period in 2007. The gross cost of revenue before capitalized costs decreasedapproximately $310,000 from the 2007 period to the 2008 period which includes a$368,000 reduction in variable labor related to BPO services due to increasedefficiency and lower volumes and $112,000 in lower variable costs of printingand postage due to lower transaction fee revenue, partially offset by $95,000in higher salaries resulting from changes to the organization.  These improvements were mostly offset by areduction of costs that are capitalized for accounting purposes.  For the first nine months of 2008, wecapitalized approximately $355,000 less in cost of revenues than in the firstnine months of 2007 because in the prior year period we were in the middle of asignificant new customer implementation that required a significant proportionof our resources.  Significantly lesstime has been spent on implementations during 2008.  Non-cash equity compensation resulting fromthe vesting of restricted stock recorded in cost of revenue was $56,000 in the2008 period versus $55,000 in the 2007 period.

 

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| ** **                          | ** ** | **(Table in thousands)**                  | ** ** | ** ** | ** ** |
|-------------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| ** **                          | ** ** | **Nine Months Ended  September 30,** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **2008**                                            | ** ** | **2007**   | ** ** | **Change** | ** ** |
|                                |       |                                                |       |       |       |   |   |
| Sales  and marketing expense        |       | $                                                   | 494        |       | $          | 676 |   | $ | 182 |   |
| General  and administrative expense |       | 1,592                                               |       | 1,840      |       | 248 |   |
| Goodwill  impairment                |       | 7,406                                               |       | —     |       | (7,406 | ) |
| Interest  and other income, net     |       | 19                                                  |       | 78         |       | (59 | ) |
| Interest  expense                   |       | (126                                                | )          | (176       | )          | (50 | ) |
| Provision  for Income taxes         |       | (22                                                 | )          | (9         | )          | (13 | ) |
|                                     |            |                                                     |            |            |            |  |  |  |  |  |

 

**Sales andmarketing expenses**decreased$182,000 in the nine months ended September 30, 2008 compared to the sameperiod of 2007.  This decrease was due tolower personnel costs and the related reduction in benefits and travel relatedto changes in the sales and marketing team over the past year as well asreduced spending for marketing expenses.

** **

**Generaland administrative expenses**decreased $248,000 for the nine months ended September 30,2008 compared to the same period of 2007.  The decrease is primarily due to a decrease intotal professional service fees from auditors, attorneys, and Sarbanes-Oxleyconsulting costs.  Non-cash equitycompensation recorded in general and administrative expense was $95,000 for thenine months ended September 30, 2008 as compared to $96,000 for the ninemonths ended September 30, 2007.

 

**Goodwillimpairment** of $7.4 million for the nine months ended September 30,2008 compares to no such charge in the same period of 2007.

** **

**Interestand other income, net** decreased $59,000 for the nine monthsended September 30, 2008 compared to the same period of 2007 due primarilyto lower balances of cash.

 

**Interestexpense** decreased $50,000 for the nine months ended September 30,2008 compared to the same period of 2007. Interest was reduced due to payments made on the equipment line ofcredit, and by reduced interest on the prior note payable to HealthMarkets dueto the declining principal balance.

 

**Provisionfor income taxes** was $22,000 for the nine months ended September 30,2008 compared to a charge of $9,000 in the same period of 2007.  Effective January 1, 2007, the Companyis accruing an estimate of the tax due under the new margin tax enacted by theState of Texas.

 

**Liquidityand Capital Resources**

** **

*Overviewof Cash Resources*

 

At September 30,2008, our cash and cash equivalents amounted to $2.2 million compared to $2.6million at December 31, 2007.  Thesources and uses of cash during the first nine months of 2008 are describedmore fully in “Analysis of Cash Flows” below. We believe that the Company will maintain sufficient liquidity to fundoperations for at least the next 12 months.

 

*Analysisof Cash Flows*

 

*Cash used in operating activities*for the nine months ended September 30, 2008 was approximately $341,000 ascompared to $444,000 for the same period in 2007.  The improvement was primarily the result ofchanges in working capital partially offset by the net loss adjusted fornon-cash items including goodwill 

 

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impairment, depreciation,and restricted stock.  Changes in workingcapital accounted for a $490,000 use of cash in the 2008 period as opposed to a$723,000 use of cash for the comparable period in 2007.

 

*Cash used in investing activities*for the nine months ended September 30, 2008 was $378,000 as compared to$675,000 for the same period in 2007. The Company’s investing activities continue to be primarily in the areasof developing software enhancements, contract start-up activities andacquisition of property, equipment and software.  Capitalized contract start-up costsdecreased, as significantly more time was spent in the 2007 period related to asignificant customer implementation and the related costs were required to becapitalized.  Purchases of property,equipment and software and internally developed software were higher in 2008due to normal replacement of servers and other equipment, combined with morework performed on enhancements to our internally developed software.

 

*Cash generated in financing**activities* for the nine months ended September 30, 2008 was $289,000 whilecash from financing activities for the nine months ended September 30,2007 was $113,000.  The amounts for bothperiods are primarily borrowings on bank lines of credit, partially offset bypayments on those bank lines and the note payable to HealthMarkets.

 

**Recently Adopted AccountingPronouncements**

 

See Note D to the Consolidated Financial Statements herein for adiscussion of the impact on the Company’s financial statements of newaccounting standards.

 

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

 

 Not applicable under smaller reporting companyscaled disclosure requirements.

 

**Item 4T. Controls and Procedures**

 

**Evaluationof Disclosure Controls and Procedures**

 

As of the end of theperiod 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, ofthe effectiveness of the design and operation of the Company’s disclosurecontrols and procedures pursuant to Securities Exchange Act Rule 13a-15.  Based on that evaluation, the Chief ExecutiveOfficer and the Chief Financial Officer have concluded that these disclosurecontrols and procedures were effective as of the end of the period covered bythis report to provide reasonable assurance that information required to bedisclosed by the Company in reports filed or submitted by it under theSecurities and Exchange Act of 1934 is recorded, processed, summarized andreported within the time periods specified in the Securities and ExchangeCommission rules and forms, and to provide reasonable assurance thatinformation required to be disclosed by the Company is accumulated andcommunicated to the Company’s management, including the Company’s ChiefExecutive Officer and Chief Financial Officer, as appropriate to allow timelydecisions regarding disclosure.

 

 **Changes inInternal Control over Financial Reporting**

 

There were no changes inthe Company’s internal controls over financial reporting that occurred duringthe period covered by this quarterly report that have materially affected, orare reasonably likely to materially affect, the Company’s internal controlsover financial reporting.

 

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PART II. OTHERINFORMATION

 
| **Item 1.** | ** ** | **Legal Proceedings**. |
|-------------|------------|------------------------|

 

We are notcurrently a party to any material legal proceedings and we are not aware of anypending or threatened litigation that would have a material adverse effect onus or our business.

 
| **Item  1A.** | ** ** | **Risk Factors** |
|---------------|------------|------------------|

 

Not applicable undersmaller reporting company scaled disclosure requirements.

 
| **Item 2.** | ** ** | **Unregistered Sales of Equity  Securities and Use of Proceeds.** |
|-------------|------------|-------------------------------------------------------------------|
|        |       |                                                              |
|        |       | None.                                                             |
|        |       |                                                              |
| **Item 3.** | ** ** | **Defaults Upon Senior  Securities.**                             |
|        |       |                                                              |
|        |       | None.                                                             |
|        |       |                                                              |
| **Item 4.** | ** ** | **Submission of Matters to a Vote  of Security Holders.**         |
|        |       |                                                              |
|        |       | None.                                                             |
|        |       |                                                              |
| **Item 5.** | ** ** | **Other Information.**                                            |
|        |       |                                                              |
|        |       | None.                                                             |

 

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| **Item 6.** | ** ** | **Exhibits** |
|-------------|------------|--------------|

** **
| (2.1)  |   | Agreement and Plan of  Merger dated September 5, 2008, by and among Healthaxis Inc.,  Outsourcing Merger Sub, Inc., and BPO Management Services, Inc.  (incorporated by reference from Current Report on Form 8-K filed  September 9, 2008)      |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                      |
| (2.2)  |   | Amendment to Agreement  and Plan of Merger, dated October 21, 2008, among Healthaxis Inc.,  Outsourcing Merger Sub, Inc., and BPO Management Services, Inc.  (incorporated by reference from Current Report on Form 8-K filed  October 27, 2008) |
|   |   |                                                                                                                                                                                                                                                                      |
| (10.1) |   | Healthaxis/Tak Termination  Agreement dated September 5, 2008, by and between Healthaxis Inc. and  Tak Investments, Inc. (incorporated by reference from Current Report on  Form 8-K filed September 9, 2008)                                         |
|   |   |                                                                                                                                                                                                                                                                      |
| (10.2) |   | Healthaxis/Preferred  Conversion and Termination Agreement dated September 5, 2008, by and  between Healthaxis Inc. and LB I Group Inc. (incorporated by reference from  Current Report on Form 8-K filed September 9, 2008)                               |
|   |   |                                                                                                                                                                                                                                                                      |
| (10.3) |   | Lewis Warrant  Termination Agreement dated September 5, 2008, by and between Healthaxis  Inc. and Lewis Opportunity Fund, L.P. (incorporated by reference from Current  Report on Form 8-K filed September 9, 2008)                                        |
|   |   |                                                                                                                                                                                                                                                                      |
| (10.4) |   | First Amendment to the  Remote Resourcing Agreement dated September 3, 2008 by and between  Healthaxis Inc. and Healthcare BPO Partners, L.P. (incorporated by reference  from Current Report on Form 8-K filed September 9, 2008)                         |
|   |   |                                                                                                                                                                                                                                                                      |
| (10.5) |   | Form of  Certificate of Designation of the Relative Rights and Preferences of the  Series B Convertible Preferred Stock of Healthaxis Inc. (incorporated by  reference from Current Report on Form 8-K filed October 27, 2008)                        |
|   |   |                                                                                                                                                                                                                                                                      |
| (31.1) |   | Certification of Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002, filed herewith.                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                      |
| (31.2) |   | Certification of Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002, filed herewith.                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                      |
| (32.1) |   | Certifications of Chief  Executive Officer and Chief Financial Officer Pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002, furnished herewith.                                                                                                               |

 

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### **Signature**

### ** **

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|                          |   | Healthaxis Inc.                                                                          |
|-------------------------------|--------|------------------------------------------------------------------------------------------|
|                          |   |                                                                                     |
|                          |   |                                                                                     |
| Date: November 14,  2008 |   | By: /s/ John M.  Carradine                                                               |
|                          |   | John M. Carradine,  President and Chief Executive Officer  (Principal Executive Officer) |
|                          |   |                                                                                     |
|                          |   |                                                                                     |
|                          |   | By: /s/ Ronald K.  Herbert                                                               |
|                          |   | Ronald K. Herbert,  Chief Financial Officer (Principal  Financial Officer)               |
|                               |        |                                                                                          |  |  |

 

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#### **Exhibit Index**

 
| (2.1)  |   | Agreement and Plan of  Merger dated September 5, 2008, by and among Healthaxis Inc.,  Outsourcing Merger Sub, Inc., and BPO Management Services, Inc.  (incorporated by reference from Current Report on Form 8-K filed  September 9, 2008)      |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                      |
| (2.2)  |   | Amendment to Agreement  and Plan of Merger, dated October 21, 2008, among Healthaxis Inc.,  Outsourcing Merger Sub, Inc., and BPO Management Services, Inc.  (incorporated by reference from Current Report on Form 8-K filed  October 27, 2008) |
|   |   |                                                                                                                                                                                                                                                                      |
| (10.1) |   | Healthaxis/Tak  Termination Agreement dated September 5, 2008, by and between Healthaxis  Inc. and Tak Investments, Inc. (incorporated by reference from Current  Report on Form 8-K filed September 9, 2008)                                         |
|   |   |                                                                                                                                                                                                                                                                      |
| (10.2) |   | Healthaxis/Preferred  Conversion and Termination Agreement dated September 5, 2008, by and  between Healthaxis Inc. and LB I Group Inc. (incorporated by reference from  Current Report on Form 8-K filed September 9, 2008)                               |
|   |   |                                                                                                                                                                                                                                                                      |
| (10.3) |   | Lewis Warrant  Termination Agreement dated September 5, 2008, by and between Healthaxis  Inc. and Lewis Opportunity Fund, L.P. (incorporated by reference from Current  Report on Form 8-K filed September 9, 2008)                                        |
|   |   |                                                                                                                                                                                                                                                                      |
| (10.4) |   | First Amendment to the  Remote Resourcing Agreement dated September 3, 2008 by and between  Healthaxis Inc. and Healthcare BPO Partners, L.P. (incorporated by reference  from Current Report on Form 8-K filed September 9, 2008)                         |
|   |   |                                                                                                                                                                                                                                                                      |
| (10.5) |   | Form of  Certificate of Designation of the Relative Rights and Preferences of the  Series B Convertible Preferred Stock of Healthaxis Inc. (incorporated by  reference from Current Report on Form 8-K filed October 27, 2008)                        |
|   |   |                                                                                                                                                                                                                                                                      |
| (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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