##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

|      |  |                                                                            
|----- |  | ---------------------------------------------------------------------------
|[X]   |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                    
|      |  | SECURITIES EXCHANGE ACT OF 1934                                            
|      |  | For the quarterly period ended................................June 30, 2002
|      |  |                                                                            
|      |  | OR                                                                         
|      |  |                                                                            
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                   
|      |  | SECURITIES EXCHANGE ACT OF 1934                                            
|      |  | For the transition period from..........to..........                       
|      |  |                                                                            
|      |  | Commission file number..................0-13591                            

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

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

5215 N. OConnor Blvd., 800 Central Tower, Irving, Texas 75039
(Address of principal executive offices)
(Zip Code)

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

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

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

Yes X No

Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date: 53,663,750 shares of common
stock, par value $.10, outstanding as of August 10, 2002.

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TABLE OF CONTENTS



|                                             |                                                                                               |                                                                      |  |  |  |  |  | 
|-------------------------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION               
|                                             | Item 1. Condensed Consolidated Financial Statements                                          
|                                             |                                                                                               | Condensed Consolidated Balance Sheets                               
|                                             |                                                                                               | Condensed Consolidated Statements of Operations                     
|                                             |                                                                                               | Condensed Consolidated Statements of Changes in Stockholders Equity
|                                             |                                                                                               | Condensed Consolidated Statements of Cash Flows                     
|                                             |                                                                                               | Notes to Consolidated Financial Statements                          
|                                             | Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
|                                             | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|PART II. OTHER INFORMATION                  
|                                             | Item 1. Legal Proceedings.                                                                   
|                                             | Item 2. Changes in Securities and Use of Proceeds.                                           
|                                             | Item 3. Defaults Upon Senior Securities.                                                     
|                                             | Item 4. Submission of Matters to a Vote of Security Holders.                                 
|                                             | Item 5. Other Information.                                                                   
|                                             | Item 6. Exhibits and Reports on Form 8-K.                                                    
|Signature                                   
|Exhibit Index                               
|Certificate of Designation of Series A Stock
|Termination Agreement                       
|Exchange Agreement                          
|Registration Rights Agreement               
|Certification of Chief Executive Officer    
|Certification of Chief Financial Officer    



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Healthaxis Inc.

Table of Contents

|                                                                                              |                                                                      |  |      |   | 
|--------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- |  | ---- | - | 
|                                                                                              |                                                                      |  | Page
|                                                                                              |                                                                      |  |     
|PART I Financial Information                                                                  |                                                                      |  |      |  
|                                                                                              |                                                                      |  |      |  
|Item 1. Condensed Consolidated Financial Statements                                           |                                                                      |  |      |  
|                                                                                              | Condensed Consolidated Balance Sheets                                |  |      | 3 | 
|                                                                                              | Condensed Consolidated Statements of Operations                      |  |      | 4 | 
|                                                                                              | Condensed Consolidated Statements of Changes in Stockholders Equity |  |      | 5 | 
|                                                                                              | Condensed Consolidated Statements of Cash Flows                      |  |      | 6 | 
|                                                                                              | Notes to Condensed Consolidated Financial Statements                 |  |      | 7 | 
|                                                                                              |                                                                      |  |      |  
|Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations |                                                                      |  | 15   |  
|                                                                                              |                                                                      |  |      |  
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                                      |  | 26   |  
|                                                                                              |                                                                      |  |      |  
|PART II Other Information                                                                     |                                                                      |  |      |  
|                                                                                              |                                                                      |  |      |  
|Items 1-4                                                                                     |                                                                      |  | 27   |  
|                                                                                              |                                                                      |  |      |  
|Item 5. Other Information                                                                     |                                                                      |  | 28   |  
|                                                                                              |                                                                      |  |      |  
|Item 6. Reports on Form 8-K                                                                   |                                                                      |  | 28   |  
|                                                                                              |                                                                      |  |      |  
|Signatures                                                                                    |                                                                      |  | 30   |  
|                                                                                              |                                                                      |  |      |  
|Exhibit Index                                                                                 |                                                                      |  | 31   |  

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PART I. FINANCIAL INFORMATION




Item 1. Condensed Consolidated Financial Statements




Healthaxis Inc. and Subsidiaries
Condensed Consolidated Balance Sheets

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

|                                                                                                                       |                                                                  |                           |                                            |   |         |        |             |   |        |        | 
|---------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ------------------------- | ------------------------------------------ | - | ------- | ------ | ----------- | - | ------ | ------ | 
|                                                                                                                       |                                                                  |                           |                                            |   | June 30 |        | December 31
|                                                                                                                       |                                                                  |                           |                                            |   | 2002    |        | 2001       
|                                                                                                                       |                                                                  |                           |                                            |   |         |        |            
|Assets                                                                                                                 |                                                                  |                           |                                            |   |         |        |             |  
|Cash and cash equivalents                                                                                              |                                                                  | $                         | 18,700                                     |   |         | $      | 13,149      |  
|Accounts receivable, net of allowance for doubtful accounts of $108 and $50, respectively                              |                                                                  |                           | 2,825                                      |   |         |        | 2,594       |  
|Accounts receivable from affiliates                                                                                    |                                                                  |                           | 139                                        |   |         |        | 1,023       |  
|Prepaid expenses and other current assets                                                                              |                                                                  |                           | 1,130                                      |   |         |        | 412         |  
|Notes receivable                                                                                                       |                                                                  |                           | 154                                        |   |         |        | 119         |  
|                                                                                                                       |                                                                  |                           |                                            |   |         |        |             |  
|                                                                                                                       |                                                                  | Total current assets      |                                            |   | 22,948  |        |             |   | 17,297 |       
|Property, equipment and software, less accumulated depreciation and
amortization of $11,129 and $10,311, respectively  |                                                                  |                           | 2,314                                      |   |         |        | 3,451       |  
|Capitalized software and contract start-up costs, less accumulated
amortization of $1,758 and $1,327, respectively     |                                                                  |                           | 2,265                                      |   |         |        | 2,525       |  
|Customer base, less accumulated amortization of $1,608 and $2,379, respectively                                        |                                                                  |                           | 2,606                                      |   |         |        | 3,115       |  
|Goodwill                                                                                                               |                                                                  |                           | 17,150                                     |   |         |        | 23,824      |  
|Notes receivable from employees                                                                                        |                                                                  |                           | 265                                        |   |         |        | 311         |  
|Notes receivable                                                                                                       |                                                                  |                           | 325                                        |   |         |        | 308         |  
|Investment in Digital Insurance, Inc.                                                                                  |                                                                  |                           |                                           |   |         |        | 227         |  
|Assets related to discontinued operations                                                                              |                                                                  |                           |                                           |   |         |        | 6,333       |  
|Other assets                                                                                                           |                                                                  |                           | 153                                        |   |         |        | 155         |  
|                                                                                                                       |                                                                  |                           |                                            |   |         |        |             |  
|                                                                                                                       |                                                                  |                           | Total assets                               |   | $       | 48,026 |             |   | $      | 57,546 | 
|                                                                                                                       |                                                                  |                           |                                            |   |         |        |             |  
|Liabilities and Stockholders Equity                                                                                   |                                                                  |                           |                                            |   |         |        |             |  
|Accounts payable                                                                                                       |                                                                  | $                         | 758                                        |   |         | $      | 1,146       |  
|Accrued liabilities                                                                                                    |                                                                  |                           | 1,639                                      |   |         |        | 2,920       |  
|Deferred revenues                                                                                                      |                                                                  |                           | 1,588                                      |   |         |        | 1,867       |  
|Obligations under capital leases                                                                                       |                                                                  |                           |                                           |   |         |        | 8           |  
|                                                                                                                       |                                                                  |                           |                                            |   |         |        |             |  
|                                                                                                                       |                                                                  | Total current liabilities |                                            |   | 3,985   |        |             |   | 5,941  |       
|Convertible debentures                                                                                                 |                                                                  |                           | 27,183                                     |   |         |        | 27,134      |  
|Post retirement and employment liabilities                                                                             |                                                                  |                           | 979                                        |   |         |        | 995         |  
|Other liabilities                                                                                                      |                                                                  |                           | 1,085                                      |   |         |        | 1,087       |  
|                                                                                                                       |                                                                  |                           |                                            |   |         |        |             |  
|                                                                                                                       |                                                                  |                           | Total liabilities                          |   |         | 33,231 |             |   |        | 35,157 | 
|Commitments and contingencies                                                                                          |                                                                  |                           |                                            |   |         |        |             |  
|Stockholders Equity:                                                                                                  |                                                                  |                           |                                            |   |         |        |             |  
|Preferred stock, par value $1.00: authorized 100,000,000 shares:                                                       |                                                                  |                           |                                            |   |         |        |             |  
|                                                                                                                       | Series A cumulative convertible, no shares issued or outstanding |                           |                                            |  |         |        |             |  |       
|                                                                                                                       | Series B cumulative convertible, no shares issued or outstanding |                           |                                            |  |         |        |             |  |       
|Common stock, par value $.10: authorized 1,900,000,000 shares,
issued and outstanding 53,210,359 and 52,978,613 shares |                                                                  |                           | 5,321                                      |   |         |        | 5,298       |  
|Additional paid-in capital                                                                                             |                                                                  |                           | 440,483                                    |   |         |        | 433,386     |  
|Accumulated deficit                                                                                                    |                                                                  |                           | (430,969                                   | ) |         |        | (416,069    | )
|Unearned compensation                                                                                                  |                                                                  |                           | (41                                        | ) |         |        | (226        | )
|                                                                                                                       |                                                                  |                           |                                            |   |         |        |             |  
|                                                                                                                       |                                                                  |                           | Total stockholders equity                 |   |         | 14,794 |             |   |        | 22,389 | 
|                                                                                                                       |                                                                  |                           |                                            |   |         |        |             |  
|                                                                                                                       |                                                                  |                           | Total liabilities and stockholders equity |   | $       | 48,026 |             |   | $      | 57,546 | 
|                                                                                                                       |                                                                  |                           |                                            |   |         |        |             |  

See notes to consolidated financial statements.

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Healthaxis Inc. and Subsidiaries
Condensed Consolidated Statements of Operations

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

|                                                                                |                                                        |                                            |                |        |                             |       |                           |          |            |         |         |        |            |        |          |          |            |         | 
|------------------------------------------------------------------------------- | ------------------------------------------------------ | ------------------------------------------ | -------------- | ------ | --------------------------- | ----- | ------------------------- | -------- | ---------- | ------- | ------- | ------ | ---------- | ------ | -------- | -------- | ---------- | ------- | 
|                                                                                |                                                        |                                            |                |        | Three Months Ended June 30, |       | Six Months Ended June 30,
|                                                                                |                                                        |                                            |                |        |                             |       |                          
|                                                                                |                                                        |                                            |                |        | 2002                        |       | 2001                      |          | 2002       |         | 2001   
|                                                                                |                                                        |                                            |                |        |                             |       |                           |          |            |         |        
|Revenues                                                                        |                                                        | $                                          | 4,588          |        |                             | $     | 5,970                     |          |            | $       | 9,880   |        |            | $      | 11,558   |         
|Expenses:                                                                       |                                                        |                                            |                |        |                             |       |                           |          |            |         |         |        |            |        |          |         
|                                                                                |                                                        | Cost of revenues                           |                |        | 5,758                       |       |                           |          | 6,189      |         |         |        | 11,447     |        |          |          | 13,828     |        
|                                                                                |                                                        | Sales and marketing                        |                |        | 643                         |       |                           |          | 686        |         |         |        | 1,009      |        |          |          | 2,573      |        
|                                                                                |                                                        | General and administrative                 |                |        | 1,324                       |       |                           |          | 1,689      |         |         |        | 1,603      |        |          |          | 10,194     |        
|                                                                                |                                                        | Research and development                   |                |        | 123                         |       |                           |          | 359        |         |         |        | 240        |        |          |          | 921        |        
|                                                                                |                                                        | Restructuring and impairment charges       |                |        |                            |       |                           |          | 279,607    |         |         |        |           |        |          |          | 279,607    |        
|                                                                                |                                                        | Loss on building                           |                |        |                            |       |                           |          | 1,665      |         |         |        |           |        |          |          | 1,665      |        
|                                                                                |                                                        | Amortization of intangibles                |                |        | 582                         |       |                           |          | 4,935      |         |         |        | 1,201      |        |          |          | 11,505     |        
|                                                                                |                                                        |                                            |                |        |                             |       |                           |          |            |         |         |        |            |        |          |         
|                                                                                |                                                        |                                            | Total expenses |        |                             | 8,430 |                           |          |            | 295,130 |         |        |            | 15,500 |          |          |            | 320,293 | 
|                                                                                |                                                        |                                            |                |        |                             |       |                           |          |            |         |         |        |            |        |          |         
|                                                                                |                                                        | Operating loss                             |                |        | (3,842                      | )     |                           |          | (289,160   | )       |         |        | (5,620     | )      |          |          | (308,735   | )      
|                                                                                |                                                        | Interest income and other income (expense) |                |        | (158                        | )     |                           |          | (999       | )       |         |        | (43        | )      |          |          | (567       | )      
|                                                                                |                                                        | Interest expense                           |                |        | (184                        | )     |                           |          | (188       | )       |         |        | (363       | )      |          |          | (555       | )      
|                                                                                |                                                        |                                            |                |        |                             |       |                           |          |            |         |         |        |            |        |          |         
|                                                                                |                                                        | Loss before minority interest              |                |        | (4,184                      | )     |                           |          | (290,347   | )       |         |        | (6,026     | )      |          |          | (309,857   | )      
|Minority interest in loss of subsidiary                                         |                                                        |                                            |               |        |                             |       |                          |          |            |         |        |        |            |        | 3,080    |         
|                                                                                |                                                        |                                            |                |        |                             |       |                           |          |            |         |         |        |            |        |          |         
|                                                                                |                                                        | Loss from continuing operations            |                |        | (4,184                      | )     |                           |          | (290,347   | )       |         |        | (6,026     | )      |          |          | (306,777   | )      
|Gain from discontinued operations                                               |                                                        |                                            | 523            |        |                             |       | 850                       |          |            |         | 1,364   |        |            |        | 1,749    |         
|Loss on disposal of discontinued operations                                     |                                                        |                                            | (3,564         | )      |                             |       |                          |          |            |         | (3,564  | )      |            |        |         |         
|                                                                                |                                                        |                                            |                |        |                             |       |                           |          |            |         |         |        |            |        |          |         
|Income (loss) on discontinued operations                                        |                                                        |                                            | (3,041         | )      |                             |       | 850                       |          |            |         | (2,200  | )      |            |        | 1,749    |         
|                                                                                |                                                        |                                            |                |        |                             |       |                           |          |            |         |         |        |            |        |          |         
|                                                                                | Net loss before extraordinary item                     |                                            |                | (7,225 | )                           |       |                           | (289,497 | )          |         |         | (8,226 | )          |        |          | (305,028 | )         
|Convertible debt restructuring                                                  |                                                        |                                            |               |        |                             |       |                          |          |            |         |        |        |            |        | 1,681    |         
|                                                                                |                                                        |                                            |                |        |                             |       |                           |          |            |         |         |        |            |        |          |         
|                                                                                | Net loss before cumulative effect of accounting change |                                            |                | (7,225 | )                           |       |                           | (289,497 | )          |         |         | (8,226 | )          |        |          | (303,347 | )         
|Cumulative effect of accounting change                                          |                                                        |                                            |               |        |                             |       |                          |          |            |         | (6,674  | )      |            |        |         |         
|                                                                                |                                                        |                                            |                |        |                             |       |                           |          |            |         |         |        |            |        |          |         
|Net loss                                                                        |                                                        | $                                          | (7,225         | )      |                             | $     | (289,497                  | )        |            | $       | (14,900 | )      |            | $      | (303,347 | )       
|                                                                                |                                                        |                                            |                |        |                             |       |                           |          |            |         |         |        |            |        |          |         
|Loss per share of common stock (basic and diluted)                              |                                                        |                                            |                |        |                             |       |                           |          |            |         |         |        |            |        |          |         
|                                                                                | Continuing operations                                  |                                            | $              | (0.08  | )                           |       | $                         | (5.50    | )          |         | $       | (0.11  | )          |        | $        | (6.49    | )         
|                                                                                | Discontinued operations                                |                                            |                | (0.05  | )                           |       |                           | 0.02     |            |         |         | (0.04  | )          |        |          | 0.04     |           
|                                                                                | Extraordinary gain                                     |                                            |                |       |                             |       |                           |         |            |         |         |       |            |        |          | 0.04     |           
|                                                                                | Cumulative effect of accounting change                 |                                            |                |       |                             |       |                           |         |            |         |         | (0.13  | )          |        |          |         |           
|                                                                                |                                                        |                                            |                |        |                             |       |                           |          |            |         |         |        |            |        |          |         
|                                                                                | Net loss                                               |                                            | $              | (0.13  | )                           |       | $                         | (5.48    | )          |         | $       | (0.28  | )          |        | $        | (6.41    | )         
|                                                                                |                                                        |                                            |                |        |                             |       |                           |          |            |         |         |        |            |        |          |         
|Weighted average common shares and equivalents
used in computing loss per share |                                                        |                                            |                |        |                             |       |                           |          |            |         |         |        |            |        |          |         
|                                                                                |                                                        | Basic and diluted                          |                |        | 53,633,000                  |       |                           |          | 52,784,000 |         |         |        | 53,559,000 |        |          |          | 47,302,000 |        

See notes to consolidated financial statements.

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

|                                                     |  |                 |   |              |  |            |   |             |  |                 |        |         |  |              |       |       |  |   |         |   |  |   |          |   |  |   |      |   |  |   |         |  
|---------------------------------------------------- |  | --------------- | - | ------------ |  | ---------- | - | ----------- |  | --------------- | ------ | ------- |  | ------------ | ----- | ----- |  | - | ------- | - |  | - | -------- | - |  | - | ---- | - |  | - | ------- | -
|                                                     |  | Preferred Stock |   | Common Stock |  | Additional |   | Accumulated |  | Unearned        |        |         |  |             
|                                                     |  | Shares          |   | Amount       |  | Shares     |   | Amount      |  | Paid-in Capital |        | Deficit |  | Compensation |       | Total
|                                                     |  |                 |   |              |  |            |   |             |  |                 |        |         |  |              |       |      
|Balance December 31,
2001                            |  |                 |  |              |  |            |  |             |  |                 | 52,979 |         |  | $            | 5,298 |       |  | $ | 433,386 |   |  | $ | (416,069 | ) |  | $ | (226 | ) |  | $ | 22,389  |  
|Net loss                                             |  |                 |   |              |  |            |   |             |  |                 |        |         |  |              |       |       |  |   |         |   |  |   | (14,900  | ) |  |   |      |   |  |   | (14,900 | )
|Termination of UICI
contract                         |  |                 |   |              |  |            |   |             |  |                 | (500   | )       |  |              | (50   | )     |  |   | 6,409   |   |  |   |          |   |  |   |      |   |  |   | 6,359   |  
|Common stock issued in lieu of
severance             |  |                 |   |              |  |            |   |             |  |                 | 358    |         |  |              | 36    |       |  |   | 319     |   |  |   |          |   |  |   |      |   |  |   | 355     |  
|Amortization and forfeiture of
unearned
compensation |  |                 |   |              |  |            |   |             |  |                 |        |         |  |              |       |       |  |   | (93     | ) |  |   |          |   |  |   | 185  |   |  |   | 92      |  
|Stock based
compensation                             |  |                 |   |              |  |            |   |             |  |                 |        |         |  |              |       |       |  |   | 222     |   |  |   |          |   |  |   |      |   |  |   | 222     |  
|Common stock issued in lieu of
interest              |  |                 |  |              |  |            |   |             |  |                 | 373    |         |  |              | 37    |       |  |   | 240     |   |  |   |         |   |  |   |     |   |  |   | 277     |  
|                                                     |  |                 |   |              |  |            |   |             |  |                 |        |         |  |              |       |       |  |   |         |   |  |   |          |   |  |   |      |   |  |   |         |  
|Balance June 30,
2002                                |  |                 |  |              |  |            |  |             |  |                 | 53,210 |         |  | $            | 5,321 |       |  | $ | 440,483 |   |  | $ | (430,969 | ) |  | $ | (41  | ) |  | $ | 14,794  |  
|                                                     |  |                 |   |              |  |            |   |             |  |                 |        |         |  |              |       |       |  |   |         |   |  |   |          |   |  |   |      |   |  |   |         |  

See notes to consolidated financial statements.

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Healthaxis Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands) (Unaudited)

|                                                  |                                                                                           |                                                          |                                                 |         |                  |       |          |          |         |       |  
|------------------------------------------------- | ----------------------------------------------------------------------------------------- | -------------------------------------------------------- | ----------------------------------------------- | ------- | ---------------- | ----- | -------- | -------- | ------- | ----- | -
|                                                  |                                                                                           |                                                          |                                                 |         | Six Months Ended
|                                                  |                                                                                           |                                                          |                                                 |         |                 
|                                                  |                                                                                           |                                                          |                                                 |         | June 30,         |       | June 30,
|                                                  |                                                                                           |                                                          |                                                 |         | 2002             |       | 2001    
|                                                  |                                                                                           |                                                          |                                                 |         |                  |       |         
|Cash flows from operating activities              |                                                                                           |                                                          |                                                 |         |                  |       |          |         
|                                                  | Net loss                                                                                  |                                                          | $                                               | (14,900 | )                |       | $        | (303,347 | )      
|                                                  | Adjustments to reconcile net loss to net cash provided by
(used in) operating activities: |                                                          |                                                 |         |                  |       |          |          |        
|                                                  |                                                                                           | Loss on disposal of discontinued operations              |                                                 |         | 3,564            |       |          |          |        |      
|                                                  |                                                                                           | Cumulative effect of accounting change                   |                                                 |         | 6,674            |       |          |          |        |      
|                                                  |                                                                                           | Depreciation and amortization                            |                                                 |         | 2,706            |       |          |          | 13,458  |      
|                                                  |                                                                                           | Amortization of unearned compensation                    |                                                 |         | 92               |       |          |          | 846     |      
|                                                  |                                                                                           | Bad debt reserve                                         |                                                 |         | 58               |       |          |          | 33      |      
|                                                  |                                                                                           | Minority interest in loss of subsidiary                  |                                                 |         |                 |       |          |          | (3,080  | )    
|                                                  |                                                                                           | Gain on settlement of severance obligation               |                                                 |         | (1,345           | )     |          |          |        |      
|                                                  |                                                                                           | Gain on convertible debt restructuring                   |                                                 |         |                 |       |          |          | (1,681  | )    
|                                                  |                                                                                           | Stock option compensation                                |                                                 |         | 222              |       |          |          | 5,404   |      
|                                                  |                                                                                           | Loss on disposition of assets                            |                                                 |         |                 |       |          |          | 93      |      
|                                                  |                                                                                           | Interest on convertible debt                             |                                                 |         | 49               |       |          |          | (21     | )    
|                                                  |                                                                                           | Impairment or restructuring charges                      |                                                 |         | 942              |       |          |          | 282,115 |      
|                                                  |                                                                                           | Payments of interest and severance with common stock     |                                                 |         | 632              |       |          |          | 164     |      
|                                                  |                                                                                           | Change in:                                               |                                                 |         |                  |       |          |          |         |      
|                                                  |                                                                                           |                                                          | Accounts receivable                             |         |                  | 2,858 |          |          |         | 1,932 |  
|                                                  |                                                                                           |                                                          | Prepaid expense and other current assets        |         |                  | (718  | )        |          |         | 173   |  
|                                                  |                                                                                           |                                                          | Other assets, current and deferred income taxes |         |                  |      |          |          |         | (36   | )
|                                                  |                                                                                           |                                                          | Accounts payable and accrued liabilities        |         |                  | (366  | )        |          |         | (581  | )
|                                                  |                                                                                           |                                                          | Deferred revenues                               |         |                  | (279  | )        |          |         | 1,713 |  
|                                                  |                                                                                           |                                                          | Other                                           |         |                  | (17   | )        |          |         | (4    | )
|                                                  |                                                                                           |                                                          |                                                 |         |                  |       |          |         
|                                                  | Net cash provided by (used in) operating activities                                       |                                                          |                                                 | 172     |                  |       |          | (2,819   | )      
|                                                  |                                                                                           |                                                          |                                                 |         |                  |       |          |         
|Cash flows from investing activities              |                                                                                           |                                                          |                                                 |         |                  |       |          |         
|                                                  |                                                                                           | Collection on notes receivable, net                      |                                                 |         | (6               | )     |          |          | 804     |      
|                                                  |                                                                                           | Investment in capitalized software and contract start-up |                                                 |         | (847             | )     |          |          | (2,015  | )    
|                                                  |                                                                                           | Payment of acquisition costs                             |                                                 |         |                 |       |          |          | (471    | )    
|                                                  |                                                                                           | Purchases of property, equipment and software, net       |                                                 |         | (119             | )     |          |          | (396    | )    
|                                                  |                                                                                           | Other                                                    |                                                 |         |                 |       |          |          | 79      |      
|                                                  |                                                                                           |                                                          |                                                 |         |                  |       |          |         
|                                                  | Net cash used in investing activities                                                     |                                                          |                                                 | (972    | )                |       |          | (1,999   | )      
|                                                  |                                                                                           |                                                          |                                                 |         |                  |       |          |         
|Cash flows from financing activities              |                                                                                           |                                                          |                                                 |         |                  |       |          |         
|                                                  |                                                                                           | Payments on capital leases                               |                                                 |         | (8               | )     |          |          | (164    | )    
|                                                  |                                                                                           | Termination of UICI contract                             |                                                 |         | 6,359            |       |          |          |        |      
|                                                  |                                                                                           |                                                          |                                                 |         |                  |       |          |         
|                                                  | Net cash provided by (used in) financing activities                                       |                                                          |                                                 | 6,351   |                  |       |          | (164     | )      
|                                                  |                                                                                           |                                                          |                                                 |         |                  |       |          |         
|                                                  | Increase (decrease) in cash and cash equivalents                                          |                                                          |                                                 | 5,551   |                  |       |          | (4,982   | )      
|                                                  | Cash and cash equivalents, beginning of period                                            |                                                          |                                                 | 13,149  |                  |       |          | 17,170   |        
|                                                  |                                                                                           |                                                          |                                                 |         |                  |       |          |         
|                                                  | Cash and cash equivalents, end of period                                                  |                                                          | $                                               | 18,700  |                  |       | $        | 12,188   |        
|                                                  |                                                                                           |                                                          |                                                 |         |                  |       |          |         
|Supplemental disclosure of cash flow information: |                                                                                           |                                                          |                                                 |         |                  |       |          |         
|                                                  | Interest paid                                                                             |                                                          | $                                               | 41      |                  |       | $        | 199      |        
|                                                  |                                                                                           |                                                          |                                                 |         |                  |       |          |         

See notes to consolidated financial statements.

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Healthaxis Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
June 30, 2002

Note A  Description of business and basis of presentation

Unaudited Financial Information

The unaudited condensed consolidated financial statements have been
prepared by Healthaxis Inc. and its subsidiaries (Healthaxis or the
Company), pursuant to the rules and regulations of the Securities and
Exchange Commission and reflect all adjustments consisting of normal recurring
entries, which, in the opinion of the Company, are necessary to present fairly
the results for the interim periods. The interim financial statements do not
include all disclosures provided in fiscal year end financial statements
prepared in accordance with accounting principles generally accepted in the
United States, although the Company believes that the accompanying disclosures
are adequate to make the information presented not misleading. Results of
operations for the three-month and six-month periods ended June 30, 2002, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2002.

Generally accepted accounting principles require management to make
estimates and assumptions when preparing financial statements that affect:



| |  |  | The reported amounts of assets and liabilities at the date of the financial statements; and
| | - |  | -------------------------------------------------------------------------------------------
|
| |  |  | The reported amounts of revenues and expenses during the reporting period.                 

They also require management to make estimates and assumptions regarding
any contingent assets and liabilities at the date of the financial statements.
Actual results could differ from those estimates.

These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Companys Annual Report
on Form 10-K for the year ended December 31, 2001.

General

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

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

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Note B  Accounting Policies and Recently Adopted Accounting Pronouncements

Earnings Per Share

Basic earnings per share is computed only on the weighted average number
of common shares outstanding during the respective periods, and the dilutive
effect of stock options and warrants is excluded. Diluted earnings per share
is computed to show the dilutive effect, if any, of stock options and warrants
using the treasury stock method based on the average market price of the stock
during the respective periods. The effect of including the stock options,
warrants and shares issuable upon conversion of the Companys convertible
debentures into the computation of diluted earnings per share would be
anti-dilutive generally due to the Companys net loss. Accordingly, these
items have not been included in the computation.

Goodwill and Other Intangible Assets

Effective January 1, 2002, the Company adopted Statements of Financial
Accounting Standards (SFAS) No. 142 Goodwill and Other Intangible Assets,
which requires companies to stop amortizing goodwill and certain intangible
assets with an indefinite useful life. Instead, SFAS No. 142 requires that
goodwill and intangible assets deemed to have an indefinite useful life be
reviewed for impairment upon adoption of SFAS No. 142 (January 1, 2002),
annually thereafter and upon the occurrence of any event that indicates
potential impairments. The Company will perform its annual impairment review
during the fourth quarter of each year, commencing in the fourth quarter of
2002.

SFAS No. 142 prescribes a two-phase process for impairment testing of
goodwill. The first phase screens for impairment; while the second phase (if
necessary), measures the impairment. Goodwill impairment is deemed to exist if
the net book value of a reporting unit exceeds its estimated fair value. The
Companys reporting units are generally consistent with the operating segments
underlying the segments identified in Note F  Segment Reporting. This
methodology differs from the Companys previous policy, as permitted under
accounting standards existing at that time, of using undiscounted cash flows on
an enterprise-wide basis to determine if goodwill is recoverable.

Upon adoption of SFAS No. 142 and completion of the required transition
testing in the second quarter of 2002, the Company recorded as of January 1,
2002 a one-time, non-cash charge of $6,674 to reduce the carrying value of its
goodwill. Such charge is reflected as a cumulative effect of an accounting
change in the accompanying consolidated statement of operations. In calculating
the impairment charge, the fair value of the impaired reporting units
underlying the segments were estimated using a discounted cash flow
methodology.

Long-Lived Assets

In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be disposed of. The primary objectives of SFAS No. 144 are to develop one
accounting model based on the framework established in SFAS No. 121 for
long-lived assets to be disposed of by sale, and to address significant
implementation issues. The Company adopted SFAS No. 144 as of January 1, 2002.
There has been no significant impact resulting from the adoption of SFAS No.
144.

The Company records impairment losses on long-lived assets when events and
circumstances indicate that such assets might be impaired and the estimated
fair value of the asset is less than its recorded amount. Conditions that
would necessitate an impairment assessment included material adverse changes in
operations, significant adverse differences in actual results in comparison with initial valuation
forecasts prepared at the time of acquisition, a decision to abandon acquired
products, services or technologies, or other significant adverse changes that
would indicate the carrying amount of the recorded asset might not be
recoverable.

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The Company reviews its long-lived assets and certain intangible assets
for impairment on a quarterly basis or whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets held and used is measured by a
comparison of the carrying amount of an asset to undiscounted pre-tax future
net cash flows expected to be generated by that asset. An impairment loss is
recognized for the amount by which the carrying amount of the assets exceeds
the fair value of the assets estimated using discounted cash flows.

Note C  Termination of UICI Technology Services Agreement

On June 11, 2002, the Company initiated and entered into an agreement with
UICI terminating the amended Information Technology Services Agreement (the
Agreement) between the two parties. The Agreement was originally entered
into on January 3, 2000 in conjunction with the merger of Healthaxis.com, Inc
and Insurdata Incorporated. Under the terms of the termination agreement, UICI
made a one-time cash payment to Healthaxis in the amount of $6,500 and tendered
500,000 shares of Healthaxis common stock back to the Company. In return,
approximately 165 Healthaxis employees that were previously dedicated to
providing services to UICI under the Agreement were transferred to and became
employees of UICI on June 15, 2002. Due to the related party nature of the
transaction, the Company has recorded the net proceeds, totaling $6,359, as a
contribution of capital from a significant shareholder.

Discontinued Operations

The Company has previously reported the revenues and expenses associated with
the Agreement as those from the Outsourcing segment. As a result of the
termination of the Agreement, the Companys financial statements have been
prepared with the Outsourcing segment results of operations presented as
discontinued operations. All historical financial statements presented have
been restated to conform to this presentation.

Impairment charges of $484 and $3,080 related to goodwill and customer base,
respectively, allocated to the Outsourcing segment have been recorded as a loss
on disposal of discontinued operations.

The operating results of the discontinued Outsourcing segment are as follows:

|                |            |   |                             |     |                           |   |       |     |      |   |       |       |  |   |        |       | 
|--------------- | ---------- | - | --------------------------- | --- | ------------------------- | - | ----- | --- | ---- | - | ----- | ----- |  | - | ------ | ----- | 
|                |            |   | Three Months Ended June 30, |     | Six Months Ended June 30,
|                |            |   |                             |     |                          
|                |            |   | 2002                        |     | 2001                      |   | 2002  |     | 2001
|                |            |   |                             |     |                           |   |       |     |     
|Revenue         |            | $ | 3,578                       |     |                           | $ | 5,527 |     |      | $ | 8,078 |       |  | $ | 10,776 |      
|Cost of revenue |            |   | 3,055                       |     |                           |   | 4,677 |     |      |   | 6,714 |       |  |   | 9,027  |      
|                |            |   |                             |     |                           |   |       |     |      |   |       |       |  |   |        |      
|                | Net income |   | $                           | 523 |                           |   | $     | 850 |      |   | $     | 1,364 |  |   | $      | 1,749 | 
|                |            |   |                             |     |                           |   |       |     |      |   |       |       |  |   |        |      

Note D  Related Party Transactions

At June 30, 2002, UICI owned approximately 45% of the Companys
outstanding common stock and owned warrants to purchase 222,396 shares of the
Companys common stock at prices ranging from $3.01 to $12.00 per share. At
June 30, 2002, UICI also owned $1,666, face value, of the Companys convertible
debentures that were convertible into 185,185 common shares.

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UICI and its subsidiaries and affiliates (collectively UICI) have in the
past constituted, in the aggregate, Healthaxis largest customer. Services to
UICI are provided pursuant to various written agreements, the most significant
of which has been the Information Technology Services Agreement (the
Agreement). On June 11, 2002, the Company and UICI mutually agreed to an
early termination of the Agreement (See Note C). Healthaxis also provides
services from continuing operations to certain UICI subsidiaries and
affiliates, including the use of certain proprietary workflow and business
applications, as well as data capture services. The Companys revenues from
UICI for these services for the three months ended June 30, 2002 and 2001, were
$402 (9%) and $2,053 (34%), respectively, of the Companys revenues from
continuing operations. The Companys revenues from UICI for these services for
the six months ended June 30, 2002 and 2001, were $1,245 (13%) and $3,957
(34%), respectively, of the Companys revenues from continuing operations. As
of June 30, 2002, Healthaxis had accounts receivable due from UICI and its
subsidiaries and affiliates totaling $139, which represented 5% of the
Companys total accounts receivable.

For the three and the six months ended June 30, 2002, UICI and its
subsidiaries accounted for an aggregate of $3,980 (49%) and $9,323 (52%),
respectively, of Healthaxis total revenues for the period from both continuing
and discontinued operations.

In conjunction with the termination of the Agreement, the Company paid
$100 to a consulting firm, Diamond Cluster International, Inc.,
affiliated with one of the Companys directors. In
addition, during the three months ended March 31, 2002, the Company paid
professional services fees in the amount of $366 to the same consulting firm.

Note E  Intangible Assets

Amortization of intangibles is comprised of the following:

|                                   |  |                             |     |                           |  |      |       |      |  |   |       |  |  |   |        | 
|---------------------------------- |  | --------------------------- | --- | ------------------------- |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ------ | 
|                                   |  | Three Months Ended June 30, |     | Six Months Ended June 30,
|                                   |  |                             |     |                          
|                                   |  | 2002                        |     | 2001                      |  | 2002 |       | 2001
|                                   |  |                             |     |                           |  |      |       |     
|Amortization of goodwill           |  | $                           |    |                           |  | $    | 3,785 |      |  | $ |      |  |  | $ | 9,151  | 
|Amortization of customer base      |  |                             | 510 |                           |  |      | 771   |      |  |   | 1,057 |  |  |   | 1,644  | 
|Amortization of developed software |  |                             | 72  |                           |  |      | 379   |      |  |   | 144   |  |  |   | 710    | 
|                                   |  |                             |     |                           |  |      |       |      |  |   |       |  |  |   |        | 
|                                   |  | $                           | 582 |                           |  | $    | 4,935 |      |  | $ | 1,201 |  |  | $ | 11,505 | 
|                                   |  |                             |     |                           |  |      |       |      |  |   |       |  |  |   |        | 

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

|                                 |          |                      |   |                |       |                   |   |                |       |              |   |        |       |  |   |       |       | 
|-------------------------------- | -------- | -------------------- | - | -------------- | ----- | ----------------- | - | -------------- | ----- | ------------ | - | ------ | ----- |  | - | ----- | ----- | 
|                                 |          |                      |   | June 30, 2002  |       | December 31, 2001
|                                 |          |                      |   |                |       |                  
|                                 |          |                      |   | Gross Carrying |       | Accumulated       |   | Gross Carrying |       | Accumulated 
|                                 |          |                      |   | Amount         |       | Amortization      |   | Amount         |       | Amortization
|                                 |          |                      |   |                |       |                   |   |                |       |             
|Intangibles no longer amortized: |          |                      |   |                |       |                   |   |                |       |              |   |        |       |  |   |      
|                                 | Goodwill |                      | $ | 17,150         |       |                   | $ |               |       |              | $ | 25,357 |       |  | $ | 1,533 |      
|Amortizable intangibles:         |          |                      |   |                |       |                   |   |                |       |              |   |        |       |  |   |      
|                                 |          | Customer base        |   |                | 4,214 |                   |   |                | 1,608 |              |   |        | 4,214 |  |   |       | 1,099 | 
|                                 |          | Capitalized software |   |                | 2,284 |                   |   |                | 1,098 |              |   |        | 2,493 |  |   |       | 862   | 

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

|       |  |       |  |   |       |          |       |           |     |   |     | 
|------ |  | ----- |  | - | ----- | -------- | ----- | --------- | --- | - | --- | 
|       |  |       |  |   |       | Customer |       | Developed
|       |  |       |  |   |       | Base     |       | Software 
|       |  |       |  |   |       |          |       |          
|2002 * |  |       |  |   |       | $        | 1,561 |           |     | $ | 288 | 
|2003   |  |       |  |   |       |          | 1,009 |           |     |   | 288 | 
|2004   |  |       |  |   |       |          | 1,009 |           |     |   | 22  | 
|2005   |  |       |  |   |       |          | 84    |           |     |   |    | 
|       |  |       |  |   |       |          |       |           |     |   |     | 
|       |  | Total |  | $ | 3,663 |          |       | $         | 598 |  
|       |  |       |  |   |       |          |       |           |     |   |     | 



---

|* |  | Includes the six months ended June 30, 2002
|- |  | -------------------------------------------

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

|                                            |  |                             |        |                           |  |      |          |      |  |   |         |   |  |   |          |  
|------------------------------------------- |  | --------------------------- | ------ | ------------------------- |  | ---- | -------- | ---- |  | - | ------- | - |  | - | -------- | -
|                                            |  | Three Months Ended June 30, |        | Six Months Ended June 30,
|                                            |  |                             |        |                          
|                                            |  | 2002                        |        | 2001                      |  | 2002 |          | 2001
|                                            |  |                             |        |                           |  |      |          |     
|Reported net loss before
extraordinary item |  | $                           | (7,225 | )                         |  | $    | (289,497 | )    |  | $ | (8,226  | ) |  | $ | (305,028 | )
|                                            |  |                             |        |                           |  |      |          |      |  |   |         |   |  |   |          |  
|Reported net loss                           |  | $                           | (7,225 | )                         |  | $    | (289,497 | )    |  | $ | (14,900 | ) |  | $ | (303,347 | )
|                                            |  |                             |        |                           |  |      |          |      |  |   |         |   |  |   |          |  
|Add back: amortization of goodwill          |  |                             |       |                           |  |      | 3,785    |      |  |   |        |   |  |   | 9,151    |  
|                                            |  |                             |        |                           |  |      |          |      |  |   |         |   |  |   |          |  
|Adjusted net loss before
extraordinary item |  | $                           | (7,225 | )                         |  | $    | (285,712 | )    |  | $ | (8,226  | ) |  | $ | (295,877 | )
|                                            |  |                             |        |                           |  |      |          |      |  |   |         |   |  |   |          |  
|Adjusted net loss                           |  | $                           | (7,225 | )                         |  | $    | (285,712 | )    |  | $ | (14,900 | ) |  | $ | (294,196 | )
|                                            |  |                             |        |                           |  |      |          |      |  |   |         |   |  |   |          |  
|Basic and diluted earnings
per share:       |  |                             |        |                           |  |      |          |      |  |   |         |   |  |   |          |  
|Reported net loss before
extraordinary item |  | $                           | (0.13  | )                         |  | $    | (5.48    | )    |  | $ | (0.15   | ) |  | $ | (6.45    | )
|                                            |  |                             |        |                           |  |      |          |      |  |   |         |   |  |   |          |  
|Reported net loss                           |  | $                           | (0.13  | )                         |  | $    | (5.48    | )    |  | $ | (0.28   | ) |  | $ | (6.41    | )
|                                            |  |                             |        |                           |  |      |          |      |  |   |         |   |  |   |          |  
|Add back: amortization of goodwill          |  |                             |       |                           |  |      | 0.07     |      |  |   |        |   |  | $ | 0.19     |  
|                                            |  |                             |        |                           |  |      |          |      |  |   |         |   |  |   |          |  
|Adjusted net loss before
extraordinary item |  | $                           | (0.13  | )                         |  | $    | (5.41    | )    |  | $ | (0.15   | ) |  | $ | (6.26    | )
|                                            |  |                             |        |                           |  |      |          |      |  |   |         |   |  |   |          |  
|Adjusted net loss                           |  | $                           | (0.13  | )                         |  | $    | (5.41    | )    |  | $ | (0.28   | ) |  | $ | (6.22    | )
|                                            |  |                             |        |                           |  |      |          |      |  |   |         |   |  |   |          |  

On January 1, 2002, the Company adopted SFAS 142 (See Note B). In the second
quarter of 2002, the Company completed a transitional goodwill impairment test,
which under SFAS 142 must be completed in the year of adoption. This test
resulted in an impairment charge totaling $6,674, related to the Web
Technologies operating segment. The impairment charge is shown as a cumulative
effect of an accounting change as of January 1, 2002. The following shows the
restated results of operations for the three months ended March 31, 2002:

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|                                               |  |   |            |  
|---------------------------------------------- |  | - | ---------- | -
|Net loss, as reported                          |  | $ | (1,001     | )
|Cumulative effect adjustment                   |  |   | (6,674     | )
|                                               |  |   |            |  
|Net loss, as restated                          |  | $ | (7,675     | )
|                                               |  |   |            |  
|Loss per share, as reported (base and diluted) |  | $ | (.02       | )
|Cumulative effect adjustment                   |  |   | (.12       | )
|                                               |  |   |            |  
|Loss per share, as restated                    |  | $ | (.14       | )
|                                               |  |   |            |  
|Weighted average common shares                 |  |   | 53,483,000 |  

At June 30, 2002, in connection with the termination of the Agreement with
UICI, the Company recorded impairment charges related to goodwill and customer
base in the amounts of $484 and $3,080, respectively. The amounts are shown as
a loss on the disposal of discontinued operations. The goodwill impairment
charge results from a write off of the entire amount of goodwill allocated to
the Outsourcing segment as determined under the new rules for goodwill
accounting. Likewise, the amount of the customer base impairment charge was
based upon a complete write-off of the portion of the assets carrying value
originally based upon the estimated future cash flows from the Agreement with
UICI.

The changes in the carrying amount of goodwill for the six months ended June
30, 2002, are as follows:

|                                                                        |  |              |      |            |  |               |        |          |  |              |        |  |  |   |     |  |  |   |        |  
|----------------------------------------------------------------------- |  | ------------ | ---- | ---------- |  | ------------- | ------ | -------- |  | ------------ | ------ |  |  | - | --- |  |  | - | ------ | -
|                                                                        |  |              |      |            |  |               |        |          |  | Benefit      |        |  |  |   |     |  |  |  
|                                                                        |  | Discontinued |      | Web        |  | Administrator |        | Imaging  |  | Consolidated
|                                                                        |  | Operations   |      | Technology |  | Solutions     |        | Services |  | Total       
|                                                                        |  |              |      |            |  |               |        |          |  |             
|Balance at January 1, 2002                                              |  | $            | 484  |            |  | $             | 12,771 |          |  | $            | 10,240 |  |  | $ | 813 |  |  | $ | 24,308 |  
|Cumulative effect adjustment                                            |  |              |     |            |  |               | (6,674 | )        |  |              |       |  |  |   |    |  |  |   | (6,674 | )
|                                                                        |  |              |      |            |  |               |        |          |  |              |        |  |  |   |     |  |  |   |        |  
|Adjusted balance at January 1, 2002                                     |  |              | 484  |            |  |               | 6,097  |          |  |              | 10,240 |  |  |   | 813 |  |  |   | 17,634 |  
|Goodwill impairment included in
loss on disposal of Outsourcing
segment |  |              | (484 | )          |  |               |       |          |  |              |       |  |  |   |    |  |  |   | (484   | )
|                                                                        |  |              |      |            |  |               |        |          |  |              |        |  |  |   |     |  |  |   |        |  
|Balance at June 30, 2002                                                |  | $            |     |            |  | $             | 6,097  |          |  | $            | 10,240 |  |  | $ | 813 |  |  | $ | 17,150 |  
|                                                                        |  |              |      |            |  |               |        |          |  |              |        |  |  |   |     |  |  |   |        |  

Note F  Segment Reporting

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

The Companys operating segments are:



| |  |  | Web Technology Group  provides web-enabled connectivity platforms
and solutions for self service (brokers, employers, employees, members,
and providers), large group enrollment and small group enrollment,
sale/distribution and post-sale administration of group and individual
insurance policies including health, life and dental insurance, and
solutions for enabling compliance with HIPAA.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Benefit Administrator Solutions Group (formerly Application Solutions
Group)  provides web-enabled systems for enrollment, administration and
processing of health insurance claims on an ASP basis.                                                                                                                                                                                                 
|
| |  |  | Imaging Services Group  provides electronic data capture, imaging,
storage and retrieval of health insurance claims, attachments and other
correspondence.                                                                                                                                                                                                                                           

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

All revenue is specifically associated with a separate business unit and,
therefore, there are no reconciling items. Earnings before interest, income
tax, depreciation and amortization (EBITDA) is the primary measurement used
by management to make decisions regarding the segments. EBITDA, as defined by
the Company, also excludes restructuring, severance and non-cash stock based
compensation charges (EBITDA As Defined). Corporate overhead includes
executive management, accounting, legal and human resources, and other expenses
including consulting services. Operating income does not include any cost
allocations for corporate overhead.

|                                 |  |            |        |               |  |          |       |           |  |              |       |   |  |   |          |   |  |   |          |  
|-------------------------------- |  | ---------- | ------ | ------------- |  | -------- | ----- | --------- |  | ------------ | ----- | - |  | - | -------- | - |  | - | -------- | -
|                                 |  |            |        |               |  | Benefit  |       |           |  |              |       |   |  |   |          |   |  |  
|                                 |  | Web        |        | Administrator |  | Imaging  |       | Corporate |  | Consolidated
|                                 |  | Technology |        | Solutions     |  | Services |       | Overhead  |  | Total       
|                                 |  |            |        |               |  |          |       |           |  |             
|Three Months Ended June 30, 2002 |  |            |        |               |  |          |       |           |  |              |       |   |  |   |          |   |  |   |          |  
|Revenue                          |  | $          | 494    |               |  | $        | 3,010 |           |  | $            | 1,084 |   |  | $ |         |   |  | $ | 4,588    |  
|EBITDA As Defined                |  |            | (817   | )             |  |          | 710   |           |  |              | (221  | ) |  |   | (1,271   | ) |  |   | (1,599   | )
|Depreciation and amortization    |  |            | 340    |               |  |          | 189   |           |  |              | 191   |   |  |   | 643      |   |  |   | 1,363    |  
|Operating income (loss)          |  |            | (1,749 | )             |  |          | 398   |           |  |              | (412  | ) |  |   | (2,079   | ) |  |   | (3,842   | )
|Three Months Ended June 30, 2001 |  |            |        |               |  |          |       |           |  |              |       |   |  |   |          |   |  |   |          |  
|Revenue                          |  | $          | 1,497  |               |  | $        | 3,145 |           |  | $            | 1,328 |   |  | $ |         |   |  | $ | 5,970    |  
|EBITDA As Defined                |  |            | (474   | )             |  |          | 61    |           |  |              | 58    |   |  |   | (1,427   | ) |  |   | (1,782   | )
|Depreciation and amortization    |  |            | 197    |               |  |          | 275   |           |  |              | 193   |   |  |   | 5,040    |   |  |   | 5,705    |  
|Operating income (loss)          |  |            | (601   | )             |  |          | (171  | )         |  |              | (114  | ) |  |   | (288,274 | ) |  |   | (289,160 | )
|Six Months Ended June 30, 2002   |  |            |        |               |  |          |       |           |  |              |       |   |  |   |          |   |  |   |          |  
|Revenue                          |  | $          | 1,581  |               |  | $        | 6,177 |           |  | $            | 2,122 |   |  | $ |         |   |  | $ | 9,880    |  
|EBITDA As Defined                |  |            | (1,280 | )             |  |          | 1,479 |           |  |              | (524  | ) |  |   | (2,905   | ) |  |   | (3,230   | )
|Depreciation and amortization    |  |            | 617    |               |  |          | 372   |           |  |              | 396   |   |  |   | 1,321    |   |  |   | 2,706    |  
|Operating income (loss)          |  |            | (2,490 | )             |  |          | 984   |           |  |              | (920  | ) |  |   | (3,194   | ) |  |   | (5,620   | )
|Six Months Ended June 30, 2001   |  |            |        |               |  |          |       |           |  |              |       |   |  |   |          |   |  |   |          |  
|Revenue                          |  | $          | 2,735  |               |  | $        | 6,166 |           |  | $            | 2,657 |   |  | $ |         |   |  | $ | 11,558   |  
|EBITDA As Defined                |  |            | (2,289 | )             |  |          | 119   |           |  |              | (48   | ) |  |   | (3,451   | ) |  |   | (5,669   | )
|Depreciation and amortization    |  |            | 492    |               |  |          | 697   |           |  |              | 382   |   |  |   | 11,721   |   |  |   | 13,292   |  
|Operating income (loss)          |  |            | (2,783 | )             |  |          | (578  | )         |  |              | (429  | ) |  |   | (304,945 | ) |  |   | (308,735 | )

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

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Note G  Employee Termination Agreement

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

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

Note H  Impairment of Investment on Digital Insurance

In June 2002, the Company determined that an other than temporary decline
in the value of Healthaxis investment in Digital Insurance, Inc. common stock
had occurred. An impairment charge in the amount of $227, the remainder of the
carrying value, has been included as a component of interest income and other
income (expense).

Note I  Capitalized Software Impairment Charge

Management periodically reviews the book value of assets held for
indications of impairment. At June 30, 2002, management determined that the
value of certain developed software was impaired. This determination was based
upon an analysis of estimated future cash flows in connection with a decision
by management to divert marketing efforts away from the software product. An
impairment charge of $592, for the remaining carrying value of the asset, has
been included in costs of revenue.

Note J  Subsequent Events

On July 31, 2002, Healthaxis closed a transaction in which the holders of
its 2% Convertible Debentures in the principal amount of $27,500
exchanged their debentures for 23,500 shares of Series A Convertible Preferred
Stock (the Preferred Stock) and a cash payment of $4,000. The Preferred
Stock has a par value of $1.00 per share and a stated value of $1,000 per
share. The Preferred Stock is convertible into common stock at a price of
$2.625 per share and carries a dividend rate of 2% per annum, payable
semi-annually on July 15 and January 15 of each year, in cash or, in some
circumstances, common stock. The Preferred Stock contains, among other things,
terms providing the holders a preference in the payment of dividends, and also
a liquidation preference at least equal to the stocks stated value plus
accrued but unpaid dividends, and contains covenants and obligations to which
the Company must adhere. The holders of the Preferred Stock do not have general
voting rights, although they do have the right to vote separately as a class in
certain circumstances. The Company expects to record a third quarter gain on
extinguishment of debt between $16,000 to $18,000 related to the transaction
for the difference between the carrying value of the convertible debentures and
the estimated fair value of the cash and preferred stock exchanged.

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

Forward-Looking Statements

All statements other than statements of historical fact contained in this
report, including statements in this Managements Discussion and Analysis of
Results of Operations and Financial Condition concerning the Companys
financial position and liquidity, results of operations, prospects for future
growth, and other matters are forward-looking statements. These statements may
be identified with words such as anticipate, believe, plan, estimate,
expect, intend, should, could, goal, target, designed, on
track, comfortable with, optimistic and other similar expressions, and
constitute forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These forward-looking statements are subject to known
and unknown risks, uncertainties and other factors which may cause actual
results to be materially different from those contemplated by the
forward-looking statements. Such factors include the risks and uncertainties
identified in Healthaxis documents filed with, or furnished to, the Securities
and Exchange Commission, including without limitation those identified under
the caption BusinessRisk Factors in the Companys Form 10-K for the year
ended December 31, 2001. Readers are cautioned not to place undue reliance on
forward-looking statements.

Overview

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

Revenue Model:Healthaxis derives revenue from a number of sources as
described below for each of our strategic business units.

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

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

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project may be undertaken for a fixed price. Revenue on fixed price
projects is recognized on the percentage completion basis.

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

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

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

Recent Developments

Termination of the Information Technology Services Agreement with UICI:
On June 11, 2002, Healthaxis, at its initiative, entered into an agreement with
UICI terminating the Information Technology Services Agreement (the
Agreement) between the two parties. The transaction
closed on June 17, 2002. Under the terms of the termination
agreement, UICI made a one-time cash payment to Healthaxis in the amount of
$6.5 million and tendered 500,000 shares of Healthaxis common stock back to the
Company. In return, approximately 165 Healthaxis employees that were
previously dedicated to providing services to UICI under the Agreement have
been transferred to and are now employed by UICI. Approximately 13 previously
dedicated employees have been terminated by the Company and did not transfer to
UICI in the transaction. As a result, all expenses directly associated with
the transferred or terminated employees will no longer be incurred by
Healthaxis. Under the terms of the Agreement, Healthaxis was entitled to
receive revenues from UICI equaling the sum of the costs allocable under the
Agreement plus ten percent of such costs.

Prior to the termination of the Agreement, UICI and its subsidiaries and
affiliates constituted, in aggregate, Healthaxis largest customer. UICI is
also the Companys largest common shareholder. At June 30, 2002, UICI owned
approximately 45% of the Companys outstanding common stock and owns warrants
to purchase 222,396 shares of the Companys common stock at prices ranging from
$3.01 to $12.00 per share. UICI also owned $1.7 million, face value, of the
Companys convertible debentures that were exchanged for cash and Series A
Convertible Preferred Stock on July 31, 2002, as further described under the
caption  Subsequent Event below.

Management of Healthaxis believes that termination of the Agreement, under
the agreed terms and conditions, will benefit the Company for the following
reasons:



| |  By receiving $6.5 million cash, Healthaxis was able to convert a declining
and uncertain revenue stream into current cash. The Companys revenue under
the Agreement had been declining over the past five quarters. UICI had
advised Healthaxis that it intended to reduce its dependence on Healthaxis
for services under the Agreement due to UICIs strategic objective of
regaining control of and managing its own information technology staff. UICI
had also indicated that it expected that its payments to Healthaxis under the
Agreement in 2002 would be less than its payments in 2001, and would likely
decline each year thereafter through the
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | expiration of the agreement in 2005, at which time UICI had indicated that it
did not intend to renew the Agreement.                                                                                                                                                                                                                                                                
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  The Agreement was the Companys only information technology staff
outsourcing agreement. Management believes its termination will allow the
Company to sharpen further its concentration on web-enabled connectivity
tools for managed care organizations and its benefit administration solutions
for TPAs, employers and government entities, and data capture imaging
services.
|
| |  Management also believes that the $6.5 million cash and 500,000 shares of
Healthaxis common stock received in the transaction will provide additional
assets to allow the Company to invest in its organic growth and other
strategic initiatives.                                                                                                                                

Healthaxis will account for the transaction as a disposition of a line of
business. Due to the related party nature of the transaction, the Company has
recorded the proceeds, totaling approximately $6.4 million net of transaction
costs, as a contribution of capital from a significant shareholder. The
transaction resulted in a write-down of certain intangible assets, namely
customer base and goodwill, in the aggregate amount of approximately $3.6
million. This amount was recorded as a loss on disposal of discontinued
operations in the Companys Condensed Consolidated Statement of Operations for
the three month and six month periods ending June 30, 2002. The results of
operations of the disposed segment for the three and six month periods ended
June 30, 2002 and 2001 are now reported as a gain from discontinued operations
on the Companys Condensed Consolidated Statement of Operations for the those
periods. The Company had previously reported the activities under the
Agreement as a separate operating segment (Outsourcing).

On July 2, 2002, Healthaxis filed a Current Report of Form 8-K in which it
disclosed certain financial information about the early termination of the
Agreement. That filing included unaudited proforma condensed financial
statements of operations for the year ended December 31, 2001, and for the
three months ended March 31, 2002, reflecting the historical accounts of the
Company for those periods, adjusted to give proforma effect to the transaction
as if the transaction occurred at the beginning of each period presented. The
filing also included an unaudited proforma condensed balance sheet as of March
31, 2002, reflecting the historical accounts of the Company adjusted to give
proforma effect to the transaction as if it occurred on March 31, 2002.

All historical revenues and expenses related to the termination of the
Agreement are reported as a gain from discontinued operations in the Companys
Condensed Consolidated Statement of Operations attached hereto, for all periods
reported. The termination of the Agreement resulted in the loss of
substantially all of the business of UICI, our largest customer, and
the Company believes that it is unlikely that it will be able to
replace this business in the near-term. The near-term impact of the termination of the Agreement on the Companys
operations, cash flow and liquidity is described under the caption Liquidity
and Capital Resources below.

As a result of the
loss of substantially all of UICI's business, the business of a number
of the Company's other clients now represents a more significant
component of the Company's continuing operations. For the six-months
ended June 30, 2002, the Company's four largest customers
accounted for 58% of revenues. One of these clients, American
Administrative Group, Inc. (AAG), is currently operating under a
temporary arrangement while the Company and AAG continue to negotiate
a definitive agreement. There can be no assurance that a definitive
agreement will be reached with AAG.

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

The listing of Healthaxis common stock was transferred from the Nasdaq
National Market to the Nasdaq SmallCap Market on July 16, 2002, where it will
continue to trade under the symbol HAXS. The continued listing of Healthaxis
common stock on the Nasdaq SmallCap Market will be subject to the Companys
continuing qualification with the Nasdaq SmallCap Market listing requirements.

Digital Insurance: As of March 31, 2002, the Company carried its 2.5%
interest in Digital Insurance at a value of $227,000 based upon Digitals last
equity funding. In July 2002, Digital completed another equity funding which
further diluted the Companys holdings to 0.4%. Healthaxis management has now
concluded that there is no measurable value in its investment in Digital, and
that this is other than a temporary condition. Accordingly, Healthaxis
recorded an impairment charge in the second quarter 2002 for the entire
$227,000 and now has no carrying value for its investment in Digital.

Subsequent Event

On July 31, 2002, Healthaxis completed a transaction in which the holders
of its 2% Convertible Debentures in the principal amount of $27.5 million
exchanged their debentures for 23,500 shares of Series A Convertible Preferred
Stock (the Preferred Stock) and a cash payment of $4.0 million. The
Preferred Stock has a par value of $1.00 per share and a stated value of $1,000
per share. The Preferred Stock is convertible into common stock at a price of
$2.625 per share and carries a dividend rate of 2% per annum, payable
semi-annually on July 15 and January 15 of each year, in cash or, in some
circumstances, common stock. The Preferred Stock contains, among other things,
terms providing the holders a preference in the payment of dividends, a liquidation preference at least equal to the stocks stated value plus
accrued but unpaid dividends, a redemption of the shares of Preferred
Stock in situations within the control of the Company, and contains covenants and obligations to which
the Company must adhere. The holders of the Preferred Stock do not have general
voting rights, although they do have the right to vote separately as a class in
certain circumstances.

In 1999, the Company issued the 2% Convertible Debentures in the amount of
$27.5 million. These debentures, as amended, were due in full on September 14,
2005 and could be converted into common stock at a conversion price of $9.00
per share at the option of the holder. Interest was paid semi-annually on
January 1 and July 1 of each year and, at the Companys option, could be paid
in cash or in stock. During the six months ended June 30, 2002, the Company
recorded $273,000 in interest expense related to the Convertible Debentures,
which was paid via the issuance of 452,680 shares of the Companys common stock
in July 2002. These debentures were extinguished on July 31, 2002 as described
above.

The Company expects to record a third quarter gain on extinguishment of
the convertible debt between $16 to $18 million related to the transaction for
the difference between the carrying value of the convertible debentures and the
estimated fair value of the cash and preferred stock exchanged. The Company
expects that the Preferred Stock will be reported as permanent equity on the
Companys balance sheet. Management expects the combined effects of the gain
and recording of the Preferred Stock will increase shareholder equity by
approximately $23 million.

Management of Healthaxis believes that this transaction will benefit the
Company by eliminating all of the Companys long-term debt for an amount
significantly less than the face value of the debentures. Management also
believes that the existence of the long-term debt was a negative factor in the
minds of existing customers, potential customers, and shareholders in terms of
the Companys financial stability.

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Results of Operations

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

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

Six months ended June 30, 2002 compared to six months ended June 30, 2001.

|                   |                             |                          |   |                                                |        |               |   |              |       |       |   |         |     |      |       |        |        |  |     |     |     |  
|------------------ | --------------------------- | ------------------------ | - | ---------------------------------------------- | ------ | ------------- | - | ------------ | ----- | ----- | - | ------- | --- | ---- | ----- | ------ | ------ |  | --- | --- | --- | -
|                   |                             |                          |   | Six Months Ended, June 30, 2002 (in thousands)
|                   |                             |                          |   |                                               
|                   |                             |                          |   | Cash                                           |        |               |   |              |       | Stock |   |         |     |      |       |        |        | 
|                   |                             |                          |   | Operating                                      |        | Depreciation/ |   | Based        |       |       |   |         |     | % of
|                   |                             |                          |   | Costs                                          |        | Amortization  |   | Compensation |       | Total |   | Revenue
|                   |                             |                          |   |                                                |        |               |   |              |       |       |   |        
|Revenues           |                             |                          |   |                                                |        |               |   |              |       |       |   |         |     | $    | 9,880 |        |        |  | 100 | %  
|Operating Expenses |                             |                          |   |                                                |        |               |   |              |       |       |   |         |     |      |       |        |        |  |     |    
|                   | Cost of revenue             |                          | $ | 9,929                                          |        |               | $ | 1,395        |       |       | $ | 123     |     |      |       | 11,447 |        |  |     | 116 | %  
|                   | Sales and marketing         |                          |   | 920                                            |        |               |   | 23           |       |       |   | 66      |     |      |       | 1,009  |        |  |     | 10  | %  
|                   | General and administrative  |                          |   | 1,404                                          |        |               |   | 66           |       |       |   | 133     |     |      |       | 1,603  |        |  |     | 16  | %  
|                   | Research and development    |                          |   | 227                                            |        |               |   | 21           |       |       |   | (8      | )   |      |       | 240    |        |  |     | 2   | %  
|                   |                             |                          |   |                                                |        |               |   |              |       |       |   |         |     |      |       |        |        |  |     |    
|                   |                             | Subtotal                 |   | $                                              | 12,480 |               |   | $            | 1,505 |       |   | $       | 314 |      |       |        | 14,299 |  |     |     | 145 | %
|                   |                             |                          |   |                                                |        |               |   |              |       |       |   |         |     |      |       |        |        |  |     |    
|                   | Restructuring charge        |                          |   |                                                |        |               |   |              |       |       |   |         |     |      |       |       |        |  |     |     |    
|                   | Loss on building            |                          |   |                                                |        |               |   |              |       |       |   |         |     |      |       |       |        |  |     |     |    
|                   | Amortization of intangibles |                          |   |                                                |        |               |   |              |       |       |   |         |     |      |       | 1,201  |        |  |     | 12  | %  
|                   |                             |                          |   |                                                |        |               |   |              |       |       |   |         |     |      |       |        |        |  |     |    
|                   |                             | Total operating expenses |   |                                                |        |               |   |              |       |       |   |         |     |      |       | $      | 15,500 |  |     |     | 157 | %
|                   |                             |                          |   |                                                |        |               |   |              |       |       |   |         |     |      |       |        |        |  |     |    

|                   |                             |                          |   |                                                |        |              |   |              |       |       |   |         |       |      |        |         |         |  |     |       |       |  
|------------------ | --------------------------- | ------------------------ | - | ---------------------------------------------- | ------ | ------------ | - | ------------ | ----- | ----- | - | ------- | ----- | ---- | ------ | ------- | ------- |  | --- | ----- | ----- | -
|                   |                             |                          |   | Six Months Ended, June 30, 2001 (in thousands)
|                   |                             |                          |   |                                               
|                   |                             |                          |   | Cash                                           |        |              |   |              |       | Stock |   |         |       |      |        |         |         | 
|                   |                             |                          |   | Operating                                      |        | Deprecation/ |   | Based        |       |       |   |         |       | % of
|                   |                             |                          |   | Costs                                          |        | Amortization |   | Compensation |       | Total |   | Revenue
|                   |                             |                          |   |                                                |        |              |   |              |       |       |   |        
|Revenues           |                             |                          |   |                                                |        |              |   |              |       |       |   |         |       | $    | 11,558 |         |         |  | 100 | %    
|Operating Expenses |                             |                          |   |                                                |        |              |   |              |       |       |   |         |       |      |        |         |         |  |     |      
|                   | Cost of revenue             |                          | $ | 11,639                                         |        |              | $ | 1,559        |       |       | $ | 630     |       |      |        | 13,828  |         |  |     | 120   | %    
|                   | Sales and marketing         |                          |   | 1,482                                          |        |              |   | 20           |       |       |   | 1,071   |       |      |        | 2,573   |         |  |     | 22    | %    
|                   | General and administrative  |                          |   | 5,525                                          |        |              |   | 140          |       |       |   | 4,529   |       |      |        | 10,194  |         |  |     | 88    | %    
|                   | Research and development    |                          |   | 833                                            |        |              |   | 68           |       |       |   | 20      |       |      |        | 921     |         |  |     | 8     | %    
|                   |                             |                          |   |                                                |        |              |   |              |       |       |   |         |       |      |        |         |         |  |     |      
|                   |                             | Subtotal                 |   | $                                              | 19,479 |              |   | $            | 1,787 |       |   | $       | 6,250 |      |        |         | 27,516  |  |     |       | 238   | %
|                   |                             |                          |   |                                                |        |              |   |              |       |       |   |         |       |      |        |         |         |  |     |      
|                   | Restructuring charge        |                          |   |                                                |        |              |   |              |       |       |   |         |       |      |        | 279,607 |         |  |     | 2,419 | %    
|                   | Loss on building            |                          |   |                                                |        |              |   |              |       |       |   |         |       |      |        | 1,665   |         |  |     | 14    | %    
|                   | Amortization of intangibles |                          |   |                                                |        |              |   |              |       |       |   |         |       |      |        | 11,505  |         |  |     | 100   | %    
|                   |                             |                          |   |                                                |        |              |   |              |       |       |   |         |       |      |        |         |         |  |     |      
|                   |                             | Total operating expenses |   |                                                |        |              |   |              |       |       |   |         |       |      |        | $       | 320,293 |  |     |       | 2,771 | %
|                   |                             |                          |   |                                                |        |              |   |              |       |       |   |         |       |      |        |         |         |  |     |      

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Revenuesdecreased 15% from $11.6 million for the six-months ended June
30, 2001 to $9.9 million for the same period in 2002. The decrease was
primarily the result of reductions in the amounts received from Digital
Insurance and UICI (unrelated to the Information Technology Services Agreement)
in the Web Technology Group, and a decline in the Imaging Group resulting from
the completion of a major contract in late 2001.

Cost of revenuesincludes all expenses directly associated with the
production of revenue, and consists primarily of salaries and related benefits,
rent, amortization and depreciation, system expenses such as maintenance and
repair, as well as other related consumables. These costs decreased 17% from
$13.8 million for the six months ended June 30, 2001 to $11.4 million for the
same period in 2002 despite a software impairment charge of $592,000 and a
hardware write-off of $123,000 in the 2002 period. Cost of revenue as a
percentage of revenue declined from 120% in 2001 to 116% in 2002. A reduction
of amortization, depreciation and stock based compensation accounted for
$671,000 of the decrease. The remainder was due primarily to a reduced labor
force and expense savings derived from the restructuring plan implemented in
May 2001 as described above. Most of the stock based compensation cost in 2001
relates to the re-measurement of options exchanged in the HAXS Merger completed
in January 2001.

Sales and marketing expensesconsist primarily of employee salaries and
related benefits, as well as promotional costs such as direct mail campaigns,
trade shows and media advertising. These expenses decreased 61% from $2.6
million for the six-months ended June 30, 2001 to $1.0 million for the same
period in 2002. Approximately $1.0 million of the decrease was due to a
reduction of stock based compensation resulting from the re-measurement of
options exchanged in the 2001 HAXS Merger. As a part of the restructuring plan
implemented in May 2001, the sales staff was reduced and transferred to the
operating divisions, which resulted in the remaining decrease in expenses.

General and administrative expensesinclude executive management,
accounting, legal, consulting services and human resources compensation and
related benefits, as well as expenditures for applicable overhead costs. These
expenses were approximately $10.2 million for the six months ended June 30,
2001 compared to $1.6 million for the same period in 2002, reflecting a
decrease of 84%. Stock based compensation of approximately $4.5 million was
included in the 2001 period as compared to $133,000 in the 2002 period, due
primarily to the re-measurement of options exchanged in the HAXS merger.
Severance expenses totaling $2.2 million are included in the 2001 period, as
compared to a credit of $1.3 million in 2002, primarily related to Mr. Clemens
severance agreement and settlement as described in Note G to the Companys
Condensed Consolidated Financial Statements included in this report. After
adjustment for these items, expenses have decreased approximately $598,000 as
result of the reduction of management and corporate staff subsequent to the
HAXS Merger in January 2001, and the restructuring plan implemented in May
2001.

Research and development expensesprimarily consist of the salary and
related benefits of personnel engaged directly in the development of new
products and the enhancement of existing products, prior to the establishment
of technological feasibility. These expenses decreased 74% from $921,000 for
the six-months ended June 30, 2001 to $240,000 for the same period in 2002.
The decrease was due to a reduction of Advanced Technology Division staff, and
the redeployment of staff from this division to operating divisions in order to
focus on near-term revenue opportunities.

Restructuring and Impairment Chargeswere approximately $279.6 million
during the six months ended June 30, 2001. These charges were recorded
pursuant to the Companys adoption of an internal restructuring plan
implemented in May 2001. Approximately $277.5 million of this charge was
attributable to the write-down of goodwill. The remainder is to record other
costs of the restructuring including severance payments for terminated
employees and the reduction of other long lived assets, primarily resulting
from the decision to cease the development and marketing of certain products.
See  Overview  Restructuring Plan above. There were no such charges
during the comparable period in 2002.

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Loss on buildingof $1.7 million in the six months ended June 30, 2001
represents the write-down of our building and property in Pennsylvania, which
has now been sold. There were no such charges during the comparable period in
2002.

Amortization of intangiblesExpenses related to the amortization of
intangible assets include the amortization of developed software, customer base
and goodwill. These expenses decreased from $11.5 million for the six-months
ended June 30, 2001 to $1.2 for the same period in 2002. Predominantly all of
the decrease was due to the fact that goodwill is no longer being amortized,
effective January 1, 2002, in accordance with new accounting guidelines as
described in the Recent Accounting Pronouncements section below.

Interest income and other income (expense)decreased 92% from ($567,000)
in the six-months ended June 30, 2001 to ($43,000) in the same period in 2002.
The decrease was primarily due to a write off of the investment in Digital
Insurance of $1.2 million in 2001 as compared to $227,000 in 2002, offset by
additional interest income in 2001 due primarily to customer financing for
Digital Insurance.

Interest expensedecreased 35% from $555,000 in the six-months ended June
30, 2001 to $363,000 in the same period in 2002. The decrease is due primarily
to the reduction in amortization of the discount on the convertible debentures,
which was revalued on January 26, 2001 in connection with the restructuring of
this debt.

Minority interest in loss of subsidiarywas $3.1 million for the
six-months ended June 30, 2001 compared to none for the same period in 2002.
The minority interest was recorded for approximately one month (until the HAXS
Merger) in 2001. Subsequent to the HAXS Merger, the Company owned 100% of the
Healthaxis.com subsidiary and, therefore, no subsequent minority interest was
recorded.

Gain from discontinued operationsrelates to the operations of the
disposed Outsourcing segment. The gain decreased from $1.7 million for the six
months ended June 30, 2001 to $1.4 million for the same period in 2002. The
decrease is due to the declining revenue from UICI from 2001 and the fact that
the disposal occurred on June 17, 2002, resulting in a slightly shorter period
in 2002.

Loss on disposal of discontinued operationsof $3.6 million in 2002
includes the impairment of goodwill and customer base attributable to the
disposal of the Outsourcing segment. There were no similar charges in 2001.

Convertible debt restructuringgain of $1.7 million was recorded as an
extraordinary gain in the six-months ended June 30, 2001 as the result of
restructuring the convertible debentures in January 2001. There was no such
gain in the comparable period in 2002.

Cumulative effect of accounting changeof $6.7 million was recorded as a
result of the Companys adoption SFAS 142 Goodwill and Other Intangible
Assets. In the second quarter of 2002, the Company completed a transitional
goodwill impairment test, which resulted in an impairment charge of $6.7
million related to the Web Technologies operating segment. The impairment
charge is shown as a cumulative effect of an accounting change as of January 1,
2002. No such charge was recorded in the comparable period in 2001.

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Three months ended June 30, 2002 compared to three months ended June 30, 2001.

|                   |                             |                          |   |                                                  |       |               |   |              |     |       |   |         |     |      |       |       |       |  |     |     |     |  
|------------------ | --------------------------- | ------------------------ | - | ------------------------------------------------ | ----- | ------------- | - | ------------ | --- | ----- | - | ------- | --- | ---- | ----- | ----- | ----- |  | --- | --- | --- | -
|                   |                             |                          |   | Three Months Ended, June 30, 2002 (in thousands)
|                   |                             |                          |   |                                                 
|                   |                             |                          |   | Cash                                             |       |               |   |              |     | Stock |   |         |     |      |       |       |       | 
|                   |                             |                          |   | Operating                                        |       | Depreciation/ |   | Based        |     |       |   |         |     | % of
|                   |                             |                          |   | Costs                                            |       | Amortization  |   | Compensation |     | Total |   | Revenue
|                   |                             |                          |   |                                                  |       |               |   |              |     |       |   |        
|Revenues           |                             |                          |   |                                                  |       |               |   |              |     |       |   |         |     | $    | 4,588 |       |       |  | 100 | %  
|Operating Expenses |                             |                          |   |                                                  |       |               |   |              |     |       |   |         |     |      |       |       |       |  |     |    
|                   | Cost of revenue             |                          | $ | 5,001                                            |       |               | $ | 714          |     |       | $ | 43      |     |      |       | 5,758 |       |  |     | 126 | %  
|                   | Sales and marketing         |                          |   | 600                                              |       |               |   | 12           |     |       |   | 31      |     |      |       | 643   |       |  |     | 14  | %  
|                   | General and administrative  |                          |   | 1,199                                            |       |               |   | 34           |     |       |   | 91      |     |      |       | 1,324 |       |  |     | 29  | %  
|                   | Research and development    |                          |   | 102                                              |       |               |   | 21           |     |       |   |        |     |      |       | 123   |       |  |     | 3   | %  
|                   |                             |                          |   |                                                  |       |               |   |              |     |       |   |         |     |      |       |       |       |  |     |    
|                   |                             | Subtotal                 |   | $                                                | 6,902 |               |   | $            | 781 |       |   | $       | 165 |      |       |       | 7,848 |  |     |     | 171 | %
|                   |                             |                          |   |                                                  |       |               |   |              |     |       |   |         |     |      |       |       |       |  |     |    
|                   | Restructuring charge        |                          |   |                                                  |       |               |   |              |     |       |   |         |     |      |       |      |       |  |     |     |    
|                   | Loss on building            |                          |   |                                                  |       |               |   |              |     |       |   |         |     |      |       |      |       |  |     |     |    
|                   | Amortization of intangibles |                          |   |                                                  |       |               |   |              |     |       |   |         |     |      |       | 582   |       |  |     | 13  | %  
|                   |                             |                          |   |                                                  |       |               |   |              |     |       |   |         |     |      |       |       |       |  |     |    
|                   |                             | Total operating expenses |   |                                                  |       |               |   |              |     |       |   |         |     |      |       | $     | 8,430 |  |     |     | 184 | %
|                   |                             |                          |   |                                                  |       |               |   |              |     |       |   |         |     |      |       |       |       |  |     |    

|                   |                             |                          |   |                                                  |       |              |   |              |     |       |   |         |     |      |       |         |         |  |     |       |       |  
|------------------ | --------------------------- | ------------------------ | - | ------------------------------------------------ | ----- | ------------ | - | ------------ | --- | ----- | - | ------- | --- | ---- | ----- | ------- | ------- |  | --- | ----- | ----- | -
|                   |                             |                          |   | Three Months Ended, June 30, 2001 (in thousands)
|                   |                             |                          |   |                                                 
|                   |                             |                          |   | Cash                                             |       |              |   |              |     | Stock |   |         |     |      |       |         |         | 
|                   |                             |                          |   | Operating                                        |       | Deprecation/ |   | Based        |     |       |   |         |     | % of
|                   |                             |                          |   | Costs                                            |       | Amortization |   | Compensation |     | Total |   | Revenue
|                   |                             |                          |   |                                                  |       |              |   |              |     |       |   |        
|Revenues           |                             |                          |   |                                                  |       |              |   |              |     |       |   |         |     | $    | 5,970 |         |         |  | 100 | %    
|Operating Expenses |                             |                          |   |                                                  |       |              |   |              |     |       |   |         |     |      |       |         |         |  |     |      
|                   | Cost of revenue             |                          | $ | 5,344                                            |       |              | $ | 656          |     |       | $ | 189     |     |      |       | 6,189   |         |  |     | 104   | %    
|                   | Sales and marketing         |                          |   | 598                                              |       |              |   | 11           |     |       |   | 77      |     |      |       | 686     |         |  |     | 11    | %    
|                   | General and administrative  |                          |   | 1,376                                            |       |              |   | 69           |     |       |   | 244     |     |      |       | 1,689   |         |  |     | 28    | %    
|                   | Research and development    |                          |   | 315                                              |       |              |   | 34           |     |       |   | 10      |     |      |       | 359     |         |  |     | 6     | %    
|                   |                             |                          |   |                                                  |       |              |   |              |     |       |   |         |     |      |       |         |         |  |     |      
|                   |                             | Subtotal                 |   | $                                                | 7,633 |              |   | $            | 770 |       |   | $       | 520 |      |       |         | 8,923   |  |     |       | 149   | %
|                   |                             |                          |   |                                                  |       |              |   |              |     |       |   |         |     |      |       |         |         |  |     |      
|                   | Restructuring charge        |                          |   |                                                  |       |              |   |              |     |       |   |         |     |      |       | 279,607 |         |  |     | 4,684 | %    
|                   | Loss on building            |                          |   |                                                  |       |              |   |              |     |       |   |         |     |      |       | 1,665   |         |  |     | 28    | %    
|                   | Amortization of intangibles |                          |   |                                                  |       |              |   |              |     |       |   |         |     |      |       | 4,935   |         |  |     | 83    | %    
|                   |                             |                          |   |                                                  |       |              |   |              |     |       |   |         |     |      |       |         |         |  |     |      
|                   |                             | Total operating expenses |   |                                                  |       |              |   |              |     |       |   |         |     |      |       | $       | 295,130 |  |     |       | 4,944 | %
|                   |                             |                          |   |                                                  |       |              |   |              |     |       |   |         |     |      |       |         |         |  |     |      

Revenuesdecreased 23% from $6.0 million for the three-months ended June
30, 2001 to $4.6 million for the same period in 2002. The decrease was
primarily the result of reductions in the amounts received from Digital
Insurance and UICI (unrelated to the Information Technology Services Agreement)
in the Web Technology Group, and a decline in the Imaging Group resulting from
the completion of a major contract in late 2001.

Cost of revenuesdecreased 7% from $6.2 million for the three months ended
June 30, 2001 to $5.8 million for the same period in 2002. Cost of revenue as
a percentage of revenue increased from 104% in 2001 to 126% in 2002. Most of
the Companys operating costs consist of salaried wages that are relatively
fixed. Although revenue decreased for the three months ended June 30, 2002,
personnel costs did not decrease proportionately. In addition, cost of
revenues for the three months ended June 30, 2002, includes a software
impairment charge of $592,000 and a hardware write-off of $123,000.

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Sales and marketing expensesdecreased slightly from $686,000 for the
three-months ended June 30, 2001 to $643,000 for the same period in 2002.

General and administrative expensesdecreased 22% from $1.7 million for
the three months ended June 30, 2001 compared to $1.3 million for the same
period in 2002. Stock based compensation decreased by approximately $153,000.
The remaining decrease was primarily due to the restructuring plan implemented
in May 2001.

Research and development expensesdecreased 66% from $359,000 for the
three-months ended June 30, 2001 to $123,000 for the same period in 2002. The
decrease was due to a reduction of Advanced Technology Division staff, and the
redeployment of staff from this division to operating divisions in order to
focus on near term revenue opportunities.

Restructuring and Impairment Chargeswere approximately $279.6 million
during the three months ended June 30, 2001. These charges were recorded
pursuant to the Companys adoption of an internal restructuring plan
implemented in May 2001. Approximately $277.5 million of this charge is
attributable to the write-down of goodwill. The remainder is to record other
costs of the restructuring including severance payments for terminated
employees and the reduction of other long lived assets, primarily resulting
from the decision to cease development and marketing of certain products. See
  Overview  Restructuring Plan above. There were no such charges during
the comparable period in 2002.

Loss on buildingof $1.7 million in the three months ended June 30, 2001
represents the write-down of our building and property in Pennsylvania, which
has now been sold. There were no such charges during the comparable period in
2002.

Amortization of Intangiblesdecreased from $4.9 million for the
three-months ended June 30, 2001 to $582,000 for the same period in 2002. Most
of the decrease was due to the fact that goodwill is no longer being amortized,
effective January 1, 2002, in accordance with new accounting guidelines.

Interest income and other income (expense)decreased from a loss of $1.0
million in the three-months ended June 30, 2001 to a loss of $158,000 in the
same period in 2002. The change was primarily due to a write off of the
investment in Digital Insurance of $1.2 million in 2001 compared to $227,000 in
2002.

Interest expenseis derived mostly from the convertible debentures and
remained largely unchanged from the three months ended June 30, 2002, compared
to the same period in 2001.

Gain from discontinued operationsrelates to the operations of the
disposed UICI Outsourcing business segment. The gain decreased from $850,000
for the six months ended June 30, 2001 to $523,000 for the same period in 2002.
The decrease is due to the declining revenue from UICI from 2001 and the fact
that the disposal occurred on June 17, 2002, resulting in a slightly shorter
period in 2002.

Loss on disposal of discontinued operationsof $3.6 million in 2002
includes the impairment of goodwill and customer base attributable as result of
the disposal of the Outsourcing segment. There were no similar charges in
2001.

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Liquidity and Capital Resources

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

|                   |  |   |  |              
|------------------ |  | - |  | -------------
|January 1, 2001    |  | - |  | $17.2 million
|March 31, 2001     |  | - |  | $12.0 million
|June 30, 2001      |  | - |  | $12.2 million
|September 30, 2001 |  | - |  | $12.3 million
|December 31, 2001  |  | - |  | $13.1 million
|March 31, 2002     |  | - |  | $12.6 million
|June 30, 2002      |  | - |  | $18.7 million

In the second quarter of 2001, Healthaxis received a $2.0 million lump sum
payment from Digital Insurance. In the fourth quarter of 2001, Healthaxis sold
its building in Pennsylvania for a net cash amount of $2.6 million with an
additional $180,000 due upon final tax filings. In the second quarter of 2002,
Healthaxis received a net lump sum payment of $6.4 million from UICI, related
to the early termination of the Information Technology Services Agreement with
UICI. Along with these events, the significant improvement in cash outflows
from the 2001 first quarter is the result of cost containment measures put in
place following the HAXS Merger in January 2001, and further savings recognized
through the restructuring plan implemented in May 2001.

With the Companys net receipt of $6.4 million cash from UICI in the
second quarter of 2002, the Company was able to convert a declining and
uncertain revenue stream into current cash. Because the Companys revenue from
the agreement with UICI was based upon the Companys cost (including certain
fixed overhead) plus 10%, the future impact will be a reduction of cash
generated from operations. The impact on cash generated from operations for
the six months and three months ended June 30, 2002 would have been
approximately $1.4 million and $523,000 respectively, had the transaction
occurred on January 1, 2002. The impact on the Companys Statement of
Operations is the same as it is on cash, because there were no amortization,
depreciation or similar non-cash expenses in 2002 related to this Agreement.
The impact to both cash and operations is greater than 10% of the revenue lost
due certain of the Companys fixed overhead that cannot be reduced. There can
be no assurances of the impact of the termination of the UICI Agreement on the
Companys future cash generated or used in operations, or in the Companys
results of operations.

On July 31, 2002, the Company closed a transaction in which the holders of
its 2% Convertible Debentures in the principal amount of $27.5 million
exchanged their debentures for shares of Series A Convertible Preferred Stock
and a cash payment of $4.0 million. The debentures would have matured in full
in September 2005. By completing this transaction, the Company was able to
extinguish all of its long-term debt. This transaction is further described
under the caption  Subsequent Event above.

The Company expects that current cash reserves and the cash generating
from future operations will be sufficient to fund its operations for at least
the next 12 months. Funding operations on a longer-term basis will depend upon
the Companys ability to continue controlling costs and to generate new
revenues. There can be no assurances that the Company will be successful in
achieving these goals. If external funds are necessary to support the
Companys business operations, there can be no assurance that under
then-current conditions such funds would be available or, if available, would
not significantly dilute shareholders interests or returns.

Cash provided by operating activitiesfor the six months ended June 30,
2002 was $172,000 as compared to cash used of $2.8 million for the same period
in 2001. The change was primarily the result of the savings realized from the
restructuring plan implemented in May 2001, and a one-time acceleration of cash
collections from trade receivables related to the termination of the
Information Technology Services Agreement with UICI.

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Cash used in investing activitiesfor the six months ended June 30, 2002
was $1.0 million as compared to $2.0 million for the comparable period in 2001.
The reduced cash expenditure was primarily the result of a reduction in the
purchase of property, equipment and software and reductions in expenditures for
capitalized software and contract start-up.

Cash provided by financing activitiesfor the six months ended June 30,
2002 was $6.4 million as compared to cash used of $164,000 for the comparable
period in 2001. The increase was due to the one time payment of $6.4 million,
net of transaction costs, received from UICI as a result of the termination of
the Agreement described further under  Recent Developments above.

Obligations: Healthaxis 2% convertible debentures in the principal
amount of $27.5 million were extinguished in July 2002 as described under 
Subsequent Event above. The Company now has no long-term debt outstanding.

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

Recently Adopted Accounting Pronouncements

Goodwill and Other Intangible Assets

Effective January 1, 2002, the Company adopted Statements of Financial
Accounting Standards (SFAS) No. 142 Goodwill and Other Intangible Assets,
which requires companies to stop amortizing goodwill and certain intangible
assets with an indefinite useful life. Instead, SFAS No. 142 requires that
goodwill and intangible assets deemed to have an indefinite useful life be
reviewed for impairment upon adoption of SFAS No. 142 (January 1, 2002),
annually thereafter and upon the occurrence of any event that indicates
potential impairments. The Company will perform its annual impairment review
during the fourth quarter of each year, commencing in the fourth quarter of
2002.

SFAS No. 142 prescribes a two-phase process for impairment testing of
goodwill. The first phase screens for impairment, while the second phase (if
necessary) measures the impairment. Goodwill impairment is deemed to exist if
the net book value of a reporting unit exceeds its estimated fair value. The
Companys reporting units are generally consistent with the operating segments
underlying the segments identified in Note F to the Condensed Consolidated
Financial Statements attached hereto. This methodology differs from the
Companys previous policy, as permitted under accounting standards existing at
that time, of using undiscounted cash flows on an enterprise-wide basis to
determine if goodwill is recoverable.

Upon adoption of SFAS No. 142 and completion of the required transition
testing in the second quarter of 2002, the Company recorded as of January 1,
2002 a one-time, non-cash charge of $6,674 to reduce the carrying value of its
goodwill. Such charge is reflected as a cumulative effect of an accounting
change in the accompanying Condensed Consolidated Statement of Operations. In
calculating the impairment charge, the fair value of the impaired reporting
units underlying the segments were estimated using a discounted cash flow
methodology.

Long-Lived Assets

In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be disposed of. The primary objectives of SFAS No. 144 is to develop one
accounting model based on the framework established in SFAS No. 121 for
long-lived assets to be disposed of by sale, and to address significant
implementation issues. The Company adopted SFAS No. 144 as of January 1, 2002.
There has been no significant impact resulting from the adoption of SFAS No.
144.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Exposure to market risk for changes in interest rates relate primarily to
short-term investments. The Company does not use derivative financial
instruments. The primary objective of its investment activities is to preserve
principal while maximizing yields without significantly increasing risk. Due to
the nature of the Companys investments, it believes that there is no material
risk exposure.

The Companys cash equivalents and other investment instruments are
exposed to financial market risk due to fluctuation in interest rates, which
may affect our interest income. These instruments are not entered into for
trading purposes. Healthaxis does not expect its interest income to be
significantly affected by a sudden change in market interest rates.

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PART II. OTHER INFORMATION




Item 1. Legal Proceedings.

The Company is involved in litigation arising in the ordinary course of
its business. Management is of the opinion that no currently pending
litigation will have a material adverse effect on the Companys results of
operations or financial position.




Item 2. Changes in Securities and Use of Proceeds.

On July 31, 2002 we filed a Certificate of Designation with the
Pennsylvania Secretary of State designating 23,500 shares of Series A
Convertible Preferred Stock. On that date, we issued 23,500 shares of Preferred
Stock, with a stated value of $23.5 million, and made a $4.0 million cash
payment, to the holders of $27.5 million of our 2% convertible debentures in
order to cancel such debentures. The Preferred Stock is convertible into
shares of our common stock at an initial conversion price of $2.625, which
conversion price is subject to adjustment in certain circumstances. The
creation and issuance of the Preferred Stock could have a material impact upon
the rights of the holders of our registered securities because, as more fully
described in the definitive documents filed with the Securities and Exchange
Commission (SEC) as exhibits to this Quarterly Report on Form 10-Q, the
Preferred Stock is senior to our common stock and holders of our Preferred
Stock are entitled to (i) receive preferential, cumulative dividends at a rate
of 2% per annum, payable semi-annually in cash or shares of our common stock,
(ii) receive a liquidation preference equal to the greater of the stated value
of the Preferred Stock plus an amount equal to all accrued but unpaid
dividends, or a pro rata distribution of the assets of the Company available
for distribution to all of its stockholders, and (iii) redemption of their
shares of Preferred Stock in situations which are within the control
of the Company.

The Preferred Stock generally does not have any voting rights. However,
the holders of Preferred Stock have the right to vote separately as a class in
a number of circumstances specified in the Certificate of Designation, when we
propose to take certain actions, including without limitation paying dividends
on shares of common stock and entering into any transaction to sell or
otherwise dispose of all or substantially all of our assets, or entering into
some reorganizations, mergers, consolidations or similar transactions, or
reclassifications, recapitalizations or other changes to our capital
stock. Finally, the Company is obligated to register for resale the
shares of common stock issuable to the holders of the shares of
Preferred Stock; the sale of such shares of common stock or the
possibility of such a sale could adversely affect the market price of
our common stock.




Item 3. Defaults Upon Senior Securities.

Not applicable

Item 4. Submission of Matters to a Vote of Security Holders.




Healthaxis held an Annual Meeting of Shareholders on May 21, 2002, at
which time the shareholders voted to elect nine directors to serve until the
next Annual Meeting of Shareholders, or until their successors are duly
elected, and to ratify the selection of Ernst & Young LLP as the Companys
independent accountants for the fiscal year ending December 31, 2002. The
following table summarizes the votes received in connection with these two
proposals.

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|                                    |  |              |            |            |  |         |       |           |  |           |         |  |  |  |       |  |  |  |   | 
|----------------------------------- |  | ------------ | ---------- | ---------- |  | ------- | ----- | --------- |  | --------- | ------- |  |  |  | ----- |  |  |  | - | 
|                                    |  |              |            |            |  |         |       |           |  | Shares    |         |  |  |  |       |  |  | 
|                                    |  | Shares Voted |            | Percentage |  | Voted   |       | Shares    |  | Broker   
|Proposal                            |  | For          |            | Voted For  |  | Against |       | Abstained |  | Non-Votes
|                                    |  |              |            |            |  |         |       |           |  |          
|#1 Election of Directors:           |  |              |            |            |  |         |       |           |  |           |         |  |  |  |      |  |  |  |  | 
|Ashker                              |  |              | 46,345,078 |            |  |         | 86.29 | %         |  |           | 134,843 |  |  |  |      |  |  |  |  | 
|Brown                               |  |              | 46,454,261 |            |  |         | 86.49 | %         |  |           | 25,660  |  |  |  |      |  |  |  |  | 
|Clemens                             |  |              | 46,400,543 |            |  |         | 86.39 | %         |  |           | 79.378  |  |  |  |      |  |  |  |  | 
|Gutstein                            |  |              | 46,452,011 |            |  |         | 86.48 | %         |  |           | 27,910  |  |  |  |      |  |  |  |  | 
|Hager                               |  |              | 46,449,011 |            |  |         | 86.48 | %         |  |           | 30,910  |  |  |  |      |  |  |  |  | 
|Hickey                              |  |              | 46,454,761 |            |  |         | 86.49 | %         |  |           | 25,160  |  |  |  |      |  |  |  |  | 
|Hopkins                             |  |              | 46,446,678 |            |  |         | 86.48 | %         |  |           | 33,243  |  |  |  |      |  |  |  |  | 
|Maloney                             |  |              | 46,428,785 |            |  |         | 86.44 | %         |  |           | 51,136  |  |  |  |      |  |  |  |  | 
|McLane                              |  |              | 46,451,823 |            |  |         | 86.48 | %         |  |           | 28,098  |  |  |  |       |  |  |  |   | 
|# 2 Selection of Ernst &

Young LLP |  |              | 46,468,721 |            |  |         | 86.52 | %         |  |           | 6,950   |  |  |  | 4,250 |  |  |  |  | 




Item 5. Other Information.

Not Applicable

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






| | (a) |  | Exhibits:
| | --- |  | ---------

|       |  |                                                                                                                                                                  
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3.1)  |  | Certificate of Designation of Series A Convertible
Preferred Stock of Healthaxis Inc. dated July 31,
2002 filed herewith.                                        
|(4.1)  |  | Certificate of Designation of Series A Convertible
Preferred Stock of Healthaxis Inc. dated July 31,
2002 (see Exhibit 3.1 above).                               
|(10.1) |  | Termination Agreement between Registrant and UICI
dated as of June 11, 2002 filed herewith.                                                                      
|(10.2) |  | Exchange Agreement between Registrant and convertible
debenture holders dated as of July 31, 2002 filed
herewith.                                                
|(10.3) |  | Registration Rights Agreement between Registrant and
its Series A Preferred Stock holders dated July 31,
2002 filed herewith.                                    
|(99.1) |  | Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 filed
herewith.
|(99.2) |  | Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 filed
herewith.



| | (b) |  | Reports on Form 8-K:                                                                                                                                                                                                                                                                                                                                                                                       
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The Company filed a Current Report on Form 8-K on July 2, 2002
in which it disclosed, under Items 5 and 7(b), that the Company
and UICI, a significant shareholder, had mutually agreed to an
early termination of Healthaxis Information Technology
Services Agreement with UICI, and also provided proforma
financial statements providing certain financial information
pertaining to such termination.

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| |  |  | The Company filed a Current Report on Form 8-K on August 1,
2002 in which it disclosed, under Item 5, that the Company had
closed an agreement with the holders of its Convertible
Debentures to exchange the debentures for a combination of cash
and preferred stock.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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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: August 14, 2002 |  |  |  | By: /s/ John Carradine                                                             
|                      |  |  |  |                                                                                    
|                      |  |  |  | John Carradine, Chief Financial Officer
(Principal Financial Officer) and
Treasurer

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Exhibit Index

|       |  |                                                                                                                                                                  
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3.1)  |  | Certificate of Designation of Series A Convertible Preferred Stock of
Healthaxis Inc. dated July 31, 2002 filed herewith.                                        
|(4.1)  |  | Certificate of Designation of Series A Convertible Preferred Stock of
Healthaxis Inc. dated July 31, 2002 (see Exhibit 3.1 above).                               
|(10.1) |  | Termination Agreement between Registrant and UICI dated as of June 11,
2002 filed herewith.                                                                      
|(10.2) |  | Exchange Agreement between Registrant and convertible debenture holders
dated as of July 31, 2002 filed herewith.                                                
|(10.3) |  | Registration Rights Agreement between Registrant and its Series A
Preferred Stock holders dated July 31, 2002 filed herewith.                                    
|(99.1) |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 filed herewith.
|(99.2) |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 filed herewith.

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