**UnitedStates**

**SECURITIES AND EXCHANGECOMMISSION**

**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, 2007**                                                                                                                                                                                            |
|                                                                                                                                                                                                                                             | ** **                                                                                    |
| **OR**                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                             | ** **                                                                                    |
| **o**                                                                                                                                                                                                                                            | **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 asspecified in its charter)

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

 

**7301 N. State Highway 161, Suite300, Irving, Texas 75039**

(Address of principalexecutive offices)

(Zip Code)

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

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

Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

x Yes     oNo

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act.  (Checkone):

Largeaccelerated filero                                                               Acceleratedfilero                                     Non-acceleratedfilerx

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

o Yes     xNo 

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date:8,611,805 shares of common stock, par value $.10, outstanding as of August 3,2007.

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Healthaxis Inc.

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

 

2

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# **PART I. FINANCIAL INFORMATION**

**Item 1.  Consolidated Financial Statements**

**Healthaxis Inc. and Subsidiaries**

#### **ConsolidatedBalance Sheets**

(In thousands except share and per share data) (Unaudited)
| ** **                                                                                                                           | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                           | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| **Assets**                                                                                                                           |       |              |       |                  |       |
| Current assets:                                                                                                                      |       |              |       |                  |       |
| Cash and cash  equivalents                                                                                                           |       | $                 | 2,653      |                  | $          | 3,362 |   |
| Accounts and  note receivable, net of allowance for doubtful accounts of $9 and $7,  respectively                                    |       | 2,719             |       | 2,943                 |       |
| Prepaid expenses                                                                                                                     |       | 631               |       | 544                   |       |
| Total current  assets                                                                                                                |       | 6,003             |       | 6,849                 |       |
|                                                                                                                                 |       |              |       |                  |       |
| Property, equipment and  software, less accumulated depreciation and amortization of $6,879 and  $6,554, respectively                |       | 1,471             |       | 1,550                 |       |
| Contract start-up  costs, less accumulated amortization of $2,364 and $2,026, respectively                                           |       | 1,399             |       | 1,340                 |       |
| Goodwill                                                                                                                             |       | 11,276            |       | 11,276                |       |
| Other assets                                                                                                                         |       | 170               |       | 303                   |       |
| Total assets                                                                                                                         |       | $                 | 20,319     |                  | $          | 21,318 |   |
|                                                                                                                                 |       |              |       |                  |       |
| **Liabilities and Stockholders’  Equity**                                                                                       | ** ** | ** **        | ** ** | ** **            | ** ** |
| Current liabilities:                                                                                                                 |       |              |       |                  |       |
| Accounts payable                                                                                                                     |       | $                 | 1,253      |                  | $          | 1,498 |   |
| Accounts payable  to related parties                                                                                                 |       | 172               |       | 89                    |       |
| Accrued  liabilities                                                                                                                 |       | 608               |       | 509                   |       |
| Deferred  revenues                                                                                                                   |       | 1,482             |       | 1,612                 |       |
| Note payable,  current portion                                                                                                       |       | 474               |       | 750                   |       |
| Equipment line  of credit, current portion                                                                                           |       | 141               |       | 655                   |       |
| Current portion,  post retirement and employment liabilities                                                                         |       | 124               |       | 124                   |       |
| Current portion,  capital lease obligations                                                                                          |       | —            |       | 57                    |       |
| Total current  liabilities                                                                                                           |       | 4,254             |       | 5,294                 |       |
|                                                                                                                                 |       |              |       |                  |       |
| Note payable                                                                                                                         |       | —            |       | 93                    |       |
| Post retirement and  employment liabilities                                                                                          |       | 736               |       | 768                   |       |
| Working capital and  equipment lines of credit                                                                                       |       | 828               |       | 361                   |       |
| Deferred rent                                                                                                                        |       | 319               |       | 306                   |       |
| Other liabilities                                                                                                                    |       | 174               |       | 174                   |       |
| Total  liabilities                                                                                                                   |       | 6,311             |       | 6,996                 |       |
|                                                                                                                                 |       |              |       |                  |       |
| Commitments and  contingencies                                                                                                       |       |              |       |                  |       |
|                                                                                                                                 |       |              |       |                  |       |
| Stockholders’ Equity:                                                                                                           |       |              |       |                  |       |
| Preferred stock, par  value $1.00: authorized 100,000,000 shares:                                                                    |       |              |       |                  |       |
| Series A Convertible,  740,401 shares issued and outstanding (no liquidation preference)                                             |       | 740               |       | 740                   |       |
| Common stock, par value  $.10: authorized 1,900,000,000 shares, issued and outstanding 8,273,183 and  8,172,112 shares, respectively |       | 827               |       | 817                   |       |
| Note receivable from  employees                                                                                                      |       | (5                | )          | (23                   | )          |
|                                                                                                                                 |       |              |       |                  |       |
| Additional paid-in  capital                                                                                                          |       | 450,559           |       | 450,416               |       |
| Accumulated deficit                                                                                                                  |       | (438,113          | )          | (437,628              | )          |
| Total  stockholders’ equity                                                                                                     |       | 14,008            |       | 14,322                |       |
| Total  liabilities and stockholders’ equity                                                                                     |       | $                 | 20,319     |                  | $          | 21,318 |   |

 

Seenotes to unaudited consolidated financial statements.

3

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**HealthaxisInc. and Subsidiaries**

#### **Consolidated Statements of Operations**

#### (In thousands, except share and per sharedata) (Unaudited)

| ** **                                                                                         | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                         | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                                         | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                                                                            |       | $                                                   | 4,003      |                                              | $          | 4,114 |   | $ | 8,214 |   | $ | 8,032 |   |
|                                                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Expenses:                                                                                          |       |                                                |       |                                              |       |   |   |   |   |
| Cost of revenues                                                                                   |       | 3,457                                               |       | 3,409                                             |       | 6,895 |   | 6,785 |   |
| Sales and marketing                                                                                |       | 235                                                 |       | 319                                               |       | 483 |   | 693 |   |
| General and administrative                                                                         |       | 699                                                 |       | 632                                               |       | 1,258 |   | 1,240 |   |
| Total expenses                                                                                     |       | 4,391                                               |       | 4,360                                             |       | 8,636 |   | 8,718 |   |
|                                                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Operating loss                                                                                     |       | (388                                                | )          | (246                                              | )          | (422 | ) | (686 | ) |
|                                                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Interest and other income, net                                                                     |       | 19                                                  |       | 27                                                |       | 52 |   | 55 |   |
| Interest expense                                                                                   |       | (51                                                 | )          | (47                                               | )          | (109 | ) | (97 | ) |
|                                                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Net loss before  taxes                                                                             |       | (420                                                | )          | (266                                              | )          | (479 | ) | (728 | ) |
| Provision for  income taxes                                                                        |       | (3                                                  | )          | —                                            |       | (6 | ) | — |   |
| Net loss                                                                                           |       | $                                                   | (423       | )                                                 | $          | (266 | ) | $ | (485 | ) | $ | (728 | ) |
|                                                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Net loss per  share of common stock (basic and diluted)                                            |       | $                                                   | (0.05      | )                                                 | $          | (0.04 | ) | $ | (0.06 | ) | $ | (0.12 | ) |
|                                                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Weighted average common  shares and equivalents used in computing basic and diluted loss per share |       | 8,224,508                                           |       | 6,123,833                                         |       | 8,208,014 |   | 6,106,441 |   |

 

See notes to unaudited consolidated financialstatements.

4

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

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

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

| ** **                                                                   | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| **Cash flows from operating activities**                 | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net loss                                                                     |       | $                                                 | (485       | ) | $ | (728 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |       |                                              |       |   |   |
| Depreciation and amortization                                                |       | 556                                               |       | 535 |   |
| Restricted stock compensation                                                |       | 191                                               |       | 41 |   |
| Other                                                                        |       | (2                                                | )          | 2 |   |
| Change in:                                                                   |       |                                              |       |   |   |
| Accounts receivable                                                          |       | (135                                              | )          | (1,046 | ) |
| Prepaid expenses and other current assets                                    |       | (87                                               | )          | (28 | ) |
| Other assets                                                                 |       | 120                                               |       | (133 | ) |
| Accounts payable and accrued liabilities                                     |       | (65                                               | )          | 119 |   |
| Deferred revenues                                                            |       | (130                                              | )          | 647 |   |
| Other liabilities                                                            |       | (89                                               | )          | (109 | ) |
| Net cash used in operating activities                                        |       | (126                                              | )          | (700 | ) |
| ** **                                                                   | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| **Cash  flows from investing activities**                                    | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Investment in capitalized software and contract  start-up costs              |       | (481                                              | )          | (758 | ) |
| Purchases of property, equipment and software                                |       | (55                                               | )          | (409 | ) |
| Net cash used in investing activities                                        |       | (536                                              | )          | (1,167 | ) |
|                                                                         |       |                                              |       |   |   |
| **Cash  flows from financing activities**                                    | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net payments from issuance of common stock                                   |       | —                                            |       | (19 | ) |
| Payments on lines of credit                                                  |       | (47                                               | )          | — |   |
| Net cash used in financing activities                                        |       | (47                                               | )          | (19 | ) |
| Decrease in cash and cash equivalents                                        |       | (709                                              | )          | (1,886 | ) |
| Cash and cash equivalents, beginning of period                               |       | 3,362                                             |       | 4,729 |   |
| Cash and cash equivalents, end of period                                     |       | $                                                 | 2,653      |   | $ | 2,843 |   |
|                                                                         |       |                                              |       |   |   |
| Non-cash  financing activities                                               |       |                                              |       |   |   |
| Accounts receivable applied to note and interest  payable in lieu of cash    |       | $                                                 | 390        |   | $ | 390 |   |
| Interest paid                                                                |       | $                                                 | 50         |   | $ | — |   |

 

See notes to unaudited consolidated financialstatements.

5

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

**Notes to Unaudited ConsolidatedFinancial Statements**

**June 30, 2007**

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

*Unaudited Financial Information*

The unaudited consolidatedfinancial statements have been prepared by Healthaxis Inc. and its subsidiaries(“Healthaxis” or the “Company”), pursuant to the rules and regulations of theSecurities and Exchange Commission and reflect all adjustments consisting ofnormal recurring entries, which, in the opinion of the Company, are necessaryto present fairly the results for the interim periods. The interim financialstatements do not include all disclosures provided in fiscal year end financialstatements prepared in accordance with accounting principles generally acceptedin the United States of America, although the Company believes that theaccompanying disclosures are adequate to make the information presented notmisleading.  Results of operations forthe three and six-month periods ended June 30, 2007, are not necessarilyindicative of the results that may be expected for the year ending December 31,2007.

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

*Earnings Per Share*

Basic loss pershare is computed using only the weighted average number of common sharesoutstanding during the respective periods. Diluted earnings per share is computed to show the dilutive effect, ifany, of convertible preferred stock, stock options and warrants using thetreasury stock method based on the average market price of the stock during therespective periods.  The effect ofincluding the convertible preferred stock, stock options and warrants in thecomputation of diluted earnings per share would be anti-dilutive for each ofthe periods presented, thus these items have not been included in thecomputation.  Following is a summary ofthese potentially dilutive securities:
|                                  | ** ** | **As of June 30,** | ** ** |
|----------------------------------|------------|-----------------------------------|------------|
| ** **                       | ** ** | **2007**                          | ** ** | **2006** | ** ** |
|                             |       |                              |       |   |   |
| Options                          |       | 1,170,396                         |       | 1,299,328 |   |
| Restricted stock                 |       | 336,250                           |       | 201,000 |   |
| Warrants                         |       | 7,229,186                         |       | 7,229,186 |   |
| Preferred stock                  |       | 740,401                           |       | 2,151,658 |   |
| Total common shares if converted |       | 9,476,233                         |       | 10,881,172 |   |

 

*Equity Compensation*

TheCompany accounts for equity compensation in accordance with Statement ofFinancial Accounting Standards No. 123R, “Share Based Payment” (SFAS123R).  On January 16, 2007, the Companygranted 92,500 shares of restricted stock to its directors.  The restricted stock has been valued atapproximately $127,000, which represents the trading value of the stock asquoted on NASDAQ January 16, 2007.  Theshares of stock granted to directors vest over the calendar year of service,thus one-half of the shares vested in the six months ended June 30, 2007, andthe Company recognized compensation expense of approximately $64,000.

OnApril 20, 2007, the Company granted 210,000 shares of restricted stock to itsofficers and key employees, which have been valued at approximately $370,000based on the trading value of the stock on the date of grant.  One fourth of these shares, 52,500 shares,vested immediately and the balance vest on the anniversary

6

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date of the grant over thenext three years.  The Company recordedcompensation expense of $92,000 related to the shares that vested immediatelyplus $16,000 related to the time vesting component of the remaining shares.  Also in the second quarter of 2007, 15,500shares of restricted stock vested that were subject to performance-basedvesting, which resulted in compensation expense of $19,000.  No stock options were granted or vested in2006 or during the first six months of 2007.

**Note B – Significant Customer Concentrations**

For thethree months ended June 30, 2007 and 2006, three customers accounted for $2.6million (64%) and $2.6 million (63%), respectively, of the Company’s totalrevenues.  For the six months ended June30, 2007 and 2006, these three customers accounted for $5.3 million (64%) and$5.0 million (62%), respectively, of the Company’s total revenues. At June 30,2007 and December 31, 2006, three customers individually accounted for morethan 10% of the Company’s accounts receivable as shown in the table below.  Thesecustomers are making payments in accordance with the terms of their contracts.
|            | ** ** | **Percent of accounts and note receivable** | ** ** |
|------------|------------|----------------------------------------------------------------------|------------|
| ** ** | ** ** | **June 30, 2007**                                          | ** ** | **Dec. 31, 2006** | ** ** |
| Customer A |       | 36                                                                   | %          | 30 | % |
| Customer B |       | 19                                                                   | %          | 28 | % |
| Customer C |       | 13                                                                   | %          | 10 | % |

 

**Note C – Related PartyTransactions**

TheCompany is a party to a Remote Resourcing Agreement with Healthcare BPOPartners L.P., a company affiliated with a significant shareholder.  Healthcare BPO Partners, based in Jaipur,India, provides personnel and infrastructure that is utilized by the Company toprovide business process outsourcing services and other software developmentand technical support services to support the Company’s operations.  The resources provided by Healthcare BPOPartners supplement the Company’s existing wholly-owned operations in Utah,Texas and Jamaica.  As a part of theResourcing Agreement, Healthcare BPO Partners also provides data center hostingservices, at a Vienna Virginia facility, to Healthaxis.  For the six months ended June 30, 2007 andJune 30, 2006, the Company incurred costs of approximately $533,000 and$512,000, respectively, related to the Resourcing Agreement.  At June 30, 2007 and December 31, 2006, theCompany had accounts payable to Healthcare BPO Partners of approximately$172,000 and $89,000.

**Note D – Recent Accounting Pronouncements**

In July 2006, the FASB issuedFASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN48”), an interpretation of FASB Statement No. 109, “Accounting for IncomeTaxes.”  FIN 48 requires that a positiontaken or expected to be taken in a tax return be recognized in the financialstatements when it is more likely than not (i.e. a likelihood of more thanfifty percent) that the position would be sustained upon examination by taxauthorities.  A recognized tax positionis then measured at the largest amount of benefit that is greater than fiftypercent likely of being realized upon ultimate settlement.  The Company is subject to the provisionsof FIN 48 as of January 1, 2007. The Company believes that its income tax filing positions and deductionswill be sustained on audit and does not anticipate any adjustments that willresult in a material change to its financialposition.  Therefore, no reserves for uncertain income taxpositions have been recorded pursuant to FIN 48.

7

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

**Note E – Lines of Credit**

On April 16, 2007, the Companyentered into an amendment to its Loan and Security Agreement (“LSA”) withSilicon Valley Bank.  Under the originalLSA, the revolving line would have expired in August 2007.  As a result of the amendment, 1) theexpiration of the revolving line is extended to April 2009, 2) the availableborrowing limit and the draw period under the equipment line were increased,and 3) certain covenants were modified. The Company elected to reduce the maximum amount available under therevolving line to avoid paying higher unused revolving line facility fees.  The classification of the lines of credit onthe June 30, 2007 balance sheet as current or non-current is based on theamended maturity date.  Based on thecalculation of the borrowing base as of June 30, 2007, we would have beeneligible to draw up to approximately $2.0 million under the revolving line, ofwhich $500,000 had been drawn as of that date.

8

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**Item 2.   Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

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

All statements other than statements of historicalfact contained in this report, including statements in this “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”concerning the Company’s financial position and liquidity, results ofoperations, prospects for future growth, and other matters are forward-lookingstatements.  These statements may be identifiedwith words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,”“intend,” “should,” “could,” “goal,” “target,” “designed,” “on track,”“comfortable with,” “optimistic” and other similar expressions, and constituteforward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933, as amended, and Section 21E of the Securities Exchange Act of1934, as amended. These forward-looking statements are subject to known andunknown risks, uncertainties and other factors, which may cause actual resultsto be materially different from those contemplated by the forward-lookingstatements.  Such factors include therisks and uncertainties identified in Healthaxis documents filed with, or furnishedto, the Securities and Exchange Commission, including without limitation thoseidentified under the caption “Risk Factors” in the Company’s Form 10-K for theyear ended December 31, 2006.  TheCompany undertakes no obligation to publicly update or revise anyforward-looking statements, whether as a result of new information, futureevents or otherwise.  Readers arecautioned not to place undue reliance on forward-looking statements.

**Overview**

Healthaxis Inc. is aPennsylvania corporation, which was organized in 1982. Healthaxis’ common stocktrades on the NASDAQ Capital Market under the symbol “HAXS.”  The operations of Healthaxis are conductedthrough its subsidiary, Healthaxis, Ltd. Unless otherwise indicated, or the context otherwise requires, allreferences in this document to the “Company,” “Healthaxis,” “we,” “our” or “us”include Healthaxis Inc. and all of its subsidiaries.  Healthaxis maintains a website atwww.healthaxis.com.  The Healthaxis Codeof Conduct can be found on the Healthaxis website.  Information found on the Healthaxis websiteis not a part of this report.

For the second quarter of 2007, the Company reported revenue of $4.0 million and an operating loss of $388,000.  Revenue was approximately $111,000 less than the second quarter of 2006 and the operating loss for the second quarter of 2007 increased approximately $142,000 as compared to the second quarter of 2006.  Year-to-date, revenues of $8.2 million increased $182,000 over last year and the operating loss of $422,000 was an improvement of $264,000 over last year.  The improvement in cash flows, though, is more obvious.  Thus far this year, we have reduced cash used by operations by $574,000 and reduced overall cash used by the business by $1.2 million.  Operational highlights of the year include completing a large-scale customer implementation that added a significant number of revenue-generating lives to our systems and adding three additional new customers that we are implementing or have implemented so far this year.  Due to the subscription nature of our business, these customer wins do not immediately impact operating results, but are expected to provide additional revenue in future periods.  Additionally, we have improved the efficiency of our BPO Services, which has resulted in a reduction of variable labor, and we have reduced costs in multiple other areas.

*Critical Accounting Policies*

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

9

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## **Resultsof Operations**

**Threemonths ended June 30, 2007 compared to three months ended June 30, 2006**
|                  | ** ** | **(Table in thousands)**                  | ** ** | ** ** | ** ** |
|------------------|------------|-----------------------------------------------------|------------|------------|------------|
| ** **       | ** ** | **Three Months Ended June 30,** | ** ** | ** ** | ** ** |
| ** **       | ** ** | **2007**                                            | ** ** | **2006**   | ** ** | **Change** | ** ** |
|             |       |                                                |       |       |       |   |   |
| Revenues         |       | $                                                   | 4,003      |       | $          | 4,114 |   | $ | (111 | ) |
| Cost of revenues |       | 3,457                                               |       | 3,409      |       | (48 | ) |
| Gross profit     |       | $                                                   | 546        |       | $          | 705 |   | $ | (159 | ) |
| % of revenue     |       | 14                                                  | %          | 17         | %          |   |   |

 

**Revenues**were approximately $111,000 (3%) lower in the three monthsended June 30, 2007 compared to the same period in 2006.  Revenues from ASP license fees increased onepercent due to an overall increase in the number of customer lives on oursystems as additions from new customers offset a gradual decrease from existingcustomers.    Transaction fee revenuedeclined six percent and BPO service revenue declined 14 percent due to theloss of a customer acquired by a larger organization (the possible loss ofwhich was previously disclosed), and the continuing shift in the healthcareindustry from paper claims to a higher volume of electronic claims.  Professional services revenues increased 15%due in large part to customers added over the past year.

**Cost of revenues**includesall expenses directly associated with the production of revenue, and consistsprimarily of salaries and related benefits, rent, amortization and depreciation,system expenses such as maintenance and repair, as well as other relatedconsumables.  Cost of revenues increased$48,000 (1%) in the three months ended June 30, 2007 compared to the sameperiod in 2006.  The most significantcomponent of this increase resulted from costs that are capitalized foraccounting purposes.  Capitalized costsare a reduction to cost of revenues for costs incurred (primarily employeecompensation) for new customer implementations and software developmentprojects.  For the second quarter of2007, we capitalized approximately $194,000 less in cost of revenues than inthe second quarter of 2006 because in the prior year period we were in themiddle of the significant new customer implementation that required asignificant proportion of our resources. Significantly less time was spent on implementations during the secondquarter of 2007.  The gross cost ofrevenue before capitalized costs decreased approximately $147,000 from the 2006period to the 2007 period which includes a) approximately $100,000 reduction invariable labor related to BPO services due to increased efficiency and lowervolumes, b) $69,000 reduction in fixed costs such as data lines as we continueto carefully monitor and control our cost structure, and c) $50,000 reductionin other variable costs such as travel and supplies, also due to stringent costcontrol.  These improvements werepartially offset by an increase in variable costs of printing and postage inaddition to non-cash equity compensation of $45,000 resulting from the vestingof restricted stock in the 2007 period. There was no such equity compensation charge in the 2006 period.

10

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|                                     | ** ** | **(Table in thousands)**                  | ** ** | ** ** | ** ** |
|-------------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| ** **                          | ** ** | **Three Months Ended June 30,** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **2007**                                            | ** ** | **2006**   | ** ** | **Change** | ** ** |
|                                |       |                                                |       |       |       |   |   |
| Sales and  marketing expense        |       | $                                                   | 235        |       | $          | 319 |   | $ | 84 |   |
| General and  administrative expense |       | 699                                                 |       | 632        |       | (67 | ) |
| Interest and  other income, net     |       | 19                                                  |       | 27         |       | 8 |   |
| Interest expense                    |       | (51                                                 | )          | (47        | )          | (4 | ) |
| Provision for income  taxes         |       | (3                                                  | )          | —     |       | (3 | ) |
|                                     |            |                                                     |            |            |            |  |  |  |  |  |

 

**Sales and marketing expenses**consistprimarily of employee salaries and related benefits, as well as promotionalcosts such as direct mailing campaigns, trade shows and media advertising.   Sales and marketing expenses decreased$84,000 in the three months ended June 30, 2007 compared to the same quarter of2006.  This decrease was due to lowerpersonnel costs and the related decrease in benefits and travel related tochanges in the sales and marketing team over the past year.  Sales and marketing expense for the threemonths ended June 30, 2007 includes $13,000 of non-cash compensation thatresulted from the vesting of restricted stock; there was no such charge for the2006 period.

**General and administrativeexpenses**include executive management, accounting, legal andhuman resources compensation and related benefits, as well as expenditures forapplicable overhead costs.  Theseexpenses increased $67,000 (11%) in the three months ended June 30, 2007compared to the same quarter of 2006. The increase is the net result of a) non-cash equity compensation of$101,000 in 2007 that resulted from the vesting of restricted stock versus$41,000 in 2006 and b) decreases in total professional service fees fromauditors, attorneys, and others despite increased cost of compliance underSection 404 of the Sarbanes-Oxley Act of 2002.

**Interest and other income, net**decreased $8,000 (30%) in the three months ended June 30, 2007 compared to thesame quarter of 2006 due primarily to lower cash balances.

**Interest expense**increased $4,000 (9%) in the three months ended June 30, 2007 compared to thesame quarter of 2006.  Interest accruedon the note payable was lower due to the declining principal balance, offset bythe borrowings for the working capital and equipment lines of credit whichbegan in the third quarter of 2006.

**Provision for income taxes**was $3,000 for the three months ended June 30, 2007 compared to zero in thesame quarter of 2006.  Effective January1, 2007, the Company is accruing an estimate of the tax due under the newmargin tax enacted by the State of Texas.

11

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**Six months ended June 30, 2007compared to six months ended June 30, 2006**
|                  | ** ** | **(Table in thousands)**                | ** ** | ** ** | ** ** |
|------------------|------------|---------------------------------------------------|------------|------------|------------|
| ** **       | ** ** | **Six Months Ended June 30,** | ** ** | ** ** | ** ** |
| ** **       | ** ** | **2007**                                          | ** ** | **2006**   | ** ** | **Change** | ** ** |
|             |       |                                              |       |       |       |   |   |
| Revenues         |       | $                                                 | 8,214      |       | $          | 8,032 |   | $ | 182 |   |
| Cost of revenues |       | 6,895                                             |       | 6,785      |       | (110 | ) |
| Gross profit     |       | $                                                 | 1,319      |       | $          | 1,247 |   | $ | 72 |   |
| % of revenue     |       | 16                                                | %          | 16         | %          |   |   |

 

**Revenues**were approximately $182,000 (2%) higher in the six monthsended June 30, 2007 compared to the same period in 2006.  Revenues from ASP license fees increased fourpercent due to an overall increase in the number of customer lives on oursystems as additions from new customers offset a gradual decrease from existingcustomers.  Transaction fee revenuedeclined one percent and BPO service revenue declined four percent due to theaforementioned loss of the customer acquired by a larger organization and thecontinuing shift in the healthcare industry from paper claims to a highervolume of electronic claims. Professional services revenues increased 18% due in large part to newcustomers added in the past year.

**Cost of revenues**increased $110,000 (2%) in the sixmonths ended June 30, 2007 compared to the same period in 2006.  The most significant component of thisincrease was a $316,000 reduction of costs that are capitalized for accountingpurposes due to a significantly reduced amount of time spent on implementationsin 2007.  The gross cost of revenuebefore capitalized costs decreased approximately $207,000 from the 2006 periodto the 2007 period which includes a) approximately $178,000 reduction invariable labor related to BPO services due to increased efficiency and lowervolumes, b) $125,000 reduction in fixed costs such as data lines as we continueto carefully monitor and control our cost structure, and c) $63,000 reductionin other variable costs such as travel and supplies, also due to stringent costcontrol.  These improvements werepartially offset by an increase in variable costs of printing and postage inaddition to the non-cash equity compensation of $45,000 resulting from thevesting of restricted stock in the 2007 period. There was no such equity compensation charge in the 2006 period.
|                                     | ** ** | **(Table in thousands)**                | ** ** | ** ** | ** ** |
|-------------------------------------|------------|---------------------------------------------------|------------|------------|------------|
| ** **                          | ** ** | **Six Months Ended June 30,** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **2007**                                          | ** ** | **2006**   | ** ** | **Change** | ** ** |
|                                |       |                                              |       |       |       |   |   |
| Sales and  marketing expense        |       | $                                                 | 483        |       | $          | 693 |   | $ | 210 |   |
| General and  administrative expense |       | 1,258                                             |       | 1,240      |       | (18 | ) |
| Interest and  other income, net     |       | 52                                                |       | 55         |       | 3 |   |
| Interest expense                    |       | (109                                              | )          | (97        | )          | (12 | ) |
| Provision for income  taxes         |       | (6                                                | )          | —     |       | (6 | ) |
|                                     |            |                                                   |            |            |            |  |  |  |  |  |

 

**Sales and marketing expenses**decreased $210,000 (30%) in the sixmonths ended June 30, 2007 compared to the same period of 2006.  This decrease was due to reduced personnelcosts and the related decrease in benefits and travel related to the changes inthe sales and marketing team over the past year. Sales and marketing expensefor the three months ended June 30, 2007 includes $13,000 of non-cashcompensation that resulted from the vesting of restricted stock.  There was no such charge for the 2006 period.

12

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**General and administrativeexpenses**increased$18,000 (2%) in the six months ended June 30, 2007 compared to the same periodof 2006.  The increase is the net resultof a) non-cash equity compensation of $133,000 in 2007 that resulted from thevesting of restricted stock versus $41,000 in 2006 and b) decreases in totalprofessional service fees from auditors, attorneys, and others despiteincreased cost of compliance under Section 404 of the Sarbanes-Oxley Act of2002.

**Interest and other income, net**decreased $3,000 in the six months ended June 30, 2007 compared to the sameperiod of 2006 due primarily to lower balances of cash.

**Interest expense**increased $12,000 in the six months ended June 30, 2007 compared to the sameperiod of 2006.  In 2007, there wasinterest expense on the working capital and equipment lines of credit obtainedduring the third quarter of 2006, partially offset by reduced interest on anote payable due to its declining principal balance.

**Provision for income taxes**was $6,000 for the six months ended June 30, 2007 compared to zero in the sameperiod of 2006.  Effective January 1,2007, the Company is accruing an estimate of the tax due under the new margintax enacted by the State of Texas.

**Liquidity and Capital Resources**

*Overviewof Cash Resources*

At June 30, 2007,our cash and cash equivalents amounted to $2.7 million compared to $3.4 millionat December 31, 2006.  The sources anduses of cash during the first six months of 2007 are described more fully in“Analysis of Cash Flows” below.  Webelieve that the Company will maintain sufficient liquidity to fund operationsfor at least the next 12 months.

On April16, 2007, the Company entered into an amendment to its Loan and SecurityAgreement (“LSA”) with Silicon Valley Bank. Under the original LSA, the revolving line would have expired in August2007.  As a result of the amendment, 1)the expiration of the revolving line is extended to April 2009, 2) theavailable borrowing limit and the draw period under the equipment line wereincreased, and 3) certain covenants were modified.  The Company elected to reduce the maximumamount available under the revolving line to avoid paying higher unusedrevolving line facility fees.  Based onthe calculation of the borrowing base as of June 30, 2007, we would have beeneligible to draw up to approximately $2.0 million under the revolving line, ofwhich $500,000 had been drawn as of that date.

*Analysisof Cash Flows*

*Cash usedin operating activities* for the six months ended June 30,2007 was approximately $126,000 as compared to $700,000 for the same period in2006.  The improvement was primarily theresult of the decrease in losses for the period net of the increase non-cashequity compensation related to the vesting of restricted stock, as well aschanges in various working capital accounts. Changes in working capital used $358,000 in the 2007 period as opposedto a $550,000 use of cash for the comparable period in 2006.

*Cash usedin investing activities* for the six months ended June 30,2007 was $536,000 as compared to $1.2 million for the same period in 2006.  The Company’s investing activities continueto be primarily in the areas of developing software enhancements, contractstart-up activities and acquisition of property, equipment and software.  Capitalized software and contract start-upcosts decreased, as significantly more time was spent in the 2006 periodrelated to a significant customer implementation and the related costs wererequired to be capitalized.  Purchases ofproperty, equipment and software were higher in 2006 due to the addition ofequipment to increase the efficiency of our mailroom operations.

13

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*Cash usedin financing**activities* for the six months ended June 30, 2007 was$47,000 related to principal payments on the Company’s equipment line of credit,while cash used in financing activities for the six months ended June 30, 2006was $19,000 related to the cost to register shares previously sold to TakInvestments.

**RecentlyAdopted Accounting Pronouncements**

See Note D to the UnauditedConsolidated Financial Statements herein for a discussion of the impact on theCompany’s financial statements of new accounting standards.

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

 Exposure to market risk for changes ininterest rates relate primarily to short-term investments. The Company does notuse derivative financial instruments. The primary objective of its investmentactivities is to preserve principal while maximizing yields withoutsignificantly increasing risk. Due to the nature of the Company’s investments,we believe that there is no material risk exposure.

Our cash equivalents andother investment instruments are exposed to financial market risk due tofluctuation in interest rates, which may affect our interest income. Theseinstruments are not entered into for trading purposes.  We do not expect our interest income to besignificantly affected by a sudden change in market interest rates.

The dividend rate on ourpreferred stock is fixed at a nominal rate of $0.0001 per share of the newpreferred stock, payable semi-annually (aggregating less than $1,000 individend payments to all preferred shareholders annually).  The interest rate on our note payable isfixed at 6%.   The fair value of theseinstruments is therefore subject to market fluctuation as interest rateschange.

**Item 4. Controls and Procedures**

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

14

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 **PART II. OTHER INFORMATION**

**Item 1.                    LegalProceedings**.

   We are not currently a party to anymaterial legal proceedings and we are not aware of any pending or threatenedlitigation that would have a material adverse effect on us or our business.

**Item 1A.                 RiskFactors**

   We face a number of significantrisks and uncertainties in our business, which are detailed under “RiskFactors” in our Annual Report on Form 10-K for the year ended December 31,2006.  These risks and uncertainties mayaffect our current position and future prospects, and should be considered carefullyin evaluating us and an investment in our common stock.  We described the potential loss of a customerwhose contract was up for renewal as of September 30, 2006, and for whom wewere providing services on a month-to-month basis.  During the second quarter of 2007, thiscustomer terminated our services as referenced in *Management’s Discussion and Analysis of Financial Condition and Resultsof Operations*.  We have notidentified any other material changes to the Risk Factors detailed in our mostrecent Annual Report on Form 10-K.

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

    (c)       First Half 2007 Issuer Purchases ofEquity Securities
| **Period**    | ** ** | **(a) Total  Number of  Shares  Purchased (1)** | ** ** | **(b) Average Price  Paid per Share** | ** ** | **(c) Total Number  of Shares  Purchased as  Part of Publicly  Announced Plans  or Programs** | ** ** | **(d) Maximum  Number (or  Approximate  Dollar Value) of  Shares that May  Yet Be  Purchased Under  the Plans or  Programs** | ** ** |
|---------------|------------|----------------------------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **    | ** ** | ** **                                                     | ** ** | ** **                                                | ** ** | ** **                                                                                                                            | ** ** | ** **                                                                                                                                                                     | ** ** |
| January 2007  |       | —                                                         |       | —                                                    |       | —                                                                                                                                |       | —                                                                                                                                                                         |       |
|          |       |                                                           |       |                                                      |       |                                                                                                                                  |       |                                                                                                                                                                           |       |
| February 2007 |       | 901                                                            |       | $                                                         | 1.78       |                                                                                                                                  | —     |                                                                                                                                                                           | —     |   |
|          |       |                                                           |       |                                                      |       |                                                                                                                                  |       |                                                                                                                                                                           |       |
| March 2007    |       | —                                                         |       | —                                                    |       | —                                                                                                                                |       | —                                                                                                                                                                         |       |
|          |       |                                                           |       |                                                      |       |                                                                                                                                  |       |                                                                                                                                                                           |       |
| April 2007    |       | —                                                         |       | —                                                    |       | —                                                                                                                                |       | —                                                                                                                                                                         |       |
|          |       |                                                           |       |                                                      |       |                                                                                                                                  |       |                                                                                                                                                                           |       |
| May 2007      |       | 5,190                                                          |       | $                                                         | 1.78       |                                                                                                                                  | —     |                                                                                                                                                                           | —     |   |
|          |       |                                                           |       |                                                      |       |                                                                                                                                  |       |                                                                                                                                                                           |       |
| June 2007     |       | 716                                                            |       | $                                                         | 1.80       |                                                                                                                                  | —     |                                                                                                                                                                           | —     |   |

 

----

(1)           Thesepurchases were not made pursuant to a publicly announced repurchase plan orprogram.  Represents shares of commonstock surrendered to Healthaxis to pay withholding taxes on shares ofrestricted stock vesting under the 2005 Stock Incentive Plan.

15

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**Item 3.                    DefaultsUpon Senior Securities.**

   None.

**Item 4.                    Submissionof Matters to a Vote of Security Holders.**

   The Annual Meeting of the CommonShareholders of Healthaxis Inc. was held on June 6, 2007, in Irving, Texas forthe purpose of considering and acting upon the following:
| Proposal                                                                                                  | ** ** | **Shares  Voted For** | ** ** | **Percentage  Voted For** | ** ** | **Shares**

**Voted**

**Against** | ** ** | **Shares  Abstained** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|--------------------------------|------------|------------------------------------|------------|-----------------------|------------|
|                                                                                                      |       |                       |       |                           |       |                               |       |                  |       |
| #1 Election of  Directors:                                                                                |       |                       |       |                           |       |                               |       |                  |       |
|  James J. Byrne                                                                                      |       | 8,054,249                  |       | 99.4                           | %          | 48,012                             |       | —                |       |
|  John M. Carradine                                                                                   |       | 8,054,204                  |       | 99.4                           | %          | 48,057                             |       | —                |       |
|  John W. Coyle                                                                                       |       | 8,054,249                  |       | 99.4                           | %          | 48,012                             |       | —                |       |
|  Thomas L. Cunningham                                                                                |       | 8,054,249                  |       | 99.4                           | %          | 48,012                             |       | —                |       |
|  Adam J. Gutstein                                                                                    |       | 8,055,599                  |       | 99.4                           | %          | 46,662                             |       | —                |       |
|  Kevin F. Hickey                                                                                     |       | 8,054,229                  |       | 99.4                           | %          | 48,032                             |       | —                |       |
|  James W. McLane                                                                                     |       | 8,054,154                  |       | 99.4                           | %          | 48,107                             |       | —                |       |
|  Barry Reisig                                                                                        |       | 8,054,249                  |       | 99.4                           | %          | 48,012                             |       | —                |       |
|                                                                                                      |       |                       |       |                           |       |                               |       |                  |       |
|  #2 Ratification of McGladrey and Pullen, LLP  as the Company’s independent public accountants. |       | 8,068,626                  |       | 99.6                           | %          | 30,009                             |       | 3,626                 |       |

 

**Item 5.                    OtherInformation.**

   None.

**Item 6.                    Exhibits**
| Exhibit    | ** ** | **Description**                                                                                                                                                                                              | ** ** |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                   | ** ** |
| 10.1       |       | Third Amendment to Change in Control Employment  Agreement between the Company and John Carradine dated April 20, 2007  (incorporated by reference from Current Report on Form 8-K filed April 24,  2007).   |       |
|       |       |                                                                                                                                                                                                         |       |
| 10.2       |       | Third Amendment to Change in Control Employment  Agreement between the Company and Jonathan B. Webb dated April 20, 2007  (incorporated by reference from Current Report on Form 8-K filed April 24,  2007). |       |
|       |       |                                                                                                                                                                                                         |       |
| 10.3       |       | First Amendment to Employment Agreement between the  Company and Lawrence F. Thompson dated April 20, 2007 (incorporated by  reference from Current Report on Form 8-K filed April 24, 2007).                |       |

 

16

----

 

 
| 10.4   |   | First Amendment to Employment Agreement between the  Company and Ronald K. Herbert dated April 20, 2007 (incorporated by reference  from Current Report on Form 8-K filed April 24, 2007).          |   |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                                |   |
| 10.5   |   | Employment Agreement between the Company and Roxanne  Seale dated April 20, 2007 (incorporated by reference from Current Report on  Form 8-K filed April 24, 2007).                                 |   |
|   |   |                                                                                                                                                                                                |   |
| 10.6   |   | Form of Restricted Stock Award for Officers and  Employees (Time Vesting) (Under the 2005 Stock Incentive Plan) (incorporated  by reference from Current Report on Form 8-K filed April 24, 2007).  |   |
|   |   |                                                                                                                                                                                                |   |
| 10.7   |   | First Amendment to Loan and Security Agreement between  the Company and Silicon Valley Bank dated April 16, 2007 (incorporated by  reference from Current Report on Form 8-K filed April 18, 2007). |   |
|   |   |                                                                                                                                                                                                |   |
| 31.1   |   | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.                                                                                |   |
|   |   |                                                                                                                                                                                                |   |
| 31.2   |   | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.                                                                                |   |
|   |   |                                                                                                                                                                                                |   |
| 32.1   |   | Certifications of Chief Executive Officer and Chief  Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,  furnished herewith.                                              |   |

 

17

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### **Signature**

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.
|                        |   | Healthaxis Inc.                                                                          |
|------------------------|--------|------------------------------------------------------------------------------------------|
|                   |   |                                                                                     |
|                   |   |                                                                                     |
| Date: August 10,  2007 |   | By: /s/ John M.  Carradine                                                               |   |
|                   |   | John M.  Carradine, President and Chief Executive Officer  (Principal Executive Officer) |
|                   |   |                                                                                     |
|                   |   |                                                                                     |
|                   |   | By: /s/ Ronald  K. Herbert                                                               |   |
|                   |   | Ronald K.  Herbert, Chief Financial Officer (Principal  Financial Officer)               |

 

18

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#### **ExhibitIndex**

| Exhibit    | ** ** | **Description**                                                                                                                                                                                              | ** ** |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                   | ** ** |
| 10.1       |       | Third Amendment to Change in Control Employment  Agreement between the Company and John Carradine dated April 20, 2007  (incorporated by reference from Current Report on Form 8-K filed April 24,  2007).   |       |
|       |       |                                                                                                                                                                                                         |       |
| 10.2       |       | Third Amendment to Change in Control Employment  Agreement between the Company and Jonathan B. Webb dated April 20, 2007  (incorporated by reference from Current Report on Form 8-K filed April 24,  2007). |       |
|       |       |                                                                                                                                                                                                         |       |
| 10.3       |       | First Amendment to Employment Agreement between the  Company and Lawrence F. Thompson dated April 20, 2007 (incorporated by  reference from Current Report on Form 8-K filed April 24, 2007).                |       |
|       |       |                                                                                                                                                                                                         |       |
| 10.4       |       | First Amendment to Employment Agreement between the  Company and Ronald K. Herbert dated April 20, 2007 (incorporated by reference  from Current Report on Form 8-K filed April 24, 2007).                   |       |
|       |       |                                                                                                                                                                                                         |       |
| 10.5       |       | Employment Agreement between the Company and Roxanne  Seale dated April 20, 2007 (incorporated by reference from Current Report on  Form 8-K filed April 24, 2007).                                          |       |
|       |       |                                                                                                                                                                                                         |       |
| 10.6       |       | Form of Restricted Stock Award for Officers and  Employees (Time Vesting) (Under the 2005 Stock Incentive Plan) (incorporated  by reference from Current Report on Form 8-K filed April 24, 2007).           |       |
|       |       |                                                                                                                                                                                                         |       |
| 10.7       |       | First Amendment to Loan and Security Agreement  between the Company and Silicon Valley Bank dated April 16, 2007  (incorporated by reference from Current Report on Form 8-K filed April 18,  2007).         |       |
|       |       |                                                                                                                                                                                                         |       |
| 31.1       |       | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.                                                                                         |       |
|       |       |                                                                                                                                                                                                         |       |
| 31.2       |       | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.                                                                                         |       |
|       |       |                                                                                                                                                                                                         |       |
| 32.1       |       | Certifications of Chief Executive Officer and Chief  Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,  furnished herewith.                                                       |       |

 

 

 

----