UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

            [X] QUARTER REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                For the quarterly period ended September 30, 2001
                                       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 0-31014

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



<TABLE>
    <S>                                   <C>

             Delaware                                     52-2181356
   ------------------------------         -------------------------------------
   (State or other jurisdiction of       (I.R.S. Employer Identification Number)
   incorporation or organization)
</TABLE>



          2273 Research Boulevard, 2nd Floor, Rockville, Maryland 20850
               (Address of principal executive offices, zip code)
                                 (301) 548-2900
                (Registrant's phone number, including area code)

                                Not Applicable
                -------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)


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 last practicable date.

The number of shares of common stock,  par value $.01 per share,  outstanding on
November 14, 2001 was 31,487,348.


<PAGE>


                               HEALTHEXTRAS, INC.

                          Third Quarter 2001 Form 10-Q

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
PART I   FINANCIAL INFORMATION
<S>                                                                        <C>

    ITEM 1. Financial Statements

       Consolidated Balance Sheets as of December 31, 2000 and
         September 30, 2001 (Unaudited)......................................1

       Consolidated Statements of Operations and Comprehensive
         Loss for the Three and Nine Months Ended September 30, 2000
         and 2001 (Unaudited)................................................2

       Consolidated Statements of Cash Flows for the Nine Months Ended
          September 30, 2000 and 2001 (Unaudited)............................3

       Notes to Financial Statements.........................................4

    ITEM 2. Management's Discussion and Analysis of Financial Condition
              and Results of Operations......................................7

    ITEM 3. Quantitative and Qualitative Disclosures About Market
              Risk..........................................................10

PART II  OTHER INFORMATION

SIGNATURES
</TABLE>

PART I.  FINANCIAL INFORMATION
ITEM I.  FINANCIAL STATEMENTS

                               HEALTHEXTRAS, INC.
                          CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                  December 31,     September 30
                                                      2000             2001
                                                  -----------      ------------
                                                                   (Unaudited)
<S>                                               <C>              <C>
Current assets:
  Cash and cash equivalents                       $28,921,312       $32,005,082
  Accounts receivable                               3,799,270         6,247,338
  Deferred charges:
    Direct                                          3,050,603         2,700,819
    Marketing and promotion                           508,447         1,640,908
  Other current assets                                731,061           780,044
                                                  -----------       -----------
      Total current assets                         37,010,693        43,374,191
Fixed assets, net                                   4,588,153         4,618,174
Goodwill, net                                       9,120,104         8,658,975
Other assets                                        1,325,156         1,398,641
                                                  -----------       -----------
      Total assets                                $52,044,106       $58,049,981
                                                  ===========       ===========

Current liabilities:
  Accounts payable and accrued expenses           $ 8,533,982       $ 9,594,149
  Deferred revenue                                  7,121,349         6,148,917
                                                  -----------       -----------
      Total current liabilities                    15,655,331        15,743,066
Long-term liabilities                                 150,211                --
                                                  -----------       -----------
      Total liabilities                            15,805,542        15,743,066
                                                  ===========       ===========

Stockholders' equity:
  Preferred stock, $0.01 par value,
    5,000,000 shares authorized, none issued               --                --
  Common stock, $0.01 par value, 100,000,000
    shares authorized, 28,902,600 and
    31,487,348 shares issued and outstanding
    at December 31, 2000 and September 30,
    2001, respectively                                289,026           314,874
  Additional paid-in capital                       54,149,068        66,785,166
  Retained earnings (deficit)                     (17,946,192)      (24,627,457)
  Deferred compensation                              (253,338)         (165,669)
                                                  -----------       -----------
      Total stockholders' equity                   36,238,564        42,306,915
                                                  -----------       -----------
      Total liabilities and stockholders'
        equity                                    $52,044,106       $58,049,981
                                                  ===========       ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements
                                       1
<PAGE>

                               HEALTHEXTRAS, INC.
          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                      ----------------------------      -----------------------------
                                                        For the three months ended      For the nine months ended
                                                                September 30,                    September 30,
                                                      ----------------------------      -----------------------------
                                                            2000           2001               2000           2001
                                                      -------------   ------------      ------------    -------------
<S>                                                     <C>            <C>             <C>             <C>
Revenue                                                 $10,783,770    $ 28,891,474    $ 24,135,001    $ 77,834,313

Direct expenses                                           5,698,061      19,657,143      12,684,003      57,112,539
Product development and marketing                         7,069,249       6,957,396      23,183,272      20,419,982
General and administrative                                1,921,801       2,501,984       5,290,798       7,966,433
                                                        -----------    ------------    ------------    ------------
   Total operating expenses                              14,689,111      29,116,523      41,158,073      85,498,954
                                                        -----------    ------------    ------------    ------------

   Operating loss                                        (3,905,341)       (225,049)    (17,023,072)     (7,664,641)

Interest income                                             492,767         259,652       1,699,094         983,680
Other income (expense), net                                 (14,528)             --         511,242            (305)
                                                        -----------    ------------    ------------    ------------

   Net income (loss)                                     (3,427,102)         34,602     (14,812,736)     (6,681,267)

Reclassification adjustment for
  realized gains on marketable
  securities arising during the
  period                                                         --              --        (132,669)             --
                                                        -----------    ------------    ------------    ------------
   Comprehensive loss                                   $(3,427,102)   $     34,602    $(14,945,405)   $ (6,681,267)
                                                        ===========    ============    ============    ============

Weighted average shares of common
  stock outstanding (in thousands)- basic                    27,703          28,916          27,681          29,071
Weighted average shares of common
  stock outstanding (in thousands)- diluted                  27,703          29,789          27,681          29,071

Net income (loss) per share - basic                     $     (0.12)   $       0.00    $      (0.54)   $      (0.23)
Net income (loss) per share - diluted                   $     (0.12)   $       0.00    $      (0.54)   $      (0.23)
</TABLE>


   The accompanying notes are an integral part of these financial statements
                                       2
<PAGE>

                               HEALTHEXTRAS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>


                                                    Nine months ended September 30,
                                                    -------------------------------
                                                          2000            2001
                                                     ------------    ------------
<S>                                                  <C>             <C>
Cash flows from operating activities:
  Net loss                                           $(14,812,736)   $ (6,681,267)
  Depreciation expense                                    306,697       1,118,521
  Gain on sale of marketable securities                  (551,735)             --
  Non-cash compensation expense and fees                   87,670       5,692,461
  Amortization of goodwill                                     --         461,129
  Changes in assets and liabilities:
    Accounts receivable                                  (849,087)     (2,448,068)
    Deferred charges                                    1,998,678        (782,677)
    Prepaid expenses and other assets                    (145,382)       (122,468)
    Accounts payable and accrued expenses               1,314,854         279,135
    Deferred revenue                                    2,222,630        (972,432)
                                                     ------------    ------------
      Net cash used in operating activities           (10,428,411)     (3,455,665)
                                                     ------------    ------------

Cash flows from investing activities:
  Capital expenditures                                 (1,243,433)     (1,148,542)
  Payment for purchase of IPM securities                       --        (608,225)
  Sale of marketable securities                         1,084,050              --
  Other                                                  (221,552)             --
                                                     ------------    ------------
      Net cash used in investing activities              (380,935)     (1,756,767)
                                                     ------------    ------------

Cash flows from financing activities:
  Proceeds from new common shares issued                       --      12,601,202
  Repurchase and retirement of common stock                    --      (4,305,000)
                                                     ------------    ------------
      Net cash provided by financing activities                --       8,296,202
                                                     ------------    ------------
  Net increase (decrease) in cash and cash
   equivalents                                        (10,809,346)      3,083,770
  Cash and cash equivalents at the beginning
   of period                                           46,971,106      28,921,312
                                                     ------------    ------------
  Cash and cash equivalents at the end
   of period                                         $ 36,161,760    $ 32,005,082
                                                     ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements
                                       3
<PAGE>



                               HEALTHEXTRAS, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

1.       ORGANIZATION AND BASIS OF PRESENTATION
--       --------------------------------------

         HealthExtras,  Inc.  (the  "Company" or  "HealthExtras")  is a Delaware
corporation  organized on July 9, 1999 and the successor to certain  predecessor
companies (the  "Predecessor  Companies").  The Predecessor  Companies  include:
Sequel  Newco,  Inc.,  Sequel Newco Joint  Venture (the Joint  Venture),  Health
Extras Partnership ("HEP"), Sequel Newco, LLP ("SN LLP") and HealthExtras,  LLC.
The Company  commenced  business  operations with its health benefits program on
November  1, 1998;  however,  all  operating  revenues  were  deferred  and were
recognized in 1999 in order to coincide with the program member benefits.

         The financial  statements for the three and nine months ended September
30,  2000 and 2001 have not been  audited  but,  in the  opinion of  management,
include all adjustments (consisting only of normal recurring accruals) necessary
to present fairly the information  set forth therein.  The results of operations
for the three and nine  months  ended  September  30,  2001 are not  necessarily
indicative  of the  results to be  expected  for the full year or in the future.
Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have been condensed or omitted. The information  contained herein should be read
in  conjunction  with the  Company's  Form 10-K for the year ended  December 31,
2000, filed with the Securities and Exchange Commission on April 2, 2001.

         Pursuant to an agreement  dated  September 25, 2001, the Company issued
3,020,782 shares of common stock in a private placement offering in exchange for
$12.0 million in cash. On August 13, 2001,  the Board of Directors  approved the
purchase of 750,000 shares of common stock from Thomas L. Blair, Chairman of the
Board. The transaction is reflected in the Financial  Statements as a repurchase
and retirement of common stock.

2.       NET INCOME (LOSS) PER SHARE
--       ---------------------------

         Basic net  income  (loss)  per share is based on the  weighted  average
number of shares outstanding during the period.  Diluted net income per share is
based on the  weighted  average  number  of shares  and  dilutive  common  stock
equivalent  shares   outstanding  during  the  period.  The  diluted  effect  of
outstanding common stock options of 525,300 equivalent shares were excluded from
the diluted  earnings  per share for the nine months  ended  September  30, 2001
because they were  antidilutive.  The diluted effect of outstanding common stock
options  was  630,689  equivalent  shares  which were  included  in the  diluted
earnings per share for the three months ended September 30, 2001.

         During the three and nine month period ended  September  30, 2001,  the
Company  recorded a non-cash  expense of $488,000 and  $5,605,000  respectively,
related to common  stock  warrants  ("Warrants")  issued to a marketing  partner
based on certain  performance  objectives.  On July 22, 2001, the Company issued
750,000  Warrants which have an exercise price of $5.21,  and vested on June 30,
2001. The diluted effect of outstanding  Warrants was 242,532  equivalent shares
which were included in the diluted earnings per share for the three months ended
September 30, 2001.

                                       4
<PAGE>


3.       SEGMENT REPORTING
--       -----------------

         The  Company   operates  in  two  market  segments  as  a  provider  of
supplemental  health and  disability  benefit  programs,  and as a  provider  of
pharmacy benefit management services. The following table details financial data
by segment for the three months and nine months ended September 30, 2001.

<TABLE>
<CAPTION>
For the three months ended September 30, 2001:
----------------------------------------------
                                     Supplemental Health         Pharmacy Benefit
                                          and Disability      Management Services                Total
                                     -------------------      -------------------          -----------
<S>                                          <C>                       <C>                 <C>
Revenue                                      $20,839,943               $8,051,531          $28,891,474
Operating expenses                            20,978,546                8,137,977           29,116,523
Net income (loss)                                108,210                 (73,608)               34,602
Total assets                                  52,996,924                5,053,057           58,049,981
</TABLE>


<TABLE>
<CAPTION>
For the nine months ended September 30, 2001:
---------------------------------------------
                                     Supplemental Health         Pharmacy Benefit
                                          and Disability      Management Services                Total
                                     -------------------      -------------------          -----------
<S>                                         <C>                      <C>                  <C>
Revenue                                     $ 54,462,446             $ 23,371,867         $ 77,834,313
Operating expenses                            61,878,738               23,620,215           85,498,953
Net loss                                     (6,479,444)                (201,823)          (6,681,267)
Total assets                                  52,996,924                5,053,057           58,049,981
</TABLE>


4.       RECENT ACCOUNTING PRONOUNCEMENTS
--       --------------------------------

         On July 20, 2001,  the FASB issued  Statements of Financial  Accounting
Standards  No.  141 (FAS  141),  BUSINESS  COMBINATIONS,  and No. 142 (FAS 142),
GOODWILL AND OTHER INTANGIBLE ASSETS.

         FAS 141 supercedes Accounting Principles Board Opinion No. 16 (APB 16),
BUSINESS  COMBINATIONS.  The most  significant  changes made by FAS 141 are: (1)
requiring  that the  purchase  method  of  accounting  be used for all  business
combinations  initiated after June 30, 2001, (2) establishing  specific criteria
for the  recognition of intangible  assets  separately  from  goodwill,  and (3)
requiring  unallocated  negative  goodwill to be written off  immediately  as an
extraordinary gain instead of being deferred and amortized.

         FAS  142  supercedes  APB 17,  INTANGIBLE  ASSETS.  FAS  142  primarily
addresses the accounting for goodwill and intangible  assets subsequent to their
acquisition.  The  provisions  of FAS 142 will be  effective  for the  Company's
fiscal year beginning January 1, 2002. The most significant  changes made by FAS
142 are: (1) goodwill and indefinite lived  intangible  assets will no longer be
amortized,  (2) goodwill will be tested for  impairment at least annually at the
reporting unit level,  (3) intangible  assets deemed to have an indefinite  life
will be tested for impairment at least annually, and (4) the amortization period
of intangible assets with finite lives will no longer be limited to forty years.

         As a result of adopting FAS 142, the Company will no longer be required
to  amortize  goodwill  related to its  acquisition  of  International  Pharmacy
Management  Inc.  ("IPM").  However,  such  goodwill  will be  subject to annual
impairment testing which the Company has not yet undertaken. The Company expects
to record $615,000 in goodwill  amortization  during the year ended December 31,
2001 related to the acquisition of IPM.

                                       5
<PAGE>



         In August 2001, the Financial  Accounting Standards Board (FASB) issued
FAS 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. FAS 144
provides guidance on the accounting for the impairment or disposal of long-lived
assets.  FAS 144  supercedes  FAS  121  and  applies  to all  long-lived  assets
(including   discontinued   operations)  and  consequently   amends   Accounting
Principles   Board   Opinion   No.   30   (APB   30),   REPORTING   RESULTS   OF
OPERATIONS-REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS. FAS 144
is effective for financial  statements  issued for fiscal years  beginning after
December  15,  2001  and,   generally,   its   provisions   are  to  be  applied
prospectively. The Company will adopt FAS 144 effective January 1, 2002 and does
not expect any significant impact on its financial statements.

5.       TAXES
--       -----

         The  Company  records  deferred  tax  assets and  liabilities  based on
temporary  differences  between  the  financial  statement  and the tax bases of
assets and  liabilities  using  enacted tax rates in effect in the year in which
the  differences  are  expected  to reverse.  The  Company  has  recorded a full
valuation  allowance  against  the  Company's  deferred  tax  assets,  which are
comprised  predominantly  of  net  operating  loss  carry  forwards,  due to the
uncertainty as to their ultimate realization.

                                       6

<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
------   -----------------------------------------------------------------------

    This form 10-Q  contains  forward-looking  statements  within the meaning of
Section 21E of the Securities  Exchange Act of 1934, as amended. We undertake no
obligation to revise any  forward-looking  statements in order to reflect events
or  circumstances  that  may  arise  after  the  date  of  this  report.   While
forward-looking  statements are sometimes presented with numerical  specificity,
they are  based on  various  assumptions  made by  management  regarding  future
circumstances  over many of which we have little or no control.  Forward-looking
statements  may  be  identified  by  words  including  "anticipate",  "believe",
"estimate",   "expect"  and  similar   expressions.   We  caution  readers  that
forward-looking statements,  including without limitation, those relating to our
future business prospects,  revenues, working capital, liquidity, and income are
subject to certain risks and  uncertainties  that would cause actual  results to
differ  materially  from  those  indicated  in the  forward-looking  statements.
Factors  that  could  cause  actual  results  to  differ  from   forward-looking
statements  include  diminishing  consumer  demand,  risks involving the loss of
marketing  partners,  risks involving the loss of our benefit  providers,  risks
related  to  regulation,  risks  related  to  acquisitions,   risks  related  to
competition,  and other  risks and factors  identified  from time to time in our
reports filed with the Securities and Exchange Commission. Please refer to those
risks  identified  under the sections  "Certain  Factors That May Affect  Future
Operating Results", "Factors Related to Regulation", and "Factors Related to the
Internet and Electronic  Commerce" in the Company's Form 10-K for the year ended
December 31, 2000, filed with the Securities and Exchange Commission on April 2,
2001 (File No. 0-31014), which are incorporated herein by reference.  Should one
or more of these  risks  or  uncertainties  materialize,  or  should  underlying
assumptions  prove  incorrect,  actual  results may vary  materially  from those
anticipated.

OVERVIEW
--------

    A  significant  portion  of our  revenue  is  generated  from  the  sale  of
membership  programs that primarily provide disability  benefits.  While product
development   has  been   ongoing  for  the  past   several   years,   we  began
revenue-generating  activities  in January  1999.  Prior to that time, we were a
development stage  enterprise,  which designed and test marketed various benefit
combinations.  To date, we have  primarily  focused on the  distribution  of our
membership programs to our business partners' customers and building recognition
of our program brand.  Christopher Reeve is featured  prominently in our online,
television, and print marketing campaigns to build brand awareness.

    We  believe  our  consumer  research  and  marketing  efforts  have given us
valuable  insight into the consumer  perceptions and  preferences  regarding the
value and limitations of prevailing insurance products.  Accordingly, we believe
that our  programs  are well  positioned  to address  the needs of our  targeted
market  segments.  As of  September  30,  2001,  more than  750,000  members had
enrolled in our programs.

    In addition to providing  supplemental  health and disability  benefits,  we
also  provide  pharmacy  benefit  management  services  through  our  subsidiary
HealthExtrasRx  (formerly known as IPM),  which we acquired on November 1, 2000.
Information  regarding the  contribution  of those pharmacy  benefit  management
services is shown under the Segment Reporting note to the financial statements.

    Revenue is  generated by payments  for program  benefits  and payments  from
certain  business  partners  related  to new  member  enrollments.  The  primary
determinant of HealthExtras'  program fee revenue recognition is monthly program
enrollment. In general, program fee revenue is recognized based on the number of
members enrolled in each reporting period  multiplied by the applicable  monthly
fee for their specific membership program. The program fee revenue recognized by
HealthExtras includes the cost of the membership benefits, which are supplied by
others,  including  the  insurance  components.  Revenue from  program  payments
received,  and related direct expenses, are deferred to the extent that they are
applicable  to  future  periods  or to any  refund  guarantee  we  offer.  As of
September  30,  2001,  initial  revenue was deferred  for  approximately  80,000
program  members.  Payments from business  partners are recorded as revenue,  as
related direct marketing expenses have exceeded payments from business partners.

                                        7
<PAGE>

HealthExtrasRx  revenues from sales of  prescription  drugs by pharmacies in the
Company's  nationwide  network and related claims processing fees are recognized
when  the  claims  are  adjudicated.  Pharmacy  claims  are  adjudicated  at the
point-of-sale  using  the  Company's  on-line  claims  processing  system.  When
HealthExtrasRx  has an  independent  obligation  to  pay  its  network  pharmacy
providers,  the Company includes  payments from plan sponsors for these benefits
as revenues  and payments to its pharmacy  providers as direct  expense.  Rebate
revenues earned under arrangements with manufacturers are recognized as they are
earned in accordance with contractual agreements.  Certain of these revenues are
based on estimates,  which are subject to final  settlement  with the contracted
party.  Revenues from the dispensing of pharmaceuticals  from the Company's mail
service pharmacy are recognized when each prescription is shipped.

    Direct expenses  consist  principally of marketing and processing  fees, the
cost of benefits  provided to program members,  and direct costs associated with
HealthExtrasRx  pharmacy benefit  management  operations.  Direct expenses are a
function of the level of  membership  during the period and the  specific set of
program features  selected by members.  The coverage  obligations of our benefit
suppliers and the related expense are determined  monthly,  as are the remaining
direct expenses.  HealthExtras frequently maintains a prepaid expense balance or
minimum  enrollment  commitment  with  respect to the  features of its  programs
supplied by others.  Where  amounts are prepaid,  direct  expense is  recognized
based on the actual membership levels in each program. The carrying value of the
prepayment  is adjusted at the end of each  quarter  based on factors  including
enrollment levels in each product,  enrollment trends, and the remaining portion
of the unexpired  prepayment  period. In the event that a period of coverage was
purchased  or  guaranteed  in advance,  and there were  insufficient  members to
utilize the coverage,  the balance would be expensed by HealthExtras without any
related revenue. HealthExtras believes that current enrollment trends will allow
the commitments at September 30, 2001 to be fully utilized prior to expiration.

    Our  limited  history  makes it  difficult  to  evaluate  our  business  and
prospects.  We have incurred  substantial  operating losses since our inception,
and we intend to incur ongoing marketing and brand development expenses over the
next several  years.  It is possible that our operating  losses will continue in
the near term.  There can be no assurance that we will maintain or grow revenues
or achieve profitability in the future.

RESULTS OF OPERATIONS
---------------------

THREE MONTHS ENDED SEPTEMBER 30, 2001 TO THREE MONTHS ENDED SEPTEMBER 30, 2000

    HealthExtras  incurred an  operating  loss of $225,000  for the three months
ended September 30, 2001,  compared to an operating loss of $3.9 million for the
same  period  in 2000.  Revenue  of $28.9  million  for the three  months  ended
September 30, 2001  consisted of program  member and business  partner  payments
earned  during the period and sales  revenue  generated  by  HealthExtrasRx  PBM
services,  which  components  contributed  45%, 7%, and 48%  respectively to the
increase over the comparable  period of the prior year. Cash collections for the
three months ended September 30, 2001,  totaled $28.9 million.  Revenue and cash
collections  for the three months ended  September 30, 2000,  were $10.8 million
and $11.1million, respectively.

    Operating  expenses for the three months  ended  September  30, 2001 totaled
$29.1  million  compared to $14.7  million  for the same period in 2000.  Direct
expenses for the three months ended  September 30, 2001 were $19.7  million,  or
67% of total operating expenses, reflecting the cost of the benefits included in
our  programs,  marketing and other fees payable to our  distribution  partners,
direct costs associated with HealthExtrasRx operations, and $488,000 in non-cash
charges relating to Warrants issued to a marketing partner.  Direct expenses for
the three months ended September 30, 2000 were $5.7 million, representing 39% of
total operating expenses.  HealthExtras incurred  approximately $7.0 million, or

                                       8
<PAGE>

24% of total operating expenses,  in product development and marketing costs for
the three months ended  September 30, 2001.  These costs  included  $547,000 for
creative development and product endorsements,  $6.3 million in direct marketing
expenses  and  $143,000  in market  research  and ongoing  product  development.
Product development and marketing costs for the three months ended September 30,
2000  were  approximately  $7.1  million,  or 48% of total  operating  expenses,
including $87,000 in creative costs for print advertisements, $793,000 for media
production,  including television,  radio, print and Internet advertising,  $4.8
million in media distribution  expenses,  $250,000 in product endorsement costs,
and $265,000 in market  research and ongoing  product  development.  General and
administrative  expenses for the three months ended September 30, 2001 were $2.5
million,  or  9%  of  total  operating  expenses,   including  $1.5  million  in
compensation and benefits,  $261,000 in facility costs,  $64,000 in professional
fees, $194,000 in travel expenses, and $511,000 in depreciation and amortization
charges.  General  and  administrative  expenses  for  the  three  months  ended
September  30,  2000  were $1.9  million,  or 13% of total  operating  expenses,
including $1.0 million in compensation and benefits,  $95,000 in other personnel
costs,  $34,000 in telephone  and software  expenses,  $117,000 in  professional
fees,  $132,000  in  facilities  expenses,  and  $183,000  in  depreciation  and
amortization charges.

    Interest  income of $260,000 for the three months ended  September  30, 2001
reflects  primarily the  investment of the Company's  available  cash  balances.
Interest income for the three months ended September 30, 2000 totaled $493,000.

NINE MONTHS ENDED SEPTEMBER 30, 2001 TO NINE MONTHS ENDED SEPTEMBER 30, 2000

    HealthExtras  incurred an operating loss of $7.7 million for the nine months
ended September 30, 2001, compared to an operating loss of $17.0 million for the
same  period  in 2000.  Revenue  of $77.8  million  for the  nine  months  ended
September 30, 2001  consisted of program  member and business  partner  payments
earned  during the period and sales  revenue  generated  by  HealthExtrasRx  PBM
services,  which  components  contributed  54%, 17%, and 29% respectively to the
increase over the comparable  period of the prior year. Cash collections for the
nine months ended  September 30, 2001,  totaled $74.4 million.  Revenue and cash
collections for the nine months ended September 30, 2000, were $24.1 million and
$26.4 million, respectively.

    Operating  expenses  for the nine months  ended  September  30, 2001 totaled
$85.5  million  compared to $41.2  million  for the same period in 2000.  Direct
expenses for the nine months ended September 30, 2001 were $57.1 million, or 67%
of total operating expenses, reflecting the cost of the benefits included in our
programs marketing and other fees payable to our distribution  partners,  direct
costs associated with  HealthExtrasRx  operations,  and $5.6 million in non-cash
charges relating to Warrants issued to a marketing partner.  Direct expenses for
the nine months ended  September  30, 2000 were $12.7  million,  or 31% of total
operating expenses, reflecting the cost of the benefits included in our programs
and compensation  payable to our distribution  partners.  HealthExtras  incurred
approximately  $20.4 million,  or 24% of total  operating  expenses,  in product
development  and marketing  costs for the nine months ended  September 30, 2001.
These  costs  included  $2.2  million  for  creative   development  and  product
endorsements, $17.3 million in direct marketing expenses, and $879,000 in market
research and ongoing  product  development.  Product  development  and marketing
costs for the nine months  ended  September  30, 2000 were  approximately  $23.2
million, or 56% of total operating expenses,  including $1.1 million in creative
costs,  $4.5  million  for  media  production,   including  print  and  Internet
advertising,  $807,000 in product  endorsement,  and  approximately  $530,000 in
market research and product development. General and administrative expenses for
the nine  months  ended  September  30, 2001 were $8.0  million,  or 9% of total
operating  expenses,  including  $4.2  million  in  compensation  and  benefits,
$731,000 in facility costs,  $644,000 in professional  fees,  $521,000 in travel
expenses, and $1.6 million in depreciation and amortization charges. General and
administrative  expenses for the nine months ended  September 30, 2000 were $5.3
million,  or  13%  of  total  operating  expenses,  including  $3.0  million  in
compensation  and  benefits,  $346,000  in other  personnel  costs,  $161,000 in
telephone and software  expenses,  $249,000 in  professional  fees,  $263,000 in

                                       9
<PAGE>

facilities expenses, and $307,000 in depreciation and amortization charges.

    Interest  income of $984,000  for the nine months ended  September  30, 2001
reflects  primarily the  investment of the Company's  available  cash  balances.
Interest  income for the nine  months  ended  September  30, 2000  totaled  $1.7
million.


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

    Pursuant to an agreement dated  September 25, 2001, the Company  completed a
private  placement  of  approximately  3,020,000  newly  issued  shares  of  the
Company's common stock, and received proceeds of approximately  $12 million.  As
of September 30, 2001, we had $32.0 million in cash and cash equivalents,  $27.6
million in working capital and no debt.

    The primary  commitment  of our capital  resources  is to fund  expenditures
relating to  marketing  and brand  development  we intend to incur over the next
several years and to fund the  operating  losses we anticipate in the near term.
We also will continue to selectively evaluate acquisition opportunities.

    We currently  anticipate  our available cash resources will be sufficient to
meet our planned working capital,  capital  expenditures and business  expansion
requirements.  However,  there  can be no  assurance  that we will  not  require
additional capital.  Even if such funds are not required, we may seek additional
equity or debt  financing.  We cannot be  assured  that such  financing  will be
available on acceptable  terms,  if at all, or that such  financing  will not be
dilutive to our stockholders.


INTEREST RATE AND EQUITY PRICE SENSITIVITY
------------------------------------------

    We are  subject to  interest  rate risk on our  short-term  investments  and
equity price risk in our marketable  securities.  We have  determined that a 10%
move in the current weighted average interest rate of our short-term investments
and/or  a 10%  move in the  weighted  average  market  price  of our  marketable
securities would not have a material effect in our financial  position,  results
of operations and cash flows in the next year.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------  ----------------------------------------------------------
         (Included in Management's Discussion and Analysis of Financial
          Condition and Results of Operations)

                                       10
<PAGE>



PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
-------  -----------------

    In the ordinary  close of business,  the Company may become subject to legal
proceedings  and claims.  The Company is not aware of any legal  proceedings  or
claims that, in the opinion of  management,  will have a material  effect on the
financial condition or results of operations of the Company.

ITEM 2   CHANGES IN SECURITIES
------   ---------------------

    In connection with a Securities Purchase Agreement dated September 25, 2001,
the Company issued a total of 3,020,782  shares of its common stock and warrants
to purchase an additional  845,816  shares of common stock to the purchasers of,
and placement agent for, this offering.  All of the warrants expire on September
26, 2005 and have an exercise price of $5.37 per share.

    The  offering  was  made  only  to  qualified   institutional  investors  or
institutional accredited investors in reliance upon Rule 506 of Regulation D and
Section 4(2) of the Securities Act of 1933.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
-------  -------------------------------

    Not Applicable

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-------  ---------------------------------------------------

    Not Applicable

ITEM 5.  OTHER INFORMATION
-------  -----------------

    Not Applicable


                                       11
<PAGE>



ITEM 6.  EXHIBITS AND REPORTS ON FORMS 8-K
-------  ---------------------------------

 1.      The  following exhibits are filed as part of this report unless noted
         otherwise:

     Exhibit No.                                          Description
     2.1          Form of Reorganization Agreement by and among HealthExtras,
                  Inc., HealthExtras, LLC and Capital Z Healthcare Holding Corp
                  (1)
     3.1(a)       Certificate of Incorporation of HealthExtras, Inc (1)
     3.1(b)       Form of Amended and Restated Certificate of Incorporation (1)
     3.2          Bylaws of HealthExtras, Inc. (1)
     4.1          Specimen Stock Certificate of HealthExtras, Inc.
     4.2          Form of Stockholders' Agreement (1)
     4.3          Form of Warrant to Purchase Common Stock of the Registrant (6)
     10.1         Form of Employment Agreement between HealthExtras, Inc. and
                  David T. Blair (1)
     10.2         Form of Employment Agreement between HealthExtras, Inc. and
                  certain Executive Officers (1)
     10.3         Program Administrator's Agreement by and between HealthExtras
                  LLC and Reliance National Insurance Company (1)
     10.4         Agreement between United Payors & United Providers, Inc. and
                  HealthExtras, Inc. (3)
     10.5         Agreement by and between United Payors & United Providers,
                  Inc. and HealthExtras, LLC. re: network access (1)
     10.6         Agreement by and between Cambria Productions, Inc. f/s/o
                  Christopher Reeve and HealthExtras, Inc. (1) (2)
     10.7         Indemnification Agreement (1)
     10.8         Sublease Agreement by and between United Payors & United
                  Providers, Inc. and HealthExtras, Inc. (3)
     10.9         Form of HealthExtras, Inc. 1999 Stock Option Plan (1)
     10.10        Form of Registration Rights Agreement (1)
     10.11        Securities Purchase Agreement by and among HealthExtras, Inc.
                  as the Purchaser, and TD Javelin Capital Fund, L.P., Meriken
                  Nominees, LTD, et. al, as the Sellers (4)
     10.12        Form HealthExtras, Inc. 2000 Stock Option Plan (5)
     10.13        Form HealthExtras, Inc. 2000 Directors' Stock Option Plan (5)
     10.14        Warrant Agreement by and among HealthExtras, Inc. and J.C.
                  Penney Life Insurance Company (5)
     10.15        Amended Agreement by and between Cambria Productions, Inc.
                  f/s/o Christopher Reeve and  HealthExtras, Inc. (5)
     10.16        Securities Purchase Agreement dated September 25, 2001 by and
                  between the Registrant and Investors Signatory thereto (6)

--------------

(1)  Incorporated herein by reference into this document from the Exhibits to
     the Form S-1 Registration Statement, as amended, Registration No.
     333-83761, initially filed on July 26, 1999.
(2)  Confidential treatment requested for portion of agreement pursuant to
     Section 406 of Regulation C. promulgated  under the Securities Act of 1933,
     as amended.
(3)  Incorporated herein by reference into this document from the Exhibits to
     the Form 10-K for the year ended December 31, 1999.
(4)  Incorporated herein by reference into this document from the Exhibits to
     the Form 8-K initially filed on November 21, 2000.
(5)  Incorporated herein by reference into this document from the Exhibits to
     the Form 10-K for the year ended December 31,
     2000.
(6)  Incorporated herein by reference into this document from the Exhibits to
     the Form S-3 initially filed on October 29, 2001.


2.   REPORTS ON FORM 8-K
--   -------------------

    The  Company  filed a  Current  Report  on Form 8-K  dated  October  2, 2001
reporting items related to the Securities Purchase Agreement entered into by the
Company.


<PAGE>



                                   SIGNATURES

    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.


Date:  November 14, 2001         By:  /s/ Thomas L. Blair
                                 -------------------------------
                                      Thomas L. Blair
                                      Chairman of The Board


Date:  November 14, 2001         By:  /s/ David T. Blair
                                 -------------------------------
                                      David T. Blair
                                      Chief Executive Officer
                                      and Director


Date:  November 14, 2001         By:  /s/ Michael P. Donovan
                                 -------------------------------
                                      Michael P. Donovan
                                      Chief Financial Officer and
                                      Chief Accounting Officer