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 June 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
August 8, 2001 was 29,216,566.



<PAGE>





                               HEALTHEXTRAS, INC.

                          SECOND QUARTER 2001 FORM 10-Q

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                          Page
                                                                          ----
<S>                                                                       <C>
PART I        FINANCIAL INFORMATION

  ITEM 1.     Financial Statements

   Balance Sheets as of December 31,2000 and June 30, 2001 (unaudited).........1

   Statements of Operations and Comprehensive Loss for the Three and Six
     Months Ended June 30, 2000 and 2001 (unaudited)...........................2

   Statements of Cash Flows for the Six Months Ended
     June 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.......................................6

   ITEM 3     Quantitative and Qualitative Disclosures About Market Risk.......9

PART II  OTHER INFORMATION

SIGNATURES
</TABLE>

<PAGE>

PART I.  FINANCIAL INFORMATION
ITEM I.  FINANCIAL STATEMENTS

                               HEALTHEXTRAS, INC.
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                         December 31,     June 30
                                                            2000           2001
                                                       --------------  -------------
                                                                        (unaudited)
                                                       --------------  -------------
<S>                                                    <C>             <C>
ASSETS
Current assets:
  Cash and cash equivalents                            $ 28,921,312    $ 23,450,746
  Accounts receivable, net                                3,799,270       6,436,833
  Deferred charges:
    Direct                                                3,050,603       2,720,224
    Marketing and promotion                                 508,447       1,001,500
  Other current assets                                      731,061         590,128
                                                       ------------    -------------
      Total current assets                               37,010,693      34,199,431
Fixed assets, net                                         4,588,153       4,433,632
Goodwill, net                                             9,120,104       8,812,685
Other assets                                              1,325,156       1,460,972
                                                       ------------    -------------
      Total assets                                     $ 52,044,106    $ 48,906,720
                                                       ============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued expenses                $  7,555,031    $  7,459,841
  Purchase consideration due for IPM                        956,075              --
  Other current liabilities                                  22,876          40,250
  Deferred revenue                                        7,121,349       6,329,216
                                                       ------------    -------------
      Total current liabilities                          15,655,331      13,829,307
                                                       ------------    -------------
  Long-term liabilities                                     150,211              --
                                                       ------------    -------------
      Total liabilities                                  15,805,542      13,829,307
                                                       ------------    -------------

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 29,201,566 shares
    issued and outstanding at December 31, 2000
    and June 30, 2001, respectively                         289,026         292,016
  Additional paid-in capital                             54,149,068      59,642,349
  Retained earnings (deficit)                           (17,946,192)    (24,662,060)
  Deferred compensation                                    (253,338)       (194,892)
                                                       ------------    -------------
      Total stockholders' equity                         36,238,564      35,077,413
                                                       ------------    -------------
      Total liabilities and stockholders' equity       $ 52,044,106    $ 48,906,720
                                                       ============    =============
</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 six months ended
                                                                June 30,                              June 30,
                                                      ----------------------------      -----------------------------
                                                            2000           2001               2000           2001
                                                      -------------   ------------      ------------    -------------
<S>                                                   <C>             <C>               <C>             <C>
Revenue                                               $  8,097,987    $ 25,846,210      $ 13,351,231    $ 48,942,839
                                                      -------------   ------------      ------------    -------------
Direct expenses                                          4,305,600      20,703,461         6,985,942      37,455,396
Product development and marketing                        7,284,715       6,654,455        16,114,024      13,462,586
General and administrative                               1,748,001       2,648,354         3,368,998       5,464,449
                                                      -------------   ------------      ------------    -------------
      Total operating expenses                          13,338,316      30,006,270        26,468,964      56,382,431
                                                      -------------   ------------      ------------    -------------

      Operating loss                                    (5,240,329)     (4,160,060)      (13,117,733)     (7,439,592)

Interest income                                            525,569         336,121         1,206,326         724,028
Other expense                                              (25,327)             --           525,770            (305)
                                                      -------------   ------------      ------------    -------------

      Net loss                                          (4,740,087)     (3,823,939)      (11,385,637)     (6,715,869)

Reclassification adjustment of realized gains
  included in net loss                                          --              --          (132,669)             --
                                                      -------------   ------------      ------------    -------------
      Comprehensive loss                              $ (4,740,087)   $ (3,823,939)     $(11,518,306)   $ (6,715,869)
                                                      ============    ============      ============    ============


Basic and diluted net loss per share                  $      (0.17)   $      (0.13)     $      (0.41)   $      (0.23)
Weighted average shares of common stock outstanding
  (in thousands)                                            27,703          29,182            27,669          29,150

</TABLE>

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


<PAGE>

                               HEALTHEXTRAS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    (Unaudited)

<TABLE>
<CAPTION>

                                                           For the six months ended
                                                                    June 30,
                                                      -----------------------------
                                                           2000            2001
                                                      ------------    ------------

<S>                                                   <C>
Cash flows from operating activities:
  Net loss                                            $(11,385,637)   $ (6,715,869)
  Depreciation expense                                     123,776         761,634
  Gain on sale of marketable securities                   (551,735)             --
  Non-cash compensation expense and warrant charges         58,447       5,175,067
  Amortization of goodwill                                    --           307,419
  Changes in assets and liabilities:
    Accounts receivable                                     (3,113)     (2,637,563)
    Deferred charges                                     2,210,787        (162,674)
    Prepaid expenses and other assets                      (81,433)          5,117
    Accounts payable and accrued expenses                2,278,434        (228,027)
    Deferred revenue                                     1,900,699        (792,133)
                                                      ------------    ------------
      Net cash used in operating activities             (5,449,775)     (4,287,029)
                                                      ------------    ------------

Cash flows from investing activities:
  Capital expenditures                                    (539,596)       (607,113)
  Payment for purchase of IPM securities                        --        (608,225)
  Sale of marketable securities                          1,084,050              --
  Other                                                   (221,552)             --
                                                      ------------    ------------
      Net cash provided by investing activities            322,902      (1,215,337)
                                                      ------------    ------------

Cash flows from financing activities:
  Proceeds from new common shares issued                        --         121,800
  Purchase of treasury stock                                    --         (90,000)
                                                      ------------    ------------
      Net cash provided by financing activities               --            31,800
                                                      ------------    ------------
Net decrease in cash and cash equivalents               (5,126,873)     (5,470,566)
Cash and cash equivalents at the beginning
  of period                                             46,971,106      28,921,312

                                                     -------------     -------------
Cash and cash equivalents at the end of period        $ 41,844,233     $ 23,450,746
                                                     =============     ============
</TABLE>

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


<PAGE>

                               HEALTHEXTRAS, INC.

                          NOTES OF 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 six months ended June 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 six months ended June 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.

     On December 17, 1999, in connection  with the closing of the initial public
offering of 5,500,000  shares of the Company's common stock at a price of $11.00
per share, HealthExtras,  LLC was merged into the Company with the Company being
the surviving entity (the "Reorganization") and the members of HealthExtras, LLC
received  an  aggregate  22,100,000  shares  of the  Company's  common  stock in
exchange for their member  interests.  The net proceeds  received by the Company
from the initial public offering (net of  underwriting  commissions and expenses
of $5.6 million) were approximately $54.9 million.


2.   NET LOSS PER SHARE
--   ------------------

     Basic net loss per share is based on the weighted  average number of shares
outstanding  during  the  period.  Diluted  net loss  per  share is based on the
weighted  average number of shares and dilutive common stock  equivalent  shares
outstanding  during the period.  Outstanding stock options to purchase 1,307,000
shares of common  stock were  excluded  from the net loss per share  calculation
because they were antidilutive.

     During the three and six month  period  ended June 30,  2001,  the  Company
recorded a non-cash expense of $3,791,000 and $5,117,000  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
Warrants were excluded from the net loss per share calculation because they were
antidilutive.

                                       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 six months ended June 30, 2001.

For the three months ended June 30, 2001:
-----------------------------------------

<TABLE>
                                     Supplemental Health         Pharmacy Benefit
                                     -------------------         ----------------
                                          and Disability      Management Services                Total
                                          --------------      -------------------                -----
<S>                                          <C>                       <C>                 <C>
Revenue                                      $18,187,533               $7,658,677          $25,846,210
Operating expenses                            22,289,155                7,717,115           30,006,270
Net loss                                     (3,780,689)                 (43,250)          (3,823,939)
Total assets                                  44,122,973                4,783,747           48,906,720
</TABLE>

For the six months ended June 30, 2001:
---------------------------------------
<TABLE>

                                     Supplemental Health        Pharmacy Benefit
                                     -------------------        ----------------
                                          and Disability      Management Services                Total
                                          --------------      -------------------                -----
<S>                                          <C>                      <C>                  <C>
Revenue                                      $33,622,503              $15,320,336          $48,942,839
Operating expenses                            40,900,192               15,482,238           56,382,431
Net loss                                     (6,587,654)                (128,215)          (6,715,869)
Total assets                                  44,122,973                4,783,747           48,906,720
</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").  The Company  expects to record  $615,000 in goodwill
amortization during the year ended December 31, 2001 related to the acquisition
of IPM.


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.

                                       5
<PAGE>

6.   SUBSEQUENT EVENTS
--   -----------------

     On June 29,  2001,  Thomas L. Blair,  Chairman of the Board of the Company,
entered into a  transaction  with BCE  Emergis,  Inc.  and its  subsidiary,  BCE
Emergis   Corporation,   formerly  United  Payors  &  United   Providers,   Inc.
(collectively  "BCE"),  whereby Mr. Blair paid an aggregate of $11.3  million to
BCE in return for i) revision of the option  until July 31, 2004  granted by Mr.
Blair to BCE to purchase  from him,  for $0.92 per share,  a total of  4,330,000
shares of Company  common stock  pursuant to which Mr. Blair (x)  reacquired the
option  rights  on  1,100,000  of the  shares  and (y)  received  the  right  to
reacquire,  prior to June 30, 2004, the option rights on the remaining 3,230,000
of the shares for $5.22 per share; and (ii) cancellation of the inactive royalty
agreement between the Company and BCE.

     On July 22, 2001, the Company issued warrants to purchase 750,000 shares of
its common  stock to J.C.  Penney Life  Insurance  Co. for $5.21 per share.  The
issuance of these  warrants was pursuant to the  performance  provision  for the
year ended June 30, 2001 under the marketing  arrangement entered into with J.C.
Penney Life Insurance Co. in 2000.

     On  August  13,  2001,  the  Board of  Directors,  in  anticipation  of the
contemplated  exercise of the J.C.  Penney  warrants,  approved  the purchase of
750,000 shares of the Company's  common stock for $5.22 per share,  an aggregate
of $3.9 million,  pursuant to Mr. Blair's offer to the Company to participate in
his transaction with BCE described above.


                                       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.  Our
objective is to affect a growing portion of our program  distributions  over the
Internet.

     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 June 30, 2001, more than 640,000 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.  The  primary
determinant of HealthExtras'  revenue recognition is monthly program enrollment.
In general,  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 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 June 30, 2001,  initial revenue was
deferred for approximately 96,000 program members. 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

                                       7
<PAGE>

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
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 in advance,  and there were
insufficient  members to utilize the  coverage,  the value  would  expire and be
expensed by HealthExtras without any related revenue. HealthExtras believes that
current  enrollment  trends  will allow the balance at June 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 JUNE 30, 2001 TO THREE MONTHS ENDED JUNE 30, 2000

     HealthExtras  incurred  an  operating  loss of $4.2  million  for the three
months  ended June 30, 2001,  compared to an operating  loss of $5.2 million for
the same period in 2000.  Revenue of $25.8 million for the period ended June 30,
2001  consisted of program  member  payments  earned during the period and sales
revenue generated by HealthExtrasRx PBM services.  Cash collections from program
subscriptions  for the three months ended June 30, 2001,  totaled $24.5 million.
Revenue and cash collections for the three months ended June 30, 2000, were $8.1
million and $8.2 million, respectively.

     Operating  expenses for the three months ended June 30, 2001 totaled  $30.0
million  compared to $13.3 million for the same period in 2000.  Direct expenses
for the three  months  ended June 30, 2001 were $20.7  million,  or 69% 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 $3.8 million in non-cash
charges relating to Warrants issued to a marketing partner.  Direct expenses for
the three  months  ended June 30, 2000 were $4.3  million,  representing  32% of
total operating expenses.  HealthExtras incurred  approximately $6.6 million, or
22% of total operating expenses,  in product development and marketing costs for
the three months ended June 30, 2001. These costs included $548,000 for creative
development and product endorsements, $6.0 million in direct marketing expenses,
and  $136,000  in market  research  and  ongoing  product  development.  Product
development  and  marketing  costs for the three months ended June 30, 2000 were
approximately  $7.3  million,  or 55% of  total  operating  expenses,  including
$603,000 in creative  costs and product  endorsements,  $6.14  million in direct
marketing  expenses,  and  approximately  $71,000 in market research and product
development. General and administrative expenses for the three months ended June
30, 2001 were $2.6 million,  or 9% of total operating  expenses,  including $1.4
million in compensation  and benefits,  $234,000 in facility costs,  $285,000 in
professional fees, $158,000 in travel expenses, and $544,000 in depreciation and
amortization.  General and  administrative  expenses for the same period in 2000
were approximately $1.7 million, or 13% of total operating  expenses,  including
$1.1 in compensation and benefits, $116,000 in other personnel costs, $74,000 in
professional  fees,  and $175,000 in facility  costs.  All increases in expenses
were generally  attributable to higher levels of operating activities and growth
in personnel.

     Interest  income of  $336,000  for the three  months  ended  June 30,  2001
reflects  primarily the  investment of the Company's  available  cash  balances.
Interest income for the three months ending June 30, 2000 totaled $526,000.

                                       8
<PAGE>


SIX MONTHS ENDED JUNE 30, 2001 TO SIX MONTHS ENDED JUNE 30, 2000

     HealthExtras  incurred an operating loss of $7.4 million for the six months
ended June 30, 2001, compared to an operating loss of $13.1 million for the same
period in 2000.  Revenue of $48.9  million  for the period  ended June 30,  2001
consisted of program member  payments earned during the period and sales revenue
generated  by  HealthExtrasRx  PBM  services.   Cash  collections  from  program
subscriptions  for the six months ended June 30, 2001,  totaled  $45.5  million.
Revenue and cash  collections for the six months ended June 30, 2000, were $13.4
million and $15.3 million, respectively.

     Operating  expenses for the six months  ended June 30, 2001  totaled  $56.4
million  compared to $26.5 million for the same period in 2000.  Direct expenses
for the six months  ended  June 30,  2001 were  $37.5  million,  or 66% 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 $5.1 million in non-cash
charges relating to Warrants issued to a marketing partner.  Direct expenses for
the six months ended June 30, 2000 were $7.0 million,  representing 26% of total
operating expenses. HealthExtras incurred approximately $13.5 million, or 24% of
total operating expenses, in product development and marketing costs for the six
months  ended June 30,  2001.  These costs  included  $1.7  million for creative
development  and  product  endorsements,   $11.0  million  in  direct  marketing
expenses,  and  $736,000 in market  research  and ongoing  product  development.
Product  development  and marketing costs for the six months ended June 30, 2000
were approximately $16.1 million, or 61% of total operating expenses,  including
$1.5 million in creative costs and product endorsements, $13.1 million in direct
marketing  expenses,  and approximately  $265,000 in market research and product
development.  General and administrative  expenses for the six months ended June
30, 2001 were $5.5 million, or 10% of total operating  expenses,  including $2.7
million in compensation  and benefits,  $470,000 in facility costs,  $580,000 in
professional fees, $327,000 in travel expenses, and $1.1 million in depreciation
and  amortization.  General and  administrative  expenses for the same period in
2000  were  approximately  $3.4  million,  or 13% of total  operating  expenses,
including $1.9 million in compensation and benefits, $251,000 in other personnel
costs, $127,000 in telephone and software expenses, and $132,000 in professional
fees. All increases in expenses were generally  attributable to higher levels of
operating activities and growth in personnel.

     Interest income of $724,000 for the six months ended June 30, 2001 reflects
primarily the  investment of the Company's  available  cash  balances.  Interest
income for the six months ending June 30, 2000 totaled $1.2 million.


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

     In December  1999, we completed the sale to the public of 5,500,000  shares
of the  Company's  common  stock  and  received  proceeds  (net of  underwriting
commissions and expenses of $5.6 million) of approximately  $54.9 million. As of
June 30, 2001, we had $23.5 million in cash and cash equivalents,  $20.4 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.

                                       9
<PAGE>

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

     On June 8, 2001,  the Company  issued  30,000  shares of common  stock to a
certain  member of  management  under the terms of the 1999 Stock Option Plan in
exchange for $121,800 in cash.

     On April 17, 2001, the Company  purchased 15,000 shares of common stock in
exchange for $90,000 in cash.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES (NOT APPLICABLE)
-------  ------------------------------------------------


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

     The annual meeting of the  stockholders for the company was held on June 5,
2001. The following matters were submitted to a vote of the stockholders:

     1.  The following  individuals  were elected to the Board of Directors for
         a three-year term with the indicated votes:



<TABLE>
<CAPTION>
                                           For          Against     Abstain
                                        ----------      -------     -------
<S>                                     <C>                <C>      <c>
         William E. Brock  .........    28,186,921         7,850     None
         Edward S. Civera  .........    28,186,921         7,850     None
         Karen E. Shaff    .........    28,029,975       164,696     None
</TABLE>


     2.  The  adoption  of the  HealthExtras,  Inc.  2000 Stock  Option  Plan
         was approved by a count of 27,921,702 affirmative votes, 227,099
         negative votes, and 45,870 abstentions.

     3.  The adoption of the  HealthExtras,  Inc.  2000  Directors'  Stock
         Option Program was approved by a count of 28,063,403 affirmative votes,
         84,398 negative votes, and 46,870 abstentions.

4.       The appointment of PricewaterhouseCoopers LLP as independent auditors
         of the company was ratified by a count of 28,060,666 affirmative votes,
         131,550 negative votes, and 2,455 abstentions.

There were no broker non-votes reported with respect to any of the matters
subject to shareholder vote.

ITEM 5.  OTHER INFORMATION  (NONE)
-------  -----------------  ------

                                       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)
     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)

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

(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.

2.   Reports on Form 8-K

         None

                                       12
<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:  August 14, 2001      By:  /s/ Thomas L. Blair
                                 -------------------------------
                                 Thomas L. Blair
                                 Chairman of The Board


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


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