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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

OR

[  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                  to                                 

Commission file number 0-13591

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

Pennsylvania
               
23-2214195
(State or other jurisdiction of
incorporation or organization)
               
(I.R.S. Employer
Identification No.)
 
                              
5215 N. O’Connor Blvd., 800 Central Tower, Irving, Texas 75039
(Address of principal executive offices) (Zip Code)

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).   Yes [  ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 3,766,633 shares of common stock, par value $.10, outstanding as of May 5, 2005.

Healthaxis Inc.

Table of Contents


 		         
 		      Page
PART I
               
Financial Information
                
Item 1.
               
Consolidated Financial Statements
           3    
 
               
Consolidated Balance Sheets
           3    
 
               
Consolidated Statements of Operations
           4    
 
               
Consolidated Statements of Cash Flows
           5    
 
               
Notes to Consolidated Financial Statements
           6    
Item 2.
               
Management’s Discussion and Analysis of Financial Condition and Results of Operations
           10    
Item 3.
               
Quantitative and Qualitative Disclosures About Market Risk
           16    
Item 4.
               
Controls and Procedures
           16    
 
PART II
               
Other Information
           18    
Items 1-5.
               
 
           18    
Item 6.
               
Exhibits
           18    
Signatures
               
 
           19    
Exhibit Index
               
 
           20    
 

2

PART I. FINANCIAL INFORMATION

Item 1.       Consolidated Financial Statements

Healthaxis Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands except share and per share data) (Unaudited)


 		          March 31,
2005
      December 31,
2004
Assets
                                                  
Current assets:
                                                  
Cash and cash equivalents
                  $ 2,569           $ 3,930   
Accounts receivable, net of allowance for doubtful accounts of $48 and $48, respectively
                     2,543              2,368   
Prepaid expenses
                     918               635    
Total current assets
                     6,030              6,933   
Property, equipment and software, less accumulated depreciation and amortization of $6,779 and $6,661, respectively
                     1,139              1,127   
Contract start-up costs, less accumulated amortization of $1,340 and $1,199, respectively
                     548               655    
Capitalized software, less accumulated amortization of $2,793 and $2,760, respectively
                     409               527    
Customer base, less accumulated amortization of $4,214 and $4,130, respectively
                     —               84    
Goodwill
                     11,276              11,276   
Notes receivable
                     23               23    
Other assets
                     54               56    
Total assets
                  $ 19,479           $ 20,681   
 
Liabilities and Stockholders’ Equity
                                              
Current liabilities:
                                                  
Accounts payable
                  $ 1,408           $ 1,238   
Accrued liabilities
                     488               674    
Deferred revenues
                     878               923    
Notes payable, current portion
                     646               637    
Current portion, post retirement and employment liabilities
                     128               135    
Total current liabilities
                     3,548              3,607   
                                         
Notes payable
                     1,874              2,041   
Post retirement and employment liabilities
                     796               794    
Other liabilities
                     1,397              1,417   
Total liabilities
                     7,615              7,859   
                                         
Commitments and contingencies
                                                  
                                         
Stockholders’ Equity:
                                                  
Preferred stock, par value $1.00: authorized 100,000,000 shares:
                                                  
Series A Convertible, 2,851,658 and 3,100,000 shares issued and outstanding, respectively (no liquidation preference)
                     2,852              3,100   
Common stock, par value $.10: authorized 1,900,000,000 shares, issued and outstanding 3,766,633 and 3,518,291 shares, respectively
                     377               352    
Additional paid-in capital
                     444,444              444,221   
Accumulated deficit
                     (435,809 )             (434,851 )  
Total stockholders’ equity
                     11,864              12,822   
Total liabilities and stockholders’ equity
                  $ 19,479           $ 20,681   
 

See notes to unaudited consolidated financial statements.

3


Healthaxis Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except share and per share data) (Unaudited)


 		          Three Months Ended
     

 		          March 31,
2005
      March 31,
2004
Revenue
                  $ 4,126           $ 4,249   
Expenses:
                                                  
Cost of revenues
                     4,096              4,353   
Sales and marketing
                     213               293    
General and administrative
                     644               968    
Amortization of intangibles
                     84               276    
Total expenses
                     5,037              5,890   
Operating loss
                     (911 )             (1,641 )  
                                         
Interest and other income, net
                     8               27    
Interest expense
                     (55 )             (64 )  
                                         
Net loss
                     (958 )             (1,678 )  
                                         
Preferred stock dividends
                     —               (110 )  
                                         
Net loss attributable to common shareholders
                  $ (958 )          $ (1,788 )  
                                         
                                         
Net loss per share of common stock (basic and diluted)
                  $ (0.26 )          $ (0.65 )  
Weighted average common shares and equivalents used in computing loss per share
                                                  
Basic and diluted
                     3,697,649              2,767,830   
 

See notes to unaudited consolidated financial statements.

4


Healthaxis Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands) (Unaudited)


 		          Three Months Ended
     

 		          March 31,
2005
      March 31,
2004
Cash flows from operating activities
                                                  
Net loss
                  $ (958 )          $ (1,678 )  
Adjustments to reconcile net loss to net cash used in operating activities:
                                                  
Depreciation and amortization
                     465               697    
Bad debt reserve
                     —               4    
Stock option compensation
                     —               9    
Change in:
                                                  
Accounts receivable
                     (175 )             572    
Prepaid expenses and other current assets
                     (281 )             (98 )  
Accounts payable and accrued liabilities
                     (16 )             —    
Deferred revenues
                     (45 )             (45 )  
Other liabilities
                     (25 )             (38 )  
Net cash used in operating activities
                     (1,035 )             (577 )  
                                               
Cash flows from investing activities
                                              
Collection of notes receivable
                     —               34    
Investment in capitalized software and contract start-up costs
                     (34 )             (131 )  
Purchases of property, equipment and software
                     (134 )             (52 )  
Net cash used in investing activities
                     (168 )             (149 )  
                                               
Cash flows from financing activities
                                              
Payment of preferred stock dividends
                     —               (223 )  
Payments on note payable to UICI
                     (158 )             (146 )  
Exercise of stock options
                     —               2    
Net cash used in financing activities
                     (158 )             (367 )  
Decrease in cash and cash equivalents
                     (1,361 )             (1,093 )  
Cash and cash equivalents, beginning of period
                     3,930              7,887   
Cash and cash equivalents, end of period
                  $ 2,569           $ 6,794   
 

See notes to unaudited consolidated financial statements.

5


Healthaxis Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
March 31, 2005

Note A — Description of business and basis of presentation

Unaudited Financial Information

The unaudited consolidated financial statements have been prepared by Healthaxis Inc. and its subsidiaries (“Healthaxis” or the “Company”), pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments consisting of normal recurring entries, which, in the opinion of the Company, are necessary to present fairly the results for the interim periods. The interim financial statements do not include all disclosures provided in fiscal year end financial statements prepared in accordance with accounting principles generally accepted in the United States of America, although the Company believes that the accompanying disclosures are adequate to make the information presented not misleading. Results of operations for the three-month period ended March 31, 2005, are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

General

Healthaxis is a technology-enhanced provider of fully integrated solutions and services for health benefit administrators and health insurance claim processors. These solutions, which are comprised of software products and related business process services, are designed to assist health insurance payers, third party administrators (“TPA”) and preferred provider organizations (“PPO”) provide enhanced claims related services to members, employees, employers and providers at lower cost. These services are provided through the application of Healthaxis’ flexible technology on an Application Service Provider (“ASP”) basis. These technology solutions are complemented by Healthaxis’ web-based capabilities and Business Process Outsourcing (“BPO”) services, which are offered to the Company’s ASP clients and on a stand-alone basis. BPO solutions include the automated capture, imaging, storage and retrieval of electronic claims, attachments, and related correspondence, in addition to rules-based claims pre-adjudication and editing and automated PPO routing (via electronic data interchange or “EDI”) and repricing. Healthaxis uses its deep domain expertise in health insurance operations to surround the payment of a health insurance claim, to customize services to meet the specific needs of its customers and to produce value for those customers by tapping unrealized potential in the customers’ operations to achieve best results.

Earnings Per Share

Basic loss per share is computed only on the weighted average number of common shares outstanding during the respective periods. Diluted earnings per share is computed to show the dilutive effect, if any, of convertible preferred stock, stock options and warrants using the treasury stock method based on the average market price of the stock during the respective periods. The effect of including the convertible preferred stock, stock options and warrants, totaling 4,979,423 and 2,359,580 as of March 31, 2005 and 2004 respectively, into the computation of diluted earnings per share would be anti-dilutive. Accordingly, these items have not been included in the computation. Following is a summary of these securities:

6


Healthaxis Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements — (Continued)
March 31, 2005