Healthextras Inc - Quarterly Report (10-Q)

Table of Contents

 

 

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, 2008

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)

 

 

 

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

800 King Farm Boulevard, Rockville, Maryland 20850

(Address of principal executive offices, zip code)

[phone]

(Registrant’s phone number, including area code)

 

 

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 by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act).

 

Large accelerated filer		x		Accelerated filer		¨
Non-accelerated filer		¨   (Do not check if a smaller reporting company)		Smaller reporting company		¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨   Yes    No    x

As of July 31, 2008 there were 43,223,841 shares outstanding of the Registrant’s $0.01 par value common stock.

 

 

 

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HEALTHEXTRAS, INC.

and Subsidiaries

Second Quarter 2008 Form 10-Q

TABLE OF CONTENTS

 

				Page
PART I		FINANCIAL INFORMATION
Item 1.		Financial Statements (Unaudited)
		Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007		1
		Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2008 and 2007		2
		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007		3
		Notes to Consolidated Financial Statements		4
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		15
Item 4.		Controls and Procedures		15
PART II		OTHER INFORMATION
Item 1.		Legal Proceedings		16
Item 1A.		Risk Factors		16
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		16
Item 3.		Defaults Upon Senior Securities		16
Item 4.		Submission of Matters to a Vote of Security Holders		16
Item 5.		Other Information		17
Item 6.		Exhibits		17
SIGNATURES

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

HEALTHEXTRAS, INC.

and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

 

		June 30, 2008				December 31, 2007
ASSETS
Current assets:
Cash and cash equivalents		$	48,942			$	80,973
Marketable securities			—				43,600
Accounts receivable, net of allowances of $944 and $1,043 at June 30, 2008 and December 31, 2007, respectively			228,268				222,711
Income taxes receivable			211				2,960
Deferred income taxes			13				200
Other current assets			9,215				5,382
Total current assets			286,649				355,826
Property and equipment, net of accumulated depreciation of $11,715 and $9,538 at June 30, 2008 and December 31, 2007, respectively			16,492				12,979
Intangible assets, net			45,711				32,336
Goodwill			233,396				149,413
Investments			13,550				—
Other assets			439				876
Total assets		$	596,237			$	551,430
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	244,210			$	229,715
Accrued expenses and other current liabilities			9,158				8,715
Total current liabilities			253,368				238,430
Deferred rent expense			1,822				1,840
Deferred income taxes			10,880				10,880
Total liabilities			266,070				251,150
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 5,000 shares authorized, none issued			—				—
Common stock, $0.01 par value, 100,000 shares authorized, 43,184 and 42,639 shares issued at June 30, 2008 and December 31, 2007, respectively			432				426
Additional paid-in capital			199,905				192,941
Treasury stock, at cost, 114 shares and 88 shares at June 30, 2008 and December 31, 2007, respectively			(3,066	)			(2,366	)
Retained earnings			132,896				109,279
Total stockholders’ equity			330,167				300,280
Total liabilities and stockholders’ equity		$	596,237			$	551,430

The accompanying notes are an integral part of these consolidated financial statements.

 

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HEALTHEXTRAS, INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

		For the three months ended June 30,								For the six months ended June 30,
		2008				2007				2008				2007
Revenue (excludes member co-payments of $173,978, $143,362, $364,590 and $299,431 for the three and six months ended June 30, 2008 and 2007, respectively)		$	614,302			$	421,004			$	1,202,946			$	827,376
Direct expenses			580,176				394,487				1,137,627				773,301
Selling, general and administrative expenses			15,860				14,579				30,289				27,391
Total operating expenses			596,036				409,066				1,167,916				800,692
Operating income			18,266				11,938				35,030				26,684
Interest income			1,175				1,457				3,072				2,788
Interest expense			(36	)			(53	)			(72	)			(89	)
Other income			—				—				1				1
Income before minority interest and income taxes			19,405				13,342				38,031				29,384
Minority interest			—				—				—				31
Income before income taxes			19,405				13,342				38,031				29,353
Income tax expense			7,392				5,143				14,414				11,445
Net income		$	12,013			$	8,199			$	23,617			$	17,908
Net income per share, basic		$	0.28			$	0.20			$	0.56			$	0.43
Net income per share, diluted		$	0.28			$	0.19			$	0.54			$	0.42
Weighted average shares of common stock outstanding, basic			42,402				41,433				42,310				41,194
Weighted average shares of common stock outstanding, diluted			43,537				43,027				43,461				42,838

The accompanying notes are an integral part of these consolidated financial statements.

 

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HEALTHEXTRAS, INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

		For the six months ended June 30,
		2008				2007
Cash flows from operating activities:
Net income		$	23,617			$	17,908
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense			2,177				1,695
Amortization of intangibles and other assets			2,243				2,084
Allowances on accounts receivable			(313	)			1,379
Deferred income taxes			187				38
Equity based compensation charges			2,699				2,787
Minority interest			—				31
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable			7,104				(16,488	)
Income taxes receivable			2,749				(4,102	)
Other assets			(3,043	)			(582	)
Accounts payable, accrued expenses, and other liabilities			2,522				656
Net cash provided by operating activities			39,942				5,406
Cash flows from investing activities:
Purchases of property and equipment			(3,812	)			(2,071	)
Business acquisitions and related payments, net of cash acquired			(101,784	)			(34,037	)
Acquisition of remaining minority interest			—				(1,279	)
Payment received on note receivable			—				1,000
Purchases of marketable securities			(6,825	)			(45,950	)
Maturities of marketable securities			36,875				43,700
Net cash used in investing activities			(75,546	)			(38,637	)
Cash flows from financing activities:
Proceeds from exercise of stock options			1,748				4,996
Excess tax benefits due to option exercises and restricted stock vesting			2,319				5,380
Proceeds from shares issued under employee stock purchase plan			205				238
Purchases of treasury stock			(699	)			(380	)
Net cash provided by financing activities			3,573				10,234
Net decrease in cash and cash equivalents			(32,031	)			(22,997	)
Cash and cash equivalents at the beginning of period			80,973				49,501
Cash and cash equivalents at the end of period		$	48,942			$	26,504
Supplemental disclosure:
Cash paid for interest		$	46			$	45
Cash paid for taxes		$	9,165			$	10,130

The accompanying notes are an integral part of these consolidated financial statements.

 

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HEALTHEXTRAS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared by HealthExtras, Inc. (the “Company”, “we” or “us”), a Delaware corporation, in accordance with accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X. These consolidated financial statements are unaudited and, in the opinion of management, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair statement of the consolidated balance sheets, statements of operations and statements of cash flows for the periods presented. Operating results for the three and six months ended June 30, 2008, are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted in accordance with the rules and regulations of the SEC. The balance sheet at December 31, 2007 has been derived from the audited financial statements at that date, but does not include all of the disclosures required by accounting principles generally accepted in the United States. Certain reclassifications were made to the prior year amounts to conform to current year presentation. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the SEC on February 29, 2008.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS No. 141 (R)”). SFAS No. 141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any controlling interest in the acquiree at the acquisition date fair value. SFAS No. 141(R) will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, pre-acquisition contingencies and transaction costs. In addition, any changes in an acquired entity’s deferred tax assets and uncertain tax positions after the measurement period will impact income tax expense. SFAS No. 141(R) also includes a substantial number of new disclosure requirements. SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008 with early application prohibited. We will adopt SFAS No. 141(R) beginning in the first quarter of fiscal 2009 and will change our accounting treatment for business combinations on a prospective basis.

3. FAIR VALUE MEASUREMENTS

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. In February 2008, the FASB approved a Financial Staff Position that deferred the effective date of SFAS No. 157 by one year for certain nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis.

As of January 1, 2008, we adopted SFAS No. 157, with the exception of the application of the statement to nonrecurring nonfinancial assets and nonfinancial liabilities. Nonrecurring nonfinancial assets and liabilities for which we have not applied the provisions of SFAS No. 157 include those measured at fair value in goodwill impairment testing, indefinite lived intangible assets measured at fair value for impairment testing, and those initially measured at fair value in a business combination. Our limited adoption of SFAS No. 157, as amended, did not have a material impact on our financial condition, results of operations or cash flows. Our evaluation of this standard is ongoing, and we have not yet determined the impact of the deferred portion of this standard on our financial condition, results of operations or cash flows.

 

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The following table details the fair value measurements within the fair value hierarchy of our financial assets (in thousands):

 

					Fair Value Measurements at Reporting Date Using
		June 30, 2008			Quoted Prices in Active Markets Using Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds		$	32,867		$	32,867		—		$	—
Available for sale investments			13,550			—		—			13,550
Total assets measured at fair value		$	46,417		$	32,867		—		$	13,550

Subsequent to the end of the first quarter, we have reclassified our investments related to auction rate securities (ARS) to the Level 3 category of the fair value hierarchy. Previously, such investments, which are classified as non-current, were included in the Level 2 category. We reclassified our ARS to the Level 3 category as there are unobservable inputs associated with these items. Our ARS are floating rate securities with longer-term maturities which are marketed by financial institutions with auction reset dates from 7 to 35 day intervals to provide short-term liquidity. Beginning in February 2008, auctions for certain of these securities began to fail, which in some cases has resulted in higher interest rates being earned on some of these securities. We will not be able to access these funds until future auctions for these ARS are successful, or until we sell the securities in a secondary market which currently is not fully active, although there have been instances of redemptions at par by issuers and sales at successful auctions. As such, these investments currently lack short-term liquidity and therefore continue to be classified as non-current on our June 30, 2008 balance sheet.

Although we have uncertainty with regard to the short-term liquidity of these securities, we continue to believe that the par value represents the fair value of these investments. This belief is based on the consideration that these securities have redemption features which call for redemption at 100% of par value; the underlying securities carry AAA/Aaa credit ratings; and the ARS are either federally guaranteed or required to maintain an asset coverage amount of at least 200% in accordance with the Investment Company Act of 1940. We continue to monitor the market for auction rate securities and consider the impact, if any, on the fair market value of our investments.

Based on our cash and cash equivalent balance of $48.9 million, our available $50.0 million revolving credit facility, and our expected continued increases in operating cash flows, we do not anticipate a lack of liquidity associated with our ARS to adversely affect our ability to conduct business or have a material impact on our liquidity, financial condition, results of operations or cash flows. Moreover, we believe we have the ability to hold the securities until liquidity returns to the market or other secondary markets develop.

The following table reflects the activity for our major classes of assets measured at fair value using Level 3 inputs (in thousands):

 

		Available for sale investments
Balance, January 1, 2008		$	—
Transfers from Level 2			14,375
Redemptions and sales			(825	)
Balance, June 30, 2008		$	13,550

On January 1, 2008, we adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). We have not elected to use fair value measurements on any assets or liabilities under SFAS 159.

4. BUSINESS COMBINATIONS

Acquisition of HospiScript

On May 16, 2008, the Company acquired HospiScript Services, LLC and Concept Pharmaceuticals, LLC, a related party to HospiScript Services through common ownership (collectively, “HospiScript”). HospiScript is the largest independently-owned provider of pharmacy medication therapy management services to the hospice industry with a nationwide presence of clients in 46 states. This acquisition will provide HealthExtras with a market-leading position in the growing hospice sector.

 

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Total consideration for the acquisition of HospiScript consisted of cash payments of $102.7 million and $0.3 million in subsequent related transaction costs. Additionally, the acquisition provides for possible contingent consideration payments through 2010 of up to $8.1 million subject to specified operating performance standards. Contingent consideration earned, if any, would be accounted for as additional goodwill. Goodwill related to this acquisition is expected to be deductible for tax purposes.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. The acquisition was accounted for as a purchase, and accordingly, the results of HospiScript operations are included in our consolidated financial statements since the date of acquisition. The allocation of the purchase price to the net assets acquired will be finalized upon management’s completion of its valuation. Consequently, the allocation of purchase price to intangible assets is subject to adjustment. Amounts are in thousands.

 

Description		At May 16, 2008
Current assets, including cash of $1,232		$	13,986
Other assets			1,878
Intangible assets (primarily customer contracts)			15,567
Goodwill			83,655
Total assets acquired			115,086
Liabilities assumed			(12,398	)
Net assets acquired		$	102,688

The following table sets forth certain unaudited pro forma financial data assuming the acquisition of HospiScript had been completed as of the beginning of the periods presented, after giving effect to purchase accounting adjustments. The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transaction been effected on the assumed date, nor is it necessarily an indication of trends in future results. Amounts are in thousands, except for per share data.

 

		For the three months ended June 30,						For the six months ended June 30,
		2008			2007			2008			2007
Revenue		$	616,411		$	424,044		$	1,209,427		$	832,583
Net income			12,502			9,274			25,214			19,145
Net income per share, basic		$	0.29		$	0.22		$	0.60		$	0.46
Net income per share, diluted		$	0.29		$	0.22		$	0.58		$	0.45
Weighted average per share, basic			42,402			41,433			42,310			41,194
Weighted average per share, diluted			43,537			43,027			43,461			42,838

5. GOODWILL AND INTANGIBLE ASSETS

The changes in goodwill for the six months ended June 30, 2008 are as follows (in thousands):

 

		2008
Balance as of January 1, 2008		$	149,413
Goodwill acquired in acquisition			83,655
Additional transaction costs related to acquisition			328
Balance as of June 30, 2008		$	233,396

Goodwill represents the excess of the purchase price over the fair value of the net assets of acquired businesses. We performed our annual goodwill impairment testing at December 31, 2007 and concluded that no impairment of goodwill existed.

 

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The following table sets forth the components of intangible assets (in thousands):

 

		June 30, 2008				December 31, 2007				Amortization period
Customer contracts		$	51,709			$	36,296			11 – 20 years
Non-compete agreements			411				374			2 – 3 years
Other PBM contracts			5,721				7,591			5 months – 20 years
Total intangible assets			57,841				44,261
Accumulated amortization			(12,130	)			(11,925	)
		$	45,711			$	32,336

Customer contracts represent the estimated fair value of customer contracts held at the dates of acquisition. This estimated fair value and the weighted average useful-lives are based on income-method valuation calculations. Other PBM contracts allow us to provide PBM services, which are amortized over the future cash flow, based on management’s best estimate. During the first quarter of 2008, we wrote-off approximately $2.0 million of fully amortized intangible assets. There was no income statement impact for this adjustment.

The estimated aggregate amortization expense of existing intangible assets for the years ending December 31, 2008, 2009, 2010, 2011 and 2012, is $4.9 million, $4.7 million, $4.2 million, $3.8 million and $3.8 million, respectively.

6. CREDIT FACILITY

In September 2006, we entered into a new $50.0 million revolving credit facility with our primary commercial bank. The facility is for a three-year term expiring September 2009 and bears interest at LIBOR plus a variable margin based on our ratio of funded debt to earnings before interest, taxes, depreciation and amortization expense (“EBITDA”), payable in arrears on the first day of each month. There was no outstanding balance at June 30, 2008 or at December 31, 2007 on the credit facility. The credit facility is collateralized by all of our assets. The facility contains affirmative and negative covenants including those related to indebtedness and EBITDA.

7. STOCKHOLDERS’ EQUITY

Stock Options

A summary of our stock option activity for the six months ended June 30, 2008 is as follows (in thousands, except for weighted average exercise price):

 

		Options			Weighted-Average Exercise Price
Outstanding at December 31, 2007		2,035			$	7.34
Granted		—				—
Exercised		(300	)			5.83
Forfeited or expired		(7	)			10.30
Outstanding at June 30, 2008		1,728				7.60
Exercisable at June 30, 2008		1,728			$	7.60

The aggregate intrinsic value of exercisable stock options at June 30, 2008 was approximately $39.0 million with a weighted average remaining life of 4.2 years. The total intrinsic value of stock options exercised during the six months ended June 30, 2008 was approximately $6.6 million.

 

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Restricted Stock Awards

A summary of our restricted share activity for the six months ended June 30, 2008 is as follows (in thousands, except for fair market value):

 

		Shares			Fair Market Value
Non-vested shares outstanding at December 31, 2007		463			$	25.83
Granted		236				28.75
Vested		(85	)			28.19
Forfeited or expired		—				—
Non-vested shares outstanding at June 30, 2008		614			$	26.63

As of June 30, 2008, the total remaining unrecognized compensation cost related to non-vested restricted shares was approximately $13.4 million with a weighted average period over which it is expected to be recognized of 2.9 years.

Treasury Stock

Recipients of restricted stock grants are provided the opportunity to sell a portion of those shares to the Company at the time the shares vest, in order to pay their withholding tax obligations. We account for these share purchases as treasury stock transactions using the cost method. Approximately 3,200 and 25,500 shares were purchased at a cost of approximately $0.1 million and $0.7 million for the three and six months ended June 30, 2008.

Employee Stock Purchase Plan

Effective January 1, 2007, the employee stock purchase plan (“ESPP”) was modified, allowing eligible employees to purchase shares of the Company’s common stock each quarter at 95% of the market value on the last day of the quarter. The ESPP, as modified, is not considered compensatory under the provisions of SFAS No. 123(R) and therefore no portion of the costs related to ESPP purchases is included in the Company’s stock-based compensation expense.

8. INCOME TAXES

The effective income tax rates were 38.1% and 38.5% during the three months ended June 30, 2008 and 2007, respectively, and 37.9% and 39.0% during the six months ended June 30, 2008 and 2007, respectively. These rates represent the combined federal and state income tax rates adjusted as necessary based on the particular jurisdictions where we operate. The effective tax rates in 2008 were lower than in the comparable periods in 2007 primarily due to a decrease in our overall state income tax rate as well as additional interest income earned on federally tax exempt investments.

9. NET INCOME PER SHARE

Basic net income per common share excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income per common share reflects the potential dilution that could occur (using the treasury stock method) if stock options, restricted stock awards and warrants to issue common stock were exercised.

The following represents a reconciliation of the number of shares used in the basic and diluted net income per share computations (amounts in thousands, except per share data):

 

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		Three months ended June 30,						Six months ended June 30,
		2008			2007			2008			2007
Net income available to common stockholders		$	12,013		$	8,199		$	23,617		$	17,908
Calculation of shares:
Weighted average common shares outstanding, basic			42,402			41,433			42,310			41,194
Dilutive effect of stock options, restricted stock awards and warrants			1,135			1,594			1,151			1,644
Weighted average common shares outstanding, diluted			43,537			43,027			43,461			42,838
Net income per common share, basic		$	0.28		$	0.20		$	0.56		$	0.43
Net income per common share, diluted		$	0.28		$	0.19		$	0.54		$	0.42

During all periods presented, all options and warrants were included in the computation of diluted net income per share because the exercise prices were less than the average market price of our common shares.

10. COMMITMENTS AND CONTINGENCIES

In the ordinary course of our business, we are sometimes required to provide financial guarantees related to certain customer contracts. These financial guarantees may include performance bonds, standby letters of credit or other performance guarantees. These financial guarantees represent obligations to make payments to customers if we fail to fulfill an obligation under a contractual arrangement with that customer. We have had no history of significant claims, nor are we aware of circumstances that would require us to perform under these arrangements. We believe that the resolution of any claim that might arise in the future, either individually or in the aggregate, would not have a material adverse effect on our financial condition, results of operations or cash flows.

11. SEGMENT REPORTING

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information , establishes standards for the way that public enterprises report information about operating segments in financial statements. We have determined that we operate in only one segment – the pharmacy benefits management, or PBM, segment. Accordingly, no segment disclosures have been included in the notes to the consolidated financial statements.

12. SUBSEQUENT EVENT

On August 5, 2008 the Company acquired Immediate Pharmaceutical Services, Inc. (“IPS”) from Discount Drug Mart, Inc. IPS operates a fully-integrated prescription mail service fulfillment center located outside of Cleveland, Ohio. The IPS acquisition provides us with a platform for building our mail service capability and will provide our clients with a mail service option which offers a greater level of financial transparency and higher level of service. Under the terms of the acquisition agreement, we paid a purchase price of $40 million in cash.

 

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

This Quarterly Report on Form 10-Q may contain certain forward-looking statements, including without limitation, statements concerning HealthExtras, Inc.’s operations, economic performance and financial condition. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The words “believe,” “expect,” “anticipate,” “will,” “could,” “would,” “should,” “may,” “plan,” “estimate,” “intend,” “predict,” “potential,” “continue,” and the negatives of these words and other similar expressions generally identify forward-looking statements. These forward-looking statements may include statements addressing our operations and our financial performance. Readers are cautioned not to place undue reliance on these forward-looking statements, which, among other things, speak only as of their dates. These forward-looking statements are based largely on HealthExtras, Inc.’s current expectations and are subject to a number of risks and uncertainties. Factors we have identified that may materially affect our results are discussed in our Annual Report on Form 10-K, including the documents incorporated by reference, for the year ended December 31, 2007, particularly under Item 1A, “Risk Factors”, and in our other filings with the Securities and Exchange Commission. In addition, other important factors to consider in evaluating such forward-looking statements include changes in external market factors, changes in HealthExtras, Inc.’s business or growth strategy or an inability to execute its strategy, including due to changes in its industry or the economy generally. In light of these risks and uncertainties, there can be no assurances that the results referred to in the forward-looking statements will, in fact, occur. 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. Readers are urged to carefully review and consider the various disclosures made in this report, in our Annual Report on Form 10-K and in our other filings with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business.

OVERVIEW

The Company

HealthExtras is a full-service pharmacy benefit management, or PBM, company. We operate primarily under the brand name Catalyst Rx. Our clients include self-insured employers, including state and local governments, managed care organizations, third-party administrators, referred to as TPAs, unions, and individuals who contract with us to administer the prescription drug component of their overall health benefit programs.

We provide our clients access to a contracted, non-exclusive national network of approximately 60,000 pharmacies. We provide our clients’ members with timely and accurate benefit adjudication, while controlling pharmacy spending trends through customized plan designs, clinical programs, physician orientation programs, and member education. We use an electronic point-of-sale system of eligibility verification and plan design information, and offer access to rebate arrangements for certain branded pharmaceuticals. When a member of one of our clients presents a prescription or health plan identification card to a retail pharmacist in our network, the system provides the pharmacist with access to online information regarding eligibility, patient history, health plan formulary listings, and contractual reimbursement rates. The member generally pays a co-payment to the retail pharmacy and the pharmacist fills the prescription. We electronically aggregate pharmacy benefit claims, which include prescription costs plus our claims processing fees for consolidated billing and payment. We receive payments from clients, make payments of amounts owed to the retail pharmacies pursuant to our negotiated rates, and retain the difference (except where we have entered into pass-through pricing arrangements with clients), including claims processing fees.

Pharmacy benefit claim payments from our clients are recorded as revenue, and prescription costs to be paid to pharmacies are recorded as direct expenses. Under our network contracts, we generally have an independent obligation to pay pharmacies for the drugs dispensed and, accordingly, have assumed that risk independent of our clients. When we administer pharmacy reimbursement contracts and do not assume a credit risk, we record only our administrative or processing fees as revenue. Rebates earned under arrangements with manufacturers are recorded as a reduction of direct expenses. The portion of manufacturer rebates due to clients is recorded as a reduction of revenue.

 

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Beginning with the first quarter of 2008, we no longer present supplemental benefits as a separate reportable operating segment because it no longer constitutes a reportable segment under SFAS No. 131, Segment Reporting . Consequently, the PBM segment is our only reportable operating segment.

For the three months ended June 30, 2008, our revenue increased by 46% to $614.3 million from $421.0 million for the same period in 2007. Total claims processed increased to 12.4 million for the three months ended June 30, 2008, from 9.6 million during the same period in 2007. For the six months ended June 30, 2008, our revenue increased by 45% to approximately $1.2 billion from $827.4 million for the same period in 2007. Total claims processed increased to 25.3 million for the six months ended June 30, 2008, from 19.3 million during the same period in 2007. Our increase in revenue in 2008 to date has been primarily due to our initiation of services with several new PBM clients. In particular, we commenced providing PBM services to the states of Maryland and Ohio effective July 1, 2007, and we began providing PBM services to Puerto Rico’s MCS Commercial business and MCS Medicare Part D business on December 1, 2007 and January 1, 2008, respectively. Together these contracts were responsible for over 2.2 million and 4.5 million claims during the three and six months ended June 30, 2008, respectively.

Member co-payments to pharmacies are not recorded as revenue or direct expenses. We incur no obligations for co-payments to pharmacies and have never made such payments. Under our pharmacy agreements, the pharmacy is solely obligated to collect the co-payments from the members. If we had included co-payments in reported revenue and direct expenses, it would have resulted in an increase in our reported revenue and direct expenses of $174.0 million and $143.4 million for the three months ended June 30, 2008 and 2007, respectively. Revenue and direct expenses for the six months ended June 30, 2008 and 2007 would have increased by $364.6 million and $299.4 million, respectively. Our operating and net income, consolidated balance sheets and statements of cash flows would not have been affected.

The following tables illustrate the effects on our reported revenue and direct expenses if we had included the actual member co-payments as indicated by our claims processing system (in millions):

 

		Three months ended June 30,						Six months ended June 30,
		2008			2007			2008			2007
Reported revenue		$	614.3		$	421.0		$	1,202.9		$	827.4
Member co-payments			174.0			143.4			364.6			299.4
Total		$	788.3		$	564.4		$	1,567.5		$	1,126.8
Reported direct expenses		$	580.2		$	394.5		$	1,137.6		$	773.3
Member co-payments			174.0			143.4			364.6			299.4
Total		$	754.2		$	537.9		$	1,502.2		$	1,002.7

RECENT DEVELOPMENTS

On August 5, 2008 the Company acquired Immediate Pharmaceutical Services, Inc. (“IPS”) from Discount Drug Mart, Inc. IPS operates a fully-integrated prescription mail service fulfillment center located outside of Cleveland, Ohio. The IPS acquisition provides us with a platform for building our mail service capability and will provide our clients with a mail service option which offers a greater level of financial transparency and higher level of service. Under the terms of the acquisition agreement, we paid a purchase price of $40 million in cash.

ACQUISITIONS

Acquisition of HospiScript

On May 16, 2008, the Company acquired HospiScript Services, LLC and Concept Pharmaceuticals, LLC, a related party to Hospiscript through common ownership (collectively, “HospiScript”). HospiScript is the largest independently-owned provider of pharmacy medication therapy management services to the hospice industry with a nationwide presence of clients in 46 states. This acquisition will provide HealthExtras with a market-leading position in the growing hospice sector.

Total consideration for the acquisition of HospiScript consisted of cash payments of $102.7 million and $0.3 million in subsequent related transaction costs. Additionally, the acquisition provides for possible contingent consideration payments through 2010 of up to $8.1 million subject to specified operating performance standards. Contingent consideration earned, if any, would be accounted for as additional goodwill. Goodwill related to this acquisition is expected to be deductible for tax purposes.

 

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The acquisition of HospiScript resulted in goodwill of $84.0 million and intangible assets of $15.6 million. The allocation of the purchase price to the net assets acquired will be finalized upon management’s completion of its valuation. Consequently, the allocation of purchase price to intangible assets is subject to adjustment.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007

Revenue. Revenue from operations for the three months ended June 30, 2008 and 2007 were $614.3 million and $421.0 million, respectively. Revenue increased over the comparable period in 2007 by $193.3 million, with $184.5 million from increased prescription volume, which includes significant new clients since the prior year quarter; $3.2 million from an increase in unit prices; and $5.6 million from the proportionate amount of prescription costs paid by the plan sponsors. Total claims processed increased to approximately 12.4 million for the three months ended June 30, 2008 from approximately 9.6 million for the same period in 2007. Contributors to the increase in revenue and prescription volume were primarily due to our contracts with the State of Maryland and Ohio, which commenced on July 1, 2007, and Puerto Rico’s MCS Commercial business and MCS Medicare Part D business, which commenced on December 1, 2007 and January 1, 2008, respectively.

Direct Expenses . Direct expenses for the three months ended June 30, 2008 and 2007 were $580.2 million and $394.5 million, respectively. Direct expenses increased by $185.7 million over the comparable period in 2007 primarily related to the $193.3 million increase in overall revenue. Direct expenses for the three months ended June 30, 2008 and 2007 represented 97.3% and 96.4% of total operating expenses for the respective periods.

Gross margins, calculated as revenue less direct expense, are generally predictable based on client contract terms and vendor/supplier contracts. Other factors that can result in changes in gross margins include generic substitution rates, changes in the utilization of preferred drugs with higher discounts and changes in the volume of prescription dispensing at lower cost network pharmacies. None of the foregoing factors have materially changed in 2008 in a manner that would meaningfully affect current results. Gross margins increased to $34.1 million for the three months ended June 30, 2008 from $26.5 million for the comparable period in 2007.

Gross margin as a percentage of revenue was 5.6% and 6.3% for the three months ended June 30, 2008 and 2007, respectively. In 2008, composite gross margin percentages were reduced by the addition of several large contracts, including the states of Maryland and Ohio and the Puerto Rico based health plans, which are more competitively priced due to their size. These decreases were partially offset by gross margin improvements resulting from an increased level of generic substitution and higher network discount rates.

Selling, General and Administrative. For the three months ended June 30, 2008, selling, general and administrative expenses increased by approximately $1.3 million over the same period in the prior year to $15.9 million or 2.7% of operating expenses. This increase was primarily associated with our growth and the associated personnel and vendor costs to serve and implement new clients as well as approximately $1.2 million of incremental selling, general and administrative costs related to the HospiScript acquisition.

Selling, general and administrative expenses of $15.9 million for the three months ended June 30, 2008, consisted of $8.4 million in compensation and benefits, which includes $1.5 million in non-cash compensation, $1.2 million in professional fees and technology services, $2.0 million in facility costs, $0.8 million in travel expenses, $0.7 million in insurance and other corporate expenses, $0.8 million in other, which includes $0.3 million in recruitment and temporary help, and $2.0 million in depreciation and amortization.

Selling, general and administrative expenses of $14.6 million for the three months ended June 30, 2007, consisted of $7.9 million in compensation and benefits, which includes $1.6 million in non-cash compensation, $1.6 million in professional fees and technology service costs, $1.2 million in facility costs, $0.7 million in travel expenses, $0.6 million in insurance and other corporate expenses and $1.1 million in other expenses, which includes $0.5 million in recruitment and temporary help, and $1.5 million in depreciation and amortization.

 

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Interest Income. Interest income decreased to $1.2 million for the three months ended June 30, 2008 from $1.5 million for the three months ended June 30, 2007. The decrease was primarily due to a decrease in average funds available for investment resulting from our business acquisition during the period.

Interest Expense. Interest expense for the three months ended June 30, 2008 remained relatively unchanged over the comparable period in 2007.

Income Tax Expense. The effective income tax rate of 38.1% during the three months ended June 30, 2008 and 38.5% during the comparable period in 2007 represent the combined federal and state income tax rates adjusted as necessary based on the particular jurisdictions where we operate. The effective tax rate in 2008 was lower than in the comparable period in 2007 primarily due to a decrease in our overall state income tax rate as well as additional interest income earned on federally tax exempt investments.

Net Income. Net income for three months ended June 30, 2008 increased by approximately $3.8 million over the same period in 2007 to $12.0 million. The increase in net income was primarily a result of increased gross margin dollars, reduced by an increase in selling, general and administrative expenses.

Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007

Revenue. Revenue from operations for the six months ended June 30, 2008 and 2007 were $1.2 billion and $827.4 million, respectively. Revenue increased over the comparable period in 2007 by $375.6 million, with $368.1 million from increased prescription volume, which includes significant new clients since the prior year quarter; $0.2 million from an increase in unit prices; and $7.3 million from the proportionate amount of prescription costs paid by the plan sponsors. Total claims processed increased to approximately 25.3 million for the six months ended June 30, 2008 from approximately 19.3 million for the same period in 2007. Contributors to the increase in revenue and prescription volume were primarily due to our contracts with the State of Maryland and Ohio, which commenced on July 1, 2007, and Puerto Rico’s MCS Commercial business and MCS Medicare Part D business, which commenced on December 1, 2007 and January 1, 2008, respectively.

Direct Expenses . Direct expenses for the six months ended June 30, 2008 and 2007 were $1.1 billion and $773.3 million, respectively. Direct expenses increased by $364.3 million over the comparable period in 2007 primarily related to the $375.6 million increase in overall revenue. Direct expenses for the six months ended June 30, 2008 and 2007 represented 97.4% and 96.6% of total operating expenses for the respective periods.

Gross margins, calculated as revenue less direct expense, are generally predictable based on client contract terms and vendor/supplier contracts. Other factors that can result in changes in gross margins include generic substitution rates, changes in the utilization of preferred drugs with higher discounts and changes in the volume of prescription dispensing at lower cost network pharmacies. None of the foregoing factors have materially changed in 2008 in a manner that would meaningfully affect current results. Gross margins increased to $65.3 million for the six months ended June 30, 2008 from $54.1 million for the comparable period in 2007.

Gross margin as a percentage of revenue was 5.4% and 6.5% for the six months ended June 30, 2008 and 2007, respectively. In 2008, composite gross margin percentages were reduced by the addition of several large contracts, including the states of Maryland and Ohio and the Puerto Rico based health plans, which are more competitively priced due to their size. These decreases were partially offset by gross margin improvements resulting from an increased level of generic substitution and higher network discount rates.

Selling, General and Administrative. For the six months ended June 30, 2008, selling, general and administrative expenses increased by approximately $2.9 million over the same period in the prior year to $30.3 million or 2.6% of operating expenses. This increase was primarily associated with our growth and the associated personnel and vendor costs to serve and implement new clients as well as approximately $1.2 million of incremental selling, general and administrative costs related to the HospiScript acquisition.

Selling, general and administrative expenses of $30.3 million for the six months ended June 30, 2008, consisted of $15.8 million in compensation and benefits, which includes $2.7 million in non-cash compensation, $2.4 million in professional fees and technology services, $3.7 million in facility costs, $1.6 million in travel expenses, $1.3 million in insurance and other corporate expenses, $1.8 million in other, which includes $0.7 million in recruitment and temporary help, and $3.7 million in depreciation and amortization.

 

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Selling, general and administrative expenses of $27.4 million for the six months ended June 30, 2007, consisted of $14.5 million in compensation and benefits, which includes $2.7 million in non-cash compensation, $2.9 million in professional fees and technology service costs, $2.5 million in facility costs, $1.4 million in travel expenses, $1.2 million in insurance and other corporate expenses and $1.9 million in other expenses, which includes $0.8 million in recruitment and temporary help, and $3.0 million in depreciation and amortization.

Interest Income. Interest income increased to $3.1 million for the six months ended June 30, 2008 from $2.8 million for the three months ended June 30, 2007. The increase was primarily due to an overall increase in average funds available for investment during the period as compared to the prior year period.

Interest Expense. Interest expense for the six months ended June 30, 2008 remained relatively unchanged over the comparable period in 2007.

Minority Interest. Prior to February 6, 2007, EBRx was majority owned by us and 20% owned by investors affiliated with EBRx’s former parent. On February 6, 2007, we acquired the minority ownership interest. The minority interest for the six months ended June 30, 2007 represents 20% of the earnings of EBRx during the period in which there was an outstanding minority interest.

Income Tax Expense. The effective income tax rate of 37.9% during the six months ended June 30, 2008 and 39.0% during the comparable period in 2007 represent the combined federal and state income tax rates adjusted as necessary based on the particular jurisdictions where we operate. The effective tax rate in 2008 was lower than in the comparable period in 2007 primarily due to a decrease in our overall state income tax rate as well as additional interest income earned on federally tax exempt investments.

Net Income. Net income for six months ended June 30, 2008 increased by approximately $5.7 million over the same period in 2007 to $23.6 million. The increase in net income was primarily a result of increased gross margin dollars and an increase in interest income, reduced by an increase in selling, general and administrative expenses.

LIQUIDITY AND CAPITAL RESOURCES

Our sources of funds are usually cash flows from operating activities. We have in the past raised funds by borrowing on bank debt and selling equity in the capital markets to fund acquisitions. During the last several years, we have generated positive cash flow from operations and anticipate similar results in 2008. At June 30, 2008, we had available a $50.0 million revolving credit facility with no outstanding borrowings and our cash and cash equivalents were $48.9 million.

At June 30, 2008, we had $13.6 million in investments consisting of Auction Rate Securities (“ARS”). Our ARS are floating rate securities with longer-term maturities which are marketed by financial institutions with auction reset dates from 7 to 35 day intervals to provide short-term liquidity. Beginning in February 2008, auctions for certain of these securities began to fail, which in some cases has resulted in higher interest rates being earned on some of these securities. We will not be able to access these funds until future auctions for these ARS are successful, or until we sell the securities in a secondary market which currently is not fully active, although there have been instances of redemptions at par to date by issuers and sales at successful auctionst. As such, these investments currently lack short-term liquidity and are therefore classified as non-current on our June 30, 2008 balance sheet.

Although we have uncertainty with regard to the short-term liquidity of these securities, we continue to believe that the par value represents the fair value of these investments. This belief is based on the considerations that these securities have redemption features which call for redemption at 100% of par value; the underlying securities carry AAA/Aaa credit ratings; and the ARS are either federally guaranteed or required to maintain an asset coverage amount of at least 200% in accordance with the Investment Company Act of 1940. We continue to monitor the market for auction rate securities and consider its impact, if any, on the fair value of our investments. There can be no assurances, however, that market conditions will not deteriorate which could result in an impairment charge in the future.

 

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Based on our cash and cash equivalent balance of $48.9 million, our available $50.0 million revolving credit facility, and our expected continued increases in operating cash flows, we do not anticipate a lack of liquidity associated with our ARS to adversely affect our ability to conduct business or have a material impact on our liquidity, financial condition, results of operations or cash flows. Moreover, we believe we have the ability to hold the securities until liquidity returns to the market or other secondary markets develop.

Net Cash Provided by Operating Activities. Our operating activities generated $39.9 million of cash from operations in the six-month period ended June 30, 2008, a $34.5 million increase from the $5.4 million generated in the comparable prior year period. This $39.9 million in cash provided by operating activities in 2008 reflects $23.6 million in net income, plus $7.0 million in non-cash charges and $9.3 million net decrease in working capital and other assets and liabilities. This $9.3 million change in working capital, net of effects from acquisitions, was primarily due to a $2.5 million increase in accounts payable and accrued liabilities and a $2.7 million decrease in taxes receivable and a $7.1 million decrease in accounts receivable partially offset by a $3.0 million increase in other assets. The cash provided by operating activities in the six-month period ended June 30, 2007 of $5.4 million reflects net income of $17.9 million, plus $8.0 million in non-cash charges, offset by a $20.5 million net increase in working capital and other assets and liabilities. The $20.5 million net increase in working capital was primarily due to a $16.5 million increase in accounts receivable and a $4.1 million decrease in taxes payable.

Net Cash Used in Investing Activities. Net cash used in investing activities for the six months ended June 30, 2008 was $75.5 million compared to cash used of $38.6 million in the prior year period. The cash used in the current period reflects $101.8 million related to a business acquisition and $3.8 million in capital expenditures offset by the net maturities of $30.1 million in marketable securities. The $38.6 million use of cash for the six months ended June 30, 2007 consisted of $2.3 million for the net purchase of marketable securities and $2.1 million in capital expenditures. Also, the acquisition of our remaining 20% minority ownership interest resulted in a cash payment of $30.3 million, of which $1.3 million was attributable to the minority interest and approximately $29.0 million was recorded as additional purchase price. Also, additional contingent consideration of approximately $5.0 million related to prior business acquisitions was paid during the six months ended June 30, 2007. The prior year period also reflects $1.0 million of cash provided upon the repayment of a note receivable.

Net Cash Provided by Financing Activities. Net cash provided by financing activities for the six months ended June 30, 2008 was $3.6 million compared to $10.2 million in the prior year period. In the current period, we purchased $0.7 million of treasury stock, received proceeds of $1.8 million from the exercise of options and $0.2 million in proceeds from issuance of common stock pursuant to the employee stock purchase plan. In addition, the company received an income tax payable benefit of $2.3 million from the exercise of stock options and restricted stock vesting. In the prior year period, we purchased $0.4 million of treasury stock, received proceeds of $5.0 million from the exercise of options and $0.2 million in proceeds from the issuance of common stock pursuant to the employee stock purchase plan. In addition, we received $5.4 million in income tax benefit proceeds from the exercise of stock options and restricted stock vesting,

We anticipate continuing to generate positive operating cash flow which, combined with available cash resources, should be sufficient to meet our planned working capital, capital expenditures and operating expenses. 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant changes in our market risk from that disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

 

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Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting for our quarter ended June 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

In the ordinary course of business, we may become subject to legal proceedings and claims. We are not aware of any legal proceedings or claims, which, in the opinion of management, will have a material effect on our financial condition, results of operations or cash flows.

ITEM 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3. Defaults Upon Senior Securities

None.

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

The Annual Meeting of Stockholders of the Company was held on June 3, 2008. The following matters were submitted to a vote of the Stockholders:

 

1.	The following individuals were elected to the Board of Directors, for a term that expires in 2011, with the indicated votes:

 

Nominee		Total Votes For		Total Votes Withheld
David T. Blair		39,347,100		603,971
Daniel J. Houston		39,173,812		777,259
Kenneth A. Samet		39,381,027		570,044

Thomas L. Blair. William E. Brock, Edward S. Civera, Steven B. Epstein, Michael R. McDonnell, and Dale B. Wolf, continued their terms in office after the meeting.

 

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2.	The shareholders ratified the appointment of PricewaterhouseCoopers LLP as our independent registered public accountants for the fiscal year ending December 31, 2008, by the following votes:

 

Total Votes For		38,843,734
Total Votes Against		1,097,773
Abstentions		9,564

ITEM 5. Other Information

For personal considerations, Darren Sivertsen will no longer hold the position of Executive Vice President. He will continue to advise the Company in his areas of expertise from his Las Vegas, NV location.

ITEM 6. Exhibits

 

Exhibit No.		Description
3(i)		Amended and Restated Certificate of Incorporation of HealthExtras, Inc. (1)
3(ii)		Bylaws of HealthExtras, Inc. (2)
10.1		Membership Interest Purchase Agreement dated April 7, 2008 by and among HealthExtras, Inc. and HospiScript Services, LLC; Concept Pharmaceuticals, LLC; and the selling members identified therein*
10.2		Amendment to Membership Interest Purchase Agreement dated May 16, 2008 by and among HealthExtras, Inc. and HospiScript Services, LLC; Concept Pharmaceuticals, LLC; and the selling members identified therein*
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer*
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer*
32.0		Certifications pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes Oxley Act of 2002*

 

*	Filed herewith.

(1)	Incorporated by reference to Exhibit 3.1(b) to the Registrant’s Form S-1/A Pre-Effective Amendment No. 1 to Form S-1 Registration Statement (Registration No. 333-83761) filed on September 21, 1999.

(2)	Incorporated by reference to Exhibit 3(ii) to the Registrant’s Form 8-K filed on April 11, 2007.

 

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SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) 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.

 

				HEALTHEXTRAS, INC.
August 7, 2008				By:		/s/ David T. Blair
						David T. Blair
						Chief Executive Officer and Director
August 7, 2008				By:		/s/ Hai Tran
						Hai Tran
						Chief Financial Officer
						(Principal Financial Officer and Principal Accounting Officer)

 

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