<PAGE>

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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002.

[ ]      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 333-87985

                                   eBenX, Inc.
                            (Exact name of registrant
                          as specified in its charter)

             Minnesota                                      41-1758843
  (State or other jurisdiction of              (IRS Employer Identification No.)
   incorporation or organization)

                         605 North Highway 169 Suite LL
                          Minneapolis, Minnesota 55441

                    (Address of principal executive offices)

                        Telephone Number: (763) 614-2000
              (Registrant's telephone 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 [_]

As of August 1, 2002 there were 20,193,702 shares of the registrant's common
stock outstanding.

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


<PAGE>

                                   EBENX, INC.
                          QUARTERLY REPORT ON FORM 10-Q
                       FOR THE PERIOD ENDED JUNE 30, 2002
                                      INDEX

                                                                            Page
                                                                            ----

PART I   FINANCIAL INFORMATION

Item 1.  Financial Statements
         Condensed Consolidated Balance Sheets at June 30, 2002 and
             December 31, 2001                                                1
         Condensed Consolidated Statements of Operations for the
             three- and six-month periods ended June 30, 2002 and 2001        2
         Condensed Consolidated Statements of Cash Flows for the
             six-month periods ended June 30, 2002 and 2001                   3
         Notes to Condensed Consolidated Financial Statements                 4

Item 2.  Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                        8
Item 3.  Quantitative and Qualitative Disclosures about Market Risk          13

PART II  OTHER INFORMATION

Item 1.  Legal Proceedings                                                   14
Item 2.  Changes in Securities and Use of Proceeds                           14
Item 3.  Defaults Upon Senior Securities                                     14
Item 4.  Submission of Matters to a Vote of Security Holders                 15
Item 5.  Other Information                                                   15
Item 6.  Exhibits and Reports on Form 8-K                                    15


<PAGE>

                                   EBENX, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                              June 30,   December 31,
                                                               2002         2001
                                                             ---------    ---------
<S>                                                          <C>          <C>
                          ASSETS

Current assets:
    Cash and cash equivalents                                $   4,768    $   3,324
    Short-term investments                                      37,135       46,211
    Accounts receivable, net of allowance of $987 and $957       6,497        7,868
    Unbilled revenue                                             1,438        2,272
    Prepaid expenses and other                                   1,944        1,937
                                                             ---------    ---------
        Total current assets                                    51,782       61,612

Property and equipment, net                                      9,985       11,401
Loans receivable from employees                                    514          540
Note receivable                                                  1,300          800
Equity investment                                                2,067           --
Deposits                                                           121          113
Goodwill and other intangibles, net                             20,360       20,334
                                                             ---------    ---------
            Total assets                                     $  86,129    $  94,800
                                                             =========    =========


           LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Accounts payable                                         $     422    $     204
    Accrued compensation                                         1,745        2,297
    Accrued expenses                                             4,340        3,684
    Restructuring reserve                                        3,161           --
    Client liability reserve                                       443          670
    Deferred revenue                                               714          109
                                                             ---------    ---------
        Total current liabilities                               10,825        6,964

Shareholders' equity:
    Common stock                                                   201          199
    Additional paid-in capital                                 182,324      182,130
    Deferred stock-based compensation                           (2,118)      (3,145)
    Accumulated other comprehensive income                         195          204
    Retained deficit                                          (105,298)     (91,552)
                                                             ---------    ---------
        Total shareholders' equity                              75,304       87,836
                                                             ---------    ---------
            Total liabilities and shareholders' equity       $  86,129    $  94,800
                                                             =========    =========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       -1-

<PAGE>

                                   EBENX, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                  (Amounts in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                   Three Months Ended       Six Months Ended
                                                                        June 30,                June 30,
                                                                  --------------------    --------------------
                                                                    2002        2001        2002        2001
                                                                  --------    --------    --------    --------
<S>                                                               <C>         <C>         <C>         <C>
Net revenue                                                       $ 12,031    $  7,828    $ 23,463    $ 15,144
Cost of services (exclusive of stock-based compensation
    expense of $106 and $242 for the three months ended
    June 30, 2002 and 2001 and $237 and $491 for the six
    months ended June 30, 2002 and 2001, respectively)               9,631       6,654      19,443      13,305
                                                                  --------    --------    --------    --------
      Gross profit                                                   2,400       1,174       4,020       1,839

Operating expenses:
    Selling, general and administrative (exclusive of stock-
      based compensation expense of $241 and $285 for the
      three months ended June 30, 2002 and 2001 and
      $504 and $626 for the six months ended June 30, 2002
      and 2001, respectively)                                        3,491       3,766       7,370       7,660
    Research and development (exclusive of stock-based
      compensation expense of $68 and $103 for the three months
      ended June 30, 2002 and 2001 and $138 and $225 for the
      six months ended June 30, 2002 and 2001, respectively)         2,011       2,193       4,026       4,399
    Amortization of stock-based compensation                           415         630         879       1,342
    Amortization of goodwill and other intangibles                      --       5,650          --      11,313
    Restructuring charge                                                --          --       6,223          --
                                                                  --------    --------    --------    --------
      Total operating expenses                                       5,917      12,239      18,498      24,714
                                                                  --------    --------    --------    --------
Loss from operations                                                (3,517)    (11,065)    (14,478)    (22,875)
Interest income and other, net                                         367       1,058         732       2,346
                                                                  --------    --------    --------    --------
Net loss                                                          $ (3,150)   $(10,007)   $(13,746)   $(20,529)
                                                                  ========    ========    ========    ========
Net loss per share:
    Basic and diluted                                             $  (0.16)   $  (0.51)   $  (0.69)   $  (1.06)
                                                                  ========    ========    ========    ========
Shares used in calculation of net loss per share:
    Basic and diluted                                               19,935      19,479      19,838      19,410
                                                                  ========    ========    ========    ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       -2-

<PAGE>

                                   EBENX, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                              Six Months Ended
                                                                  June 30,
                                                           ----------------------
                                                              2002         2001
                                                           ---------    ---------
<S>                                                        <C>          <C>
Operating activities:
    Net loss                                               $ (13,746)   $ (20,529)
    Adjustments to reconcile net loss to net cash
      used in operating activities:
      Depreciation of property and equipment                   1,357        1,131
      Amortization of stock-based compensation,
        goodwill and other intangibles                           879       12,655
      Changes in operating assets and liabilities:
        Accounts receivable                                    1,380         (112)
        Other current assets                                     853        1,609
        Accounts payable                                         218           29
        Accrued expenses                                         943          169
        Restructuring reserve                                  3,148           --
        Client liability reserve                                (227)          --
        Deferred revenue                                         605          250
        Deposits                                                  (8)          (5)
                                                           ---------    ---------
           Net cash used in operating activities              (4,598)      (4,803)

Investing activities:
    Additions to property and equipment                         (755)      (2,187)
    Purchases of investments                                 (61,472)    (222,368)
    Sales of investments                                      70,539      228,941
    Advances on notes                                           (500)          --
    Cost of acquisition, net of cash acquired                 (2,102)          --
    Advances to employees                                         --          (72)
                                                           ---------    ---------
           Net cash provided by investing activities           5,710        4,314

Financing activities:
    Stock options and warrants exercised                         169          113
    Proceeds from issuance of common stock, net of costs         163           --
                                                           ---------    ---------
           Net cash provided by financing activities             332          113

Net increase in cash and cash equivalents                      1,444         (376)

Cash and cash equivalents at beginning of period               3,324          764
                                                           ---------    ---------
Cash and cash equivalents at end of period                 $   4,768    $     388
                                                           =========    =========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       -3-

<PAGE>

                                   EBENX, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

1.  Business Description and Summary of Significant Accounting Policies

Business Description

         eBenX, Inc., a Minnesota corporation incorporated in September 1993
(the "Company"), provides technology-based solutions for the purchase,
administration and payment of group health and welfare benefits. The Company
currently operates in a single business segment providing services to employers,
brokers and other employee benefit advisors, and health plans and other
carriers. The Company's customers are located throughout the United States.

Basis of Presentation

         The condensed consolidated financial statements included herein, except
for the December 31, 2001 balance sheet which was extracted from the audited
financial statements of December 31, 2001, have been prepared by the Company
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (all of which are
normal and recurring in nature) that are necessary for a fair presentation of
the interim periods presented. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The results of operations for the three- and six-month
period ended June 30, 2002 are not necessarily indicative of the results to be
expected for any subsequent quarter or for the entire year ended December 31,
2002. These unaudited consolidated financial statements and notes included
herein should be read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.

Principles of Consolidation

         The consolidated financial statements include the Company and its
wholly owned subsidiaries, Arbor Associates, Inc. and Managed Care Buyer's
Group, Inc. All intercompany accounts and transactions have been eliminated in
consolidation.

Net Loss Per Share

         Basic net loss per share is based on the weighted-average shares
outstanding during the period. Diluted net loss per share increases the shares
used in the per share calculation by the dilutive effects of options, warrants,
and convertible securities. The Company's common stock equivalent shares
outstanding from stock options and warrants are excluded from the diluted net
loss per share computation for all periods because their effect would be
antidilutive.

Reclassification

         Certain prior year items have been reclassified to conform to the
current year presentation.

2.  Comprehensive Income

         Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," establishes standards for the reporting and display of
comprehensive income and its components. Adjustments to comprehensive loss for
the six months ended June 30, 2002 consisted of unrealized losses on
available-for-sale securities of $9,000, resulting in a total comprehensive loss
of $13,755,000. The tax effects of these other comprehensive adjustments were
not considered to be material.


                                       -4-

<PAGE>

3.  Restructuring Charge

         In the first quarter of 2002, management approved plans to undertake
restructuring and cost saving actions which included workforce reductions,
vacating leased office space, asset disposals, and other costs related to
re-engineering and restructuring business processes and operations. The Company
completed these actions in the first quarter, and as a result, the Company
recorded a restructuring expense of $6,223,000.

         The initial restructuring expenses described above and subsequent
reductions to the related liability accounts included the following:

<TABLE>
<CAPTION>
                                        Employee    Contractual
                                       Termination     Lease        Asset
(in thousands)                          Benefits    Obligations   Disposals      Other        Total
                                       -----------  -----------   ---------     -------      -------
<S>                                      <C>          <C>          <C>          <C>          <C>
Initial expense and accrual              $ 1,004      $ 3,492      $   813      $   914      $ 6,223
Cash payments                               (755)        (507)          --         (987)      (2,249)
Non-cash charges                              --           --         (813)          --         (813)
                                         -------      -------      -------      -------      -------
Restructuring reserve, June 30, 2002     $   249      $ 2,985      $    --      $   (73)     $ 3,161
                                         =======      =======      =======      =======      =======
</TABLE>

         Employee termination benefits in the first six months included expenses
related to the reduction of 34 personnel primarily through facility closures and
consolidation of corporate administrative functions.

         Contractual lease obligations relate primarily to future contractual
lease costs associated with vacating two floors at the Minneapolis headquarters
location. The Company is actively seeking to sublease this space.

         Asset disposals relate to office equipment to be disposed of and
leasehold improvements written-off. These assets were related to the two closed
floors at the Minneapolis headquarters location.

4.  Acquisitions and Investment

         On November 5, 2001, the Company completed the acquisition of the
health and welfare assets of Howard Johnson & Company ("Howard Johnson"), a
wholly owned subsidiary of Merrill Lynch & Company, Inc., for a final purchase
price of approximately $12.6 million, including approximately $11.5 million paid
in cash at closing and approximately $1.1 million in assumed obligations to
employees, pursuant to the terms of an Asset Purchase Agreement between Howard
Johnson and the Company dated as of October 19, 2001 (the "Asset Purchase
Agreement"). The purchase price was funded from the Company's existing cash.

         In connection with the consummation of this acquisition, the Company
entered into a Shared Services Agreement with Howard Johnson pursuant to which
Howard Johnson will provide agreed upon services to the Company in connection
with the Company's health and welfare business for up to 24 months. The Company
is currently obligated to pay Howard Johnson a monthly fee of $187,500, subject
to reduction as responsibility for providing these services to each client is
transferred to the Company. The Company also entered into a Marketing Agreement
with Howard Johnson pursuant to which Howard Johnson may refer potential and
existing clients seeking health and welfare benefits services to the Company in
exchange for a percentage of revenues from such referrals.

         The above acquisition was accounted for using the purchase method of
accounting. The excess of the consideration provided over the relative fair
value of the assets acquired was allocated to goodwill. The allocation of
purchase price related to the acquisition of the health and welfare assets of
Howard Johnson is subject to change pending a final analysis of the value of the
assets acquired and the liabilities assumed.

                                       -5-

<PAGE>

         The following summary, prepared on an unaudited pro forma basis,
reflects the condensed consolidated results of operations for the six month
periods ended June 30, 2002 and 2001, assuming the health and welfare assets of
Howard Johnson had been acquired at the beginning of fiscal 2001:

(in thousands, except
per share data)                       Three months ended     Six months ended
                                            June 30,             June 30,
                                      ----------------------------------------
                                        2002       2001       2002      2001
                                      --------   --------   --------  --------
Revenue                               $ 12,031   $ 12,485   $ 23,463  $ 24,124
Loss from operations, excluding
  amortization of stock-based
  compensation, goodwill and
  other intangibles and
  restructuring charge                $ (3,102)  $ (4,217)  $ (7,376) $ (9,418)
Net loss                              $ (3,150)  $ (9,543)  $(13,746) $(19,935)
Basic and diluted net loss per share  $  (0.16)  $  (0.49)  $  (0.69) $  (1.03)

         The pro forma results are not necessarily indicative of what would have
occurred if the acquisition had been in effect for the three- and six-month
periods ended June 30, 2001. They are not intended to be a projection of future
results and do not reflect any synergies that might be affected from combined
operations.

         In February 2002, the Company entered into an agreement with Benu, Inc.
(formerly known as "Emerge HealthCare, Inc."), a privately held Delaware
corporation, to develop and deliver new risk-adjusted pricing health and welfare
benefit products. The Company will provide the technology and services to these
new developing products and will license its proprietary platform to Benu, Inc.
("Benu"). Coincident with entering into the agreement, the Company also
participated in the series B preferred share equity offering of Benu and
purchased shares representing less than 20% of the outstanding shares of Benu
for approximately $2 million. This investment will be carried at cost and
recoverability of the carrying amount will be evaluated on a periodic basis.

5.  Deferred stock-based compensation

         In connection with the granting of stock options to employees prior to
the Company's initial public offering, the Company recorded deferred stock-based
compensation of approximately $5.5 million in the year ended December 31, 1999.
This amount represents the difference between the exercise price and the deemed
fair value of the Company's common stock for accounting purposes on the date
these stock options were granted. In connection with the acquisition of Arbor
Administrative Services, Inc. ("Arbor") in September 2000, the Company recorded
deferred stock-based compensation of $5.2 million. This amount represents the
difference between the exercise price and the deemed fair value of the Company's
common stock for accounting purposes on the date all outstanding unvested
options and restricted stock of Arbor were converted to Company options and
restricted stock. The deferred stock-based compensation is included as a
component of stockholders' equity and is being amortized over the vesting period
of the options. Amortization expense of approximately $415,000 and $630,000 was
recognized in the three months ended June 30, 2002 and 2001, respectively. For
the six-month periods ending June 30, 2002 and 2001, approximately $879,000 and
$1.3 million of amortization expense was recognized, respectively.

6.  Note Receivable

        In conjunction with the formation of a strategic alliance to develop,
promote, distribute and support an integrated Web-based benefits administration
and communications product for mid-sized employers, the Company entered into a
joint development agreement and a related loan agreement on August 31, 2001,
granting a line of credit of $1.5 million to Online Benefits, Inc. ("Online"), a
privately held Delaware corporation. The outstanding principal balance under the
line of credit bears interest at a rate of 8% per annum. Interest is due
annually on the anniversary date of the loan agreement. On August 31, 2004, the
third anniversary date of the loan agreement, payment of the lesser of the
outstanding principal balance under the line of credit or the total gross
revenues received by the strategic alliance through such date is due. If less
than the entire principal balance under the line of credit is paid on August 31,
2004, then the lesser of the remaining principal balance or the total gross
revenues of the strategic alliance for the preceding year is due on the next and
each succeeding anniversary date of the loan agreement. Any remaining
outstanding principal balance under the line of credit is due on

                                       -6-

<PAGE>

August 31, 2006. At June 30, 2002, $1.3 million has been loaned to Online and is
outstanding under the line of credit. This amount is recorded as a note
receivable.

         As a condition of the loan agreement, the Company received warrants to
purchase common stock of Online at an exercise price of $1.644 per share. The
warrants entitle the Company to purchase shares equal to 15% of the total
advances on the line of credit, divided by the per share exercise price. The
warrants expire August 31, 2006. Warrants for the purchase of 118,613 shares of
common stock were outstanding at June 30, 2002.

7.  Letter of Credit

         On August 29, 2001, the Company secured an irrevocable letter of credit
for approximately $1.8 million. The letter was required under the operating
lease of the Company's corporate headquarters, and as such, the lessor is
assigned as the beneficiary of the funds in the event of default on the lease.
The letter of credit expires July 31, 2005, and is collateralized by securities
restricted for that purpose.

8.  Recent Accounting Pronouncements

         The Company has adopted Statement of Financial Accounting Standards No.
141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets,
issued by the Financial Accounting Standards Board. Under the new rules,
goodwill and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with the
Statements. Other intangible assets will be amortized over their useful lives.

         The effect of the change in accounting resulted in an increase to net
income of $2.2 million for the quarter ended June 30, 2002 and $4.4 million for
the six months ended June 30, 2002. The Company has performed the first of the
required impairment tests of goodwill and indefinite lived intangible assets as
of January 1, 2002 and concluded there was no potential goodwill impairment for
the Company at that date.

         The following summary, prepared on an unaudited pro forma basis,
reflects the condensed consolidated results of operations for the three and six
month periods ended June 30, 2002 and 2001, assuming no amortization of goodwill
and other intangibles in 2001:

<TABLE>
<CAPTION>

(in thousands except per share data)      Three Months Ended               Six Months Ended
                                               June 30,                        June 30,
                                      --------------------------      --------------------------
                                         2002            2001            2002            2001
                                      ----------      ----------      ----------      ----------
<S>                                   <C>             <C>             <C>             <C>
Reported net loss                     $   (3,150)     $  (10,007)     $  (13,746)     $  (20,529)
  Add back: Goodwill amortization             --           5,650              --          11,313
                                      ----------      ----------      ----------      ----------
  Adjusted net loss                   $   (3,150)     $   (4,357)     $  (13,746)     $   (9,216)
                                      ==========      ==========      ==========      ==========

Net loss per share:
  Reported net loss per share         $    (0.16)     $    (0.51)     $    (0.69)     $    (1.06)
  Goodwill amortization per share             --            0.29              --            0.58
                                      ----------      ----------      ----------      ----------
  Adjusted net loss per share         $    (0.16)     $    (0.22)     $    (0.69)     $    (0.48)
                                      ==========      ==========      ==========      ==========
</TABLE>

         In August 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the
accounting and reporting provision of APB Opinion No. 30, "Reporting the Results
of Operations" for a disposal of a segment of a business. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001, with earlier
application encouraged.


                                       -7-

<PAGE>

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

         Except for historical information, this document contains various
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements involve risks and uncertainties,
including, among other things, statements regarding our revenue mix, anticipated
costs and expenses, service development, relationships with strategic partners
and pending acquisitions. These forward-looking statements include declarations
regarding our belief or current expectations of management, such as statements
indicating that "we expect," "we anticipate," "we intend," "we believe," and
similar language. We caution that any forward-looking statement made by us in
this Quarterly Report on Form 10-Q or in other announcements made by us are
further qualified by important factors that could cause actual results to differ
materially from those projected in the forward-looking statements, including
without limitation the risks discussed in our Annual Report on Form 10-K filed
on March 28, 2002.

         The following discussion and analysis of the financial condition and
results of operations of eBenX should be read in conjunction with the
consolidated financial statements and related notes for the year ended December
31, 2001, and included in our Annual Report on Form 10-K as filed with the
Securities and Exchange Commission. For information regarding the Company's
Critical Accounting Policies, refer to the Company's Annual Report on Form 10-K
for the year ended December 31, 2001.

Overview

         We provide specialized technology-based solutions to employers,
brokers, employee benefit advisors, and health plans and other carriers for the
purchase, administration, and payment of group health and welfare benefits. We
apply the Internet and other technology to simplify and automate the complex,
ongoing and multiple transactions associated with the exchange of health and
welfare benefits data and dollars.

         On November 5, 2001, we acquired the health and welfare assets of
Howard Johnson & Company, a wholly owned subsidiary of Merrill Lynch & Company,
Inc., for a purchase price of $12.6 million, consisting of approximately $11.5
million in cash and the assumption of $1.1 million of liabilities. The
acquisition was accounted for under the purchase method of accounting. Under
this method, the purchase price is allocated to the assets acquired and
liabilities assumed based on their determined fair market values. The assets
acquired primarily consist of customer contracts and arrangements for the
provision of health and welfare benefits administration services.

         Revenue is derived primarily from providing ongoing annual enrollment
and health and welfare eligibility administration and premium billing and
payment exchange services. Administrative or exchange services revenue typically
is priced on a per employee per month basis with adjustments made to accommodate
the number of health plans and other carriers required by the customer. We
typically enter into multi-year contracts with our large employer customers and
often provide fixed and variable fee structures to permit volume-adjusted
pricing. Customers may purchase some or all of our services, and the customer
relationship may evolve from utilizing consulting services to utilizing
implementation and enrollment services and per employee-based administrative
services.

         Cost of services consists primarily of personnel costs for account
management, operations, production, consulting and information technology costs
for both ongoing consulting and administrative services, as well as for customer
implementation expense. The information technology costs relate to personnel
costs for implementing and maintaining customer and health plan computer
interfaces and computer hardware and software expenses related to computer
processing. A portion of cost of services consists of new customer
implementation expenses. Therefore, as a short-term effect of growth, increasing
numbers of new customers will cause the cost of services as a percentage of net
revenue to increase.

         Selling, general and administrative expenses consist primarily of
payroll and payroll-related expenses associated with sales and marketing,
executive management and corporate administrative personnel, as well as
professional fees and expenditures for advertising, public relations and
promotional efforts.

         Research and development expenses consist primarily of development
personnel and external contractor costs related to the development of new
products and services, enhancement of existing products and services, quality
assurance and testing. The Company follows AICPA Statement of Position No. 98-1,
"Accounting for the Costs of Computer


                                       -8-

<PAGE>

Software Developed or Obtained for Internal Use", in accounting for internally
developed software. To date, we have not capitalized our software development
costs as a majority of our in-house development efforts related to determining
specific software requirements and evaluating alternatives related to specific
performance criteria for our products. As a result, research and development
costs have been expensed as incurred.

         Since our inception, we have incurred losses. As of June 30, 2002, we
had an accumulated deficit of $105.3 million. These losses and this accumulated
deficit have resulted from the significant costs incurred in the development of
our technology platform, the establishment of relationships with our customers,
the development and maintenance of our customer and carrier interfaces,
amortization of stock-based compensation and goodwill and other intangibles and
a $30.4 million impairment charge to the carrying value of goodwill associated
with the September 2000 acquisition of Arbor. Although we have experienced
significant revenue growth in recent periods, our operating results for future
periods are subject to numerous uncertainties.

Results of Operations

         The following table sets forth for the periods indicated selected
statement of operations data expressed as a percentage of net revenues.

<TABLE>
<CAPTION>
                                                    Three Months Ended   Six Months Ended
                                                          June 30,           June 30,
                                                    ------------------   ----------------
                                                      2002      2001      2002      2001
                                                     -----     -----     -----     -----
<S>                                                  <C>       <C>       <C>       <C>
Net revenue                                          100.0%    100.0%    100.0%    100.0%
Cost of services                                      80.1      85.0      82.9      87.9
                                                     -----    ------     -----    ------
      Gross profit                                    19.9      15.0      17.1      12.1

Operating expenses:
    Selling, general and administrative               29.0      48.1      31.4      50.6
    Research and development                          16.7      28.0      17.2      29.0
    Amortization of stock-based compensation           3.4       8.0       3.7       8.9
    Amortization of goodwill and other intangibles      --      72.2        --      74.7
    Restructuring charge                                --        --      26.5        --
                                                     -----    ------     -----    ------
      Total operating expenses                        49.1     156.3      78.8     163.2
                                                     -----    ------     -----    ------
Loss from operations                                 (29.2)   (141.3)    (61.7)   (151.1)
Interest income and other, net                         3.1      13.5       3.1      15.5
                                                     -----    ------     -----    ------
Net loss                                             (26.1%)  (127.8%)   (58.6%)  (135.6%)
                                                     =====    ======     =====    ======
</TABLE>


                                       -9-

<PAGE>

          In addition to our operating results, we also track and provide
enrollment statistics. Enrollment is defined as the number of our customers'
employees or retirees to which we currently provide administration services.
Pending enrollment commitments include new customer employee commitments that
will be implemented in the foreseeable future, and exclude enrolled employees
known to be terminating in the future. The following table sets forth our
enrollment statistics for the periods indicated.

                                                           June 30,
                                                    --------------------
                                                      2002         2001
                                                    ---------    -------

Enrollment                                          1,073,000    814,000
Net pending enrollment commitments                     29,000     36,000
                                                    ---------    -------
Enrollment plus commitments                         1,102,000    850,000
                                                    =========    =======

Comparison of the three months ended June 30, 2002 and 2001

         Net revenue. Net revenue for the three months ended June 30, 2002
increased to $12 million from $7.8 million for the same period in 2001,
representing an increase of $4.2 million, or 53.7%. This increase was due
primarily to additional revenue derived from the acquisition of the health and
welfare clients of Howard Johnson in November 2001, and as a result of the new
sales made during calendar year 2001 and 2002. This increase was partially
offset by the discontinuance of the majority of services provided to Verizon
Communications, Inc. on December 31, 2001 and the termination of several
unprofitable clients during 2001.

         Cost of services. Cost of services for the three months ended June 30,
2002 increased to $9.6 million, from $6.7 million for the same period in 2001,
representing an increase of $3 million, or 44.7%. The primary reason for this
increase was additional service expense associated with the acquisition of the
health and welfare clients of Howard Johnson. Cost of services, as a percentage
of net revenues, decreased to 80.1% for the three months ended June 30, 2002
from 85% for the same period in 2001, primarily as a result of the acquisition
of the health and welfare clients of Howard Johnson and actions taken during
first quarter 2002 to become more efficient, consistent with the Company's plan
to improve gross margins.

         Selling, general and administrative. Selling, general and
administrative expenses for the three months ended June 30, 2002 decreased to
$3.5 million, from $3.8 million for the same period in 2001, representing a
decrease of $275,000, or 7.3%. Selling, general and administrative expenses, as
a percentage of net revenues, decreased to 29% for the three months ended June
30, 2002, from 48.1% for the same period in 2001, primarily as a result of
increased revenues and actions taken to hold firm or reduce certain SG&A
expenditures from 2001 levels. These actions include the 2002 reductions to
corporate headquarters office space and reductions to the general and
administrative workforce.

         Research and development. Research and development expenses for the
three months ended June 30, 2002 decreased to $2 million, from $2.2 million for
the same period in 2001, representing a decrease of $182,000, or 8.3%. This
decrease was primarily due to a decrease in contractor expenses. Research and
development expenses, as a percentage of net revenues, decreased to 16.7% for
the three months ended June 30, 2002, from 28% for the same period in 2001,
primarily as a result of increased revenues, while holding firm or reducing
certain R&D expenditures.

          Amortization of stock-based compensation. In connection with the
granting of stock options to employees prior to our initial public offering, we
recorded deferred stock-based compensation in 1999, with an additional amount
recorded in 2000 related to our acquisition of Arbor. We recorded $415,000 in
amortization expense related to the deferred stock-based compensation for the
three months ended June 30, 2002, a decrease of 34.1% from the $630,000 recorded
for the same period in 2001. This decrease will continue through future quarters
as the calculation of the expense under SFAS 123 requires heavier weighting of
the expense in the early years of the option's life. Amortization of deferred
stock-based compensation will result in an additional $2.1 million of charges to
operations through 2004.

         Interest income and other, net. Net interest income includes income
earned from our invested cash and short-term securities and income earned from
facilitating our customers' payments to their health plans. Net interest income
decreased


                                       -10-

<PAGE>

to $367,000 for the three months ended June 30, 2002, from $1.1 million for the
same period in 2001. The $691,000 decrease, or 65.3%, is primarily a result of
the decrease in our short-term investment portfolio from the acquisition of the
health and welfare assets of Howard Johnson, cash used in operations and for
capital expenditures, as well as a decrease in the return on investment of the
securities that are held in our short-term investment portfolio due to a general
decline in interest rates.

Comparison of the six months ended June 30, 2002 and 2001

         Net revenue. Net revenue for the six months ended June 30, 2002
increased to approximately $23.5 million from $15.1 million for the same period
in 2001, representing an increase of $8.3 million, or 54.9%. This increase was
due primarily to additional revenue derived from the acquisition of the health
and welfare clients of Howard Johnson in November 2001, and as a result of the
new sales made during calendar year 2001 and 2002. This increase was partially
offset by the discontinuance of the majority of services provided to Verizon
Communications, Inc. on December 31, 2001 and the termination of several
unprofitable clients during 2001.

         Cost of services. Cost of services for the six months ended June 30,
2002 increased to $19.4 million, from $13.3 million for the same period in 2001,
representing an increase of $6.1 million, or 46.1%. The primary reason for this
increase was additional service expense associated with the acquisition of the
health and welfare clients of Howard Johnson. Cost of services, as a percentage
of net revenues, decreased to 82.9% for the six months ended June 30, 2002 from
87.9% for the same period in 2001, primarily as a result of the acquisition of
the health and welfare clients of Howard Johnson and actions taken during first
quarter 2002 to become more efficient, consistent with the Company's plan to
improve gross margins.

         Selling, general and administrative. Selling, general and
administrative expenses for the six months ended June 30, 2002 decreased to $7.4
million, from $7.7 million for the same period in 2001, representing a decrease
of $290,000, or 3.8%. Selling, general and administrative expenses, as a
percentage of net revenues, decreased to 31.4% for the six months ended June 30,
2002, from 50.6% for the same period in 2001, primarily as a result of increased
revenues and actions taken to hold firm or reduce certain SG&A expenditures from
2001 levels. These actions include first quarter 2002 reductions to corporate
headquarters office space and reductions to the general and administrative
workforce which were offset by strengthening bad debt reserves and additional
expenses associated with the acquisition of the health and welfare assets of
Howard Johnson.

         Research and development. Research and development expenses for the six
months ended June 30, 2002 decreased to $4 million, from $4.4 million for the
same period in 2001, representing a decrease of $373,000, or 8.5%. This decrease
was primarily due to a decrease in contractor expenses. Research and development
expenses, as a percentage of net revenues, decreased to 17.2% for the six months
ended June 30, 2002, from 29% for the same period in 2001, primarily as a result
of increased revenues, while holding firm or reducing certain R&D expenditures.

          Amortization of stock-based compensation. In connection with the
granting of stock options to employees prior to our initial public offering, we
recorded deferred stock-based compensation in 1999, with an additional amount
recorded in 2000 related to our acquisition of Arbor. We recorded $879,000 in
amortization expense related to the deferred stock-based compensation for the
six months ended June 30, 2002, a decrease of 34.5% from the $1.3 million
recorded for the same period in 2001. This decrease will continue through future
quarters as the calculation of the expense under SFAS 123 requires heavier
weighting of the expense in the early years of the option's life. Amortization
of deferred stock-based compensation will result in an additional $2.1 million
of charges to operations through 2004.

         Restructuring charge. In the first quarter of 2002, management approved
plans to undertake restructuring and cost saving actions which included
workforce reductions, vacating leased office space, asset disposals, and other
costs related to re-engineering and restructuring business processes and
operations. The Company completed these actions in the first quarter, and as a
result, the Company recorded a restructuring expense of $6,223,000.

         Amortization of goodwill and other intangibles. Under SFAS No. 142,
Goodwill and Other Intangible Assets, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual
impairment tests. Other intangible assets will be amortized over their useful
lives. The Company performed the first of the required impairment tests of
goodwill and indefinite lived intangible assets as of January 1, 2002 and
concluded there was


                                       -11-

<PAGE>

no potential impairment for the Company at that date. As such, the Company did
not amortize goodwill and other intangibles during the first six months of 2002.
During the first six months of 2001, the Company recorded $11.3 million of
amortization of goodwill and other intangibles.

         Interest income and other, net. Net interest income includes income
earned from our invested cash and short-term securities and income earned from
facilitating our customers' payments to their health plans. Net interest income
decreased to $732,000 for the six months ended June 30, 2002, from $2.3 million
for the same period in 2001. The $1.6 million decrease, or 68.8%, is primarily a
result of the decrease in our short-term investment portfolio from the
acquisition of the health and welfare assets of Howard Johnson, cash used in
operations and for capital expenditures, as well as a decrease in the return on
investment of the securities that are held in our short-term investment
portfolio due to a general decline in interest rates.

         Income taxes. As of December 31, 2001, we had unused federal and state
research and development tax credit carryforwards of approximately $250,000
which begin to expire in 2009. In addition, we had unused federal net operating
loss carryforwards at December 31, 2001 of approximately $23.1 million which
begin to expire in 2009. The utilization of these carryforwards is dependent
upon our ability to generate sufficient taxable income during carryforward
periods and therefore, are not recognized as an asset on the Company's balance
sheet.

         Significant balance sheet changes. Total assets decreased from $94.8
million as of December 31, 2001 to $86.1 million as of June 30, 2002, primarily
as a result of decreases in short-term investments, accounts receivable,
unbilled revenue and property and equipment. An additional advance under a line
of credit and an equity investment in Benu offset these decreases. The decrease
in accounts receivable and unbilled revenue resulted from collections during the
first six months of 2002 of open enrollment fees which were billed or accrued
for our mid-market and Howard Johnson clients during the fourth quarter of 2001.
Property and equipment decreased as a result of depreciation and assets disposed
of or written-off in connection with restructuring and cost saving actions taken
in the first quarter of 2002.

         Total liabilities increased from $7 million as of December 31, 2001 to
$10.8 million as of June 30, 2002, primarily as a result of reserves held for
restructuring and cost saving actions taken in the first quarter of 2002 and an
increase in deferred revenue related to revenues that have been billed according
to the terms of the contract, but not recognized as of June 30, 2002 in
accordance with GAAP.

Liquidity and Capital Resources

         Our initial public offering on December 10, 1999 generated gross
proceeds of $100 million in cash. The January 2000 exercise of the underwriter's
over-allotment option to purchase 750,000 shares at $20.00 per share generated
additional gross proceeds of $15 million in cash. After underwriting discounts
and commissions and other costs, the net proceeds from the offering totaled
$105.5 million. Approximately $20.4 million of these proceeds were used in
connection with our acquisition of Arbor in September 2000.

         On November 5, 2001, we acquired the assets of the health and welfare
business unit of Howard Johnson & Company, a wholly owned subsidiary of Merrill
Lynch & Company, Inc., for a final purchase price of approximately $12.6
million, consisting of approximately $11.5 million in cash and the assumption of
approximately $1.1 million in assumed obligations to employees which were
primarily paid in the second quarter of 2002.

         We intend to use the remaining proceeds from the offering for general
corporate purposes, including working capital, sales and marketing expenditures,
development of new products and services, and investment in technology
infrastructure. In addition, a portion of the net proceeds may be used for other
acquisitions of businesses, products and technologies that are complementary to
ours. Pending use of the net proceeds for the above purposes, we intend to
invest the net proceeds from this offering in short-term, interest-bearing,
investment-grade securities.

         As of June 30, 2002, we had $41.9 million in short-term investments and
cash and cash equivalents. Short-term investments plus cash and cash equivalents
decreased by approximately $2.8 million and $7.6 million during the three months
and six months ended June 30, 2002, respectively. These reductions were due
primarily to the use of cash in operations (including expenditures related to
restructuring) and the investment in Benu (formerly known as "Emerge").
Short-term investments consisted primarily of commercial paper and corporate and
government bonds. Cash equivalents consisted primarily of money market funds.
Cash of $1.8 million has been restricted as collateral for a letter of credit.


                                       -12-

<PAGE>

         Our operating activities, which includes $2.2 million used for 2002
restructuring activities, used cash of $4.6 million in the six months ended June
30, 2002 and $4.8 million for the same period in 2001. The use of cash in
operations in 2002 was due primarily to funding our net loss and restructuring
activities, offset by remaining restructuring reserves, noncash charges for
depreciation and amortization of stock-based compensation, a decrease in
accounts receivable and unbilled revenue and an increase in accrued expenses.
The use of cash in operations in 2001 was due primarily to funding our net loss,
partially offset by noncash charges for depreciation and amortization of
stock-based compensation, goodwill and other intangibles.

         Our investing activities provided cash of $5.7 million and $4.3 million
in the six months ended June 30, 2002 and 2001, respectively. In 2002, our
investing activities generated $9.1 million in cash through net sales of
investments, while using $2.1 million for the investment in Benu, $500,000 in
additional advances under the line of credit to Online Benefits, Inc., and
$755,000 for additions to equipment. In 2001, our investing activities provided
cash of $6.5 million through net sales of investments while using $2.2 million
for additions to equipment.

         Our financing activities provided cash of $332,000 and $113,000 in the
six months ended June 30, 2002 and 2001, respectively. In 2002, cash flows from
financing activities consisted of proceeds from the sale of stock through our
employee stock purchase plan and through the exercise of stock options and
warrants. In 2001, our financing activities consisted of proceeds from the
exercise of stock options and warrants.

         Our equipment additions consist primarily of computer hardware and
software, office furniture and equipment and leasehold improvements. Since
inception, we have generally funded equipment additions either through the use
of working capital or with operating leases. We expect to continue to add
computer hardware and software and to fund these additions through working
capital or operating leases.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Sensitivity

         Our exposure to market risk for changes in interest rates relate
primarily to our short-term investments. We do not use derivative financial
instruments. The primary objective of our investment activities is to preserve
principal while maximizing yields without significantly increasing risk. Due to
the nature of our investments, we believe that there is no material risk
exposure. All investments are held at market value, with unrealized gains and
losses included in other comprehensive income.

         The table below represents principal (or notional) amounts and related
weighted-average interest rates by year of maturity for the Company's
investments at June 30, 2002 (in thousands):

<TABLE>
<CAPTION>
                               2002         2003         2004         2005       Total
                            ---------    ---------    ---------    ---------    -------
<S>                         <C>          <C>          <C>          <C>          <C>
Cash equivalents            $   4,768    $      --    $      --    $      --    $ 4,768
    Average interest rate         1.7%                                              1.7%

Short-term investments      $  11,746    $  16,876    $   7,416    $   1,097    $37,135
    Average interest rate         3.2%         3.2%         3.3%         4.2%       3.2%

</TABLE>

Exchange Rate and Commodity Price Sensitivity

         We do not conduct business outside of the United States and do not
invest in foreign instruments or commodities and, therefore, have no direct
exposure related to either foreign currency exchange rate fluctuation or
commodity price fluctuation.


                                       -13-

<PAGE>

                                     PART II

Item 1.  Legal Proceedings

         A class action lawsuit was filed on October 25, 2001 on behalf of
purchasers of the securities of the Company between December 9, 1999 and
December 6, 2000, inclusive. The lawsuit was filed in United States District
Court, Southern District of New York, against the Company, BancBoston Robertson
Stephens, Inc., Warburg Dillon Read LLC, Thomas Weisel Partners LLC, and eBenX
Chairman, Mark W. Tierney, Chief Executive Officer, John J. Davis, and Executive
Vice President & General Manager - Corporate Solutions, Scott P. Halstead. The
complaint alleges violations of Sections 11, 12(a)(2) and 15 of the Securities
Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated thereunder. The complaint alleges that the Company's
prospectus, filed in connection with the Company's initial public offering, was
materially false and misleading because it failed to disclose certain
commissions and agreements between the aforementioned parties and certain
investors and customers. The complaint seeks unspecified damages plus attorneys'
fees and rescission. The Company intends to vigorously defend against this
lawsuit.

Item 2.  Changes in Securities and Use of Proceeds

Recent Sales of Unregistered Securities

         None.

Use of Proceeds from Initial Public Offering

         On December 15, 1999, we closed our initial public offering of
5,000,000 shares of common stock. In January 2000, the underwriters exercised
their over-allotment option to purchase 750,000 shares at the initial offering
price of $20.00 per share. The shares of the common stock sold in the offering
were registered under the Securities Act of 1933 on a registration statement on
Form S-1 (No. 333-87985), the effective date of which was December 9, 1999. With
the over-allotment option, the aggregate initial public offering proceeds
totaled $115 million. After deducting underwriting discounts and commissions and
other offering expenses of $9.5 million, we received net proceeds of
approximately $105.5 million from the offering.

         Through June 30, 2002, we have used the net offering proceeds for the
following purposes in the approximate amounts set forth below (in millions):

Short-term investments                                               $  32.2
Acquisition of Arbor                                                    20.4
Acquisition of health and welfare assets of Howard Johnson              12.4
Equity investment                                                        2.1
Notes receivable                                                         1.3
Purchase of furniture and equipment                                     11.8
Working capital                                                         25.3
                                                                     -------
    Total                                                            $ 105.5

         In connection with our acquisition of Arbor, the eBenX President of
Mid-Market, formerly President of Arbor, received approximately $11.4 million in
his capacity as the majority shareholder of Arbor. Otherwise, none of the net
proceeds were paid, directly or indirectly to (i) officers or directors of eBenX
or its affialiates, (ii) persons owning 10% or more of our equity securities or
(iii) affiliates.

Item 3.  Defaults Upon Senior Securities

         Not applicable.



                                       -14-

<PAGE>

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

         The Company held its Annual Meeting of Stockholders in Minneapolis,
Minnesota on May 23, 2002. Of the 20,038,141 shares outstanding as of the record
date, 18,746,667 shares were present or represented by proxy at the meeting. The
following actions were voted upon:

(a)      A proposal to elect the directors listed in the table below to serve
         for a term ending upon the 2005 Annual Meeting of Stockholders or until
         their successors are elected and qualified. The directors were elected
         based upon the following vote totals:

          Director              Votes For      Votes Withheld
          -----------------  ---------------   --------------
          Mark W. Tierney       17,041,552        1,705,115
          John J. Davis         14,988,150        3,758,517

(b)      A proposal for an amendment to the Company's 1999 Stock Incentive Plan
         to increase the number of shares authorized under the plan from
         3,000,000 to 5,000,000. The proposal passed based upon the following
         vote totals:

             Votes For       Votes Against     Votes Abstain    Broker Non-Votes
           -------------    ---------------   ---------------   ----------------
             7,892,531         7,815,716          29,983            3,008,437


Item 5.  Other Information

         None.


Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

         The following exhibits are submitted herewith:

         3.1      Fifth Amended and Restated Articles of Incorporation of the
                  Company (incorporated by reference to Exhibit 3.1 of
                  Registrant's Registration Statement on Form S-1, Registration
                  Number 333-87985).

         3.2      Amended and Restated Bylaws of the Company (incorporated by
                  reference to Exhibit 3.2 of Registrant's Registration
                  Statement on Form S-1, Registration Number 333-87985).

         4.1      Form of Certificate of Common Stock of the Company
                  (incorporated by reference to Exhibit 4.1 of Registrant's
                  Registration Statement on Form S-1, Registration Number
                  333-87985).

         10.1     1993 Stock Option Plan (incorporated by reference to Exhibit
                  4.4 of Registrant's Registration Statement on Form S-8,
                  Registration Number 333-94081).

         10.2     1999 Stock Incentive Plan (incorporated by reference to
                  Exhibit 4.5 of Registrant's Registration Statement on Form
                  S-8, Registration Number 333-94081).

         10.3     1999 Employee Stock Purchase Plan (incorporated by reference
                  to Exhibit 4.6 of Registrant's Registration Statement on Form
                  S-8, Registration Number 333-94081).


                                       -15-

<PAGE>

         10.4     eBenX, Inc./Arbor Administrative Services, Inc. 2000 Equity
                  Compensation Plan (incorporated by reference to Exhibit 10.4
                  of Registrant's Form 10-K, filed March 23, 2001).

         10.5     Registration Rights Agreement, dated September 6, 2000
                  (relating to the registration rights of the previous
                  shareholders of Arbor Administrative Services, Inc.)
                  (incorporated by reference to Exhibit 10.15 of Registrant's
                  Form 10-K, filed March 23, 2001).

(b)      Reports on Form 8-K

         No reports on Form 8-K were filed during the three-month period ended
June 30, 2002.



                                       -16-

<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.

                                        EBENX, INC.

Date:  August 14, 2002                 By /s/ Randall J. Schmidt
                                          -------------------------------------
                                          Randall J. Schmidt
                                          Chief Financial Officer and Secretary
                                          (principal financial officer)



                                       -17-
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--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002.

[ ]      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 333-87985

                                   eBenX, Inc.
                            (Exact name of registrant
                          as specified in its charter)

             Minnesota                                      41-1758843
  (State or other jurisdiction of              (IRS Employer Identification No.)
   incorporation or organization)

                         605 North Highway 169 Suite LL
                          Minneapolis, Minnesota 55441

                    (Address of principal executive offices)

                        Telephone Number: (763) 614-2000
              (Registrant's telephone 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 [_]

As of August 1, 2002 there were 20,193,702 shares of the registrant's common
stock outstanding.

--------------------------------------------------------------------------------
EBENX, INC.
                          QUARTERLY REPORT ON FORM 10-Q
                       FOR THE PERIOD ENDED JUNE 30, 2002
                                      INDEX

                                                                            Page
                                                                            ----

PART I   FINANCIAL INFORMATION

Item 1.  Financial Statements
         Condensed Consolidated Balance Sheets at June 30, 2002 and
             December 31, 2001                                                1
         Condensed Consolidated Statements of Operations for the
             three- and six-month periods ended June 30, 2002 and 2001        2
         Condensed Consolidated Statements of Cash Flows for the
             six-month periods ended June 30, 2002 and 2001                   3
         Notes to Condensed Consolidated Financial Statements                 4

Item 2.  Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                        8
Item 3.  Quantitative and Qualitative Disclosures about Market Risk          13

PART II  OTHER INFORMATION

Item 1.  Legal Proceedings                                                   14
Item 2.  Changes in Securities and Use of Proceeds                           14
Item 3.  Defaults Upon Senior Securities                                     14
Item 4.  Submission of Matters to a Vote of Security Holders                 15
Item 5.  Other Information                                                   15
Item 6.  Exhibits and Reports on Form 8-K                                    15
EBENX, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
                             (Amounts in thousands)
June 30,   December 31,
                                                               2002         2001
                                                             ---------    ---------
ASSETS

Current assets:
    Cash and cash equivalents                                $   4,768    $   3,324
    Short-term investments                                      37,135       46,211
    Accounts receivable, net of allowance of $987 and $957       6,497        7,868
    Unbilled revenue                                             1,438        2,272
    Prepaid expenses and other                                   1,944        1,937
                                                             ---------    ---------
        Total current assets                                    51,782       61,612

Property and equipment, net                                      9,985       11,401
Loans receivable from employees                                    514          540
Note receivable                                                  1,300          800
Equity investment                                                2,067           --
Deposits                                                           121          113
Goodwill and other intangibles, net                             20,360       20,334
                                                             ---------    ---------
            Total assets                                     $  86,129    $  94,800
                                                             =========    =========

           LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Accounts payable                                         $     422    $     204
    Accrued compensation                                         1,745        2,297
    Accrued expenses                                             4,340        3,684
    Restructuring reserve                                        3,161           --
    Client liability reserve                                       443          670
    Deferred revenue                                               714          109
                                                             ---------    ---------
        Total current liabilities                               10,825        6,964

Shareholders' equity:
    Common stock                                                   201          199
    Additional paid-in capital                                 182,324      182,130
    Deferred stock-based compensation                           (2,118)      (3,145)
    Accumulated other comprehensive income                         195          204
    Retained deficit                                          (105,298)     (91,552)
                                                             ---------    ---------
        Total shareholders' equity                              75,304       87,836
                                                             ---------    ---------
            Total liabilities and shareholders' equity       $  86,129    $  94,800
                                                             =========    =========
See accompanying notes to condensed consolidated financial statements.

                                       -1-
EBENX, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                  (Amounts in thousands, except per share data)
Three Months Ended       Six Months Ended
                                                                        June 30,                June 30,
                                                                  --------------------    --------------------
                                                                    2002        2001        2002        2001
                                                                  --------    --------    --------    --------
Net revenue                                                       $ 12,031    $  7,828    $ 23,463    $ 15,144
Cost of services (exclusive of stock-based compensation
    expense of $106 and $242 for the three months ended
    June 30, 2002 and 2001 and $237 and $491 for the six
    months ended June 30, 2002 and 2001, respectively)               9,631       6,654      19,443      13,305
                                                                  --------    --------    --------    --------
      Gross profit                                                   2,400       1,174       4,020       1,839

Operating expenses:
    Selling, general and administrative (exclusive of stock-
      based compensation expense of $241 and $285 for the
      three months ended June 30, 2002 and 2001 and
      $504 and $626 for the six months ended June 30, 2002
      and 2001, respectively)                                        3,491       3,766       7,370       7,660
    Research and development (exclusive of stock-based
      compensation expense of $68 and $103 for the three months
      ended June 30, 2002 and 2001 and $138 and $225 for the
      six months ended June 30, 2002 and 2001, respectively)         2,011       2,193       4,026       4,399
    Amortization of stock-based compensation                           415         630         879       1,342
    Amortization of goodwill and other intangibles                      --       5,650          --      11,313
    Restructuring charge                                                --          --       6,223          --
                                                                  --------    --------    --------    --------
      Total operating expenses                                       5,917      12,239      18,498      24,714
                                                                  --------    --------    --------    --------
Loss from operations                                                (3,517)    (11,065)    (14,478)    (22,875)
Interest income and other, net                                         367       1,058         732       2,346
                                                                  --------    --------    --------    --------
Net loss                                                          $ (3,150)   $(10,007)   $(13,746)   $(20,529)
                                                                  ========    ========    ========    ========
Net loss per share:
    Basic and diluted                                             $  (0.16)   $  (0.51)   $  (0.69)   $  (1.06)
                                                                  ========    ========    ========    ========
Shares used in calculation of net loss per share:
    Basic and diluted                                               19,935      19,479      19,838      19,410
                                                                  ========    ========    ========    ========
See accompanying notes to condensed consolidated financial statements.

                                       -2-
EBENX, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                             (Amounts in thousands)
Six Months Ended
                                                                  June 30,
                                                           ----------------------
                                                              2002         2001
                                                           ---------    ---------
Operating activities:
    Net loss                                               $ (13,746)   $ (20,529)
    Adjustments to reconcile net loss to net cash
      used in operating activities:
      Depreciation of property and equipment                   1,357        1,131
      Amortization of stock-based compensation,
        goodwill and other intangibles                           879       12,655
      Changes in operating assets and liabilities:
        Accounts receivable                                    1,380         (112)
        Other current assets                                     853        1,609
        Accounts payable                                         218           29
        Accrued expenses                                         943          169
        Restructuring reserve                                  3,148           --
        Client liability reserve                                (227)          --
        Deferred revenue                                         605          250
        Deposits                                                  (8)          (5)
                                                           ---------    ---------
           Net cash used in operating activities              (4,598)      (4,803)

Investing activities:
    Additions to property and equipment                         (755)      (2,187)
    Purchases of investments                                 (61,472)    (222,368)
    Sales of investments                                      70,539      228,941
    Advances on notes                                           (500)          --
    Cost of acquisition, net of cash acquired                 (2,102)          --
    Advances to employees                                         --          (72)
                                                           ---------    ---------
           Net cash provided by investing activities           5,710        4,314

Financing activities:
    Stock options and warrants exercised                         169          113
    Proceeds from issuance of common stock, net of costs         163           --
                                                           ---------    ---------
           Net cash provided by financing activities             332          113

Net increase in cash and cash equivalents                      1,444         (376)

Cash and cash equivalents at beginning of period               3,324          764
                                                           ---------    ---------
Cash and cash equivalents at end of period                 $   4,768    $     388
                                                           =========    =========
See accompanying notes to condensed consolidated financial statements.

                                       -3-
EBENX, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

1.  Business Description and Summary of Significant Accounting Policies

Business Description

         eBenX, Inc., a Minnesota corporation incorporated in September 1993
(the "Company"), provides technology-based solutions for the purchase,
administration and payment of group health and welfare benefits. The Company
currently operates in a single business segment providing services to employers,
brokers and other employee benefit advisors, and health plans and other
carriers. The Company's customers are located throughout the United States.

Basis of Presentation

         The condensed consolidated financial statements included herein, except
for the December 31, 2001 balance sheet which was extracted from the audited
financial statements of December 31, 2001, have been prepared by the Company
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (all of which are
normal and recurring in nature) that are necessary for a fair presentation of
the interim periods presented. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The results of operations for the three- and six-month
period ended June 30, 2002 are not necessarily indicative of the results to be
expected for any subsequent quarter or for the entire year ended December 31,
2002. These unaudited consolidated financial statements and notes included
herein should be read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.

Principles of Consolidation

         The consolidated financial statements include the Company and its
wholly owned subsidiaries, Arbor Associates, Inc. and Managed Care Buyer's
Group, Inc. All intercompany accounts and transactions have been eliminated in
consolidation.

Net Loss Per Share

         Basic net loss per share is based on the weighted-average shares
outstanding during the period. Diluted net loss per share increases the shares
used in the per share calculation by the dilutive effects of options, warrants,
and convertible securities. The Company's common stock equivalent shares
outstanding from stock options and warrants are excluded from the diluted net
loss per share computation for all periods because their effect would be
antidilutive.

Reclassification

         Certain prior year items have been reclassified to conform to the
current year presentation.

2.  Comprehensive Income

         Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," establishes standards for the reporting and display of
comprehensive income and its components. Adjustments to comprehensive loss for
the six months ended June 30, 2002 consisted of unrealized losses on
available-for-sale securities of $9,000, resulting in a total comprehensive loss
of $13,755,000. The tax effects of these other comprehensive adjustments were
not considered to be material.

                                       -4-
3.  Restructuring Charge

         In the first quarter of 2002, management approved plans to undertake
restructuring and cost saving actions which included workforce reductions,
vacating leased office space, asset disposals, and other costs related to
re-engineering and restructuring business processes and operations. The Company
completed these actions in the first quarter, and as a result, the Company
recorded a restructuring expense of $6,223,000.

         The initial restructuring expenses described above and subsequent
reductions to the related liability accounts included the following:
Employee    Contractual
                                       Termination     Lease        Asset
(in thousands)                          Benefits    Obligations   Disposals      Other        Total
                                       -----------  -----------   ---------     -------      -------
Initial expense and accrual              $ 1,004      $ 3,492      $   813      $   914      $ 6,223
Cash payments                               (755)        (507)          --         (987)      (2,249)
Non-cash charges                              --           --         (813)          --         (813)
                                         -------      -------      -------      -------      -------
Restructuring reserve, June 30, 2002     $   249      $ 2,985      $    --      $   (73)     $ 3,161
                                         =======      =======      =======      =======      =======
Employee termination benefits in the first six months included expenses
related to the reduction of 34 personnel primarily through facility closures and
consolidation of corporate administrative functions.

         Contractual lease obligations relate primarily to future contractual
lease costs associated with vacating two floors at the Minneapolis headquarters
location. The Company is actively seeking to sublease this space.

         Asset disposals relate to office equipment to be disposed of and
leasehold improvements written-off. These assets were related to the two closed
floors at the Minneapolis headquarters location.

4.  Acquisitions and Investment

         On November 5, 2001, the Company completed the acquisition of the
health and welfare assets of Howard Johnson & Company ("Howard Johnson"), a
wholly owned subsidiary of Merrill Lynch & Company, Inc., for a final purchase
price of approximately $12.6 million, including approximately $11.5 million paid
in cash at closing and approximately $1.1 million in assumed obligations to
employees, pursuant to the terms of an Asset Purchase Agreement between Howard
Johnson and the Company dated as of October 19, 2001 (the "Asset Purchase
Agreement"). The purchase price was funded from the Company's existing cash.

         In connection with the consummation of this acquisition, the Company
entered into a Shared Services Agreement with Howard Johnson pursuant to which
Howard Johnson will provide agreed upon services to the Company in connection
with the Company's health and welfare business for up to 24 months. The Company
is currently obligated to pay Howard Johnson a monthly fee of $187,500, subject
to reduction as responsibility for providing these services to each client is
transferred to the Company. The Company also entered into a Marketing Agreement
with Howard Johnson pursuant to which Howard Johnson may refer potential and
existing clients seeking health and welfare benefits services to the Company in
exchange for a percentage of revenues from such referrals.

         The above acquisition was accounted for using the purchase method of
accounting. The excess of the consideration provided over the relative fair
value of the assets acquired was allocated to goodwill. The allocation of
purchase price related to the acquisition of the health and welfare assets of
Howard Johnson is subject to change pending a final analysis of the value of the
assets acquired and the liabilities assumed.

                                       -5-
The following summary, prepared on an unaudited pro forma basis,
reflects the condensed consolidated results of operations for the six month
periods ended June 30, 2002 and 2001, assuming the health and welfare assets of
Howard Johnson had been acquired at the beginning of fiscal 2001:

(in thousands, except
per share data)                       Three months ended     Six months ended
                                            June 30,             June 30,
                                      ----------------------------------------
                                        2002       2001       2002      2001
                                      --------   --------   --------  --------
Revenue                               $ 12,031   $ 12,485   $ 23,463  $ 24,124
Loss from operations, excluding
  amortization of stock-based
  compensation, goodwill and
  other intangibles and
  restructuring charge                $ (3,102)  $ (4,217)  $ (7,376) $ (9,418)
Net loss                              $ (3,150)  $ (9,543)  $(13,746) $(19,935)
Basic and diluted net loss per share  $  (0.16)  $  (0.49)  $  (0.69) $  (1.03)

         The pro forma results are not necessarily indicative of what would have
occurred if the acquisition had been in effect for the three- and six-month
periods ended June 30, 2001. They are not intended to be a projection of future
results and do not reflect any synergies that might be affected from combined
operations.

         In February 2002, the Company entered into an agreement with Benu, Inc.
(formerly known as "Emerge HealthCare, Inc."), a privately held Delaware
corporation, to develop and deliver new risk-adjusted pricing health and welfare
benefit products. The Company will provide the technology and services to these
new developing products and will license its proprietary platform to Benu, Inc.
("Benu"). Coincident with entering into the agreement, the Company also
participated in the series B preferred share equity offering of Benu and
purchased shares representing less than 20% of the outstanding shares of Benu
for approximately $2 million. This investment will be carried at cost and
recoverability of the carrying amount will be evaluated on a periodic basis.

5.  Deferred stock-based compensation

         In connection with the granting of stock options to employees prior to
the Company's initial public offering, the Company recorded deferred stock-based
compensation of approximately $5.5 million in the year ended December 31, 1999.
This amount represents the difference between the exercise price and the deemed
fair value of the Company's common stock for accounting purposes on the date
these stock options were granted. In connection with the acquisition of Arbor
Administrative Services, Inc. ("Arbor") in September 2000, the Company recorded
deferred stock-based compensation of $5.2 million. This amount represents the
difference between the exercise price and the deemed fair value of the Company's
common stock for accounting purposes on the date all outstanding unvested
options and restricted stock of Arbor were converted to Company options and
restricted stock. The deferred stock-based compensation is included as a
component of stockholders' equity and is being amortized over the vesting period
of the options. Amortization expense of approximately $415,000 and $630,000 was
recognized in the three months ended June 30, 2002 and 2001, respectively. For
the six-month periods ending June 30, 2002 and 2001, approximately $879,000 and
$1.3 million of amortization expense was recognized, respectively.

6.  Note Receivable

        In conjunction with the formation of a strategic alliance to develop,
promote, distribute and support an integrated Web-based benefits administration
and communications product for mid-sized employers, the Company entered into a
joint development agreement and a related loan agreement on August 31, 2001,
granting a line of credit of $1.5 million to Online Benefits, Inc. ("Online"), a
privately held Delaware corporation. The outstanding principal balance under the
line of credit bears interest at a rate of 8% per annum. Interest is due
annually on the anniversary date of the loan agreement. On August 31, 2004, the
third anniversary date of the loan agreement, payment of the lesser of the
outstanding principal balance under the line of credit or the total gross
revenues received by the strategic alliance through such date is due. If less
than the entire principal balance under the line of credit is paid on August 31,
2004, then the lesser of the remaining principal balance or the total gross
revenues of the strategic alliance for the preceding year is due on the next and
each succeeding anniversary date of the loan agreement. Any remaining
outstanding principal balance under the line of credit is due on

                                       -6-
August 31, 2006. At June 30, 2002, $1.3 million has been loaned to Online and is
outstanding under the line of credit. This amount is recorded as a note
receivable.

         As a condition of the loan agreement, the Company received warrants to
purchase common stock of Online at an exercise price of $1.644 per share. The
warrants entitle the Company to purchase shares equal to 15% of the total
advances on the line of credit, divided by the per share exercise price. The
warrants expire August 31, 2006. Warrants for the purchase of 118,613 shares of
common stock were outstanding at June 30, 2002.

7.  Letter of Credit

         On August 29, 2001, the Company secured an irrevocable letter of credit
for approximately $1.8 million. The letter was required under the operating
lease of the Company's corporate headquarters, and as such, the lessor is
assigned as the beneficiary of the funds in the event of default on the lease.
The letter of credit expires July 31, 2005, and is collateralized by securities
restricted for that purpose.

8.  Recent Accounting Pronouncements

         The Company has adopted Statement of Financial Accounting Standards No.
141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets,
issued by the Financial Accounting Standards Board. Under the new rules,
goodwill and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with the
Statements. Other intangible assets will be amortized over their useful lives.

         The effect of the change in accounting resulted in an increase to net
income of $2.2 million for the quarter ended June 30, 2002 and $4.4 million for
the six months ended June 30, 2002. The Company has performed the first of the
required impairment tests of goodwill and indefinite lived intangible assets as
of January 1, 2002 and concluded there was no potential goodwill impairment for
the Company at that date.

         The following summary, prepared on an unaudited pro forma basis,
reflects the condensed consolidated results of operations for the three and six
month periods ended June 30, 2002 and 2001, assuming no amortization of goodwill
and other intangibles in 2001:
(in thousands except per share data)      Three Months Ended               Six Months Ended
                                               June 30,                        June 30,
                                      --------------------------      --------------------------
                                         2002            2001            2002            2001
                                      ----------      ----------      ----------      ----------
Reported net loss                     $   (3,150)     $  (10,007)     $  (13,746)     $  (20,529)
  Add back: Goodwill amortization             --           5,650              --          11,313
                                      ----------      ----------      ----------      ----------
  Adjusted net loss                   $   (3,150)     $   (4,357)     $  (13,746)     $   (9,216)
                                      ==========      ==========      ==========      ==========

Net loss per share:
  Reported net loss per share         $    (0.16)     $    (0.51)     $    (0.69)     $    (1.06)
  Goodwill amortization per share             --            0.29              --            0.58
                                      ----------      ----------      ----------      ----------
  Adjusted net loss per share         $    (0.16)     $    (0.22)     $    (0.69)     $    (0.48)
                                      ==========      ==========      ==========      ==========
In August 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the
accounting and reporting provision of APB Opinion No. 30, "Reporting the Results
of Operations" for a disposal of a segment of a business. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001, with earlier
application encouraged.

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

         Except for historical information, this document contains various
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements involve risks and uncertainties,
including, among other things, statements regarding our revenue mix, anticipated
costs and expenses, service development, relationships with strategic partners
and pending acquisitions. These forward-looking statements include declarations
regarding our belief or current expectations of management, such as statements
indicating that "we expect," "we anticipate," "we intend," "we believe," and
similar language. We caution that any forward-looking statement made by us in
this Quarterly Report on Form 10-Q or in other announcements made by us are
further qualified by important factors that could cause actual results to differ
materially from those projected in the forward-looking statements, including
without limitation the risks discussed in our Annual Report on Form 10-K filed
on March 28, 2002.

         The following discussion and analysis of the financial condition and
results of operations of eBenX should be read in conjunction with the
consolidated financial statements and related notes for the year ended December
31, 2001, and included in our Annual Report on Form 10-K as filed with the
Securities and Exchange Commission. For information regarding the Company's
Critical Accounting Policies, refer to the Company's Annual Report on Form 10-K
for the year ended December 31, 2001.

Overview

         We provide specialized technology-based solutions to employers,
brokers, employee benefit advisors, and health plans and other carriers for the
purchase, administration, and payment of group health and welfare benefits. We
apply the Internet and other technology to simplify and automate the complex,
ongoing and multiple transactions associated with the exchange of health and
welfare benefits data and dollars.

         On November 5, 2001, we acquired the health and welfare assets of
Howard Johnson & Company, a wholly owned subsidiary of Merrill Lynch & Company,
Inc., for a purchase price of $12.6 million, consisting of approximately $11.5
million in cash and the assumption of $1.1 million of liabilities. The
acquisition was accounted for under the purchase method of accounting. Under
this method, the purchase price is allocated to the assets acquired and
liabilities assumed based on their determined fair market values. The assets
acquired primarily consist of customer contracts and arrangements for the
provision of health and welfare benefits administration services.

         Revenue is derived primarily from providing ongoing annual enrollment
and health and welfare eligibility administration and premium billing and
payment exchange services. Administrative or exchange services revenue typically
is priced on a per employee per month basis with adjustments made to accommodate
the number of health plans and other carriers required by the customer. We
typically enter into multi-year contracts with our large employer customers and
often provide fixed and variable fee structures to permit volume-adjusted
pricing. Customers may purchase some or all of our services, and the customer
relationship may evolve from utilizing consulting services to utilizing
implementation and enrollment services and per employee-based administrative
services.

         Cost of services consists primarily of personnel costs for account
management, operations, production, consulting and information technology costs
for both ongoing consulting and administrative services, as well as for customer
implementation expense. The information technology costs relate to personnel
costs for implementing and maintaining customer and health plan computer
interfaces and computer hardware and software expenses related to computer
processing. A portion of cost of services consists of new customer
implementation expenses. Therefore, as a short-term effect of growth, increasing
numbers of new customers will cause the cost of services as a percentage of net
revenue to increase.

         Selling, general and administrative expenses consist primarily of
payroll and payroll-related expenses associated with sales and marketing,
executive management and corporate administrative personnel, as well as
professional fees and expenditures for advertising, public relations and
promotional efforts.

         Research and development expenses consist primarily of development
personnel and external contractor costs related to the development of new
products and services, enhancement of existing products and services, quality
assurance and testing. The Company follows AICPA Statement of Position No. 98-1,
"Accounting for the Costs of Computer

                                       -8-
Software Developed or Obtained for Internal Use", in accounting for internally
developed software. To date, we have not capitalized our software development
costs as a majority of our in-house development efforts related to determining
specific software requirements and evaluating alternatives related to specific
performance criteria for our products. As a result, research and development
costs have been expensed as incurred.

         Since our inception, we have incurred losses. As of June 30, 2002, we
had an accumulated deficit of $105.3 million. These losses and this accumulated
deficit have resulted from the significant costs incurred in the development of
our technology platform, the establishment of relationships with our customers,
the development and maintenance of our customer and carrier interfaces,
amortization of stock-based compensation and goodwill and other intangibles and
a $30.4 million impairment charge to the carrying value of goodwill associated
with the September 2000 acquisition of Arbor. Although we have experienced
significant revenue growth in recent periods, our operating results for future
periods are subject to numerous uncertainties.

Results of Operations

         The following table sets forth for the periods indicated selected
statement of operations data expressed as a percentage of net revenues.
Three Months Ended   Six Months Ended
                                                          June 30,           June 30,
                                                    ------------------   ----------------
                                                      2002      2001      2002      2001
                                                     -----     -----     -----     -----
Net revenue                                          100.0%    100.0%    100.0%    100.0%
Cost of services                                      80.1      85.0      82.9      87.9
                                                     -----    ------     -----    ------
      Gross profit                                    19.9      15.0      17.1      12.1

Operating expenses:
    Selling, general and administrative               29.0      48.1      31.4      50.6
    Research and development                          16.7      28.0      17.2      29.0
    Amortization of stock-based compensation           3.4       8.0       3.7       8.9
    Amortization of goodwill and other intangibles      --      72.2        --      74.7
    Restructuring charge                                --        --      26.5        --
                                                     -----    ------     -----    ------
      Total operating expenses                        49.1     156.3      78.8     163.2
                                                     -----    ------     -----    ------
Loss from operations                                 (29.2)   (141.3)    (61.7)   (151.1)
Interest income and other, net                         3.1      13.5       3.1      15.5
                                                     -----    ------     -----    ------
Net loss                                             (26.1%)  (127.8%)   (58.6%)  (135.6%)
                                                     =====    ======     =====    ======
-9-
In addition to our operating results, we also track and provide
enrollment statistics. Enrollment is defined as the number of our customers'
employees or retirees to which we currently provide administration services.
Pending enrollment commitments include new customer employee commitments that
will be implemented in the foreseeable future, and exclude enrolled employees
known to be terminating in the future. The following table sets forth our
enrollment statistics for the periods indicated.

                                                           June 30,
                                                    --------------------
                                                      2002         2001
                                                    ---------    -------

Enrollment                                          1,073,000    814,000
Net pending enrollment commitments                     29,000     36,000
                                                    ---------    -------
Enrollment plus commitments                         1,102,000    850,000
                                                    =========    =======

Comparison of the three months ended June 30, 2002 and 2001

         Net revenue. Net revenue for the three months ended June 30, 2002
increased to $12 million from $7.8 million for the same period in 2001,
representing an increase of $4.2 million, or 53.7%. This increase was due
primarily to additional revenue derived from the acquisition of the health and
welfare clients of Howard Johnson in November 2001, and as a result of the new
sales made during calendar year 2001 and 2002. This increase was partially
offset by the discontinuance of the majority of services provided to Verizon
Communications, Inc. on December 31, 2001 and the termination of several
unprofitable clients during 2001.

         Cost of services. Cost of services for the three months ended June 30,
2002 increased to $9.6 million, from $6.7 million for the same period in 2001,
representing an increase of $3 million, or 44.7%. The primary reason for this
increase was additional service expense associated with the acquisition of the
health and welfare clients of Howard Johnson. Cost of services, as a percentage
of net revenues, decreased to 80.1% for the three months ended June 30, 2002
from 85% for the same period in 2001, primarily as a result of the acquisition
of the health and welfare clients of Howard Johnson and actions taken during
first quarter 2002 to become more efficient, consistent with the Company's plan
to improve gross margins.

         Selling, general and administrative. Selling, general and
administrative expenses for the three months ended June 30, 2002 decreased to
$3.5 million, from $3.8 million for the same period in 2001, representing a
decrease of $275,000, or 7.3%. Selling, general and administrative expenses, as
a percentage of net revenues, decreased to 29% for the three months ended June
30, 2002, from 48.1% for the same period in 2001, primarily as a result of
increased revenues and actions taken to hold firm or reduce certain SG&A
expenditures from 2001 levels. These actions include the 2002 reductions to
corporate headquarters office space and reductions to the general and
administrative workforce.

         Research and development. Research and development expenses for the
three months ended June 30, 2002 decreased to $2 million, from $2.2 million for
the same period in 2001, representing a decrease of $182,000, or 8.3%. This
decrease was primarily due to a decrease in contractor expenses. Research and
development expenses, as a percentage of net revenues, decreased to 16.7% for
the three months ended June 30, 2002, from 28% for the same period in 2001,
primarily as a result of increased revenues, while holding firm or reducing
certain R&D expenditures.

          Amortization of stock-based compensation. In connection with the
granting of stock options to employees prior to our initial public offering, we
recorded deferred stock-based compensation in 1999, with an additional amount
recorded in 2000 related to our acquisition of Arbor. We recorded $415,000 in
amortization expense related to the deferred stock-based compensation for the
three months ended June 30, 2002, a decrease of 34.1% from the $630,000 recorded
for the same period in 2001. This decrease will continue through future quarters
as the calculation of the expense under SFAS 123 requires heavier weighting of
the expense in the early years of the option's life. Amortization of deferred
stock-based compensation will result in an additional $2.1 million of charges to
operations through 2004.

         Interest income and other, net. Net interest income includes income
earned from our invested cash and short-term securities and income earned from
facilitating our customers' payments to their health plans. Net interest income
decreased

                                       -10-
to $367,000 for the three months ended June 30, 2002, from $1.1 million for the
same period in 2001. The $691,000 decrease, or 65.3%, is primarily a result of
the decrease in our short-term investment portfolio from the acquisition of the
health and welfare assets of Howard Johnson, cash used in operations and for
capital expenditures, as well as a decrease in the return on investment of the
securities that are held in our short-term investment portfolio due to a general
decline in interest rates.

Comparison of the six months ended June 30, 2002 and 2001

         Net revenue. Net revenue for the six months ended June 30, 2002
increased to approximately $23.5 million from $15.1 million for the same period
in 2001, representing an increase of $8.3 million, or 54.9%. This increase was
due primarily to additional revenue derived from the acquisition of the health
and welfare clients of Howard Johnson in November 2001, and as a result of the
new sales made during calendar year 2001 and 2002. This increase was partially
offset by the discontinuance of the majority of services provided to Verizon
Communications, Inc. on December 31, 2001 and the termination of several
unprofitable clients during 2001.

         Cost of services. Cost of services for the six months ended June 30,
2002 increased to $19.4 million, from $13.3 million for the same period in 2001,
representing an increase of $6.1 million, or 46.1%. The primary reason for this
increase was additional service expense associated with the acquisition of the
health and welfare clients of Howard Johnson. Cost of services, as a percentage
of net revenues, decreased to 82.9% for the six months ended June 30, 2002 from
87.9% for the same period in 2001, primarily as a result of the acquisition of
the health and welfare clients of Howard Johnson and actions taken during first
quarter 2002 to become more efficient, consistent with the Company's plan to
improve gross margins.

         Selling, general and administrative. Selling, general and
administrative expenses for the six months ended June 30, 2002 decreased to $7.4
million, from $7.7 million for the same period in 2001, representing a decrease
of $290,000, or 3.8%. Selling, general and administrative expenses, as a
percentage of net revenues, decreased to 31.4% for the six months ended June 30,
2002, from 50.6% for the same period in 2001, primarily as a result of increased
revenues and actions taken to hold firm or reduce certain SG&A expenditures from
2001 levels. These actions include first quarter 2002 reductions to corporate
headquarters office space and reductions to the general and administrative
workforce which were offset by strengthening bad debt reserves and additional
expenses associated with the acquisition of the health and welfare assets of
Howard Johnson.

         Research and development. Research and development expenses for the six
months ended June 30, 2002 decreased to $4 million, from $4.4 million for the
same period in 2001, representing a decrease of $373,000, or 8.5%. This decrease
was primarily due to a decrease in contractor expenses. Research and development
expenses, as a percentage of net revenues, decreased to 17.2% for the six months
ended June 30, 2002, from 29% for the same period in 2001, primarily as a result
of increased revenues, while holding firm or reducing certain R&D expenditures.

          Amortization of stock-based compensation. In connection with the
granting of stock options to employees prior to our initial public offering, we
recorded deferred stock-based compensation in 1999, with an additional amount
recorded in 2000 related to our acquisition of Arbor. We recorded $879,000 in
amortization expense related to the deferred stock-based compensation for the
six months ended June 30, 2002, a decrease of 34.5% from the $1.3 million
recorded for the same period in 2001. This decrease will continue through future
quarters as the calculation of the expense under SFAS 123 requires heavier
weighting of the expense in the early years of the option's life. Amortization
of deferred stock-based compensation will result in an additional $2.1 million
of charges to operations through 2004.

         Restructuring charge. In the first quarter of 2002, management approved
plans to undertake restructuring and cost saving actions which included
workforce reductions, vacating leased office space, asset disposals, and other
costs related to re-engineering and restructuring business processes and
operations. The Company completed these actions in the first quarter, and as a
result, the Company recorded a restructuring expense of $6,223,000.

         Amortization of goodwill and other intangibles. Under SFAS No. 142,
Goodwill and Other Intangible Assets, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual
impairment tests. Other intangible assets will be amortized over their useful
lives. The Company performed the first of the required impairment tests of
goodwill and indefinite lived intangible assets as of January 1, 2002 and
concluded there was

                                       -11-
no potential impairment for the Company at that date. As such, the Company did
not amortize goodwill and other intangibles during the first six months of 2002.
During the first six months of 2001, the Company recorded $11.3 million of
amortization of goodwill and other intangibles.

         Interest income and other, net. Net interest income includes income
earned from our invested cash and short-term securities and income earned from
facilitating our customers' payments to their health plans. Net interest income
decreased to $732,000 for the six months ended June 30, 2002, from $2.3 million
for the same period in 2001. The $1.6 million decrease, or 68.8%, is primarily a
result of the decrease in our short-term investment portfolio from the
acquisition of the health and welfare assets of Howard Johnson, cash used in
operations and for capital expenditures, as well as a decrease in the return on
investment of the securities that are held in our short-term investment
portfolio due to a general decline in interest rates.

         Income taxes. As of December 31, 2001, we had unused federal and state
research and development tax credit carryforwards of approximately $250,000
which begin to expire in 2009. In addition, we had unused federal net operating
loss carryforwards at December 31, 2001 of approximately $23.1 million which
begin to expire in 2009. The utilization of these carryforwards is dependent
upon our ability to generate sufficient taxable income during carryforward
periods and therefore, are not recognized as an asset on the Company's balance
sheet.

         Significant balance sheet changes. Total assets decreased from $94.8
million as of December 31, 2001 to $86.1 million as of June 30, 2002, primarily
as a result of decreases in short-term investments, accounts receivable,
unbilled revenue and property and equipment. An additional advance under a line
of credit and an equity investment in Benu offset these decreases. The decrease
in accounts receivable and unbilled revenue resulted from collections during the
first six months of 2002 of open enrollment fees which were billed or accrued
for our mid-market and Howard Johnson clients during the fourth quarter of 2001.
Property and equipment decreased as a result of depreciation and assets disposed
of or written-off in connection with restructuring and cost saving actions taken
in the first quarter of 2002.

         Total liabilities increased from $7 million as of December 31, 2001 to
$10.8 million as of June 30, 2002, primarily as a result of reserves held for
restructuring and cost saving actions taken in the first quarter of 2002 and an
increase in deferred revenue related to revenues that have been billed according
to the terms of the contract, but not recognized as of June 30, 2002 in
accordance with GAAP.

Liquidity and Capital Resources

         Our initial public offering on December 10, 1999 generated gross
proceeds of $100 million in cash. The January 2000 exercise of the underwriter's
over-allotment option to purchase 750,000 shares at $20.00 per share generated
additional gross proceeds of $15 million in cash. After underwriting discounts
and commissions and other costs, the net proceeds from the offering totaled
$105.5 million. Approximately $20.4 million of these proceeds were used in
connection with our acquisition of Arbor in September 2000.

         On November 5, 2001, we acquired the assets of the health and welfare
business unit of Howard Johnson & Company, a wholly owned subsidiary of Merrill
Lynch & Company, Inc., for a final purchase price of approximately $12.6
million, consisting of approximately $11.5 million in cash and the assumption of
approximately $1.1 million in assumed obligations to employees which were
primarily paid in the second quarter of 2002.

         We intend to use the remaining proceeds from the offering for general
corporate purposes, including working capital, sales and marketing expenditures,
development of new products and services, and investment in technology
infrastructure. In addition, a portion of the net proceeds may be used for other
acquisitions of businesses, products and technologies that are complementary to
ours. Pending use of the net proceeds for the above purposes, we intend to
invest the net proceeds from this offering in short-term, interest-bearing,
investment-grade securities.

         As of June 30, 2002, we had $41.9 million in short-term investments and
cash and cash equivalents. Short-term investments plus cash and cash equivalents
decreased by approximately $2.8 million and $7.6 million during the three months
and six months ended June 30, 2002, respectively. These reductions were due
primarily to the use of cash in operations (including expenditures related to
restructuring) and the investment in Benu (formerly known as "Emerge").
Short-term investments consisted primarily of commercial paper and corporate and
government bonds. Cash equivalents consisted primarily of money market funds.
Cash of $1.8 million has been restricted as collateral for a letter of credit.

                                       -12-
Our operating activities, which includes $2.2 million used for 2002
restructuring activities, used cash of $4.6 million in the six months ended June
30, 2002 and $4.8 million for the same period in 2001. The use of cash in
operations in 2002 was due primarily to funding our net loss and restructuring
activities, offset by remaining restructuring reserves, noncash charges for
depreciation and amortization of stock-based compensation, a decrease in
accounts receivable and unbilled revenue and an increase in accrued expenses.
The use of cash in operations in 2001 was due primarily to funding our net loss,
partially offset by noncash charges for depreciation and amortization of
stock-based compensation, goodwill and other intangibles.

         Our investing activities provided cash of $5.7 million and $4.3 million
in the six months ended June 30, 2002 and 2001, respectively. In 2002, our
investing activities generated $9.1 million in cash through net sales of
investments, while using $2.1 million for the investment in Benu, $500,000 in
additional advances under the line of credit to Online Benefits, Inc., and
$755,000 for additions to equipment. In 2001, our investing activities provided
cash of $6.5 million through net sales of investments while using $2.2 million
for additions to equipment.

         Our financing activities provided cash of $332,000 and $113,000 in the
six months ended June 30, 2002 and 2001, respectively. In 2002, cash flows from
financing activities consisted of proceeds from the sale of stock through our
employee stock purchase plan and through the exercise of stock options and
warrants. In 2001, our financing activities consisted of proceeds from the
exercise of stock options and warrants.

         Our equipment additions consist primarily of computer hardware and
software, office furniture and equipment and leasehold improvements. Since
inception, we have generally funded equipment additions either through the use
of working capital or with operating leases. We expect to continue to add
computer hardware and software and to fund these additions through working
capital or operating leases.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Sensitivity

         Our exposure to market risk for changes in interest rates relate
primarily to our short-term investments. We do not use derivative financial
instruments. The primary objective of our investment activities is to preserve
principal while maximizing yields without significantly increasing risk. Due to
the nature of our investments, we believe that there is no material risk
exposure. All investments are held at market value, with unrealized gains and
losses included in other comprehensive income.

         The table below represents principal (or notional) amounts and related
weighted-average interest rates by year of maturity for the Company's
investments at June 30, 2002 (in thousands):
2002         2003         2004         2005       Total
                            ---------    ---------    ---------    ---------    -------
Cash equivalents            $   4,768    $      --    $      --    $      --    $ 4,768
    Average interest rate         1.7%                                              1.7%

Short-term investments      $  11,746    $  16,876    $   7,416    $   1,097    $37,135
    Average interest rate         3.2%         3.2%         3.3%         4.2%       3.2%
Exchange Rate and Commodity Price Sensitivity

         We do not conduct business outside of the United States and do not
invest in foreign instruments or commodities and, therefore, have no direct
exposure related to either foreign currency exchange rate fluctuation or
commodity price fluctuation.

                                       -13-
PART II

Item 1.  Legal Proceedings

         A class action lawsuit was filed on October 25, 2001 on behalf of
purchasers of the securities of the Company between December 9, 1999 and
December 6, 2000, inclusive. The lawsuit was filed in United States District
Court, Southern District of New York, against the Company, BancBoston Robertson
Stephens, Inc., Warburg Dillon Read LLC, Thomas Weisel Partners LLC, and eBenX
Chairman, Mark W. Tierney, Chief Executive Officer, John J. Davis, and Executive
Vice President & General Manager - Corporate Solutions, Scott P. Halstead. The
complaint alleges violations of Sections 11, 12(a)(2) and 15 of the Securities
Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated thereunder. The complaint alleges that the Company's
prospectus, filed in connection with the Company's initial public offering, was
materially false and misleading because it failed to disclose certain
commissions and agreements between the aforementioned parties and certain
investors and customers. The complaint seeks unspecified damages plus attorneys'
fees and rescission. The Company intends to vigorously defend against this
lawsuit.

Item 2.  Changes in Securities and Use of Proceeds

Recent Sales of Unregistered Securities

         None.

Use of Proceeds from Initial Public Offering

         On December 15, 1999, we closed our initial public offering of
5,000,000 shares of common stock. In January 2000, the underwriters exercised
their over-allotment option to purchase 750,000 shares at the initial offering
price of $20.00 per share. The shares of the common stock sold in the offering
were registered under the Securities Act of 1933 on a registration statement on
Form S-1 (No. 333-87985), the effective date of which was December 9, 1999. With
the over-allotment option, the aggregate initial public offering proceeds
totaled $115 million. After deducting underwriting discounts and commissions and
other offering expenses of $9.5 million, we received net proceeds of
approximately $105.5 million from the offering.

         Through June 30, 2002, we have used the net offering proceeds for the
following purposes in the approximate amounts set forth below (in millions):

Short-term investments                                               $  32.2
Acquisition of Arbor                                                    20.4
Acquisition of health and welfare assets of Howard Johnson              12.4
Equity investment                                                        2.1
Notes receivable                                                         1.3
Purchase of furniture and equipment                                     11.8
Working capital                                                         25.3
                                                                     -------
    Total                                                            $ 105.5

         In connection with our acquisition of Arbor, the eBenX President of
Mid-Market, formerly President of Arbor, received approximately $11.4 million in
his capacity as the majority shareholder of Arbor. Otherwise, none of the net
proceeds were paid, directly or indirectly to (i) officers or directors of eBenX
or its affialiates, (ii) persons owning 10% or more of our equity securities or
(iii) affiliates.

Item 3.  Defaults Upon Senior Securities

         Not applicable.

                                       -14-
Item 4.  Submission of Matters to a Vote of Security Holders

         The Company held its Annual Meeting of Stockholders in Minneapolis,
Minnesota on May 23, 2002. Of the 20,038,141 shares outstanding as of the record
date, 18,746,667 shares were present or represented by proxy at the meeting. The
following actions were voted upon:

(a)      A proposal to elect the directors listed in the table below to serve
         for a term ending upon the 2005 Annual Meeting of Stockholders or until
         their successors are elected and qualified. The directors were elected
         based upon the following vote totals:

          Director              Votes For      Votes Withheld
          -----------------  ---------------   --------------
          Mark W. Tierney       17,041,552        1,705,115
          John J. Davis         14,988,150        3,758,517

(b)      A proposal for an amendment to the Company's 1999 Stock Incentive Plan
         to increase the number of shares authorized under the plan from
         3,000,000 to 5,000,000. The proposal passed based upon the following
         vote totals:

             Votes For       Votes Against     Votes Abstain    Broker Non-Votes
           -------------    ---------------   ---------------   ----------------
             7,892,531         7,815,716          29,983            3,008,437

Item 5.  Other Information

         None.

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

         The following exhibits are submitted herewith:

         3.1      Fifth Amended and Restated Articles of Incorporation of the
                  Company (incorporated by reference to Exhibit 3.1 of
                  Registrant's Registration Statement on Form S-1, Registration
                  Number 333-87985).

         3.2      Amended and Restated Bylaws of the Company (incorporated by
                  reference to Exhibit 3.2 of Registrant's Registration
                  Statement on Form S-1, Registration Number 333-87985).

         4.1      Form of Certificate of Common Stock of the Company
                  (incorporated by reference to Exhibit 4.1 of Registrant's
                  Registration Statement on Form S-1, Registration Number
                  333-87985).

         10.1     1993 Stock Option Plan (incorporated by reference to Exhibit
                  4.4 of Registrant's Registration Statement on Form S-8,
                  Registration Number 333-94081).

         10.2     1999 Stock Incentive Plan (incorporated by reference to
                  Exhibit 4.5 of Registrant's Registration Statement on Form
                  S-8, Registration Number 333-94081).

         10.3     1999 Employee Stock Purchase Plan (incorporated by reference
                  to Exhibit 4.6 of Registrant's Registration Statement on Form
                  S-8, Registration Number 333-94081).

                                       -15-
10.4     eBenX, Inc./Arbor Administrative Services, Inc. 2000 Equity
                  Compensation Plan (incorporated by reference to Exhibit 10.4
                  of Registrant's Form 10-K, filed March 23, 2001).

         10.5     Registration Rights Agreement, dated September 6, 2000
                  (relating to the registration rights of the previous
                  shareholders of Arbor Administrative Services, Inc.)
                  (incorporated by reference to Exhibit 10.15 of Registrant's
                  Form 10-K, filed March 23, 2001).

(b)      Reports on Form 8-K

         No reports on Form 8-K were filed during the three-month period ended
June 30, 2002.

                                       -16-
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.

                                        EBENX, INC.

Date:  August 14, 2002                 By /s/ Randall J. Schmidt
                                          -------------------------------------
                                          Randall J. Schmidt
                                          Chief Financial Officer and Secretary
                                          (principal financial officer)

                                       -17-