<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 SEPTEMBER 30, 2001

[_]      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 November 1, 2001 there were 19,899,099 shares of the registrant's common
stock outstanding.

--------------------------------------------------------------------------------
<PAGE>

                                   EBENX, INC.
                          QUARTERLY REPORT ON FORM 10-Q
                     FOR THE PERIOD ENDED SEPTEMBER 30, 2001
                                      INDEX

                                                                            Page
                                                                            ----
PART I   FINANCIAL INFORMATION

Item 1.  Financial Statements
         Condensed Consolidated Balance Sheets at September 30, 2001 and
           December 31, 2000                                                 1
         Condensed Consolidated Statements of Operations for the three-
           and nine-month periods ended September 30, 2001 and 2000          2
         Condensed Consolidated Statements of Cash Flows for the
           nine-month periods ended September 30, 2001 and 2000              3
         Notes to Condensed Consolidated Financial Statements                4

Item 2.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations                                         7
Item 3.  Quantitative and Qualitative Disclosures about Market Risk         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                14
Item 5.  Other Information                                                  14
Item 6.  Exhibits and Reports on Form 8-K                                   15
<PAGE>

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

<TABLE>
<CAPTION>
                                                           September 30,   December 31,
                                                               2001            2000
                                                           -------------   ------------
<S>                                                          <C>            <C>
                           ASSETS

Current assets:
    Cash and cash equivalents                                $   2,066      $     764
    Short-term investments                                      65,749         76,744
    Accounts receivable, net of allowance of $585 and $178       3,964          3,973
    Unbilled revenue                                             2,123          3,477
    Prepaid expenses and other                                   1,581          1,234
                                                             ---------      ---------
        Total current assets                                    75,483         86,192

Property and equipment, net                                     10,682          9,800
Deposits                                                           105            103
Loans receivable from employees                                    564            492
Note receivable                                                    500           --
Goodwill and other intangibles, net                             43,742         60,639
                                                             ---------      ---------
            Total assets                                     $ 131,076      $ 157,226
                                                             =========      =========

              LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                         $     535      $     150
    Accrued compensation                                         1,499            585
    Accrued expenses                                             2,730          2,928
    Deferred revenue                                               210             93
                                                             ---------      ---------
        Total current liabilities                                4,974          3,756

Shareholders' equity:
    Common stock                                                   199            196
    Additional paid-in capital                                 182,044        182,246
    Deferred stock-based compensation                           (3,761)        (6,241)
    Accumulated other comprehensive income                         198              8
    Retained deficit                                           (52,578)       (22,739)
                                                             ---------      ---------
        Total shareholders' equity                             126,102        153,470
                                                             ---------      ---------
            Total liabilities and shareholders' equity       $ 131,076      $ 157,226
                                                             =========      =========
</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      Nine Months Ended
                                                                      September 30,           September 30,
                                                                   --------------------    --------------------
                                                                     2001        2000        2001        2000
                                                                   --------    --------    --------    --------
<S>                                                                <C>         <C>         <C>         <C>
Net revenue                                                        $  9,095    $  7,644    $ 24,239    $ 19,614
Cost of services (exclusive of stock-based compensation
    expense of $215 and $225 for the three months ended
    September 30, 2001 and 2000 and $705 and $575 for the nine
    months ended September 30, 2001 and 2000, respectively)           6,632       5,590      19,937      14,685
                                                                   --------    --------    --------    --------
      Gross profit                                                    2,463       2,054       4,302       4,929

Operating expenses:
    Selling, general and administrative (exclusive of stock-
      based compensation expense of $318 and $302 for the
      three months ended September 30, 2001 and 2000 and
      $944 and $775 for the nine months ended September 30, 2001
      and 2000, respectively)                                         4,065       3,198      11,725       8,510
    Research and development (exclusive of stock-based
      compensation expense of $111 and $145 for the
      three months ended September 30, 2001 and 2000 and
      $337 and $461 for the nine months ended September 30,
      2001 and 2000, respectively)                                    2,213       1,964       6,612       5,376
    Amortization of stock-based compensation                            644         672       1,986       1,811
    Amortization of goodwill and other intangibles                    5,656       1,518      16,969       1,518
                                                                   --------    --------    --------    --------
      Total operating expenses                                       12,578       7,352      37,292      17,215
                                                                   --------    --------    --------    --------
Loss from operations                                                (10,115)     (5,298)    (32,990)    (12,286)
Interest income and other, net                                          805       1,648       3,151       4,959
                                                                   --------    --------    --------    --------
Net loss                                                           $ (9,310)   $ (3,650)   $(29,839)   $ (7,327)
                                                                   ========    ========    ========    ========
Net loss per share:
    Basic and diluted                                              $  (0.47)   $  (0.21)   $  (1.53)   $  (0.44)
                                                                   ========    ========    ========    ========

Shares used in calculation of net loss per share:
    Basic and diluted                                                19,632      17,202      19,485      16,518
                                                                   ========    ========    ========    ========
</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>
                                                                   Nine Months Ended
                                                                     September 30,
                                                                 -----------------------
                                                                    2001          2000
                                                                 ----------   ----------
<S>                                                              <C>          <C>
Operating activities:
    Net loss                                                     $ (29,839)   $  (7,327)
    Adjustments to reconcile net loss to net cash
      used in operating activities:
      Depreciation of property and equipment                         1,787          954
      Amortization of stock-based compensation,
        goodwill and other intangibles                              18,955        3,329
      Loss on sale of property and equipment                          --            210
      Changes in operating assets and liabilities:
        Accounts receivable                                            (17)        (638)
        Other current assets                                         1,007       (1,749)
        Accounts payable                                               385         (979)
        Accrued expenses                                               670        1,276
        Deferred revenue                                               117           83
        Deposits                                                        (2)         (32)
                                                                 ---------    ---------
           Net cash used in operating activities                    (6,937)      (4,873)

Investing activities
    Additions to property and equipment                             (2,669)      (7,866)
    Purchases of investments                                      (311,738)    (602,396)
    Sales of investments                                           322,923      523,068
    Advances to employees                                              (72)        --
    Advances on note                                                  (500)        --
    Cost of acquisition, net of cash acquired                         --        (20,424)
                                                                 ---------    ---------
           Net cash provided by (used in) investing activities       7,944     (107,618)

Financing activities:
    Stock options and warrants exercised                               138          819
    Proceeds from issuance of common stock, net of costs               157       13,557
                                                                 ---------    ---------
           Net cash provided by financing activities                   295       14,376

Net decrease in cash and cash equivalents                            1,302      (98,115)

Cash and cash equivalents at beginning of period                       764       98,611
                                                                 ---------    ---------

Cash and cash equivalents at end of period                       $   2,066    $     496
                                                                 =========    =========

Non cash investing and financing activities:
    Issuance of common stock for acquisition                     $    --      $  49,440
    Deferred compensation related to options granted             $    --      $   5,169
</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, 2000 balance sheet which was extracted from the audited
financial statements of December 31, 2000, 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 nine-month
periods ended September 30, 2001 are not necessarily indicative of the results
to be expected for any subsequent quarter or for the entire year ended December
31, 2001. 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, 2000.

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 three months ended September 30, 2001 consisted of unrealized gains on
available-for-sale securities of $185,000, resulting in a total comprehensive
loss of $9,125,000. Adjustments to comprehensive loss for the nine months ended
September 30, 2000 consisted of unrealized gains on available-for-sale
securities of $190,000, resulting in a total comprehensive loss of $29,649,000.
The tax effects of these other comprehensive adjustments were not considered to
be material.

                                       4
<PAGE>

3. Shareholders' Equity

         On December 15, 1999, the Company closed its initial public offering of
5,000,000 shares of common stock sold at $20.00 per share. The Company received
$91.5 million in proceeds from the offering, net of underwriting discounts,
commissions, and other costs. An additional 750,000 shares were sold under the
exercise of the underwriter's over-allotment option in January 2000, resulting
in additional net proceeds to the Company of $14 million.


4. Acquisition

         On September 6, 2000, the Company completed its acquisition of Arbor
Administrative Services, Inc. ("Arbor"). Arbor provides benefits administration
and related Web-based services to employers. Arbor distributes its services
primarily through brokers and employee benefit advisors. The Company paid $17
million in cash and exchanged approximately 2,596,000 shares of eBenX stock with
a fair value of $44.6 million for all of the outstanding common stock of Arbor.
The Company also assumed all of the outstanding restricted stock, stock options
and warrants of Arbor at a fair value of $4.8 million. In connection with the
acquisition, the Company incurred transaction costs consisting primarily of
professional fees of $1.4 million, bringing the total purchase price for the
acquisition to $67.8 million.

         The acquisition was accounted for under the purchase method of
accounting in accordance with APB Opinion No. 16. Under the purchase method of
accounting, the purchase price is allocated to the assets acquired and
liabilities assumed based on their estimated fair values.

         The total purchase price paid for the Arbor acquisition was allocated
as follows (in thousands):

                  Net assets acquired                $     (48)
                  Intangible assets                  $   5,600
                  Goodwill                           $  62,275

         Goodwill and other intangible assets are being amortized over a
three-year period. At September 30, 2001, accumulated amortization related to
goodwill and other intangible assets acquired in the Arbor acquisition totaled
$24.1 million.


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 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 $644,000 and $672,000 was recognized in the three months ended
September 30, 2001 and 2000, respectively. For the nine-month periods ending
September 30, 2001 and 2000, amortization expense of approximately $2.0 million
and $1.8 million was recognized, respectively.

                                       5
<PAGE>

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, 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 August 31, 2006. At September 30,
2001, $500,000 was outstanding under the line of credit. This amount is recorded
as a note receivable.

         As a condition of the loan agreement, the Company received a warrant to
purchase common stock of Online Benefits at an exercise price of $1.644 per
share. The warrant entitles 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 warrant expires August 31, 2006. Under the warrant, the right to purchase
45,620 shares of common stock was outstanding at September 30, 2001.


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
pledged for that purpose.


8. Recent Accounting Pronouncements

         In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, Business Combinations, and
No. 142, Goodwill and Other Intangible Assets, effective for fiscal years
beginning after December 15, 2001. 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 Company will apply the new rules on accounting for goodwill and
other intangible assets beginning in the first quarter of 2002. Application of
the nonamortization provisions of the Statement is expected to result in an
increase in net income of $20.8 million and $14.2 million for 2002 and 2003,
respectively. During 2002, the Company will perform the first of the required
impairment tests of goodwill and indefinite lived intangible assets as of
January 1, 2002 and has not yet determined what the effect of these tests will
be on the earnings and financial position of the Company.


9. Subsequent Events

         On October 25, 2001, a class action lawsuit was filed against the
Company, certain executives of the Company, and the underwriters involved with
the Company's initial public offering of December 10, 1999. 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 underwriters and
certain investors and customers. The Company has not yet determined the effect,
if any, that this lawsuit will have on the Company's financial results.

         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 purchase price of $12.0 million, consisting of
approximately $11.3 million in cash and the assumption of $0.7 million of
liabilities.

                                       6
<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 23, 2001.

         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, 2000, and included in our Annual Report on Form 10-K as filed with the
Securities and Exchange Commission.

Overview

         We provide specialized technology-based solutions to employers, brokers
and other 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 data and
dollars between parties in the health and welfare benefits supply chain.

         In September 2000, we acquired Arbor Administrative Services, Inc.,
which merged into our wholly owned subsidiary, Arbor Associates, Inc. (Arbor).
Arbor is a Web-based benefits administrator that offers a Web/IVR benefits
platform, and provides full service benefit administration for mid-sized
employers. Arbor distributes its services primarily through brokers and other
employee benefits advisors.

         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. In many
cases, we allow fixed and variable fee structures to permit volume-adjusted
pricing. We recognize revenue for administrative services as the services are
performed. Revenue also is recorded for implementation fees associated with our
administrative services. These fees are recognized as revenue over the life of
the contract. We also receive fees for providing enrollment services. These fees
are recognized over the enrollment period as services are provided. In addition,
we earn revenue from health and welfare benefits procurement consulting fees as
services are performed. We typically enter into multi-year contracts with our
large employer customers. Customers may purchase some or all of our services,
and the customer relationship may evolve from utilizing procurement services to
utilizing implementation and enrollment services and per employee-based
administrative services.

         The establishment of new customer relationships involves lengthy and
extensive sales and implementation processes. The large employer sales process
typically takes four to six months, and the implementation process takes an
additional two to four months. The establishment of new mid-market customer
relationships is coordinated through the broker or employee benefit advisor that
typically has an existing relationship with the employer. The implementation
process for mid-market customers typically takes one to four months. The sales
process is accounted for under the selling, general and administrative expense
category. The implementation process affects cost of services but may also
impact research and development expense to the extent new customer relationships
require new or enhanced service offerings.

         Cost of services consists primarily of personnel costs for account
management, operations, production and procurement and information technology
costs for both ongoing procurement and administrative services and 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 significant portion of cost of services consists of new customer
implementation expenses. Therefore, increasing numbers of new customers will
cause the cost of services as a percentage of net revenue to increase.

                                       7
<PAGE>

         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. We intend to increase our sales and marketing expenses over
the next several years, including expanding efforts to sell directly to health
plans and other carriers. At the same time, we intend to devote additional
resources to develop partnerships and relationships with human resource service
and systems organizations. We expect that, in support of the continued growth
and operation of our business, selling, general and administrative expenses will
continue to increase for the foreseeable future.

         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. To date, we have not capitalized any of 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, all research and
development costs have been expensed as incurred. We intend to continue to
expand our offerings by adding additional services. We expect these activities
will require additional personnel. Accordingly, we expect our research and
development expenses will continue to increase for the foreseeable future.

         Since our inception, we have incurred net losses. As of September 30,
2001, we had an accumulated deficit of $52.6 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, and the amortization of stock-based compensation, goodwill and other
intangibles. Although we have experienced significant revenue growth in recent
periods, our operating results for future periods are subject to numerous
uncertainties. In view of the rapidly evolving nature of our business and our
limited operating history, we believe that period-to-period comparisons of our
operating results are not necessarily meaningful and should not be relied upon
as an indication of future performance.


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             Nine Months Ended
                                                          September 30,                 September 30,
                                                     ------------------------      ------------------------
                                                        2001         2000             2001         2000
                                                     -----------  -----------      -----------  -----------
<S>                                                   <C>          <C>              <C>          <C>
Net revenue                                               100.0%       100.0%           100.0%       100.0%
Cost of services                                           72.9         73.1             82.3         74.9
                                                     -----------  -----------      -----------  -----------
      Gross profit                                         27.1         26.9             17.7         25.1

Operating expenses:
    Selling, general and administrative                    44.7         41.8             48.4         43.4
    Research and development                               24.3         25.7             27.3         27.4
    Amortization of stock-based compensation                7.1          8.8              8.2          9.2
    Amortization of goodwill and other intangibles         62.2         19.9             70.0          7.8
                                                     -----------  -----------      -----------  -----------
      Total operating expenses                            138.3         96.2            153.9         87.8
                                                     -----------  -----------      -----------  -----------

Loss from operations                                     (111.2)       (69.3)          (136.2)       (62.7)
Interest income and other, net                              8.9         21.6             13.0         25.3
                                                     -----------  -----------      -----------  -----------
Net loss                                                 (102.3%)      (47.7%)         (123.2%)      (37.4%)
                                                     ===========  ===========      ===========  ===========
</TABLE>

                                       8
<PAGE>

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

                                         September 30,
                                   -------------------------
                                      2001          2000
                                   ------------  -----------
Enrollment                           729,000       735,000
Enrollment commitments               900,000       855,000


Comparison of the three months ended September 30, 2001 and 2000

         Net revenue. Net revenue for the three months ended September 30, 2001
increased to $9.1 million from $7.6 million for the same period in 2000,
representing an increase of $1.5 million, or 19.0%. This increase was due
primarily to revenue earned in 2001 from our subsidiary, Arbor Associates, Inc.
(Arbor), in addition to revenue earned through new sales of our administrative
services.

         Cost of services. Cost of services for the three months ended September
30, 2001 increased to $6.6 million, from $5.6 million for the same period in
2000, representing an increase of $1.0 million, or 18.6%. Primary reasons for
this increase includes additional expenses from Arbor, and higher rent,
equipment lease, and depreciation costs related to our new Minnesota production
site. Cost of services, as a percentage of net revenues, decreased to 72.9% for
the three months ended September 30, 2001 from 73.1% for the same period in
2000.

         Selling, general and administrative. Selling, general and
administrative expenses increased to $4.1 million for the three months ended
September 30, 2001, from $3.2 million for the same period in 2000. The $867,000
increase, or 27.1%, was due primarily to additional expenses from Arbor, along
with increased rent and depreciation related to new company headquarters, and an
increase in the allowance for doubtful accounts. Selling, general and
administrative expenses, as a percentage of net revenues, increased to 44.7% for
the three months ended September 30, 2001, from 41.8% for the same period in
2000.

         Research and development. Research and development expenses for the
three months ended September 30, 2001 increased to $2.2 million, from $2.0
million for the same period in 2000, representing an increase of $249,000, or
12.7%. This increase is primarily due to research and development expenses
incurred during the quarter by Arbor. Research and development expenses, as a
percentage of net revenues, decreased to 24.3% for the three months ended
September 30, 2001, from 25.7% for the same period in 2000.

          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 $644,000 in
amortization expense related to the deferred stock-based compensation for the
three months ended September 30, 2001, a decrease of 4.2% from the $672,000
recorded for the same period in 2000. 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 $3.8 million
of charges to operations through 2004.

         Amortization of goodwill and other intangibles. Related to our
acquisition of Arbor, goodwill and other intangibles of $67.9 million was
recorded. Goodwill and other intangibles will be amortized over 36 months. We
recorded $5.7 million in amortization expense related to these assets in the
three months ended September 30, 2001. For the three months ended September 30,
2000, we recorded amortization expense of $1.5 million, representing expense for
the period from the purchase date through the end of the quarter.

                                       9
<PAGE>

         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 $805,000 for the three months ended September 30, 2001, from $1.6
million for the same period in 2000. The $843,000 decrease, or 51.2%, is
primarily a result of the decrease in our short-term investment portfolio from
the acquisition of Arbor and through our operating losses, 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, 2000, we had unused federal and state
research and development tax credit carryforwards of approximately $237,000
which begin to expire in 2009. In addition, we had unused federal net operating
loss carryforwards at December 31, 2000 of approximately $13.5 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.

Comparison of the nine months ended September 30, 2001 and 2000

         Net revenue. Net revenue for the nine months ended September 30, 2001
increased to $24.2 million from $19.6 million for the same period in 2000,
representing an increase of $4.6 million, or 23.6%. Approximately $3.7 million
of this increase is attributed to additional revenue earned from Arbor for 2001.
The additional increase is from revenue earned through new sales of our
administrative services, offset by a decrease in revenue from our consulting
services.

         Cost of services. Cost of services for the nine months ended September
30, 2001 increased to $19.9 million, from $14.7 million for the same period in
2000, representing an increase of $5.2 million, or 35.8%. Cost of services, as a
percentage of net revenues, increased to 82.3% for the nine months ended
September 30, 2001 from 74.9% for the same period in 2000. The primary reason
for this increase is the additional cost of service expense from Arbor, which
generally experiences lower margins during the first half of a calendar year and
higher margins in the last half of a calendar year. Additional contributing
factors for the increased expenses include costs related to integrating Arbor
operations and systems; higher rent, equipment lease, maintenance and
depreciation related to our new Minnesota production site; higher rent costs
related to new company headquarters; and severance costs related to a workforce
reduction in February, 2001. We anticipate that margins will continue to be
impacted by most of these factors over the near future.

          Selling, general and administrative. Selling, general and
administrative expenses increased to $11.7 million for the nine months ended
September 30, 2001, from $8.5 million for the same period in 2000. The $3.2
million increase, or 37.8%, primarily was due to additional expense from Arbor.
Increased rent and depreciation related to new company headquarters, lease
expense for new data servers, an increase in the allowance for doubtful
accounts, and severance costs resulting from a workforce reduction in February
2001 also contributed to the increase between periods. Selling, general and
administrative expenses, as a percentage of net revenues, increased to 48.4% for
the nine months ended September 30, 2001, from 43.4% for the same period in
2000.

         Research and development. Research and development expenses for the
nine months ended September 30, 2001 increased to $6.6 million, from $5.4
million for the same period in 2000, representing an increase of $1.2 million,
or 23.0%. This increase is primarily due to research and development expenses
incurred during the quarter by Arbor. Research and development expenses, as a
percentage of net revenues, decreased to 27.3% for the nine months ended
September 30, 2001, from 27.4% for the same period in 2000.

          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 $2.0 million
in amortization expense related to the deferred stock-based compensation for the
nine months ended September 30, 2001, an increase of $175,000 or 9.7% from the
$1.8 million recorded for the same period in 2000. This increase was due to the
assumption of outstanding restricted stock, options, and warrants of Arbor. The
amortization of deferred stock-based compensation will result in an additional
$3.8 million of charges to operations through 2004.

         Amortization of goodwill and other intangibles. Related to our
acquisition of Arbor, goodwill and other intangibles of $67.9 million was
recorded. Goodwill and other intangibles will be amortized over 36 months. We
recorded $17.0

                                       10
<PAGE>

million in amortization expense related to these assets in the nine months ended
September 30, 2001. For the nine months ended September 30, 2000, we recorded
amortization expense of $1.5 million, representing expense for the purchase date
through the end of the period.

         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 $3.2 million for the nine months ended September 30, 2001, from
$5.0 million for the same period in 2000. The $1.8 million decrease in interest
income, or 36.5%, is primarily a result of the decrease in our short-term
investment portfolio from the acquisition of Arbor and through our operating
losses, 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.


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 purchase price of $12.0 million, consisting of
approximately $11.3 million in cash and the assumption of $0.7 million of
liabilities.

         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.

         Prior to our public offering we funded operations primarily through
private sales of preferred stock and limited bank borrowings. Computer and
communications equipment was funded primarily through operating leases.

         As of September 30, 2001, we had $67.8 million in short-term
investments and cash and cash equivalents. 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.

         Our operating activities used cash of $6.9 million and $4.9 million in
the nine months ended September 30, 2001 and 2000, respectively. The use of cash
in operations in 2001 was due primarily to funding our net loss, offset by
charges for depreciation and amortization, a decrease in other current assets
and an increase in accrued expenses. The use of cash in operations in 2000 was
due primarily to funding our net loss, an increase in other current assets and a
decrease in accounts payable, partially offset by an increase in accrued
expenses and charges for depreciation, amortization and the loss on the sale of
property and equipment.

         Our investing activities provided cash of $7.9 million and used cash of
$107.6 million in the nine months ended September 30, 2001 and 2000,
respectively. In 2001, our investing activities generated $11.2 million in cash
through net sales of investments, while using $2.7 million for additions to
equipment. In addition, we advanced $500,000 of a $1.5 million line of credit to
an entity with which we formed a strategic partnership in the third quarter. In
2000, our investing activities used cash of $79.3 million for net purchases of
investments and $7.9 million for additions to equipment. The acquisition of
Arbor used an additional $20.4 million, net of cash acquired, in the nine months
ending September 30, 2000.

         Our financing activities provided cash of $295,000 and $14.4 million in
the nine months ended September 30, 2001 and 2000, respectively. In 2001, cash
flows from financing activities consisted of proceeds from the sale of stock
through our employee stock purchase plan and through exercise of stock options
and warrants. In 2000, proceeds from the issuance of common stock through our
employee stock purchase plan and from the underwriter's exercise of the
over-

                                       11
<PAGE>

allotment option to purchase 750,000 shares of common stock generated a net
$13.6 million in cash. Stock issued under the exercise of options and warrants
generated cash of $819,000 in 2000.

         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.

         We believe that the net proceeds from the sale of the common stock in
our public offering and cash from operations will be sufficient to meet our
working capital and operating resource expenditure requirements for the
foreseeable future.

         The terrorist attacks in New York and Washington D.C. on September 11,
2001 disrupted commerce throughout the United States and other parts of the
world. The continued threat of terrorism within the United States and abroad and
the potential for military action and heightened security measures in response
to such threat may cause significant disruption to commerce worldwide. To the
extent that such disruptions result in corporate downsizing actions,
divestitures or company closures, our business and results of operations could
be materially and adversely affected. We are unable to predict whether the
threat of terrorism or the responses thereto will result in any long-term
material adverse effect on our business, results of operation or financial
condition.

                                       12
<PAGE>

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 September 30, 2001 (in thousands):

                                2001           2002          2003      Total
                              --------       --------      --------   --------
Cash equivalents              $ 2,066        $ -           $ -        $ 2,066
    Average interest rate         3.0%         -             -            3.0%

Short-term investments        $45,610        $15,270       $4,869     $65,749
    Average interest rate         3.4%           4.3%         4.3%        3.7%


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. As of the date of this report, the Company has not received
proper service of this complaint. The Company intends to vigorously defend
against this lawsuit upon receiving proper service of this complaint.

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 September 30, 2001, we have used the net offering proceeds for
the following purposes in the approximate amounts set forth below (in millions):

         Short-term investments                         $ 60.1
         Acquisition of Arbor                             20.4
         Purchase of furniture and equipment               9.6
         Working capital                                  15.4
                                                        ------
             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 affiliates, (ii) persons owning 10% or more of our equity securities or
(iii) affiliates.

Item 3.  Defaults Upon Senior Securities

         Not applicable.

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

         None.

Item 5.  Other Information

                                       14
<PAGE>

         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).

         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     Amended Employment Agreement by and between the Company and
                  Mark Tierney, dated as of April 22, 1999, and amended and
                  restated on September 28, 1999 (incorporated by reference to
                  Exhibit 10.9 of Registrant's Registration Statement on Form
                  S-1, Registration Number 333-87985).

         10.6     Amended Employment Agreement by and between the Company and
                  John Davis, dated as of April 12, 1999 (incorporated by
                  reference to Exhibit 10.10 of Registrant's Registration
                  Statement on Form S-1, Registration Number 333-87985).

         10.7     Amended Employment Agreement by and between the Company and
                  Scott Halstead, dated as of April 22, 1999 (incorporated by
                  reference to Exhibit 10.11 of Registrant's Registration
                  Statement on Form S-1, Registration Number 333-87985).

         10.8     Employment Agreement by and between the Company and Thomas E.
                  Kelly, dated as of February 23, 2001.

         10.9     Separation Agreement and Release by and between the Company
                  and Michael C. Bingham, dated as of March 5, 2001.

         10.10    Second Amended and Restated Investors' Rights Agreement, dated
                  June 9, 1999 (relating to the registration rights relating to
                  Series A, Series B, and Series C Preferred Stock)
                  (incorporated by reference to Exhibit 10.21 of Registrant's
                  Registration Statement on Form S-1, Registration Number
                  333-87985).

         10.11    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).

                                       15
<PAGE>

(b)      Reports on Form 8-K

         No reports on Form 8-K were filed during the three-month period ended
September 30, 2001.

                                       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:  November 14, 2001              By      /s/   Thomas E. Kelly
                                         --------------------------------------
                                         Thomas E. Kelly
                                         Chief Financial Officer and Secretary
                                         (principal financial officer)

                                       17
[{"type": "10-Q", "sequence": "1", "filename": "d10q.txt", "description": "FORM 10-Q", "secsgml_size_bytes": 63005}]
{"company-data": {"conformed-name": "EBENX INC", "cik": "0001095825", "assigned-sic": "7370", "irs-number": "411758843", "state-of-incorporation": "MN", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-28365", "film-number": "1787966"}, "business-address": {"street1": "605 N HIGHWAY  169", "street2": "STE LL", "city": "MINNEAPOLIS", "state": "MN", "zip": "55441", "phone": "6125252700"}, "mail-address": {"street1": "5500 WAYZATA BLVD STE 1450", "city": "GOLDEN VALLEY", "state": "MN", "zip": "55416"}}
--------------------------------------------------------------------------------

                       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 SEPTEMBER 30, 2001

[_]      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 November 1, 2001 there were 19,899,099 shares of the registrant's common
stock outstanding.

--------------------------------------------------------------------------------
EBENX, INC.
                          QUARTERLY REPORT ON FORM 10-Q
                     FOR THE PERIOD ENDED SEPTEMBER 30, 2001
                                      INDEX

                                                                            Page
                                                                            ----
PART I   FINANCIAL INFORMATION

Item 1.  Financial Statements
         Condensed Consolidated Balance Sheets at September 30, 2001 and
           December 31, 2000                                                 1
         Condensed Consolidated Statements of Operations for the three-
           and nine-month periods ended September 30, 2001 and 2000          2
         Condensed Consolidated Statements of Cash Flows for the
           nine-month periods ended September 30, 2001 and 2000              3
         Notes to Condensed Consolidated Financial Statements                4

Item 2.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations                                         7
Item 3.  Quantitative and Qualitative Disclosures about Market Risk         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                14
Item 5.  Other Information                                                  14
Item 6.  Exhibits and Reports on Form 8-K                                   15
EBENX, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
                             (Amounts in thousands)
September 30,   December 31,
                                                               2001            2000
                                                           -------------   ------------
ASSETS

Current assets:
    Cash and cash equivalents                                $   2,066      $     764
    Short-term investments                                      65,749         76,744
    Accounts receivable, net of allowance of $585 and $178       3,964          3,973
    Unbilled revenue                                             2,123          3,477
    Prepaid expenses and other                                   1,581          1,234
                                                             ---------      ---------
        Total current assets                                    75,483         86,192

Property and equipment, net                                     10,682          9,800
Deposits                                                           105            103
Loans receivable from employees                                    564            492
Note receivable                                                    500           --
Goodwill and other intangibles, net                             43,742         60,639
                                                             ---------      ---------
            Total assets                                     $ 131,076      $ 157,226
                                                             =========      =========

              LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                         $     535      $     150
    Accrued compensation                                         1,499            585
    Accrued expenses                                             2,730          2,928
    Deferred revenue                                               210             93
                                                             ---------      ---------
        Total current liabilities                                4,974          3,756

Shareholders' equity:
    Common stock                                                   199            196
    Additional paid-in capital                                 182,044        182,246
    Deferred stock-based compensation                           (3,761)        (6,241)
    Accumulated other comprehensive income                         198              8
    Retained deficit                                           (52,578)       (22,739)
                                                             ---------      ---------
        Total shareholders' equity                             126,102        153,470
                                                             ---------      ---------
            Total liabilities and shareholders' equity       $ 131,076      $ 157,226
                                                             =========      =========
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      Nine Months Ended
                                                                      September 30,           September 30,
                                                                   --------------------    --------------------
                                                                     2001        2000        2001        2000
                                                                   --------    --------    --------    --------
Net revenue                                                        $  9,095    $  7,644    $ 24,239    $ 19,614
Cost of services (exclusive of stock-based compensation
    expense of $215 and $225 for the three months ended
    September 30, 2001 and 2000 and $705 and $575 for the nine
    months ended September 30, 2001 and 2000, respectively)           6,632       5,590      19,937      14,685
                                                                   --------    --------    --------    --------
      Gross profit                                                    2,463       2,054       4,302       4,929

Operating expenses:
    Selling, general and administrative (exclusive of stock-
      based compensation expense of $318 and $302 for the
      three months ended September 30, 2001 and 2000 and
      $944 and $775 for the nine months ended September 30, 2001
      and 2000, respectively)                                         4,065       3,198      11,725       8,510
    Research and development (exclusive of stock-based
      compensation expense of $111 and $145 for the
      three months ended September 30, 2001 and 2000 and
      $337 and $461 for the nine months ended September 30,
      2001 and 2000, respectively)                                    2,213       1,964       6,612       5,376
    Amortization of stock-based compensation                            644         672       1,986       1,811
    Amortization of goodwill and other intangibles                    5,656       1,518      16,969       1,518
                                                                   --------    --------    --------    --------
      Total operating expenses                                       12,578       7,352      37,292      17,215
                                                                   --------    --------    --------    --------
Loss from operations                                                (10,115)     (5,298)    (32,990)    (12,286)
Interest income and other, net                                          805       1,648       3,151       4,959
                                                                   --------    --------    --------    --------
Net loss                                                           $ (9,310)   $ (3,650)   $(29,839)   $ (7,327)
                                                                   ========    ========    ========    ========
Net loss per share:
    Basic and diluted                                              $  (0.47)   $  (0.21)   $  (1.53)   $  (0.44)
                                                                   ========    ========    ========    ========

Shares used in calculation of net loss per share:
    Basic and diluted                                                19,632      17,202      19,485      16,518
                                                                   ========    ========    ========    ========
See accompanying notes to condensed consolidated financial statements.

                                       2
EBENX, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                             (Amounts in thousands)
Nine Months Ended
                                                                     September 30,
                                                                 -----------------------
                                                                    2001          2000
                                                                 ----------   ----------
Operating activities:
    Net loss                                                     $ (29,839)   $  (7,327)
    Adjustments to reconcile net loss to net cash
      used in operating activities:
      Depreciation of property and equipment                         1,787          954
      Amortization of stock-based compensation,
        goodwill and other intangibles                              18,955        3,329
      Loss on sale of property and equipment                          --            210
      Changes in operating assets and liabilities:
        Accounts receivable                                            (17)        (638)
        Other current assets                                         1,007       (1,749)
        Accounts payable                                               385         (979)
        Accrued expenses                                               670        1,276
        Deferred revenue                                               117           83
        Deposits                                                        (2)         (32)
                                                                 ---------    ---------
           Net cash used in operating activities                    (6,937)      (4,873)

Investing activities
    Additions to property and equipment                             (2,669)      (7,866)
    Purchases of investments                                      (311,738)    (602,396)
    Sales of investments                                           322,923      523,068
    Advances to employees                                              (72)        --
    Advances on note                                                  (500)        --
    Cost of acquisition, net of cash acquired                         --        (20,424)
                                                                 ---------    ---------
           Net cash provided by (used in) investing activities       7,944     (107,618)

Financing activities:
    Stock options and warrants exercised                               138          819
    Proceeds from issuance of common stock, net of costs               157       13,557
                                                                 ---------    ---------
           Net cash provided by financing activities                   295       14,376

Net decrease in cash and cash equivalents                            1,302      (98,115)

Cash and cash equivalents at beginning of period                       764       98,611
                                                                 ---------    ---------

Cash and cash equivalents at end of period                       $   2,066    $     496
                                                                 =========    =========

Non cash investing and financing activities:
    Issuance of common stock for acquisition                     $    --      $  49,440
    Deferred compensation related to options granted             $    --      $   5,169
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, 2000 balance sheet which was extracted from the audited
financial statements of December 31, 2000, 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 nine-month
periods ended September 30, 2001 are not necessarily indicative of the results
to be expected for any subsequent quarter or for the entire year ended December
31, 2001. 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, 2000.

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 three months ended September 30, 2001 consisted of unrealized gains on
available-for-sale securities of $185,000, resulting in a total comprehensive
loss of $9,125,000. Adjustments to comprehensive loss for the nine months ended
September 30, 2000 consisted of unrealized gains on available-for-sale
securities of $190,000, resulting in a total comprehensive loss of $29,649,000.
The tax effects of these other comprehensive adjustments were not considered to
be material.

                                       4
3. Shareholders' Equity

         On December 15, 1999, the Company closed its initial public offering of
5,000,000 shares of common stock sold at $20.00 per share. The Company received
$91.5 million in proceeds from the offering, net of underwriting discounts,
commissions, and other costs. An additional 750,000 shares were sold under the
exercise of the underwriter's over-allotment option in January 2000, resulting
in additional net proceeds to the Company of $14 million.

4. Acquisition

         On September 6, 2000, the Company completed its acquisition of Arbor
Administrative Services, Inc. ("Arbor"). Arbor provides benefits administration
and related Web-based services to employers. Arbor distributes its services
primarily through brokers and employee benefit advisors. The Company paid $17
million in cash and exchanged approximately 2,596,000 shares of eBenX stock with
a fair value of $44.6 million for all of the outstanding common stock of Arbor.
The Company also assumed all of the outstanding restricted stock, stock options
and warrants of Arbor at a fair value of $4.8 million. In connection with the
acquisition, the Company incurred transaction costs consisting primarily of
professional fees of $1.4 million, bringing the total purchase price for the
acquisition to $67.8 million.

         The acquisition was accounted for under the purchase method of
accounting in accordance with APB Opinion No. 16. Under the purchase method of
accounting, the purchase price is allocated to the assets acquired and
liabilities assumed based on their estimated fair values.

         The total purchase price paid for the Arbor acquisition was allocated
as follows (in thousands):

                  Net assets acquired                $     (48)
                  Intangible assets                  $   5,600
                  Goodwill                           $  62,275

         Goodwill and other intangible assets are being amortized over a
three-year period. At September 30, 2001, accumulated amortization related to
goodwill and other intangible assets acquired in the Arbor acquisition totaled
$24.1 million.

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 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 $644,000 and $672,000 was recognized in the three months ended
September 30, 2001 and 2000, respectively. For the nine-month periods ending
September 30, 2001 and 2000, amortization expense of approximately $2.0 million
and $1.8 million was recognized, respectively.

                                       5
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, 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 August 31, 2006. At September 30,
2001, $500,000 was outstanding under the line of credit. This amount is recorded
as a note receivable.

         As a condition of the loan agreement, the Company received a warrant to
purchase common stock of Online Benefits at an exercise price of $1.644 per
share. The warrant entitles 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 warrant expires August 31, 2006. Under the warrant, the right to purchase
45,620 shares of common stock was outstanding at September 30, 2001.

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
pledged for that purpose.

8. Recent Accounting Pronouncements

         In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, Business Combinations, and
No. 142, Goodwill and Other Intangible Assets, effective for fiscal years
beginning after December 15, 2001. 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 Company will apply the new rules on accounting for goodwill and
other intangible assets beginning in the first quarter of 2002. Application of
the nonamortization provisions of the Statement is expected to result in an
increase in net income of $20.8 million and $14.2 million for 2002 and 2003,
respectively. During 2002, the Company will perform the first of the required
impairment tests of goodwill and indefinite lived intangible assets as of
January 1, 2002 and has not yet determined what the effect of these tests will
be on the earnings and financial position of the Company.

9. Subsequent Events

         On October 25, 2001, a class action lawsuit was filed against the
Company, certain executives of the Company, and the underwriters involved with
the Company's initial public offering of December 10, 1999. 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 underwriters and
certain investors and customers. The Company has not yet determined the effect,
if any, that this lawsuit will have on the Company's financial results.

         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 purchase price of $12.0 million, consisting of
approximately $11.3 million in cash and the assumption of $0.7 million of
liabilities.

                                       6
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 23, 2001.

         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, 2000, and included in our Annual Report on Form 10-K as filed with the
Securities and Exchange Commission.

Overview

         We provide specialized technology-based solutions to employers, brokers
and other 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 data and
dollars between parties in the health and welfare benefits supply chain.

         In September 2000, we acquired Arbor Administrative Services, Inc.,
which merged into our wholly owned subsidiary, Arbor Associates, Inc. (Arbor).
Arbor is a Web-based benefits administrator that offers a Web/IVR benefits
platform, and provides full service benefit administration for mid-sized
employers. Arbor distributes its services primarily through brokers and other
employee benefits advisors.

         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. In many
cases, we allow fixed and variable fee structures to permit volume-adjusted
pricing. We recognize revenue for administrative services as the services are
performed. Revenue also is recorded for implementation fees associated with our
administrative services. These fees are recognized as revenue over the life of
the contract. We also receive fees for providing enrollment services. These fees
are recognized over the enrollment period as services are provided. In addition,
we earn revenue from health and welfare benefits procurement consulting fees as
services are performed. We typically enter into multi-year contracts with our
large employer customers. Customers may purchase some or all of our services,
and the customer relationship may evolve from utilizing procurement services to
utilizing implementation and enrollment services and per employee-based
administrative services.

         The establishment of new customer relationships involves lengthy and
extensive sales and implementation processes. The large employer sales process
typically takes four to six months, and the implementation process takes an
additional two to four months. The establishment of new mid-market customer
relationships is coordinated through the broker or employee benefit advisor that
typically has an existing relationship with the employer. The implementation
process for mid-market customers typically takes one to four months. The sales
process is accounted for under the selling, general and administrative expense
category. The implementation process affects cost of services but may also
impact research and development expense to the extent new customer relationships
require new or enhanced service offerings.

         Cost of services consists primarily of personnel costs for account
management, operations, production and procurement and information technology
costs for both ongoing procurement and administrative services and 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 significant portion of cost of services consists of new customer
implementation expenses. Therefore, increasing numbers of new customers will
cause the cost of services as a percentage of net revenue to increase.

                                       7
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. We intend to increase our sales and marketing expenses over
the next several years, including expanding efforts to sell directly to health
plans and other carriers. At the same time, we intend to devote additional
resources to develop partnerships and relationships with human resource service
and systems organizations. We expect that, in support of the continued growth
and operation of our business, selling, general and administrative expenses will
continue to increase for the foreseeable future.

         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. To date, we have not capitalized any of 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, all research and
development costs have been expensed as incurred. We intend to continue to
expand our offerings by adding additional services. We expect these activities
will require additional personnel. Accordingly, we expect our research and
development expenses will continue to increase for the foreseeable future.

         Since our inception, we have incurred net losses. As of September 30,
2001, we had an accumulated deficit of $52.6 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, and the amortization of stock-based compensation, goodwill and other
intangibles. Although we have experienced significant revenue growth in recent
periods, our operating results for future periods are subject to numerous
uncertainties. In view of the rapidly evolving nature of our business and our
limited operating history, we believe that period-to-period comparisons of our
operating results are not necessarily meaningful and should not be relied upon
as an indication of future performance.

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             Nine Months Ended
                                                          September 30,                 September 30,
                                                     ------------------------      ------------------------
                                                        2001         2000             2001         2000
                                                     -----------  -----------      -----------  -----------
Net revenue                                               100.0%       100.0%           100.0%       100.0%
Cost of services                                           72.9         73.1             82.3         74.9
                                                     -----------  -----------      -----------  -----------
      Gross profit                                         27.1         26.9             17.7         25.1

Operating expenses:
    Selling, general and administrative                    44.7         41.8             48.4         43.4
    Research and development                               24.3         25.7             27.3         27.4
    Amortization of stock-based compensation                7.1          8.8              8.2          9.2
    Amortization of goodwill and other intangibles         62.2         19.9             70.0          7.8
                                                     -----------  -----------      -----------  -----------
      Total operating expenses                            138.3         96.2            153.9         87.8
                                                     -----------  -----------      -----------  -----------

Loss from operations                                     (111.2)       (69.3)          (136.2)       (62.7)
Interest income and other, net                              8.9         21.6             13.0         25.3
                                                     -----------  -----------      -----------  -----------
Net loss                                                 (102.3%)      (47.7%)         (123.2%)      (37.4%)
                                                     ===========  ===========      ===========  ===========
8
In addition to our operating results, we also track and provide
enrollment statistics. Enrollment is defined as the number of employees to which
we currently provide administration services. Enrollment commitments include
employees currently in enrollment, new customer employee commitments that will
be implemented in the foreseeable future, and exclude employee commitments which
will be terminated in the future. The following table sets forth our enrollment
statistics for the periods indicated.

                                         September 30,
                                   -------------------------
                                      2001          2000
                                   ------------  -----------
Enrollment                           729,000       735,000
Enrollment commitments               900,000       855,000

Comparison of the three months ended September 30, 2001 and 2000

         Net revenue. Net revenue for the three months ended September 30, 2001
increased to $9.1 million from $7.6 million for the same period in 2000,
representing an increase of $1.5 million, or 19.0%. This increase was due
primarily to revenue earned in 2001 from our subsidiary, Arbor Associates, Inc.
(Arbor), in addition to revenue earned through new sales of our administrative
services.

         Cost of services. Cost of services for the three months ended September
30, 2001 increased to $6.6 million, from $5.6 million for the same period in
2000, representing an increase of $1.0 million, or 18.6%. Primary reasons for
this increase includes additional expenses from Arbor, and higher rent,
equipment lease, and depreciation costs related to our new Minnesota production
site. Cost of services, as a percentage of net revenues, decreased to 72.9% for
the three months ended September 30, 2001 from 73.1% for the same period in
2000.

         Selling, general and administrative. Selling, general and
administrative expenses increased to $4.1 million for the three months ended
September 30, 2001, from $3.2 million for the same period in 2000. The $867,000
increase, or 27.1%, was due primarily to additional expenses from Arbor, along
with increased rent and depreciation related to new company headquarters, and an
increase in the allowance for doubtful accounts. Selling, general and
administrative expenses, as a percentage of net revenues, increased to 44.7% for
the three months ended September 30, 2001, from 41.8% for the same period in
2000.

         Research and development. Research and development expenses for the
three months ended September 30, 2001 increased to $2.2 million, from $2.0
million for the same period in 2000, representing an increase of $249,000, or
12.7%. This increase is primarily due to research and development expenses
incurred during the quarter by Arbor. Research and development expenses, as a
percentage of net revenues, decreased to 24.3% for the three months ended
September 30, 2001, from 25.7% for the same period in 2000.

          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 $644,000 in
amortization expense related to the deferred stock-based compensation for the
three months ended September 30, 2001, a decrease of 4.2% from the $672,000
recorded for the same period in 2000. 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 $3.8 million
of charges to operations through 2004.

         Amortization of goodwill and other intangibles. Related to our
acquisition of Arbor, goodwill and other intangibles of $67.9 million was
recorded. Goodwill and other intangibles will be amortized over 36 months. We
recorded $5.7 million in amortization expense related to these assets in the
three months ended September 30, 2001. For the three months ended September 30,
2000, we recorded amortization expense of $1.5 million, representing expense for
the period from the purchase date through the end of the quarter.

                                       9
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 $805,000 for the three months ended September 30, 2001, from $1.6
million for the same period in 2000. The $843,000 decrease, or 51.2%, is
primarily a result of the decrease in our short-term investment portfolio from
the acquisition of Arbor and through our operating losses, 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, 2000, we had unused federal and state
research and development tax credit carryforwards of approximately $237,000
which begin to expire in 2009. In addition, we had unused federal net operating
loss carryforwards at December 31, 2000 of approximately $13.5 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.

Comparison of the nine months ended September 30, 2001 and 2000

         Net revenue. Net revenue for the nine months ended September 30, 2001
increased to $24.2 million from $19.6 million for the same period in 2000,
representing an increase of $4.6 million, or 23.6%. Approximately $3.7 million
of this increase is attributed to additional revenue earned from Arbor for 2001.
The additional increase is from revenue earned through new sales of our
administrative services, offset by a decrease in revenue from our consulting
services.

         Cost of services. Cost of services for the nine months ended September
30, 2001 increased to $19.9 million, from $14.7 million for the same period in
2000, representing an increase of $5.2 million, or 35.8%. Cost of services, as a
percentage of net revenues, increased to 82.3% for the nine months ended
September 30, 2001 from 74.9% for the same period in 2000. The primary reason
for this increase is the additional cost of service expense from Arbor, which
generally experiences lower margins during the first half of a calendar year and
higher margins in the last half of a calendar year. Additional contributing
factors for the increased expenses include costs related to integrating Arbor
operations and systems; higher rent, equipment lease, maintenance and
depreciation related to our new Minnesota production site; higher rent costs
related to new company headquarters; and severance costs related to a workforce
reduction in February, 2001. We anticipate that margins will continue to be
impacted by most of these factors over the near future.

          Selling, general and administrative. Selling, general and
administrative expenses increased to $11.7 million for the nine months ended
September 30, 2001, from $8.5 million for the same period in 2000. The $3.2
million increase, or 37.8%, primarily was due to additional expense from Arbor.
Increased rent and depreciation related to new company headquarters, lease
expense for new data servers, an increase in the allowance for doubtful
accounts, and severance costs resulting from a workforce reduction in February
2001 also contributed to the increase between periods. Selling, general and
administrative expenses, as a percentage of net revenues, increased to 48.4% for
the nine months ended September 30, 2001, from 43.4% for the same period in
2000.

         Research and development. Research and development expenses for the
nine months ended September 30, 2001 increased to $6.6 million, from $5.4
million for the same period in 2000, representing an increase of $1.2 million,
or 23.0%. This increase is primarily due to research and development expenses
incurred during the quarter by Arbor. Research and development expenses, as a
percentage of net revenues, decreased to 27.3% for the nine months ended
September 30, 2001, from 27.4% for the same period in 2000.

          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 $2.0 million
in amortization expense related to the deferred stock-based compensation for the
nine months ended September 30, 2001, an increase of $175,000 or 9.7% from the
$1.8 million recorded for the same period in 2000. This increase was due to the
assumption of outstanding restricted stock, options, and warrants of Arbor. The
amortization of deferred stock-based compensation will result in an additional
$3.8 million of charges to operations through 2004.

         Amortization of goodwill and other intangibles. Related to our
acquisition of Arbor, goodwill and other intangibles of $67.9 million was
recorded. Goodwill and other intangibles will be amortized over 36 months. We
recorded $17.0

                                       10
million in amortization expense related to these assets in the nine months ended
September 30, 2001. For the nine months ended September 30, 2000, we recorded
amortization expense of $1.5 million, representing expense for the purchase date
through the end of the period.

         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 $3.2 million for the nine months ended September 30, 2001, from
$5.0 million for the same period in 2000. The $1.8 million decrease in interest
income, or 36.5%, is primarily a result of the decrease in our short-term
investment portfolio from the acquisition of Arbor and through our operating
losses, 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.

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 purchase price of $12.0 million, consisting of
approximately $11.3 million in cash and the assumption of $0.7 million of
liabilities.

         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.

         Prior to our public offering we funded operations primarily through
private sales of preferred stock and limited bank borrowings. Computer and
communications equipment was funded primarily through operating leases.

         As of September 30, 2001, we had $67.8 million in short-term
investments and cash and cash equivalents. 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.

         Our operating activities used cash of $6.9 million and $4.9 million in
the nine months ended September 30, 2001 and 2000, respectively. The use of cash
in operations in 2001 was due primarily to funding our net loss, offset by
charges for depreciation and amortization, a decrease in other current assets
and an increase in accrued expenses. The use of cash in operations in 2000 was
due primarily to funding our net loss, an increase in other current assets and a
decrease in accounts payable, partially offset by an increase in accrued
expenses and charges for depreciation, amortization and the loss on the sale of
property and equipment.

         Our investing activities provided cash of $7.9 million and used cash of
$107.6 million in the nine months ended September 30, 2001 and 2000,
respectively. In 2001, our investing activities generated $11.2 million in cash
through net sales of investments, while using $2.7 million for additions to
equipment. In addition, we advanced $500,000 of a $1.5 million line of credit to
an entity with which we formed a strategic partnership in the third quarter. In
2000, our investing activities used cash of $79.3 million for net purchases of
investments and $7.9 million for additions to equipment. The acquisition of
Arbor used an additional $20.4 million, net of cash acquired, in the nine months
ending September 30, 2000.

         Our financing activities provided cash of $295,000 and $14.4 million in
the nine months ended September 30, 2001 and 2000, respectively. In 2001, cash
flows from financing activities consisted of proceeds from the sale of stock
through our employee stock purchase plan and through exercise of stock options
and warrants. In 2000, proceeds from the issuance of common stock through our
employee stock purchase plan and from the underwriter's exercise of the
over-

                                       11
allotment option to purchase 750,000 shares of common stock generated a net
$13.6 million in cash. Stock issued under the exercise of options and warrants
generated cash of $819,000 in 2000.

         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.

         We believe that the net proceeds from the sale of the common stock in
our public offering and cash from operations will be sufficient to meet our
working capital and operating resource expenditure requirements for the
foreseeable future.

         The terrorist attacks in New York and Washington D.C. on September 11,
2001 disrupted commerce throughout the United States and other parts of the
world. The continued threat of terrorism within the United States and abroad and
the potential for military action and heightened security measures in response
to such threat may cause significant disruption to commerce worldwide. To the
extent that such disruptions result in corporate downsizing actions,
divestitures or company closures, our business and results of operations could
be materially and adversely affected. We are unable to predict whether the
threat of terrorism or the responses thereto will result in any long-term
material adverse effect on our business, results of operation or financial
condition.

                                       12
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 September 30, 2001 (in thousands):

                                2001           2002          2003      Total
                              --------       --------      --------   --------
Cash equivalents              $ 2,066        $ -           $ -        $ 2,066
    Average interest rate         3.0%         -             -            3.0%

Short-term investments        $45,610        $15,270       $4,869     $65,749
    Average interest rate         3.4%           4.3%         4.3%        3.7%

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. As of the date of this report, the Company has not received
proper service of this complaint. The Company intends to vigorously defend
against this lawsuit upon receiving proper service of this complaint.

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 September 30, 2001, we have used the net offering proceeds for
the following purposes in the approximate amounts set forth below (in millions):

         Short-term investments                         $ 60.1
         Acquisition of Arbor                             20.4
         Purchase of furniture and equipment               9.6
         Working capital                                  15.4
                                                        ------
             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 affiliates, (ii) persons owning 10% or more of our equity securities or
(iii) affiliates.

Item 3.  Defaults Upon Senior Securities

         Not applicable.

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

         None.

Item 5.  Other Information

                                       14
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).

         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     Amended Employment Agreement by and between the Company and
                  Mark Tierney, dated as of April 22, 1999, and amended and
                  restated on September 28, 1999 (incorporated by reference to
                  Exhibit 10.9 of Registrant's Registration Statement on Form
                  S-1, Registration Number 333-87985).

         10.6     Amended Employment Agreement by and between the Company and
                  John Davis, dated as of April 12, 1999 (incorporated by
                  reference to Exhibit 10.10 of Registrant's Registration
                  Statement on Form S-1, Registration Number 333-87985).

         10.7     Amended Employment Agreement by and between the Company and
                  Scott Halstead, dated as of April 22, 1999 (incorporated by
                  reference to Exhibit 10.11 of Registrant's Registration
                  Statement on Form S-1, Registration Number 333-87985).

         10.8     Employment Agreement by and between the Company and Thomas E.
                  Kelly, dated as of February 23, 2001.

         10.9     Separation Agreement and Release by and between the Company
                  and Michael C. Bingham, dated as of March 5, 2001.

         10.10    Second Amended and Restated Investors' Rights Agreement, dated
                  June 9, 1999 (relating to the registration rights relating to
                  Series A, Series B, and Series C Preferred Stock)
                  (incorporated by reference to Exhibit 10.21 of Registrant's
                  Registration Statement on Form S-1, Registration Number
                  333-87985).

         10.11    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).

                                       15
(b)      Reports on Form 8-K

         No reports on Form 8-K were filed during the three-month period ended
September 30, 2001.

                                       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:  November 14, 2001              By      /s/   Thomas E. Kelly
                                         --------------------------------------
                                         Thomas E. Kelly
                                         Chief Financial Officer and Secretary
                                         (principal financial officer)

                                       17