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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

For the Fiscal Year Ended December 31, 2001
                          -----------------

                                       OR

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

For the Transition Period from _____________ to ______________

                                    001-14665
                             COMMISSION FILE NUMBER

                               CLAIMSNET.COM INC.
                               ------------------

             (Exact name of registrant as specified in its charter)

                Delaware                                       75-2649230
                --------                                       ----------
     (State or other jurisdiction of                        (I.R.S. Employer
     incorporation or organization)                        Identification No.)

                     12801 N. Central Expressway, Suite 1515
             Dallas, Texas                                        75243
             -------------                                        -----
          (Address of principal                                 (Zip Code)
            executive offices)

Registrant's telephone number, including area code: 972-458-1701

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]

The aggregate market value of the Common Stock of the registrants held by
non-affiliates of the registrant, based on the closing sales price on the OTC
Bulletin Board stock market on March 28, 2002 was $3,788,115.

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock, $.001 par value,
11,141,514 shares outstanding as of March 31, 2001.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None.

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                                     PART I

THIS REPORT CONTAINS FORWARD-LOOKING INFORMATION THAT INVOLVES RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
BY THE FORWARD-LOOKING INFORMATION. FACTORS THAT MAY CAUSE SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED ELSEWHERE IN THIS REPORT
INCLUDING OUR ABILITY TO SECURE ADDITIONAL FUNDING, DEVELOP AND MAINTAIN
STRATEGIC PARTNERSHIPS OR ALLIANCES, INCREASE OUR CUSTOMER BASE, DEVELOP OUR
TECHNOLOGY AND TRANSACTION PROCESSING SYSTEM, RESPOND TO COMPETITIVE
DEVELOPMENTS, OR COMPLY WITH GOVERNMENT REGULATIONS. ANY FORWARD-LOOKING
STATEMENT THAT WE MAKE IS INTENDED TO SPEAK ONLY AS OF THE DATE ON WHICH WE MADE
THE STATEMENT. WE WILL NOT UPDATE ANY FORWARD-LOOKING STATEMENT TO REFLECT
EVENTS OR CIRCUMSTANCES THAT OCCUR AFTER THE DATE ON WHICH THE STATEMENT IS
MADE. THESE RISKS AND UNCERTAINTIES, AMONG OTHERS, MAY CAUSE OUR ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE DESCRIBED IN FORWARD-LOOKING STATEMENTS MADE IN
THIS REPORT OR PRESENTED ELSEWHERE BY MANAGEMENT FROM TIME TO TIME.

ITEM 1. BUSINESS

TRANSACTION PROCESSING BUSINESS

We are an electronic commerce company engaged in healthcare transaction
processing for the medical and dental industries by means of the Internet. Our
proprietary software, which was developed over the last seven years and resides
entirely on our servers, allows healthcare providers to prepare healthcare
claims interactively on the Internet and electronically transmits the claims to
us for processing. It also allows us to download claims from the healthcare
providers' computers directly to our servers. Our software provides real-time
editing of the claims data for compliance with the format and content
requirements of payers and converts the claims to satisfy payer's specific
processing requirements. We then electronically transmit processed claims on
behalf of healthcare providers directly or indirectly to medical and dental
payers that accept claims processing transmissions electronically. In addition,
our software provides for secure encryption of all claims data transmitted in
compliance with the regulations of the United States Centers for Medicare and
Medicaid Services (formerly HCFA). The payers to which claims processed by us
are submitted, primarily through clearinghouses operated by McKesson Corporation
("McKesson") and ProxyMed, include plans and affiliates of Aetna Life & Casualty
Company, Inc., MetLife Healthcare/Metropolitan Healthcare Corporation, Cigna
Healthcare, Inc., The Prudential Insurance Company of America, various Blue
Shield/Blue Cross organizations, and United Healthcare Corporation.

We believe that the following are significant advantages of our electronic
claims transmission services over other currently available services:

o    the ability of healthcare providers utilizing their Web sites to
     interactively process claims on the Internet and receive real time edits
     prior to claim submission,
o    the ease and availability of Claimsnet.com-provided training over the
     Internet,
o    the minimal software and processing power required for providers to utilize
     our proprietary software,
o    the scalability of our software allows us the ability to add incremental
     services, such as patient statements, managed care encounter forms,
     eligibility verification, electronic remittance advices, and data modeling,
     through the same browser interface and Web site as our claims processing
     services, and
o    the ability to create multiple custom Web site formats to be promoted by
     partners and sponsors without modification of the server-based processing
     systems.

We believe that the improved claims processing procedure will result in a
sharply reduced average number of outstanding days revenue tied up in accounts
receivable, which should improve a provider's working capital. We believe that
the services offered by our competitors are generally based on legacy mainframe
technology, proprietary networks, and proprietary file formats, which limit the
ability of those competitors to offer interactive Internet-based processing
services on an economical basis. In addition, competitors' services generally
require extensive formal training, the installation of substantial software on
each healthcare provider's computer, and significant processing power.

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We generate revenue from claims processing services by 1) charging commercial
payers, or clearinghouses acting for commercial payers, a transaction fee for
certain claims submitted electronically, 2) by charging healthcare providers a
subscription fee and certain transaction fees for use of our services, or 3)
charging our business partners fees for our services. We also offer patient
statement processing services, real time eligibility verification of patient
benefit coverage, and electronic remittance advice services for healthcare
providers and generate revenue by charging additional subscription and
transaction fees for such services. We use various subcontractors to print and
mail the bar-coded and customized statements along with a return envelope.
Additionally, we offer total claim management services for payer organizations,
whereby any form of claim received is converted to an electronic record,
conformed to the payer's standards, and delivered to the payer as an electronic
transaction. We receive payment from the payer for these services and use
subcontractors to convert paper claims into electronic images.

ELECTRONIC CLAIMS PROCESSING MARKET

The healthcare electronic claims processing market, including dental claims, has
been estimated by Faulkner & Gray's Health Data Directory, an industry
publication, to include over 4.7 billion healthcare claim and HMO encounter form
or claim submissions in 1999, of which, approximately 1.7 billion claims are
submitted on paper forms. Health Data Management estimates that electronic
claims processing is currently used to process approximately 43% of all medical
outpatient claims and 17% of all dental claims. We believe that, as a result of
the low penetration of electronic claims processing among healthcare providers
and dentists, this market presents an attractive opportunity for us to offer an
efficient and cost-effective service. Historically, we have focused our
marketing efforts on outpatient claims, including claims of clinics, hospitals,
physicians, dentists, and other outpatient service providers, as we believe they
are the underserved segments of the market. We have recently expanded our
efforts to include in-patient hospital services in response to a growing desire
to adopt new technology by the hospital industry.

The number of non-electronic paper transactions in the HMO market is increasing
rapidly and we believe that HMO encounters are another underserved segment of
the outpatient claims processing market. Currently there is no formal
transmission document standard. However, a national standard electronic format
is being mandated to facilitate the processing of encounter forms. Accordingly,
we believe that the opportunity exists for us to utilize our claims processing
system for the HMO market.

Healthcare claims are traditionally processed by clearinghouses using a similar
operating structure to that which exists in the credit card industry. A merchant
that accepts a credit card for payment does not send payment requests directly
to the bank that issued the card, but sends the payment request to a
clearinghouse. The payment request is processed and transmitted to the
appropriate bank. Healthcare claim clearinghouses accept, sort, process, edit,
and then forward the claims to the appropriate payers, either electronically or
on paper. The major healthcare clearinghouses operate in a mainframe computer
environment. Furthermore, traditional clearinghouses process claims in off-line
batches and return edit results to the submitters in a subsequent batch
transmission. This operating configuration is both expensive and time consuming
due to the source code changes required to continuously process claims correctly
to meet payer requirements. In contrast, our healthcare transaction processing
software system on the Internet is designed to operate in a real-time, open
client-server configuration. This operating alternative can offer the provider a
method of bypassing the clearinghouse and communicating directly with the payer
in a rapid, accurate, and cost-effective manner.

The Health Insurance Portability and Accountability Act of 1996 ("HIPAA")
includes a section on administrative simplification requiring improved
efficiency in health care delivery by standardizing electronic data interchange,
and protection of confidentiality and security of health data through setting
and enforcing standards. More specifically, HIPAA calls for (a) standardization
of electronic patient health, administrative and financial data, (b) unique
health identifiers for individuals, employers, health plans and health care
providers, and (c) security standards protecting the confidentiality and
integrity of "individually identifiable health information,". All healthcare
organizations are effected, including health care providers, health plans,
employers, public health authorities, life insurers, clearinghouses, billing
agencies, information systems vendors, service organizations, and universities.
HIPAA calls for severe civil and criminal penalties for noncompliance. The
provisions relating to standards for electronic transactions, including health
claims and equivalent managed care encounter information, must be implemented by
October 2002 for clearinghouse and large payer organizations unless the entity
applies for and is granted a one year extension. The provisions must be

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implemented by all entities no later than October 2003. The provisions relating
to standards for privacy must be implemented by April 2003 for large
organizations and April 2004 for small organizations. The deadlines for
standards related to security and unique identifiers have not yet been
established.

We believe that the convergence of HIPAA mandates and the proliferation of
internet technology will cause sweeping changes in the health care industry. If
the industry evolves toward direct payer submission of claims or real-time
adjudication of claims, our software will be able to offer efficient access to
payers and healthcare providers in a HIPAA-compliant format.

BUSINESS STRATEGY

Our recently modified business strategy is as follows:

o    to aggressively pursue and support strategic relationships with companies
     that will in turn aggressively market electronic claims processing and our
     other services to large volume healthcare providers, including clinics,
     hospitals, laboratories, physicians, dentists, HMOs, third party
     administrators, and insurers;
o    to continue to expand our product offerings to include additional
     transaction processing revenue, such as HMO encounter forms, eligibility
     and referral verifications, patient statements, electronic remittance
     advices, claim attachments, and other healthcare administrative services,
     in order to diversify sources of revenue;
o    to license our technology for other applications, including stand-alone
     purposes, Internet systems and private label use, and for original
     equipment manufacturers;
o    to provide total claim management services to payer organizations,
     including internet claim submission, paper claim conversion to electronic
     transactions, and receipt of EDI transmissions.

There can be no assurance that any of our business strategies will succeed or
that any of our business objectives will be met with any success.

On April 18, 2000, we, through our wholly-owned subsidiary, HealthExchange.com,
Inc., a Delaware corporation ("HECOM"), acquired from VHx Company, a Nevada
corporation ("VHx"), selected properties and assets, including it's
HealthExchange.com name and trademark, and in-process research and development
(together, "HealthExchange"). Several factors have caused us to discontinue
development of the HealthExchange(TM) products, including lack of existing
customer commitment to continued product development, lack of market acceptance,
future cash requirements to continue product development, and the cost of sales
and marketing efforts to create a market niche.

MARKETING EFFORTS

We have entered into several alliances with potentially strategic partners for
the marketing of our services and proprietary technology, including:

o    an October 1999 agreement, superseded in April 2001 (described below),
     granting a multi-year, non-exclusive, private label license to McKesson as
     to certain of our proprietary technology and providing for us to manage
     McKesson's operation on a fully outsourced basis and permitting us to use
     McKesson's extensive direct payer connections to submit certain claims to
     selected payers.
o    arrangements entered into in 2000 and 2001 with business-to-business
     healthcare transaction service providers, application service providers and
     other internet service providers; such as Proxy Med Inc. ("Proxy Med"),
     Passport Health Communications, Inc. ("Passport"), Synertech, Quality Care
     Solutions, Inc., and dakota imaging, inc. to operate or provide each a
     co-branded version of our claims processing application to be marketed by
     the other party either directly throughout the United States or, as part of
     its own internet-based service.

The foregoing is in addition to a number of joint marketing arrangements with
other entities, including a department of Blue Cross/Blue Shield of Louisiana,
the Texas Health Information Network, a division of Blue Cross Blue Shield of
Texas, Delta Dental of Missouri, and The Palmer Institute.

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RECENT DEVELOPMENTS

On March 6, 2002 our common stock ceased trading on the Nasdaq SmallCap Market
and began trading on the OTC Bulletin Board.

In March 2002 we announced that a number of changes had been implemented to
significantly improve our financial performance, including the voluntary
resignation of Bo W. Lycke as President and Chief Executive Officer in order to
reduce executive compensation and the appointment of Paul W. Miller, who has
been serving in the capacity of Chief Operating Officer and Chief Financial
Officer, to succeed him and the implementation of a number of staff reductions
along with salary reductions for management personnel and certain employees and
that steps were being taken to reduce other operating expenses. In exchange for
the salary reductions, we issued stock options and warrants to participating
employees.

The board of directors also accepted the resignations of Westcott W. Price, III,
Ward L. Bensen, and Robert H. Brown, Jr. as members of our board of directors
and elected two new directors, Thomas Michel and Jeffrey Black to fill two of
the vacated seats. Mr. Black and Mr. Michel are representatives of the
investment syndicate providing funding to the Company.

Furthermore, we announced in March 2002 that we had implemented new pricing to
improve profit margins on current clients.

At this time we further advised of the receipt of $276,000 from a private equity
placement commenced in January, 2002 and an additional funding commitment of
$550,000 from Claimsnet Partners LLC, a New York based limited liability
corporation, controlled by the principals of a Zurich, Switzerland based
investment group in the form of shares of preferred stock at a price of $250 per
share. Each share of preferred stock is convertible into 1,000 shares of common
stock. The private placement supersedes the remaining commitment of the
financing announced in November 2001 and does not include $462,000 invested in
November 2001.

In addition, we also announced that material changes had been made to the
operating structure of the business at the request of Claimsnet Partners LLC,
primarily the use of several key advisory services to consider alternative
strategies to reestablish shareholder value, including review of merger and/or
acquisitive related opportunities, review and assessment of sales and marketing
policies and reforms to expedite revenue generation. In connection with this
review we are conducting a feasibility study to re-position and positively
modify our offerings to enable the business to recognize and accelerate revenue
growth within the current fiscal year.

HEALTHCARE TRANSACTION PROCESSING SOFTWARE AND SECURITY

Our healthcare transaction processing software is designed for in-patient and
out-patient healthcare providers, and dental claims. The software is modular,
providing valuable flexibility, and generally consists of the following
components:

o    industry standard website management software,
o    state-of-the-art commercial security and encryption software, and
o    core processing software developed by us which provides claims review,
     claims processing, hard-coding of claims, and a "table-based" software
     coding of claims variables.

The expensive and time-consuming hard-coding routines required by traditional
systems have been replaced by a user friendly system that is table-based. This
permits payer-specific edits to meet the requirements of payers and avoids
expensive onsite software changes. Our personnel input new edits. Once
healthcare providers connect to our secure website, our software edits claims
on-line automatically, using a database containing more than 22,000 edit
variables. The direct provider-payer connections offered by our system are
designed to allow for immediate billing data and information exchange when it
becomes available from the payers. In the event that a particular payer cannot
accept submission of claims electronically, we either print and mail hard copies
of the claims to these payers and charge the provider for this additional
service or allow the provider to print and mail the claims.


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During the initial application process, a new customer interacts with our
proprietary "Print Wizard," that downloads claim files from the provider's
practice management system. When connecting to the Internet, the provider's
browser encryption is automatically enabled at the client extranet site. The
user must "log-in" through a security firewall to reach the user's secure
extranet site of our healthcare transaction processing system. At this point,
all communications with the healthcare provider are automatically encrypted,
claims are extracted from the provider's PC, and editing begins. Only claims
containing errors are identified for editing. Once claims are edited, they are
queued with accurate claims for transmission to payers. Should a claim not be
acceptable electronically by a payer, the claim is automatically printed and
mailed by the payer gateways. This mailing service is optional to the providers.
To assure proper network operation and allow other revenue producing services,
such as the furnishing of custom reports, eligibility inquiries, and decision
support tools, we monitor all traffic through our private application server and
firewall.

Our healthcare transaction processing software is a Web-based system, based upon
a client-server computing model, and includes a variety of different software
applications. Individual applications work together to provide the extraction
and encryption of claims from a provider's practice management system to our
Internet claims processing server, where editing and formatting occurs in a
secure environment. Our system then delivers the claims to the payer gateway.
The different software applications have been purchased, licensed, or developed
by us.

Our website is structured into three sections: "PUBLIC INTERNET," "CLIENT
EXTRANET," and "PRIVATE INTRANET." The PUBLIC INTERNET site provides company
background, product demonstrations, and customer enrollment forms. The CLIENT
EXTRANET provides a secure individual customer area for private customer
communication and encrypted claims transmission. The United States Centers for
Medicare and Medicaid Services (formerly HCFA) has defined security requirements
for Internet communications including healthcare data. We operate in compliance
with these requirements. The PRIVATE INTRANET site is designed for internal
communications, website operating reports, customer support, and reporting.

With the exception of the commercial software, such as that provided by
Microsoft, we have either identified back-up sources for all the software used
or, in the event of a business failure by the licensing vendor, we own the
source code.

TRAINING AND HARDWARE REQUIREMENTS

The training for the various products and services offered by us is included in
the initial setup fee. User manuals and reference information is available
online through our client extranet to the provider, seven days a week, 24 hours
a day. The tutorial and other training documents are always available at our Web
home page, the location of which is http://www.claimsnet.com. After an initial
free period of unlimited service, we charge users a fee for technical support
comparable to those charged by other healthcare software vendors.

No significant hardware investment by the customer is required in order to take
advantage of our services. The system requires the provider to use a 28,800 bps
or better asynchronous modem and a PC with Windows 3.11 or higher operating
system installed. An Internet Service Provider, such as AT&T Worldnet, MCI, and
Physicians' Online, offers local telecommunication to the Internet. Our
customers are responsible for obtaining and maintaining the Internet Service
Provider connection.

INTERNET/INTRANET

The processing configuration used by us requires no electronic claims processing
software to reside at the level of the healthcare provider. All editing and
formatting takes place at our Internet application server site. From the
standpoint of the user, we believe our system has the latest software version
and all format changes available instantly. Our healthcare transaction
processing software has the effect of turning a provider's old or outdated
hardware into a terminal capable of operating in a 32-bit Windows environment.

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Our processing does not take place on the Internet, but rather in an extranet
configuration. The main advantage of this approach is to assure that the
communication between our servers and a provider takes place in a
highly-controlled, secure, and encrypted environment.

The dual encryption utilized by us occurs at the browser software and
application server level. All processing and data storage occurs behind a
firewall, providing secure and controlled access to all data.

CUSTOMERS

We view our customers as (1) the healthcare providers submitting claims, (2) the
strategic partners and affiliates with which we jointly operate, and (3) the
payers accepting claims. We are currently processing claims for approximately
4,400 providers. The providers are geographically dispersed and represent a mix
of physician specialties, dentists, laboratories, clinics, and hospitals. We are
authorized to submit claims to more than 2,000 payers that are also
geographically dispersed and represent a mix of commercial insurers, managed
care organizations, third party administrators, and Medicare and Medicaid
carriers. Revenues from one strategic partner represented 27%, 43% and 21%,
respectively, of our total revenues for 2001, 2000 and 1999.

We require each healthcare provider using our services to enter into a standard
subscription agreement available on the home page of our website. This system
allows the healthcare provider to access, complete, and return the subscription
agreement on the Internet, and enables the provider to immediately access our
services. Each subscription agreement provides that the healthcare provider
shall pay us monthly all applicable fees and sets forth the nature of our
services and the terms and conditions under which they are to be rendered. The
contracts are terminable by the healthcare provider upon 30 days prior written
notice.

We also enter into agreements with the commercial medical and dental payers or
clearinghouses to which we submit processed claims. Generally, such agreements
provide for the payment of a fee per claim to be paid to us for certain payers
once certain minimum volume requirements have been met. As a result of the
varying submission requirements of many insurance and other plans within any
payer, we treat each plan as a separate payer with its own particular
requirements.

Under a September 1998 agreement with Electronic Data Interchange Services, a
department of Blue Cross/Blue Shield of Louisiana, we provide claims processing
services to Blue Cross/Blue Shield of Louisiana Network providers. Under this
agreement, we and Blue Cross/Blue Shield of Louisiana are to jointly promote our
services to the 9,600 network providers of Blue Cross/Blue Shield of Louisiana
through website links, Blue Cross/Blue Shield of Louisiana network communication
resources, educational seminars, telemarketing, and direct mail campaigns.

In a Development and Services Agreement with McKesson, originally entered into
in October 1999 and amended and replaced by a new agreement on April 12, 2001,
we granted McKesson a multi-year, non-exclusive, private label license for
certain of our proprietary technology and agreed to manage McKesson's operation
of the system on a fully outsourced basis in the way we determine to be the most
efficient. McKesson is the leading provider of information technology services
in the worldwide healthcare market. Under the agreement, we are to integrate our
proprietary Internet-based claims processing technology into selected McKesson's
electronic commerce solutions for the purposes of better serving the claims
processing needs of the independent physician practice market, and we are
allowed to use McKesson's extensive direct payer connections to submit certain
claims to selected payers.

Under the April 2001 agreement, McKesson acquired 1,514,285 shares of common
stock at a cost of $2,650,000 and paid us $200,000; and a three year warrant to
purchase 819,184 shares of our common stock at $7.00 per share, granted under
the October 1999 agreement, was cancelled. The April 2001 agreement granted
McKesson additional license rights for co-branding the services to third parties
and for an expanded set of transactions. McKesson will continue to pay
transaction fees for all transactions processed under the license, but will not
pay additional license fees and subscription fees that were included in the
October 1999 agreement.

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Since October 2000 we have provided Passport with a co-branded version of our
claims processing application integrated into Passport OneSource (TM),
Passport's internet-based service delivering time critical healthcare
administrative data. Passport markets Passport OneSource, including the claims
processing application, to hospitals and physicians in selected geographic
markets. We market Passport's eligibility and referral verification services to
our customers and we and Passport cooperate on payer opportunities from time to
time.

In September 2000 we entered into an agreement with Synertech, a premier
application service provider and administrative outsourcer for the healthcare
industry, to provide Synertech and its customers, primarily payer organizations,
with co-branded versions of our claims processing application.

Under an arrangement entered into in September 2000 with ProxyMed, a leading
provider of business-to-business healthcare transaction services, linking more
than 60,000 physicians' offices to pharmacies, clinical laboratories, and
payers, we are to operate a co-branded version of our claims processing
application and ProxyMed is to market the service throughout the United States.
This arrangement also provides for us to use ProxyMed's extensive direct payer
connections to submit certain claims to selected payers.

In February 2001 we agreed with Quality Care Solutions, Inc. (QCSI), a leading
provider of enterprise-wide solutions for healthcare payer organizations, to
provide a co-branded version of our claims processing application to QCSI and be
able to submit claims directly to the QCSI system.

In August 2001, we announced a strategic alliance with dakota imaging, a leading
provider of systems and outsourcing services for the insurance claims industry,
for dakota to provide scanning and imaging technology to support our total claim
management services for payer organizations.

MARKETING

We believe that a direct sales and marketing campaign to the large and
fragmented healthcare provider community can be prohibitively expensive and
impractical at this time. We are, accordingly, pursuing a primary marketing
strategy of creating strategic partnerships with organizations that:

o    are engaged in electronic claims processing and expect to benefit by using
     our advanced technology,
o    serve or are engaged in direct sales and marketing to the healthcare market
     and desire to expand the products and services they offer to their clients
     without incurring substantial costs by using our advanced technology in a
     co-branded or private-label arrangement.

We have established valuable strategic relationships and are actively seeking
additional partners for alliances and joint ventures, including managed care
companies, Internet service and information providers, traditional healthcare
information systems providers, clearinghouses, payer organizations, and
consulting firms, each seeking solutions to the costly handling of healthcare
claims and other administrative transactions.

We also believe that there are opportunities for joint marketing with banks,
insurance companies, laboratories, and pharmaceutical companies that desire
online interfacing with healthcare providers.

We believe that our strategic alliance marketing strategy will allow us to
capture a share of the claims processing market without a costly direct sales
and marketing effort as the healthcare industry adopts new technology, either
because of greater efficiencies or due to required compliance with HIPAA
mandates and other regulatory initiatives. If such a transition takes place
gradually, we expect to benefit by conserving expenses, or if it escalates
dramatically due to HIPAA compliance deadlines or for other reasons, we expect
to benefit by having a broad distribution network.

There can be no assurance that we will secure any additional alliances or joint
venture relations, or if we do, that such alliances or joint venture
relationships will be profitable.

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We maintain a limited direct sales force and continue to monitor marketplace
activity for the opportunity to launch a more aggressive, yet cost-effective
direct sales campaign in the future. However, there can be no assurance that an
aggressive direct sales model will be feasible. We are reviewing and assessing
sales and marketing policies and procedures and are conducting a feasibility
study to reposition and modify our product and service offerings to enable us to
recognize and accelerate revenue growth. However, there can be no assurance that
such a repositioning is feasible or that, if attempted, it will be successful.

COMPETITION

Several large companies such as WebMD, McKesson, National Data Corporation,
QuadraMed Corporation, PerSe Technologies, and ProxyMed dominate the claims
processing industry in which we operate. Each of these companies operates a
regional or national clearinghouse of medical and dental claims. In most cases,
these companies have large existing capital and software investments and focus
on large healthcare providers, such as hospitals and large clinics, or act as
wholesale clearinghouses for smaller electronic claims processing companies. We
estimate, based on information from various trade journals, that in addition to
these large competitors, there are approximately 300 or more small independent
electronic claims processing companies and clearinghouses which operate as local
sub-clearinghouses for the processing of medical and dental claims.

A number of additional companies such as MedUnite, Axolotl, Zirmed, and RealMed
have announced that they intend to enter the claims processing industry. Some of
these companies have indicated a desire to primarily serve the payer community
and some are primarily focused on the provider community.

All of these companies are considered competitors for our provider clients that
subscribe to the Claimsnet.com-branded service. However, several of these
companies are already our strategic partners for co-branded or private label
solutions and many of the others are potential strategic partners.

While we compete with many other providers of electronic claims processing
services in some markets, we are not aware of any other companies that provide
healthcare electronic claims processing services in the same manner as those
provided by us. We believe that we are the only claims processing company
currently providing a real time, two-way, streaming transmission over the
internet, with the ability and intent to market the service via multiple
internet brands connected to a single, highly configurable, processing engine.

We believe that our pricing structure and total cost is very competitive with
other providers of electronic claims processing services. We further believe
that some competitors and potential partners are constrained not only by capital
investments and existing hardware/software configurations, but also by existing
customer agreements. Despite these limitations, we anticipate that competition
will increase in the processing of claims on the Internet. No assurance can be
given that we will successfully compete in any market in which we conduct or may
conduct operations.

Some segments of the medical and dental claims processing industry are not
currently suited to the use of electronic claims processing, such as psychiatry
and surgery, each of which requires substantial documentation in addition to the
claim to be submitted. Accordingly, we have not designed our business plan to
address these market segments.

EMPLOYEES

As of December 31, 2001, we had a total of 36 full-time employees, of whom two
were executive officers, 22 were technical and service personnel, seven were
sales and marketing personnel, and five were administrative personnel. None of
our employees are represented by a labor organization. All of our employees have
been granted incentive stock options and we believe that our relations with our
employees are satisfactory.

RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS REPORT, THE FOLLOWING FACTORS
SHOULD BE CONSIDERED CAREFULLY IN EVALUATING OUR BUSINESS AND PROSPECTS.

CONDITIONS EXIST WHICH CAUSE SUBSTANTIAL DOUBT ABOUT OR ABILITY TO CONTINUE AS A
GOING CONCERN.

                                       9
<PAGE>

The Report of our independent auditors with respect to our financial state as of
December 31, 2001 and the year then ended has been qualified with respect to our
ability to continue as a going concern.

Management believes that available cash resources, together with anticipated
revenues from operations and the proceeds of recently completed financing
activities and funding commitments will not be sufficient to satisfy the
Company's capital requirements through December 31, 2002. Necessary additional
capital may not be available on a timely basis or on acceptable terms, if at
all. In any of these events, the Company may be unable to implement current
plans for expansion or to repay debt obligations as they become due. If
sufficient capital cannot be obtained, the Company may be forced to
significantly reduce operating expenses to a point which would be detrimental to
business operations, curtail research and development activities, sell certain
business assets or discontinue some or all of its business operations, take
other actions which could be detrimental to business prospects and result in
charges which could be material to the Company's operations and financial
position, or cease operations altogether. In the event that any future financing
should take the form of equity securities, the holders of the common stock and
preferred stock may experience additional dilution. In the event of a cessation
of operations, there may not be sufficient assets to fully satisfy all
creditors, in which case the holders of equity securities may be unable to
recoup any of their investment.

WE HAVE A HISTORY OF NET LOSSES, LIMITED REVENUES, ANTICIPATE FURTHER LOSSES AND
HAVE A WORKING CAPITAL DEFICIT

We have incurred net losses since inception and expect to continue to operate at
a loss for the foreseeable future. For the years ended December 31, 1997, 1998,
1999, 2000, and 2001, we incurred net losses of $(2,781,000), $(4,663,000),
$(8,858,000), $(17,695,000), and $(5,194,000), respectively. As of December 31,
1997, 1998, 1999, 2000, and 2001, we had working capital (deficits) of $36,000,
$(1,089,000), $6,224,000, $(1,012,000), and $(535,000), respectively. We
generated revenues of $414,000, $1,602,000, and $1,336,000 for the years ended
December 31, 1999, 2000, and 2001, respectively. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--In General."

ONE CUSTOMER HAS GENERATED A SIGNIFICANT SHARE OF OUR REVENUES AND WE ENTERED
INTO AN AGREEMENT IN 2001 WHICH WILL HAVE A NEGATIVE IMPACT ON OUR NEAR TERM
REVENUES

One customer represented 27%, 43% and 21% of our total revenues for the years
ended December 31, 2001, 2000 and 1999, respectively. In April 2001, we entered
into a new agreement that supersedes an agreement under which the majority of
the revenues from the customer was earned. The new agreement eliminates further
payments for software development, software license, and dedicated support
services, which accounted for nearly all of the revenues from this customer
recognized during 1999, 2000, and 2001. The new agreement will, therefore, have
a material effect on our near term financial results. The nature of all future
cash payments to be received pursuant to the new agreement are dependent on the
volume of services provided.

WE CANNOT PREDICT OUR FUTURE CAPITAL NEEDS AND WE MAY NOT BE ABLE TO SECURE
ADDITIONAL FINANCING

We believe that our available cash resources, together with anticipated revenues
from operations and the proceeds of recently completed financing activities and
funding commitments will not be sufficient to satisfy our capital requirements
through December 31, 2002. Necessary additional capital may not be available on
a timely basis or on acceptable terms, if at all. In any of these events, we may
be unable to implement current plans for expansion or to repay debt obligations
as they become due. If sufficient capital cannot be obtained, we may be forced
to:

o    significantly reduce operating expenses to a point which would be
     detrimental to business operations,

o    curtail research and development activities,

o    sell certain business assets or discontinue some or all of our business
     operations,

                                       10
<PAGE>

o    take other actions which could be detrimental to business prospects and
     result in charges which could be material to our operations and financial
     position, or

o    cease operations altogether.

In the event that any future financing should take the form of equity
securities, the holders of the common stock and preferred stock may experience
additional dilution. In the event of a cessation of operations, there may not be
sufficient assets to fully satisfy all creditors, in which case the holders of
equity securities may be unable to recoup any of their investment.

BECAUSE WE HAVE BEEN IN BUSINESS FOR A LIMITED PERIOD OF TIME, THERE IS LIMITED
INFORMATION UPON WHICH YOU CAN EVALUATE OUR BUSINESS

We have a limited operating history upon which you may base an evaluation of us
and determine our prospects for achieving our intended business objectives. We
are prone to all of the risks inherent to the establishment of any new business
venture. Organized in April 1996, we were a development stage company through
March 31, 1997. We are currently processing claims for accounts representing
approximately 4,400 providers, some of which receive favorable pricing as early
stage clients. We have entered into agreements with clearinghouses providing
access to more than 2,000 payers. The revenues received or costs incurred under
these agreements are highly dependent upon transaction volumes. Additionally, we
endeavored to diversify our business during the year ended December 31, 2000,
through an asset acquisition, which due to delay in market readiness resulted in
a large non-recurring loss. We have also changed our sales and marketing
strategy from a direct sales model to a strategic partner distribution model and
are considering the feasibility to reposition our product and service offerings
and marketing strategy. Consequently, you should consider the likelihood of our
future success to be highly speculative in light of our limited operating
history, our limited resources and problems, expenses, risks, and complications
frequently encountered by similarly situated companies in the early stages of
development, particularly companies in new and rapidly evolving markets, such as
electronic commerce. To address these risks, we must, among other things:

o    maintain and increase our strategic partnerships,

o    maintain and increase our customer base,

o    develop a strategy to increase the rate of revenue growth

o    implement and successfully execute our business and marketing strategy,

o    continue to develop and upgrade our technology and transaction-processing
     systems,

o    continually update and improve our Web site,

o    provide superior customer service,

o    respond to competitive developments,

o    appropriately evaluate merger and acquisition opportunities, and

o    attract, retain, and motivate qualified personnel.

We may not be successful in addressing all or some of these risks, and our
failure to do so could have a material adverse effect on our business,
prospects, financial condition, and results of operations.

WE EXPECT TO EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR FUTURE OPERATING RESULTS
DUE TO A VARIETY OF FACTORS, MANY OF WHICH ARE OUTSIDE OUR CONTROL

We are a relatively young company in the rapidly evolving and highly competitive
internet-based medical claims processing industry. Our ability to achieve
operating results in this industry will depend on several factors, including:

o    our ability to satisfy capital requirements in an investment climate that
     has been more reluctant generally to invest in "Internet" companies,

                                       11
<PAGE>

o    our ability to retain existing customers, attract new customers at a steady
     rate, and maintain customer satisfaction in an industry in which there is
     as of yet no uniformly accepted standard or methodology for claims
     processing,

o    our ability to introduce new sites, service and products,

o    our ability to effectively develop and implement plans to potentially
     reposition our products, services and marketing efforts,

o    the announcement or introduction of new sites, services, and products by
     our competitors in a rapidly evolving industry,

o    price competition or price increases in our industry,

o    the level of use of the Internet and online services and the rate of market
     acceptance of the Internet and other online services for the purchase of
     health claims processing services,

o    our ability to upgrade and develop our systems and infrastructure in a
     timely and effective manner,

o    the amount of traffic on our Web site,

o    the incurrence of technical difficulties, system downtime, or Internet
     brownouts to which we are acutely sensitive insofar as our medical claims
     processing service is Internet-based,

o    the amount and timing of operating costs and capital expenditures relating
     to expansion of our business, operations, and infrastructure which cannot
     be predicted with any large degree of accuracy in light of the rapidly
     evolving nature of the medical claims processing industry,

o    our ability to comply with existing and added government regulation such as
     HIPAA or privacy regulations relating to the Internet or patient
     information, and

o    general economic conditions and economic conditions specific to the
     Internet, electronic commerce, and the medical claims processing industry.

If we are unable to handle or satisfactorily respond to these factors, our
operating results may fall below the expectations of securities analysts and
investors. In this event, our operating results, financial condition and the
market price of our common stock would likely be materially adversely affected.

OUR MARKETING STRATEGY HAS NOT BEEN SUFFICIENTLY TESTED AND MAY NOT RESULT IN
SUCCESS

We have recently changed our marketing strategy from direct marketing to heavy
reliance on the development and maintenance of strategic relationships with
companies that will aggressively market electronic claims processing and our
other services to payers and healthcare providers. To date, we and our strategic
partners have conducted limited marketing efforts for such purpose. To penetrate
our market we will have to rely on our strategic partners to exert significant
efforts and devote material resources to create awareness of and demand for our
co-branded products and services. No assurance can be given that our strategic
partners will devote significant efforts and resources to, and be successful in,
these marketing services or that they will result in material sales of our
products and services. No representation can be made that our reliance on this
strategy will prove successful and that if not successful that we will have
adequate resources to attempt to engage in direct marketing of our products and
services, develop alternative marketing strategies, or that such efforts will
prove successful. Our failure to develop our marketing capabilities,
successfully market our products or services, or recover the cost of our
services will have a material adverse effect on our business, prospects,
financial condition, and results of operations.

                                       12
<PAGE>

IF WE ARE UNABLE TO UPGRADE OUR SYSTEMS, WE MAY BE UNABLE TO PROCESS AN
INCREASED VOLUME OF CLAIMS OR MAINTAIN COMPLIANCE WITH REGULATORY REQUIREMENTS

A key element of our strategy is to generate a high volume of traffic on, and
use of, our Web site. We are currently processing less than 10 million medical
claims per year in an industry that processes approximately 4.7 billion claims
annually. If the volume of traffic on our Web site or the number of claims
submitted by customers substantially increases, we will have to expand and
further upgrade our technology, claims processing systems, and network
infrastructure to accommodate these increases or our systems may suffer from
unanticipated system disruptions, slower response times, degradation in levels
of customer service, impaired quality and speed of claims processing, and delays
in reporting accurate financial information. We operate in an industry that is
undergoing change due to increasing regulatory requirements, some of which
require us to upgrade our systems. We may be unable to effectively upgrade and
expand our claims processing system or to integrate smoothly any newly developed
or purchased modules with our existing systems, which could have a material
adverse effect on our business, prospects, financial condition, and results of
operations.

BECAUSE WE DEPEND UPON A SINGLE SITE FOR OUR COMPUTER SYSTEMS WE ARE VULNERABLE
TO THE EFFECTS OF NATURAL DISASTERS, COMPUTER VIRUSES, AND SIMILAR DISRUPTIONS

Our ability to successfully receive and process claims and provide high-quality
customer service largely depends on the efficient and uninterrupted operation of
our computer and communications hardware systems. Our proprietary software
currently resides solely on our servers, most of which are currently located in
a monitored server facility in Washington, DC. Our systems and operations are in
a secured facility with hospital-grade electrical power, redundant
telecommunications connections to the Internet backbone, uninterruptible power
supplies, and generator back-up power facilities. Further, we maintain redundant
systems at a separate facility for backup and disaster recovery. Despite such
safeguards, we remain vulnerable to damage or interruption from fire, flood,
power loss, telecommunications failure, break-ins, earthquake, terrorist
attacks, and similar events. In addition, we do not, and may not in the future,
carry sufficient business interruption insurance to compensate us for losses
that may occur. Despite our implementation of network security measures, our
servers are vulnerable to computer viruses, physical or electronic break-ins,
and similar disruptions, which could lead to interruptions, delays, loss of
data, or the inability to accept and process customer claims. Additionally, we
are currently contemplating changes to or relocation of our system in order to
reduce operating expenses and, if so elected, such changes could lead to service
interruptions, delays, loss of data, or other adverse events. The occurrence of
any of these events could have a material adverse effect on our business,
prospects, financial condition, and results of operations.

WE RELY ON INTERNALLY DEVELOPED ADMINISTRATIVE SYSTEMS THAT ARE INEFFICIENT,
WHICH MAY PUT US AT A COMPETITIVE DISADVANTAGE

Some of the systems and processes used by our business office to prepare
information for financial, accounting, billing, and reporting, are inefficient,
inadequate, and require a significant amount of manual effort. For example, our
systems require cumbersome data manipulation using spreadsheets in order to
prepare information for both billing and client reporting purposes. The manual
effort is both costly and negatively affects the timeliness of these processes.
These inefficiencies may place us at a competitive disadvantage when compared to
competitors with more efficient systems. We intend to continue to upgrade and
expand our administrative systems and to integrate newly-developed and purchased
modules with our existing systems in order to improve the efficiency of our
reporting methods, although we are unable to predict whether these upgrades will
improve our competitive position.

WE HAVE LIMITED SENIOR MANAGEMENT RESOURCES, AND WE NEED TO ATTRACT AND RETAIN
HIGHLY SKILLED PERSONNEL; WE MAY BE UNABLE TO EFFECTIVELY MANAGE GROWTH WITH OUR
LIMITED RESOURCES

Mr. Bo W. Lycke, our Chairman of the Board, resigned in March 2002 as President
and Chief Executive Officer, positions that he held from the inception of the
Company. Our senior management currently consists of Paul W. Miller, our
President and Chief Executive Officer, Patricia Davis, our Senior Vice President

                                       13
<PAGE>

of Sales, Marketing and Business Development, and Jeffrey P. Baird, our Senior
Vice President of Technology. We have undergone three separate staffing
reductions since June 2000, requiring remaining employees to handle an
increasingly large and more diverse amount of responsibility. Any expansion of
our business would place a significant additional strain on Paul W. Miller, our
President and Chief Executive Officer, Patricia Davis, our Senior Vice President
of Sales, Marketing and Business Development, and Jeffrey P. Baird, our Senior
Vice President of Technology, and on our limited managerial, operational, and
financial resources. We will be required to expand our operational and financial
systems significantly and to expand, train, and manage our work force in order
to manage the expansion of our operations. Our failure to fully integrate our
new employees into our operations could have a material adverse effect on our
business, prospects, financial condition, and results of operations. Our ability
to attract and retain highly skilled personnel is critical to our operations and
expansion. We face competition for these types of personnel from other
technology companies and more established organizations, many of which have
significantly larger operations and greater financial, marketing, human, and
other resources than we have. We may not be successful in attracting and
retaining qualified personnel on a timely basis, on competitive terms, or at
all. If we are not successful in attracting and retaining these personnel, our
business, prospects, financial condition, and results of operations will be
materially adversely affected.

BECAUSE OF THEIR SPECIALIZED KNOWLEDGE OF OUR PROPRIETARY TECHNOLOGY AND THE
MEDICAL CLAIMS PROCESSING INDUSTRY, WE DEPEND UPON OUR SENIOR MANAGEMENT AND
CERTAIN KEY PERSONNEL; THE LOSS OR UNAVAILABILITY OF ANY OF THEM COULD PUT US AT
A COMPETITIVE DISADVANTAGE; OUR LIMITED RESOURCES WILL ADVERSELY AFFECT OUR
ABILITY TO HIRE ADDITIONAL MANAGEMENT PERSONNEL

We currently depend upon the efforts and abilities of our senior executives
currently comprising of Paul W. Miller, our President and Chief Executive
Officer, Patricia Davis, our Senior Vice President of Sales, Marketing and
Business Development, and Jeffrey P. Baird, our Senior Vice President of
Technology and any other key personnel, each of whom has a distinctive body of
knowledge regarding electronic claims submissions and related technologies, the
medical claims processing industry and our services. We may be unable to retain
and motivate remaining personnel for an extended period of time in this
environment. The additional loss or unavailability of the services of any senior
management for any significant period of time could have a material adverse
effect on our business, prospects, financial condition, and results of
operations. We have not obtained key-person life insurance on any of our senior
executives. In addition, we do not have employment agreements with any of our
senior executives or key personnel.

WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND WE MAY BE
LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS

The Company's business is based in large part upon the proprietary nature of its
services and technologies. Accordingly, our ability to compete effectively will
depend on our ability to maintain the proprietary nature of these services and
technologies, including our proprietary software and the proprietary software of
others with which we have entered into software licensing agreements. We hold no
patents and rely on a combination of trade secrets and copyright laws,
nondisclosure, and other contractual agreements and technical measures to
protect our rights in our technological know-how and proprietary services. In
addition, we have been advised that trademark and service mark protection of our
corporate name is not available. We depend upon confidentiality agreements with
our officers, directors, employees, consultants, and subcontractors to maintain
the proprietary nature of our technology. These measures may not afford us
sufficient or complete protection, and others may independently develop know-how
and services similar to ours, otherwise avoid our confidentiality agreements, or
produce patents and copyrights that would materially and adversely affect our
business, prospects, financial condition, and results of operations. We believe
that our services are not subject to any infringement actions based upon the
patents or copyrights of any third parties; however, our know-how and technology
may in the future be found to infringe upon the rights of others. Others may
assert infringement claims against us, and if we should be found to infringe
upon their patents or copyrights, or otherwise impermissibly utilize their
intellectual property, our ability to continue to use our technology could be
materially restricted or prohibited. If this event occurs, we may be required to
obtain licenses from the holders of their intellectual property, enter into
royalty agreements, or redesign our products so as not to utilize their

                                       14
<PAGE>

intellectual property, each of which may prove to be uneconomical or otherwise
impossible. Licenses or royalty agreements required in order for us to use this
technology may not be available on terms acceptable to us, or at all. These
claims could result in litigation, which could materially adversely affect our
business, prospects, financial condition, and results of operations.

BECAUSE WE ARE NOT CURRENTLY PAYING CASH DIVIDENDS, INVESTORS MAY HAVE TO SELL
CLAIMSNET.COM SHARES IN ORDER TO REALIZE THEIR INVESTMENT

Whether we pay cash dividends in the future will be at the discretion of our
board of directors and will be dependent upon our financial condition, results
of operations, capital requirements, and any other factors that the board of
directors decides is relevant. In view of our losses and substantial financial
requirements, we will not be in a position to pay cash dividends at any time in
the reasonable future. Holders of our common stock may have to sell all or a
part of their shares in order to realize their investment.

SOME PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BY-LAWS MAY DETER OUR
ACQUISITION

A number of provisions of our amended certificate of incorporation and Delaware
law may be deemed to have an anti-takeover effect. Our certificate of
incorporation and by-laws provide that our board of directors is divided into
two classes serving staggered two-year terms, resulting in approximately
one-half of the directors being elected each year and contain other provisions
relating to voting and the removal of the officers and directors. Further, our
by-laws contain provisions which regulate the introduction of business at annual
meetings of our stockholders by other than the board of directors. In addition,
we are subject to the anti-takeover provisions of Section 203 of the Delaware
General Corporation Law. In general, this statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner.

In addition, our certificate of incorporation, as amended, authorizes our board
of directors to issue up to 4,000,000 shares of preferred stock, which may be
issued in one or more series, the terms of which may be determined at the time
of issuance by the board of directors, without further action by stockholders,
and may include voting rights (including the right to vote as a series on
particular matters), preferences as to dividends and liquidation, conversion,
and redemption rights, and sinking fund provisions.

ISSUANCE OF NEW SERIES OF PREFERRED STOCK COULD MATERIALLY ADVERSELY AFFECT
HOLDERS OF COMMON STOCK AND ANY EXPANSION OR SALES OPPORTUNITIES

We are currently issuing a new series of preferred stock for continued funding
of operations. The issuance of such preferred stock or any new series of
preferred stock could materially adversely affect the rights of holders of
shares of our common stock and, therefore, could reduce the value of the common
stock. In addition, specific rights granted to holders of preferred stock could
be used to restrict our ability to merge with, or sell our assets to, a third
party. The ability of the board of directors to issue preferred stock could have
the effect of rendering more difficult, delaying, discouraging, preventing, or
rendering more costly an acquisition of us or a change in control of us, thereby
preserving our control by the current stockholders.

INTERNET SECURITY POSES RISKS TO OUR ENTIRE BUSINESS

The electronic submission of healthcare claims and other electronic healthcare
transaction processing services by means of our proprietary software involves
the transmission and analysis of confidential and proprietary information of the
patient, the healthcare provider, or both, as well as our own confidential and
proprietary information. The compromise of our security or misappropriation of
proprietary information could have a material adverse effect on our business,
prospects, financial condition, and results of operations. We rely on encryption
and authentication technology licensed from other companies to provide the
security and authentication necessary to effect secure Internet transmission of
confidential information, such as medical information. Advances in computer

                                       15
<PAGE>

capabilities, new discoveries in the field of cryptography, or other events or
developments may result in a compromise or breach of the technology used by us
to protect customer transaction data. Anyone who is able to circumvent our
security measures could misappropriate proprietary information or cause
interruptions in our operations. We may be required to expend significant
capital and other resources to protect against security breaches or to minimize
problems caused by security breaches. Concerns over the security of the Internet
and other online transactions and the privacy of users may also inhibit the
growth of the Internet and other online services generally, and the Web site in
particular, especially as a means of conducting commercial transactions. To the
extent that our activities or the activities of others involve the storage and
transmission of proprietary information, such as diagnostic and treatment data,
security breaches could damage our reputation and expose us to a risk of loss or
litigation and possible liability. Our security measures may not prevent
security breaches. Our failure to prevent these security breaches may have a
material adverse effect on our business, prospects, financial condition, and
results of operations.

WE WILL ONLY BE ABLE TO EXECUTE OUR BUSINESS PLAN IF ELECTRONIC COMMERCE
CONTINUES TO GROW GENERALLY AND SPECIFICALLY IN THE HEALTH CARE INDUSTRY

Our future revenues and any future profits are substantially dependent upon the
widespread acceptance and use of the Internet and other online services as an
effective medium of commerce by submitters of medical claims. Rapid growth in
the use of, and interest in, the Internet, the Web, and online services is a
recent phenomenon, and may not continue on a lasting basis. In addition,
customers may not adopt, and continue to use, the Internet and other online
services as a medium of commerce. Demand and market acceptance for recently
introduced services and products over the Internet are subject to a high level
of uncertainty, and few services and products have generated profits. For us to
be successful, the healthcare community must accept and use novel and cost
efficient ways of conducting business and exchanging information.

In addition, the public in general, and the healthcare industry in particular,
may not accept the Internet and other online services as a viable commercial
marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. To the extent that the
Internet and other online "business to business" services continue to experience
significant growth in the number of users, their frequency of use, or in their
bandwidth requirements, the infrastructure for the Internet and online services
may be unable to support the demands placed upon them. In addition, the Internet
or other online services could lose their viability due to delays in the
development or adoption of new standards and protocols required to handle
increased levels of Internet activity, or due to increased governmental
regulation. Changes in, or insufficient availability of, telecommunications
services to support the Internet or other online services also could result in
slower response times and adversely affect usage of the Internet and other
online services generally and our product and services in particular. If use of
the Internet and other online services does not continue to grow or grows more
slowly than we expect, if the infrastructure for the Internet and other online
services does not effectively support the growth that may occur, or if the
Internet and other online services do not become a viable commercial
marketplace, our business, prospects, financial condition, and results of
operations could be materially adversely affected.

WE MAY NOT BE ABLE TO ADAPT AS THE INTERNET, ELECTRONIC COMMERCE, AND CUSTOMER
DEMANDS CONTINUE TO EVOLVE

The Internet and the medical claims processing industry are characterized by:

o    rapid technological change,

o    changes in user and customer requirements and preferences,

o    changes in federal legislation and regulation,

o    frequent new product and service introductions embodying new technologies,
     and

o    the emergence of new industry standards and practices that could render our
     existing Web site and proprietary technology and systems obsolete.

                                       16
<PAGE>

Our success will depend, in part, on our ability to:

o    enhance and improve the responsiveness and functionality of our online
     claims processing services,

o    license leading technologies useful in our business and to enhance our
     existing services,

o    comply with all applicable regulations regarding our industry and the
     Internet,

o    develop new services and technology that address the increasingly
     sophisticated and varied needs of our prospective or current customers, and

o    respond to technological advances and emerging industry standards and
     practices on a cost-effective and timely basis.

The development of our Web site and other proprietary technology will involve
significant technical and business risks. We may not be able to adapt
successfully to such demands. Our failure to respond in a timely manner to
changing market conditions or customer requirements would have a material
adverse effect on our business, prospects, financial condition, and results of
operations.

WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN OUR INDUSTRY

Based on total assets and annual revenues for the fiscal year ended in 2001, we
are significantly smaller than the majority of our national competitors. We are
one-twentieth the size of our next largest competitor in terms of total assets
and one-thirtieth their size in terms of total revenues, and their financial
strength could prevent us from capturing geographical or institutional markets.
We may not successfully compete in any market in which we conduct or may conduct
operations. In addition, in certain market segments, including psychiatry and
surgery, we believe that we are not currently able to compete with existing
potential competitors and, accordingly, we have designed our business plan to
address other market segments.

REGULATORY AND LEGAL UNCERTAINTIES COULD HARM OUR BUSINESS

We are not currently subject to direct regulation by any government agency other
than laws or regulations applicable to electronic commerce, but we process
information which, by law, must remain confidential. The U.S. Centers for
Medicare and Medicaid Services (formerly HCFA) has defined security requirements
for Internet communications including healthcare data. We operate in compliance
in all material respects with these requirements. Due to the increasing
popularity and use of the Internet and other online services, federal, state,
and local governments may adopt laws and regulations, or amend existing laws and
regulations, with respect to the Internet or other online services covering
issues such as user privacy, pricing, content, copyrights, distribution, and
characteristics and quality of products and services. Furthermore, the growth
and development of the market for electronic commerce may prompt calls for more
stringent consumer protection laws to impose additional burdens on companies
conducting business online. The adoption of any additional laws or regulations
may decrease the growth of the Internet or other online services, which could,
in turn, decrease the demand for our services and increase our cost of doing
business, or otherwise have a material adverse effect on our business,
prospects, financial condition, and results of operations. Moreover, the
relevant governmental authorities have not resolved the applicability to the
Internet and other online services of existing laws in various jurisdictions
governing issues such as property ownership and personal privacy, and it may
take time to resolve these issues definitively. Any new legislation or
regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to our business, or the application of existing laws
and regulations to the Internet and other online services could have a material
adverse effect on our business, prospects, financial condition, and results of
operations.

THE MARKET PRICE FOR OUR COMMON STOCK MAY BE HIGHLY VOLATILE

The market price of our common stock has experienced, and may continue to
experience, significant volatility. Our operating results, announcements by us
or our competitors regarding acquisitions or dispositions, new procedures or


                                       17
<PAGE>

technology, changes in general conditions in the economy, and general market
conditions could cause the market price of our common stock to fluctuate
substantially. The equity markets have, on occasion, experienced significant
price and volume fluctuations that have affected the market prices for many
companies' common stock and have often been unrelated to the operating
performance of these companies.

OUR COMMON STOCK RECENTLY CEASED TRADING ON THE NASDAQ SMALLCAP MARKET AND NOW
TRADES ON THE OTC BULLETIN BOARD; OUR COMMON STOCK IS SUBJECT TO "PENNY STOCK"
RULES

Since the opening of trading on March 6, 2002, our common stock would cease
trading on the Nasdaq SmallCap Market and has been trading in the
over-the-counter market on the OTC Bulletin Board ("OTCBB") established for
securities that do not meet the Nasdaq SmallCap Market listing requirements or
in what are commonly referred to as the "pink sheets." As a result, an investor
may find it more difficult to dispose of, or to obtain accurate quotations as to
the price of, our shares.

As a result, our common stock is subject to the penny stock rules, which impose
additional sales practice requirements on broker-dealers who sell these
securities to persons other than established customers and accredited investors.
Accredited investors are generally those investors with net worth in excess of
$1,000,000 or an annual income exceeding $200,000 or $300,000 together with a
spouse. For transactions covered by these rules, the broker-dealer must make a
special suitability determination for the purchase, and must have received the
purchaser's written consent to the transaction prior to sale. As a result,
delisting could materially adversely affect the ability of broker-dealers to
sell our common stock and the ability of purchasers of our stock to sell their
shares in the secondary market.

FUTURE SALES OF COMMON STOCK BY OUR EXISTING STOCKHOLDERS COULD ADVERSELY AFFECT
OUR STOCK PRICE

The market price of our common stock could decline as a result of sales of a
large number of shares of our common stock in the market, or the perception that
these sales could occur. These sales also might make it more difficult for us to
sell equity securities in the future at a time and at a price that we deem
appropriate.

CAUTIONARY NOTES REGARDING THE FORWARD-LOOKING STATEMENTS

This report contains, and incorporates by reference, forward-looking statements
regarding our plans and objectives for the future. These forward-looking
statements are based on current expectations that involve numerous risks and
uncertainties. Our plans and objectives are based on a successful execution of
our expansion strategy and are based upon a number of assumptions, including
assumptions relating to the growth in the use of the Internet and that there
will be no unanticipated material adverse change in our operations or business.
These assumptions involve judgments with respect to, among other things, future
economic, political, competitive, and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. Although we believe that the assumptions
underlying our forward-looking statements are reasonable, any of the assumptions
could prove inaccurate. The forward-looking statements included, or incorporated
by reference, in this report may prove to be inaccurate. In light of the
significant uncertainties inherent in these forward-looking statements, you
should not regard these statements as representations by us or any other person
that we will achieve our objectives and plans.


                                       18
<PAGE>

ITEM 2. PROPERTIES

We currently lease 7,397 square feet of office space at a rent of approximately
$11,400 per month, at 12801 North Central Expressway, Suite 1515, Dallas, Texas
75243. The lease expires December 31, 2002. We believe that, in the event
alternative or larger offices are required, such space is available at
competitive rates. For our servers, we currently utilize Digex Business Internet
Solutions, including a nationwide DS-3 backbone, a substantial dedicated Web
server management facility, and a 24 hour per day, 7 day per week Network
Operations Center at a cost of approximately $26,200 per month on a
month-to-month basis. Both our office lease and managed hosting agreement are
under review for potential cost reduction.

ITEM 3. LEGAL PROCEDINGS

We are not currently party to any litigation proceedings.

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

On December 26, 2001, at the annual meeting of stockholders held in Dallas,
Texas, stockholders (i) approved, by a vote of 5,641,373 shares for and 5,900
shares against, the amendment to our 1998 Stock Option Plan for Non-Employee
Directors to increase the total number of issuable shares of Common Stock by
250,000 shares, (ii) approved, by a vote of 5,646,673 for and 350 against, and
250 abstaining, the issuance of an aggregate of up to 4,000,000 shares of our
Common Stock upon the conversion of the 4,000 shares of Series C 8% Convertible
Redeemable Preferred Stock, (iii) elected, by a vote of 5,647,273 shares for
Sture Hedlund, John C. Willems III, and Westcott W. Price III, to serve as Class
II Directors for a two year period and until their successors are elected and
qualified, and (iv) ratified, by a vote of 5,647,273 shares for the selection of
Ernst & Young LLP as independent auditors with respect to our financial
statements for the fiscal year ending December 31, 2001.


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

The Common Stock of Claimsnet.com traded on the Nasdaq SmallCap Market under the
symbol "CLAI" and on the Boston Stock Exchange under the trading symbol "CLA"
for the period from April 6, 1999 to March 5, 2002. The Common Stock of
Claimsnet.com has traded on the OTC Bulletin Board under the symbol "CLAI.OB"
and on the Boston Stock Exchange under the trading symbol "CLAI" since March 6,
2002. The following table sets forth, for the fiscal periods indicated, the
quarterly high and low per share sales prices, as reported by Nasdaq:

                                                            HIGH          LOW
                                                          ---------    ---------
          1999
          From April 6, 1999 through June 30, 1999        $ 19.125     $  7.563
          Three months ended September 30, 1999              8.500        4.000
          Three months ended December 31, 1999              12.625        4.000

          2000
          Three months ended March 31, 2000               $ 11.250     $  6.500
          Three months ended June 30, 2000                   9.500        2.000
          Three months ended September 30, 2000              4.813        1.625
          Three months ended December 31, 2000               3.750        1.063

          2001
          Three months ended March 31, 2001               $  2.313     $  1.063
          Three months ended June 30, 2001                   2.820        1.313
          Three months ended September 30, 2001              3.290        1.250
          Three months ended December 31, 2001               1.750        0.350

The high bid, low ask for the Common Stock on the OTCBB on March 29, 2002 was
$0.34 per share. As of April 11, 2002, there were approximately 1,700 holders of
record of the Common Stock.

                                       19
<PAGE>

DIVIDEND POLICY

We have not paid any cash dividends on our Common Stock and, in view of net
losses and our operating requirements, do not intend to pay cash dividends in
the foreseeable future. If we achieve profitability, we intend to retain future
earnings, if any, for reinvestment in the development and expansion of our
business. Any credit agreements, which we may enter into with institutional
lenders, may restrict our ability to pay dividends. Any preferred stock
shareholders may receive preferential rights in the distribution of dividends,
if any. Whether we pay cash dividends in the future will be at the discretion of
our Board of Directors and will be dependent upon our financial condition,
results of operations, capital requirements, and any other factors that the
Board of Directors determines to be relevant.

RECENT SALES OF UNREGISTERED SECURITIES

In March 2002, we completed the private placement of 1,104 shares of Series D
Preferred Stock to accredited investors at $250 per share for net proceeds of
$276,000. Each share of Series D Preferred Stock has a stated value of $250 per
share, a liquidation preference over holders of common stock, does not accrue
dividends, and is convertible into 1,000 shares of common stock at a rate of
$0.25 of stated value per share of common stock at the election of the holder.
We have the right to initiate redemption of the Series D Preferred Stock at the
stated value in the event that the average high and low bid price of our common
stock exceeds $.50 for 20 of any 30 consecutive trading days. If we initiate
redemption proceedings, the holders may elect to convert to common shares prior
to the redemption date. Holders of the Series D Preferred Stock have the right
to vote together with the holders of common stock on an as converted basis. The
private placement included 100 shares of Series D Preferred Stock purchased by
Mr. Thomas Michel, a Director, and 620 shares of Series D Preferred Stock
purchased by New York Venture Corp., an entity for which Jeffrey Black, a
Director, is the corporate secretary. In April 2002, we received a subscription
to purchase an additional 40 shares of Series D Preferred Stock by an accredited
investor for net proceeds of $10,000, which subscription was not formally
accepted by us prior to the filing date of this report.

In December 2001, we issued to accredited investors for a net consideration of
$462,000, at the rate of $0.70 per common share, 660,000 shares of common stock,
including 440,000 shares resulting from the conversion of 440 shares of Series C
Preferred Stock with an aggregate stated value of $308,000 at the rate of $0.70
of stated value of Series C Preferred Stock for each share of common stock.

In June 2001, we issued 16,000 shares of common stock with a fair market value
of $41,600 to New York Capital AG in connection with an agreement for
professional services to be rendered in 2001.

In April 2001, McKesson acquired 1,514,285 shares of common stock at $1.75 per
share for net proceeds of $2,650,000 and the cancellation of the stock purchase
warrant originally issued to McKesson in 1999 to purchase 819,184 shares of
common stock. No registration rights were granted to McKesson for the shares
acquired.

In March 2001, we sold 400,000 shares of common stock to an accredited investor
for $1.75 per share for net proceeds of $596,000, and in connection therewith,
in April 2001, we issued immediately exercisable two year warrants at a price of
$1.75 per share to purchase 40,000 shares of common stock to financial advisors
who assisted us in the negotiation and structuring of the sale.

Except as otherwise indicated, in each of the security issuances referenced
above, we provided certain rights to register resale of the shares at our
expense under the Securities Act of 1933 (the "Act"); no sales of securities
involved the use of an underwriter and no commissions were paid in connection
with the sale of any securities and the proceeds were used for general corporate
purposes. The certificates evidencing the common stock issued in each of the
transactions referenced above were appropriately legended.

The offer and sale of the securities in each of the foregoing transactions were
exempt from registration under the Act by virtue of Section 4(2) thereof and the
rules promulgated thereunder. Each of the offerees and investors in such private
placements provided representations to us that they were each "accredited
investors," as defined in Rule 501 under the Act, and some were existing
stockholders at the time of such transaction. Each investor was afforded the
right to conduct a complete due diligence review of us and the opportunity to
ask questions of, and receive answers from, our management.


                                       20
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data are derived from our consolidated
financial statements. The financial statements as of, and for the years ended
December 31, 2001, 2000 and 1999 have been audited by Ernst & Young LLP,
independent auditors. The financial statements as of, and for the years ended
December 31, 1998 and 1997 have been audited by KGA Group, independent auditors.

The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the related notes
appearing elsewhere in this form 10-K.

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                 -------------------------------------------------------------------------
                                                     2001            2000           1999          1998            1997
                                                 -------------  -------------  -------------  -------------  -------------
<S>                                              <C>            <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA:
-----------------------------
Revenues .....................................   $  1,336,000   $  1,602,000   $    414,000   $    155,000   $     82,000
                                                 -------------  -------------  -------------  -------------  -------------
Total operating expenses .....................      6,573,000     19,432,000      8,485,000      4,510,000      2,514,000
                                                 -------------  -------------  -------------  -------------  -------------
Interest expense - affiliate .................          6,000          6,000        142,000        314,000        390,000
Interest expense - bridge debt ...............             --             --        967,000             --             --
Interest expense - other .....................          6,000             --             --             --             --
Interest (income) ............................        (55,000)      (141,000)      (322,000)        (6,000)       (41,000)
                                                 -------------  -------------  -------------  -------------  -------------
Net loss .....................................   $ (5,194,000)  $(17,695,000)  $ (8,858,000)  $ (4,663,000)  $ (2,781,000)
                                                 =============  =============  =============  =============  =============
Loss per weighted average common
  share outstanding (basic and diluted) ......   $       (.52)  $      (2.16)  $      (1.52)  $      (1.41)  $      (0.98)
                                                 =============  =============  =============  =============  =============
Weighted average common shares
 outstanding (basic and diluted)  ............      9,999,000      8,174,000      5,811,000      3,309,000      2,851,000
                                                 =============  =============  =============  =============  =============

                                                                               December 31,
                                                 -------------------------------------------------------------------------
                                                     2001            2000           1999          1998            1997
                                                 -------------  -------------  -------------  -------------  -------------

BALANCE SHEET DATA:
-------------------
Current assets ...............................   $    837,000   $  1,562,000   $  7,124,000   $    105,000   $    419,000
Total assets .................................      1,457,000      3,076,000      9,034,000      1,653,000      2,175,000
Working capital (deficit)  ...................       (535,000)    (1,348,000)     6,113,000     (1,089,000)        36,000
Long-term debt ...............................             --             --             --      4,323,000      3,468,000
Accumulated deficit ..........................    (39,497,000)   (34,303,000)   (16,608,000)    (7,750,000)    (3,087,000)
Stockholders' equity (deficit) ...............         85,000        166,000      7,971,000     (3,864,000)    (1,677,000)
</TABLE>

                                       21
<PAGE>

<TABLE>
<CAPTION>
                                                                      Quarters
                                    -----------------------------------------------------------------------------
                                        First          Second           Third          Fourth           Total
                                    -------------   -------------   -------------   -------------   -------------
QUARTERLY FINANCIAL DATA (UNAUDITED)
------------------------
<S>                                 <C>             <C>             <C>             <C>             <C>
FISCAL 2001
Revenues                            $    532,000    $    263,000    $    242,000    $    299,000    $  1,336,000
Gross loss                              (378,000)       (302,000)       (382,000)       (207,000)     (1,269,000)
Net loss                              (1,316,000)     (1,406,000)     (1,345,000)     (1,127,000)     (5,194,000)
Basic loss per common share                (0.15)          (0.14)          (0.13)          (0.10)          (0.52)

FISCAL 2000                                              (Note 1)        (Note 2)        (Note 3)        (Note 4)
Revenues                            $    280,000    $    330,000    $    483,000    $    509,000    $  1,602,000
Gross loss (Note 1)                     (547,000)       (612,000)       (373,000)       (140,000)     (1,672,000)
Net loss                              (1,934,000)     (9,308,000)     (3,728,000)     (2,725,000)    (17,695,000)
Basic loss per common share                (0.29)          (1.20)          (0.41)          (0.30)          (2.16)
</TABLE>

(1)  The three months ended June 30, 2000 includes revenues of $15,000 and
     operating expenses of $7,020,000 (including $6,153,000 of purchased
     research and development costs) for a net loss of $7,005,000 associated
     with the April 18, 2000 acquisition of HealthExchange assets.

(2)  The three months ended September 30, 2000 includes revenues of $19,000 and
     operating expenses of $2,206,000 (including $1,540,000 for impairment of
     acquired intangible assets) for a net loss of $2,187,000 associated with
     the April 18, 2000 acquisition of HealthExchange assets.

(3)  The three months ended December 31, 2000 includes revenues of $24,000 and
     operating expenses of $1,481,000 (including $722,000 for impairment of
     acquired intangible assets) for a net loss of $1,457,000 associated with
     the April 18, 2000 acquisition of HealthExchange assets.

(4)  The year ended December 31, 2000 includes revenues of $58,000 and operating
     expenses of $10,707,000 (including $8,415,000 for purchased research and
     development and impairment of acquired intangible assets) for a net loss of
     $10,649,000 associated with the April 18, 2000 acquisition of
     HealthExchange assets.


                                       22
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS AND OTHER PORTIONS OF THIS REPORT CONTAIN FORWARD-LOOKING INFORMATION
THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED BY THE FORWARD-LOOKING INFORMATION. FACTORS THAT MAY
CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, AVAILABILITY OF
FINANCIAL RESOURCES FOR LONG TERM NEEDS, PRODUCT DEMAND, MARKET ACCEPTANCE AND
OTHER FACTORS DISCUSSED ELSEWHERE IN THIS REPORT. THIS MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN
CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES
INCLUDED ELSEWHERE IN THIS REPORT.

IN GENERAL

As of December 31, 2001, we had a working capital deficit of $(535,000) and
stockholders' equity of $85,000. We generated revenues of $1,336,000 for the
year ended December 31, 2001, $1,602,000 for the year ended December 31, 2000
and $414,000 for the year ended December 31, 1999, have incurred net losses
since inception and had an accumulated deficit of ($39,497,000) at December 31,
2001. We expect to continue to operate at a loss for the foreseeable future.
There can be no assurance that we will ever achieve profitability. In addition,
during the year ended December 31, 2001, net cash used in operating activities
was $4,243,000.

The Company has only been in operation since 1996, and, as a result, the
relationships between revenue and cost of revenue, and operating expenses
reflected in the financial information included in this report do not represent
future expected financial relationships. Much of the cost of revenue and
operating expenses reflected in our consolidated financial statements are
associated with people costs, and not directly related to transaction volumes.
Our expenses decreased in the current year due to staffing and other cost
reductions while corresponding revenues and transaction costs increased. Further
reductions were effected in February and March 2002. Our operating expenses for
the year ended December 31, 2001 included a significant one-time, non-recurring
expense due to write off of unamortized development costs and warrants, net of
revenues from amendment of the Development and Services Agreement with McKesson.
Our operating expenses for the year ended December 31, 2000 included significant
costs associated with the asset acquisition of HECOM. Accordingly, we believe
that, at our current stage of operations period to period comparisons of results
of operations are not meaningful.

PRIVATE PLACEMENTS, OPTIONS AND WARRANTS

In February 2002, we granted employees the remaining options under our 1997
Stock Option Plan and warrants to purchase an aggregate of 582,045 shares of
common stock in exchange for voluntary salary reductions. The options and
warrants contained an exercise of $0.35 per share, the market price on the date
of grant, expire on the tenth anniversary of the grant, and vest 25 %
immediately on the date of grant and an additional 25% on each third month
anniversary of the date of grant.

In January 2002, we granted employees options under our 1997 Stock Option Plan
to purchase an aggregate of 456,000 shares of common stock. The options contain
an exercise of $0.60 per share, the market price on the date of grant, expire on
the tenth anniversary of the grant, and vest 100 % one year from the date of
grant.

See Item 5, Recent Sale of Unregistered Securities, for information as to the
sale, in March 2002, of 1,104 shares of our Series D Preferred Stock for net
proceeds of $276,000 and the sale in 2001 for aggregate net proceeds of
$3,708,000 of an aggregate of 2,134,255 shares of common stock and 440 shares of
Series C Preferred Stock which subsequently converted into 440,000 additional
shares of common stock.

In December 2001, upon completion of our annual meeting, ten year options
exercisable for an aggregate of 25,000 shares of common stock were granted under
the Directors' Plan. The option exercise price of $0.50 was the fair market
value of a share of the outstanding common stock on the date the options were
granted. The options become vested to the extent of 50% one year from the date
of grant and fully on the second anniversary of the date of grant.

                                       23
<PAGE>

In April 2001, ten year options exercisable for an aggregate of 25,000 shares of
common stock were granted to employees under the 1997 Stock Option Plan. The
option exercise price of $1.75 was the fair market value of a share of the
outstanding common stock on the date the options were granted. The options
become vested to the extent of 50% one year from the date of grant and fully on
the second anniversary of the date of grant.

In January 2001, ten year options exercisable for an aggregate of 385,500 shares
of common stock were granted to employees under the 1997 Stock Option Plan. The
option exercise price of $1.25 was the fair market value of a share of the
outstanding common stock on the date the options were granted. The options
become fully vested on the first anniversary of the date of grant.

In October 2000, upon completion of our annual meeting, ten year options
exercisable for an aggregate of 25,000 shares of common stock were granted under
the Directors' Plan. The option exercise price of $2.375 was the fair market
value of a share of the outstanding common stock on the date the options were
granted. The options become vested to the extent of 50% one year from the date
of grant and fully on the second anniversary of the date of grant.

In August 2000, we completed a private placement of 270,000 shares of common
stock at $3.50 per share for net proceeds of $927,000 to various accredited
investors. In connection with the financing, we also issued one year warrants to
purchase 270,000 shares of common stock at a price of $4.60 per share and two
year warrants to purchase 270,000 shares of common stock at a price of $5.60 per
share.

In June 2000, we sold 1,000,000 shares of common stock to an accredited investor
at $3.00 per share yielding net proceeds of $2,982,000.

In June 2000, we granted certain employees ten-year warrants to purchase 178,250
shares of common stock at a price of $3.00 per share, the market price on the
date of grant. The warrants became fully exercisable in June 2001.

In May 2000, we sold at a price of $3.00 per share, 100,000 shares of common
stock to American Medical Finance, Inc., the owner of record of 381,603 shares
of common stock prior to the transaction. Bo W. Lycke, the Chairman of the Board
and former President and Chief Executive Officer of the Company, Robert H.
Brown, Jr., a former Director of the Company, and Ward L. Bensen, a former
Director of the Company, control 71.1%, 17.7%, and 11.2%, respectively, of the
outstanding common stock of American Medical Finance, Inc.

In April 2000, we issued 1,200,000 shares of common stock (placed in escrow)
valued at $6,376,000 to acquire certain assets from VHx Company. In December
2000, pursuant to provisions of the asset purchase agreement, we released
312,000 share to VHx and withdrew from the escrow and returned to our treasury
888,000 shares at a value of $1,415,000, and we issued an additional 244,000
shares valued at $389,000 from treasury stock to JDH, a major creditor, in
satisfaction of debt owed by VHx Company. In December 2001 we cancelled the
shares held in treasury.

None of the above sales of securities involved the use of an underwriter and
except as indicated no commissions were paid in connection with the sale of any
securities. Except for the issuance of options under the referred to option
plan, the certificates evidencing the common stock issued in each of the
transactions referenced above were appropriately legended.

The offer and sale of the other securities in each of the transactions
referenced above was exempt from registration under the Securities Act of 1933
by virtue of Section 4(2) thereof and the rules promulgated thereunder. Each of
the offerees and investors in such private placements provided representations
to us that they were each "accredited investors," as defined in Rule 501 under
the Act, as well as highly sophisticated investors, some of whom were existing
stockholders of us at the time of such transaction. The shares subject to the
option have been registered under the Act.

                                       24
<PAGE>

PLAN OF OPERATIONS

Our recently modified business strategy is as follows:

o    to aggressively pursue and support strategic relationships with companies
     that will in turn aggressively market electronic claims processing and our
     other services to large volume healthcare providers, including clinics,
     hospitals, laboratories, physicians, dentists, HMOs, third party
     administrators, and insurers;
o    to continue to expand our product offerings to include additional
     transaction processing revenue, such as HMO encounter forms, eligibility
     and referral verifications, patient statements, and other healthcare
     administrative services, in order to diversify sources of revenue;

o    to license our technology for other applications, including stand-alone
     purposes, Internet systems, private label use, and original equipment
     manufacturers;
o    to provide total claim management services to payer organizations,
     including internet claim submission, paper claim conversion to electronic
     transactions, and receipt of EDI transmissions.

We anticipate that our primary source of revenues will be revenue paid by system
users from jointly marketed private-label or co-branded licenses and services.
The fees paid by users for insurance claims and patient statement services, and
fees from medical and dental payers for processing claims electronically. We
expect most of our revenues to be recurring in nature.

Our principal costs to operate are anticipated to be processing fees for certain
transactions, technical and customer support, research and development,
acquisition of capital equipment, and general and administrative expenses. We
intend to continue to develop and upgrade our technology and
transaction-processing systems and continually update and improve our website to
incorporate new technologies, protocols, and industry standards. Selling,
general and administrative expenses include all corporate and administrative
functions that serve to support our current and future operations and provide an
infrastructure to support future growth. Major items in this category include
management and staff salaries and benefits, travel, professional fees, network
administration, business insurance, and rent.

CRITICAL ACCOUNTING POLICIES

REVENUE RECOGNITION

We enter into services agreements with our customers to provide access to our
hosted software platform for processing of customer transactions, including base
level support. The customers are not entitled to delivery of our software at any
time during or at the end of the agreements. The customers access our hosted
software platform via the internet with no additional software required to be
located on the customer's systems. Customers pay transaction fees and pay time
and materials charges for support above the base level and one customer paid
monthly hosting fees for dedicated servers and databases until March 31, 2001.
Customer agreements also may (i) provide for development fees related to private
labeling of our software platform (i.e. access to our servers through a web site
which is in the name of and/or has the look and feel of the customer's other web
sites) and some customization of the offering and business rules, and (ii) have
periodic license fees. We account for our service agreements by combining the
contractual revenues from development, license and support fees and recognizing
the revenue ratably over the estimated period covered by the development and
license. We do not segment these services and use the contractual allocation to
recognize revenue because we do not have objective and reliable evidence of fair
value to allocate the arrangement consideration to the deliverables in the
arrangement. We recognize service fees for transactions, above base support and
monthly hosting as the services are performed.

SOFTWARE FOR SALE OR LICENSE

We begin capitalizing costs incurred in developing a software product once
technological feasibility of the product has been determined. Capitalized
computer software costs include direct labor, labor-related costs and interest.
The software is amortized over its expected useful life of 3 years or the
contract term, as appropriate.


                                       25
<PAGE>

RESULTS OF OPERATIONS

COMPARISON OF THE YEARS ENDED DECEMBER 31, 2001 AND 2000

REVENUES

Revenues decreased 17% to $1,336,000 in 2001 from $1,602,000 in 2000. Revenues
of $288,000 and $681,000, respectively, during 2001 and 2000 are related to
software license and support revenue under the McKesson Development and Services
Agreement. Revenues of $1,048,000 and $921,000, respectively during 2001 and
2000, are related to our Internet-based clients. Increased revenues from
internet-based clients are attributable to volume and pricing improvements.
Revenues from recurring revenue sources for 2001 represented 64% of total
revenues. Recurring revenues were comprised of $704,000 from transaction-based
fees and $149,000 from subscription fees. Revenues from non-recurring sources,
other than revenue related to the McKesson Development and Services Agreement,
totaled $195,000 and were related to setup, support, and other fees. Revenues
under the McKesson Development and Services Agreement accounted for
approximately 22% of 2001 revenues versus 43% of 2000 revenues.

Transactions processed by us increased 19% to 6,303,000 in 2001 from 5,283,000
in 2000. All of the increase was attributable to internal growth in the number
of accounts and healthcare providers subscribing to our services. Additionally,
92% of all transactions were for physician and dental claim submission services
and 8% were from patient statement processing. We had 503 accounts processing
transactions for 4,393 providers at December 31, 2001 compared with 399 accounts
and 3,696 providers at December 31, 2000, representing increases of 26% and 19%,
respectively.

Transaction-based revenue averaged $.11 per transaction and $.12 per transaction
for the years ended December 31, 2001 and 2000, respectively, representing a
decrease of 8%, primarily due to fluctuations in the mix of transactions
processed. Average revenue per claim transaction remained constant at $.09 for
5,789,000 and 4,656,000 claims processed in 2001 and 2000, respectively. Patient
statement volumes decreased to 503,000 in 2001 from 626,000 in 2000 while the
average revenue per statement transaction increased to $.39 in 2001 compared to
$.34 in 2000. Eligibility transactions increased to 11,000 in 2001 with average
revenue of $.47 per transaction from 1,000 in 2000 when revenues were not
generally recognized on a transaction basis.

COST OF REVENUES

Cost of revenues were $2,605,000 in 2001 compared to $3,274,000 for the prior
year. The four recurring components of cost of revenues are data center
expenses, third party transaction processing expenses, customer support
operation expenses and amortization of software. Data center expenses were
$336,000 for the year ended December 31, 2001 compared with $394,000 for 2000, a
decrease of 15%. Renegotiation of the McKesson contract eliminated contractual
requirements for segregated data center services. Third party transaction
processing expenses were $540,000 in 2001 compared to $498,000 in 2000,
representing an 8% increase compared to the 19% increase in total transactions
processed. Customer support operations expense decreased by 38% to $1,130,000 in
2001 from $1,832,000 in 2000, while the number of accounts and providers served
at the end of each year increased by 26% and 19%, respectively. The decreases in
customer support operations expense were primarily attributable to decreased
staffing. Amortization of software and development project amortization was
$283,000 in 2001 compared to $550,000 in 2000, representing a 49% decrease. This
decrease reflects completion of software development amortization in 2001.
Additionally, software development costs of $316,000 associated with the 1999
McKesson Development and Services agreement required a one-time write off to
cost of revenues upon renegotiation of the contract during 2001.

RESEARCH AND DEVELOPMENT

Research and development expenses were $772,000 in 2001, compared with
$2,019,000 in 2000, representing a decrease of 62%. Research and development
expenses are comprised of personnel costs and related expenses. Development
efforts during 2001 were concentrated on web site improvements and continuous
incremental enhancements to assure compliance with HIPPA requirements.
Development efforts in 2000 were concentrated on development of the McKesson
project started during 1999 and additional development of HealthExchange(TM)
products which were postponed for release before reaching marketability. No
costs were capitalized for development efforts during either 2001 or 2000.

                                       26
<PAGE>

PURCHASED RESEARCH AND DEVELOPMENT AND WRITE-OFF OF PURCHASED INTANGIBLES AND
OTHER ASSETS

See discussion under same caption in the comparison of the Year Ended December
31, 2001 and 2000 for information as to the recognition of charges of $2,276,000
for the write-off of the unamortized balance of purchased intangibles and other
assets.

AMORTIZATION OF INTANGIBLES

Amortization of intangible assets of $412,000 was recorded in 2000 on trademarks
and non-compete agreements acquired in the April 18, 2000 purchase of
HealthExchange assets. There was no such expense recognized in 2001.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses were $3,196,000 in 2001, compared
with $5,297,000 in 2000, a decrease of 40%. The $2,101,000 decrease includes a
$773,000 decrease for general and administrative expenses, primarily related to
reduction in the work force and discontinuation of HealthExchange operations.
Additionally, decreases in work force created reductions of $1,093,000 in sales
and marketing expenses and $275,000 in technology infrastructure and support
expenses. Offsetting the expense decreases was a one-time charge of $40,000 for
write off of warrants, net of development revenues, associated with the McKesson
contract renegotiation.

INTEREST (INCOME) EXPENSE

Interest expense was $12,000 for 2001 compared with $6,000 for 2000. Included in
the 2001 expense was $6,000 related to interest on short-term notes payable to
American Medical Finance, a related party. Interest of $6,000 was paid to
vendors for financing fees. Interest income of $55,000 and $141,000 was provided
in 2001 and 2000, respectively, from investment of cash and equivalents.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 2000 AND 1999

REVENUES

Revenues increased 287% to $1,602,000 in 2000 from $414,000 in 1999. Revenues of
$681,000 and $87,000, respectively, during 2000 and 1999 are related to software
license and support revenue under the McKesson Development and Services
Agreement and revenues of $921,000 and $327,000, respectively during 2000 and
1999, are related to our Internet-based clients. Increased revenues from
internet-based clients are attributable to volume and pricing improvements and
increased customer interest in the patient statement product. Revenues from
recurring revenue sources for 2000 represented 47% of total revenues. Recurring
revenues were comprised of $644,000 from transaction-based fees and $115,000
from subscription fees. Revenues from non-recurring sources totaled $162,000 and
were related to setup, support, and other fees. Revenues under the McKesson
Development and Services Agreement accounted for approximately 43% of 2000
revenues and 21% of 1999 revenues.

Transactions processed by us increased 88% to 5,283,000 in 2000 from 2,809,000
in 1999. All of the increase was attributable to internal growth in the number
of accounts and healthcare providers subscribing to our services. Additionally,
88% of all transactions were for physician and dental claim submission services
and 12% were from patient statement processing. We had 399 accounts processing
transactions for 3,696 providers at December 31, 2000 compared with 365 accounts
and 3,001 providers at December 31, 1999, representing increases of 9% and 23%,
respectively.

Transaction-based revenue averaged $.12 per transaction and $.07 per transaction
for the years ended December 31, 2000 and 1999, respectively, representing an
increase of 71%. Pricing changes implemented early in the year on certain
transactions and the growth in statement transactions contributed to the
improvement. Average revenue per claim transaction for the 4,656,000 claims
processed was $.09 during the year ended December 31, 2000 compared to 2,778,000
claims processed at an average of $.07 in the prior year. Patient statement
volumes increased to 626,000 in 2000 from approximately 30,000 in 1999 with an
average revenue per transaction of $.34 in 2000.

                                       27
<PAGE>

COST OF REVENUES

Cost of revenues were $3,274,000 in 2000 compared to $2,418,000 for the prior
year. The four components of cost of revenues are data center expenses,
transaction processing expenses, customer support operation expenses and
amortization of software. Data center expenses were $394,000 for the year ended
December 31, 2000 compared with $324,000 for 1999, an increase of 22%.
Transaction processing expenses were $498,000 in 2000 compared to $208,000 in
1999, representing a 139% increase. Customer support operations expense
increased by 62% to $1,832,000 in 2000 from $1,133,000 in 1999, while the number
of accounts and providers served at the end of each year increased by 9% and
23%, respectively. The increases in customer support operations expense were
primarily attributable to increased staffing. Amortization of software and
development project amortization was $550,000 in 2000 compared to $753,000 in
1999, representing a 27% decrease. This decrease reflects completion of software
development amortization in 2000.

RESEARCH AND DEVELOPMENT

Research and development expenses were $2,019,000 in 2000, compared with
$981,000 in 1999, representing an increase of 106%. Research and development
expenses are comprised of personnel costs and related expenses. No internal use
software costs were capitalized in the current year compared to $161,000
capitalized during 1999. Development efforts during 2000 were concentrated on
development of the McKesson project started during 1999 and additional
development of HealthExchange(TM) products which have not yet reached
marketability. Development efforts during 1999 relating to our proprietary
software system represented continuous incremental enhancements, which are
individually and simultaneously implemented for all clients on our centralized
operating system. No costs were capitalized for these development efforts.
Development costs capitalized during 1999 were related to several internal
infrastructure system projects.

PURCHASED RESEARCH AND DEVELOPMENT AND WRITE-OFF OF PURCHASED INTANGIBLES AND
OTHER ASSETS

On April 18, 2000, the Company executed an asset purchase agreement (the "Asset
Purchase Agreement") with VHx Company ("VHx") to acquire selected properties and
assets of VHx, including the HealthExchange.com name and HealthExchange.com
trademarks, related to all efforts of VHx to develop products and services
designed to use Internet technology to facilitate and improve interaction
between physicians, health plans, employers and their members.

The Company allocated the purchase price to the various assets acquired using
standard valuation methodologies, projecting cash flows over the estimated
useful lives of the assets, net of additional investment needs, and considering
the stage of completion of software development projects. The initial results
valued the intangible assets at $3,700,000 after charges to in-process
technology of $6,154,000, recorded in the quarter ended June 30, 2000.

One of the significant assets acquired, an agreement with John Deere Health
("JDH") for development of an Enterprise Care Management System, required the
parties to negotiate mutually agreeable business terms for delivery of the
system after acceptance of beta testing. The Company and JDH were unable to
reach such an agreement.

In November and December 2000, as a result of the inability to negotiate
mutually agreeable business terms with JDH, an industry consolidation of system
vendors, sluggish sales in the payer market, and dramatic changes in the
financial markets, the Company substantially lowered its estimates of future
revenues less costs of completing the product. The Company reevaluated the
HealthExchange asset purchase using the same valuation methodologies and
determined that there had been a total impairment of the assets acquired. The
Company ceased further development of the HealthExchange(TM) products and all
marketing efforts. As a result of the revised valuation, the Company recognized
charges of $2,276,000 for the write-off of the unamortized balance of purchased
intangibles and other assets.

                                       28
<PAGE>

AMORTIZATION OF INTANGIBLES

Amortization of intangible assets of $412,000 was recorded in 2000 on trademarks
and non-compete agreements acquired in the April 18, 2000 purchase of
HealthExchange assets.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses were $5,297,000 in 2000, compared
with $5,086,000 in 1999, an increase of 4%. The $211,000 increase includes a
$913,000 increase for other general and administrative expenses, primarily
related to salaries and benefits for additional employees and increases in
professional and insurance fees. Offsetting this increase were decreases of
$380,000 in sales and marketing expenses and $46,000 in technology
infrastructure and support expenses and a one-time charge of $276,000 in 1999
for the cost of past services related to the grant of stock options and warrants
to non-employees. The sales and marketing decrease primarily reflects reduced
marketing efforts during 2000.

OTHER INCOME (EXPENSE)

Interest expense was $6,000 for 2000 compared with $1,109,000 in 1999. Included
in the 1999 expense was $850,000 related to amortization of debt discount
related to bridge financing, $108,000 related to amortization of deferred
financing costs and $9,000 of cash interest at 12% per annum. Interest of
$142,000 was paid to affiliates in 1999. Interest income of $141,000 and
$322,000 was provided in 2000 and 1999, respectively, from investment of the net
proceeds from the April 6, 1999 Initial Public Offering.

LIQUIDITY AND CAPITAL RESOURCES

For the year ended December 31, 2001 net cash used in operating activities of
$4,243,000 was primarily attributable to an operating loss of $5,194,000 and
change in working capital of $217,000, offset in part by depreciation of
$599,000, non-cash amortizations and write offs of $470,000, and common stock
issued for services of $99,000.

For the year ended December 31, 2000 net cash used in operating activities of
$6,496,000 was primarily attributable to an operating loss of $17,695,000,
offset in part by non-cash amortizations and write offs of $8,842,000 associated
with HECOM, depreciation of $855,000, and change in working capital of
$1,162,000. The acquisition of HECOM assets in the second quarter of 2000 was
responsible for $10,649,000 of our $17,695,000 net loss. The following table
presents HECOM's impact on our consolidated statement of operations:

                  Revenue                                        $    58,000
                                                                 ------------
                  Cost of revenue                                     21,000
                  Research and development                           944,000
                  Purchased research and development and
                     write-off of intangible assets                8,430,000
                  Amortization of intangibles                        412,000
                  Selling, general and administrative                900,000
                                                                 ------------



                  Total operating expenses                        10,707,000
                                                                 ------------
                  Net Loss                                       $10,649,000
                                                                 ============

In connection with the acquisition of HealthExchange assets, the Company accrued
contractual acquisition costs of $500,000 representing a disputed investment
banking fee. There has been no resolution of the dispute or substantial
discussions from which to better estimate either the amount, if any, or the
timing of any final settlement of the dispute.

Net cash used by investing activities was $38,000 in 2001 compared to net cash
provided by investing activities in 2000 of $380,000 and net cash used in
investing activities in 1999 of $5,493,000. For 2001, cash was provided
represented the proceeds of $11,000 from the sale of equipment and fixtures and
cash used was due to the purchase of $49,000 of equipment and furniture.

                                       29
<PAGE>

Net cash provided by investing activities in 2000 consisted of the sale of
$3,832,000 marketable securities and collection of employee loans. Primary uses
in 2000 consisted of the purchase of $2,978,000 of intangible assets and
research and development from VHx Company, and the purchase of $499,000 in
property and equipment.

Net cash used by investing activities in 1999 consisted of the net purchases of
$3,832,000 of marketable securities and the purchases of $1,500,000 in property
and equipment. In addition, we purchased operating licenses and began
implementation for several internal support systems during 1999. In connection
with the implementation of such systems, we capitalized $161,000 of internal
development costs.

Net cash provided by financing activities in 2001 was $3,680,000 as a result of
private placements of shares of common stock. A one-year loan in March 2001 from
American Medical Finance, Inc., affiliated with certain officers and directors
of the Company, in the amount of $400,000 bearing interest at 9.5% per annum was
repaid in May 2001.

Net cash provided by financing activities in 2000 was $4,227,000 as a result of
sales of common stock. In connection with a private placement in May 2000, we
issued one year warrants to purchase 270,000 shares of common stock at a price
of $4.60 per share and two year warrants to purchase 270,000 shares of common
stock at a price of $5.60 per share.

Net cash provided by financing was $14,734,000 in 1999 as a result of sales of
Series A 12% Subordinated Notes ("Notes") along with 125,000 shares of common
stock for net proceeds of $892,000; of 2,875,000 shares of common stock in an
initial public offering at $8.00 per share for net proceeds of $19,515,000; and
borrowings of $911,000 against a line of credit facility with American Medical
Finance, Inc. Net cash from the initial public offering was used to repay:
$5,234,000 of outstanding principal and accrued interest on the 9.5% note
payable and line of credit facility with American Medical Finance, Inc.;
$1,000,000 of outstanding principal and accrued interest under the Series A 12%
Subordinated Notes; and $350,000 of contingent notes.

In March 2002, we completed the private placement of 1,104 shares of Series D
Preferred Stock to accredited investors at $250 per share for net proceeds of
$276,000. A portion of the proceeds of the sale was used to repay short term
loans incurred in February 2002. In April 2002, we received a subscription to
purchase an additional 40 shares of Series D Preferred Stock by an accredited
investor for net proceeds of $10,000, which subscription was not formally
accepted by us prior to the filing date of this report.

See Item 7A, Quantitative and Qualitative Disclosures About Market Risk, for a
discussion of our ability to meet our anticipated capital requirements through
December 31, 2002.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

THE FOLLOWING DISCUSSION AND ANALYSIS ABOUT MARKET RISK DISCLOSURES MAY CONTAIN
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT AND SECTION 21E OF THE EXCHANGE ACT. SUCH STATEMENTS INCLUDE DECLARATIONS
REGARDING OUR INTENT, BELIEF OR CURRENT EXPECTATIONS AND OUR MANAGEMENT AND
INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS.

We believe that our available cash resources, together with anticipated revenues
from operations and the proceeds of recently completed financing activities and
funding commitments will not be sufficient to satisfy our capital requirements
through December 31, 2002. Necessary additional capital may not be available on
a timely basis or on acceptable terms, if at all. In any of these events, we may
be unable to implement current plans for expansion or to repay debt obligations
as they become due. If sufficient capital cannot be obtained, we may be forced
to significantly reduce operating expenses to a point which would be detrimental
to business operations, curtail research and development activities, sell

                                       30
<PAGE>

certain business assets or discontinue some or all of our business operations,
take other actions which could be detrimental to business prospects and result
in charges which could be material to our operations and financial position, or
cease operations altogether. In the event that any future financing should take
the form of equity securities, the holders of the common stock and preferred
stock may experience additional dilution. In the event of a cessation of
operations, there may not be sufficient assets to fully satisfy all creditors,
in which case the holders of equity securities will be unable to recoup any of
their investment.

At December 31, 2001 we had $100,000 in cash accounts which were subject to
interest rate fluctuations. Changes in interest rates will not materially effect
our operations. We operate in the United States and are not subject to foreign
currency fluctuations and run away inflation.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Below is an index of financial statements. The financial statements required by
this item begin at page F-1 hereof.

                                                                            Page
                                                                            ----
       Independent Auditors' Report                                          F-1
       Consolidated Balance Sheets - December 31, 2001 and 2000              F-2
       Consolidated Statements of Operations for the Years Ended
         December 31, 2001, 2000 and 1999                                    F-3
       Consolidated Statements of Changes in Stockholders' Equity (Deficit)
         for the Years Ended December 31, 2001, 2000 and 1999                F-4
       Consolidated Statements of Cash Flows for the Years Ended
         December 31, 2001, 2000 and 1999                                    F-5
       Notes to Consolidated Financial Statements                            F-7




                                       31
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Claimsnet.com, inc.

     We have audited the accompanying consolidated balance sheets of
Claimsnet.com, inc. and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
2001. Our audit also included the financial statement schedule listed at 14(b).
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Claimsnet.com, inc. and subsidiaries at December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.
 Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

     The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note A, the
Company has generated losses since inception and incurred negative cash flows
from operations, and management does not believe that available cash resources,
anticipated revenues from operations or proceeds from financing activities and
funding commitments will be sufficient to satisfy the Company's capital
requirements through December 31, 2002. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. These financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.

                                                  Ernst & Young LLP

Dallas, Texas
February 15, 2002,
except for Notes A and I as to which the date is
March 29, 2002

                                      F-1


<PAGE>

                        CLAIMSNET.COM INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                        (In Thousands, Except Share Data)

                                                                December 31,
                                                           ---------------------
                                                              2001       2000
                                                           ---------   ---------
                                     ASSETS
CURRENT ASSETS
  Cash and equivalents                                     $    531    $  1,132
  Accounts receivable, net of allowance for
    doubtful accounts of $35 and $29 in 2001
    and 2000, respectively                                      198         307
  Prepaid expenses and other current assets                     108         123
                                                           ---------   ---------
       Total current assets                                     837       1,562

EQUIPMENT, FIXTURES AND SOFTWARE
 Computer hardware and software                               1,822       1,875
 Software development costs                                   1,922       2,351
 Furniture and fixtures                                         150         125
 Office equipment                                                25          25
                                                           ---------   ---------

                                                              3,919       4,376
 Accumulated depreciation and amortization                   (3,299)     (2,862)
                                                           ---------   ---------
   Total equipment, fixtures and software                       620       1,514
                                                           ---------   ---------
TOTAL ASSETS                                               $  1,457    $  3,076
                                                           =========   =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
   Accounts payable                                        $    298    $    434
   Accrued severance                                             90         363
   Accrued acquisition costs                                    500         500
   Accrued payroll and other current liabilities                467         388
   Deferred revenues                                             17       1,225
                                                           ---------   ---------
Total current liabilities                                     1,372       2,910

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
   Preferred stock, $.001 par value;
     4,000,000 shares authorized, no shares
     issued or outstanding                                       --          --
   Common stock, $.001 par value;
     40,000,000 shares authorized; 11,141,000
     shares and 9,195,000 shares issued as of
     December 31, 2001 and 2000, respectively                    11           9
   Additional capital                                        39,571      36,820
   Deferred sales discount                                       --      (1,334)
   Accumulated deficit                                      (39,497)    (34,303)
   Treasury stock, 644,000 shares, at cost at
     December 31, 2000                                           --      (1,026)
                                                           ---------   ---------
       Total stockholders' equity                                85         166
                                                           ---------   ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                 $  1,457    $  3,076
                                                           =========   =========

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

                                      F-2


<PAGE>

<TABLE>
                        CLAIMSNET.COM INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In Thousands, Except Per Share Data)

<CAPTION>
                                                            Year Ended December 31,
                                                       ---------------------------------
                                                         2001        2000        1999
                                                       ---------   ---------   ---------
<S>                                                    <C>         <C>         <C>
REVENUES                                               $  1,336    $  1,602    $    414

Cost of revenues                                          2,605       3,274       2,418
                                                       ---------   ---------   ---------
Gross loss                                               (1,269)     (1,672)     (2,004)
                                                       ---------   ---------   ---------
OPERATING EXPENSES:
 Research and development                                   772       2,019         981
 Purchased research and development and write-off
  of purchased intangibles and other assets                  --       8,430          --
 Amortization of intangibles                                 --         412          --
 Selling, general and administrative                      3,196       5,297       5,086
                                                       ---------   ---------   ---------
LOSS FROM OPERATIONS                                     (5,237)    (17,830)     (8,071)
                                                       ---------   ---------   ---------
OTHER INCOME (EXPENSE)
 Interest expense-affiliate                                  (6)         (6)       (142)
 Interest expense-bridge debt                                --          --        (967)
 Interest expense-other                                      (6)         --          --
 Interest income                                             55         141         322
                                                       ---------   ---------   ---------
   Total other income (expense)                              43         135        (787)
                                                       ---------   ---------   ---------

NET LOSS                                               $ (5,194)   $(17,695)   $ (8,858)
                                                       =========   =========   =========

NET LOSS PER SHARE - BASIC AND DILUTED                 $  (0.52)   $  (2.16)   $  (1.52)
                                                       =========   =========   =========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
(Basic and diluted)                                       9,999       8,174       5,811
                                                       =========   =========   =========
</TABLE>

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

                                      F-3


<PAGE>

<TABLE>
                                            CLAIMSNET.COM INC. AND SUBSIDIARY
                                          CONSOLIDATED STATEMENT OF CHANGES IN
                                             STOCKHOLDERS' EQUITY (DEFICIT)
                                                     (In Thousands)

<CAPTION>
                                                                                                                   Total
                                                                             Deferred                          Stockholders'
                                          Number of     Common   Additional    Sales    Accumulated  Treasury      Equity
                                           Shares       Stock     Capital    Discount    Deficit      Stock      (Deficit)
                                          ---------   ---------  ---------   ---------   ---------   ---------   ---------
<S>                                         <C>       <C>        <C>         <C>         <C>         <C>         <C>
Balances at January 1, 1999                  3,625    $      4   $  3,882          --    $ (7,750)         --    $ (3,864)

Issuance of common stock with
 Series A 12% Subordinated Notes               125          --        850          --          --          --         850

Non-employee stock option grants                --          --        155          --          --          --         155

Issuance of common stock warrants               --          --        121          --          --          --         121

Sale of common stock in initial public
 offering                                    2,875           3     19,512          --          --          --      19,515

Issuance of warrants in connection
 with development agreement                     --          --      1,700      (1,700)         --          --          --

Amortization of deferred sales discount         --          --         --          52          --          --          52

Net loss                                        --          --         --          --      (8,858)         --      (8,858)
                                          ---------   ---------  ---------   ---------   ---------   ---------   ---------
Balances at December 31, 1999                6,625           7     26,220      (1,648)    (16,608)         --       7,971
                                          ---------   ---------  ---------   ---------   ---------   ---------   ---------
Sale of common stock                         1,370           1      4,226          --          --          --       4,227

Issuance of common stock for asset
 purchase                                    1,200           1      6,374          --          --          --       6,375

Return to treasury of stock issued for
 asset purchase                               (888)         --         --          --          --      (1,415)     (1,415)

Issuance from treasury of common stock
 for settlement of acquired obligation         244          --         --          --          --         389         389

Amortization of deferred sales discount         --          --         --         314          --          --         314

Net loss                                        --          --         --          --     (17,695)         --     (17,695)
                                          ---------   ---------  ---------   ---------   ---------   ---------   ---------
Balances at December 31, 2000                8,551           9     36,820      (1,334)    (34,303)     (1,026)        166
                                          ---------   ---------  ---------   ---------   ---------   ---------   ---------

Sale of preferred stock converted into
  common stock                                 660           1        462          --          --          --         463

Sale of common stock                         1,914           1      3,216          --          --          --       3,217

Issuance of common stock for services           16          --         42          --          --          --          42

Issuance of warrants for services               --          --         57          --          --          --          57

Cancellation of treasury stock                  --          --     (1,026)         --          --       1,026          --

Write off unamortized portion of
  deferred sales discount                       --          --         --       1,334          --          --       1,334

Net loss                                        --          --         --          --      (5,194)         --      (5,194)
                                          ---------   ---------  ---------   ---------   ---------   ---------   ---------
Balances at December 31, 2001               11,141    $     11   $ 39,571    $     --    $(39,497)   $     --    $     85
                                          =========   =========  =========   =========   =========   =========   =========

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

                                                          F-4
</TABLE>


<PAGE>

<TABLE>
                        CLAIMSNET.COM INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (In Thousands)

<CAPTION>
                                                                       Year Ended December 31,
                                                                  ---------------------------------
                                                                     2001       2000        1999
                                                                  ---------   ---------   ---------

<S>                                                               <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                       $ (5,194)   $(17,695)   $ (8,858)
   Adjustments to reconcile net loss to net
    cash used by operating activities:
     Depreciation and amortization                                     599         855         882
     Common stock and warrants issued for services                      99          --         276
     Provision for doubtful accounts                                    19          27          65
     Amortization  of intangibles                                       --         412          --
     Purchased research and development and write
       off of purchased intangibles                                     --       8,415          --
     Write off deferred development costs and warrants,
       net of project revenue                                          356          --          --
     Loss on sale and write-off of property and equipment               16          15          --
     Amortization of debt discount and deferred financing costs         --          --         958
     Amortization of deferred sales discount                            79         313          52
     Changes in operating assets and liabilities,
      net of acquisitions:
       Accounts receivable                                              90        (236)       (121)
       Prepaid expenses and other current assets                        15          51        (154)
       Accounts payable and other accrued expenses                     (57)       (130)        525
       Accrued severance                                              (273)        363          --
       Deferred revenues                                                 8       1,114         111
                                                                  ---------   ---------   ---------
  Net cash used in operating activities                             (4,243)     (6,496)     (6,264)
                                                                  ---------   ---------   ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of marketable securities                                    --          --      (5,757)
   Proceeds from sale of marketable securities                          --       3,832       1,925
   Purchase of intangible assets and research and development           --      (2,978)         --
   Employee loan                                                        --          25          --
   Purchase of property and equipment                                  (49)       (499)     (1,500)
   Proceeds from sale of property and equipment                         11          --          --
   Capitalized cost of internal software development                    --          --        (161)
                                                                  ---------   ---------   ---------
   Net cash (used in) provided by investing activities                 (38)        380      (5,493)
                                                                  ---------   ---------   ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Increase in notes and line of credit - affiliate                    400          --         911
   Payments of notes and line of credit - affiliate                   (400)         --      (5,234)
   Issuance of Series A 12% Subordinated Notes                          --          --         892
   Payment of Series A 12% Subordinated Notes                           --          --      (1,000)
   Payment of contingent notes                                          --          --        (350)
   Proceeds from issuance of common and preferred stock              3,680       4,227      19,515
                                                                  ---------   ---------   ---------
   Net cash provided by financing activities                         3,680       4,227      14,734
                                                                  ---------   ---------   ---------
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS                       (601)     (1,889)      2,977
CASH AND EQUIVALENTS, BEGINNING OF YEAR                              1,132       3,021          44
                                                                  ---------   ---------   ---------
CASH AND EQUIVALENTS, END OF YEAR                                 $    531    $  1,132    $  3,021
                                                                  =========   =========   =========
</TABLE>

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

                                      F-5


<PAGE>

<TABLE>
                        CLAIMSNET.COM INC. AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                 (In Thousands)

<CAPTION>
                                                                     Year Ended December 31,
                                                                 -----------------------------
                                                                   2001      2000       1999
                                                                 --------  ---------  --------

<S>                                                              <C>       <C>        <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
NON CASH TRANSACTIONS:

Issuance of common stock for intangible assets
 and research and development                                    $    --   $  6,375   $    --
                                                                 ========  =========  ========

Return to treasury of stock issued for asset purchase            $    --   $ (1,415)  $    --
                                                                 ========  =========  ========

Issuance of common stock for settlement of acquired obligation   $    --   $    389   $    --
                                                                 ========  =========  ========

Common stock issued in connection with Series A
 12% Subordinated Notes                                          $    --   $     --   $   850
                                                                 ========  =========  ========

Common stock warrants issued in connection with development
 and services agreement                                          $    --   $     --   $ 1,700
                                                                 ========  =========  ========

Cash paid for interest                                           $    12   $      6   $   994
                                                                 ========  =========  ========
</TABLE>

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

                                      F-6


<PAGE>

                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

NOTE A--ORGANIZATION, BACKGROUND AND LIQUIDITY

Claimsnet.com inc. ("Claimsnet.com" or the "Company") is a Delaware corporation
originally formed in April 1996. The Company owns, operates and licenses
software used for processing medical insurance claims on the internet.

The Company completed an initial public offering in April 1999, for 2,875,000
shares of common stock at $8.00 per share including the underwriter's
overallotment of 375,000 shares.

During 2000, the Company made private placements of 1,370,000 shares of common
stock at prices between $3.00 and $3.50 per share. In April 2000, the Company
formed a wholly owned subsidiary, HealthExchange.com (HECOM), to purchase
certain research and development and other assets from VHx Company. (See Note C)

During 2001, the Company sold 1,514,000 shares of common stock to McKessonHBOC
("McKesson") at $1.75 per share, sold 620,000 shares of common stock to other
investors at prices between $0.70 and $1.75, sold 440 shares of Series C
Preferred Stock to accredited investors at $700 per share which subsequently
converted into 440,000 shares of common stock, and issued 16,000 shares of
common stock in exchange for professional services rendered. In March 2001, the
Company entered into a twelve-month loan agreement with American Medical
Finance, Inc., a related party, in the amount of $400,000 bearing interest at
9.5% per annum which was repaid in April 2001.

The Company has generated losses since inception and has had negative cash flow
from operations. Through 2001, the Company generated minimal revenues and relied
on an initial public offering, private equity placements, and funding from a
related party to fund its operations and development activities. On March 29,
2002 the Company consummated additional private placements of preferred stock
for net proceeds of $276,000. In February and March 2002 the Company issued
short term notes to a related party of which $285,000 remained outstanding as of
March 29, 2002. The Company's business strategy and organization has been
modified on several occasions to improve near-term financial performance.

Management believes that available cash resources, together with anticipated
revenues from operations and the proceeds of recently completed financing
activities and funding commitments will not be sufficient to satisfy the
Company's capital requirements through December 31, 2002. Necessary additional
capital may not be available on a timely basis or on acceptable terms, if at
all. In any of these events, the Company may be unable to implement current
plans for expansion or to repay debt obligations as they become due. If
sufficient capital cannot be obtained, the Company may be forced to
significantly reduce operating expenses to a point which would be detrimental to
business operations, curtail research and development activities, sell certain
business assets or discontinue some or all of its business operations, take
other actions which could be detrimental to business prospects and result in
charges which could be material to the Company's operations and financial
position, or cease operations altogether. In the event that any future financing
should take the form of equity securities, the holders of the common stock and
preferred stock may experience additional dilution. In the event of a cessation
of operations, there may not be sufficient assets to fully satisfy all
creditors, in which case the holders of equity securities may be unable to
recoup any of their investment.

NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

The accompanying financial statements include the accounts of Claimsnet.com and
its subsidiary. All material intercompany accounts and transactions have been
eliminated in consolidation.

CASH EQUIVALENTS

Cash equivalents include time deposits, certificates of deposits and all highly
liquid debt instruments with original maturities of three months or less when
purchased.

REVENUE RECOGNITION

The Company enters into services agreements with its customers to provide access
to its hosted software platform for processing of customer transactions,
including base level support. The customers are not entitled to delivery of the

                                      F-7


<PAGE>
                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Company's software at any time during or at the end of the agreements. The
customers access the Company's hosted software platform via the internet with no
additional software required to be located on the customer's systems. Customers
pay transaction fees and pay time and materials charges for support above the
base level and one customer paid monthly hosting fees for dedicated servers and
databases. Customer agreements also may (i) provide for development fees related
to private labeling of the Company's software platform (i.e. access to the
Company's servers through a web site which is in the name of and/or has the look
and feel of the customer's other web sites) and some customization of the
offering and business rules, and (ii) have periodic license fees. The Company
accounts for its service agreements by combining the contractual revenues from
development, license and support fees and recognizing the revenue ratably over
the estimated period covered by the development and license. The Company does
not segment these services and use the contractual allocation to recognize
revenue because it does not have objective and reliable evidence of fair value
to allocate the arrangement consideration to the deliverables in the
arrangement. The Company recognizes service fees for transactions, above base
support and monthly hosting as the services are performed.

SOFTWARE FOR SALE OR LICENSE

The Company begins capitalizing costs incurred in developing a software product
once technological feasibility of the product has been determined. Software
development costs capitalized at December 31, 2001 and 2000 were $1,922,000 and
$2,351,000, respectively. Capitalized computer software costs include direct
labor, labor-related costs and interest. The software is amortized over its
expected useful life of 3 years or the contractual term, as appropriate.
Amortization expense related to internally developed software totaled $20,000,
$292,000 and $673,000 for 2001, 2000, and 1999, respectively. Amortization was
completed in year 2001 for all capitalized development software.

Management periodically evaluates the recoverability, valuation, and
amortization of capitalized software costs to be sold, leased, or otherwise
marketed. As part of this review, management considers the expected undiscounted
future net cash flows. If they are less than the stated value, capitalized
software costs will be written down to fair value.

EQUIPMENT, FIXTURES AND INTERNAL USE SOFTWARE

Equipment and fixtures are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the depreciable assets
which range from three to seven years. Maintenance and repairs are expensed as
incurred. Significant replacements and betterments are capitalized. Depreciation
expense related to equipment and fixtures totaled $297,000, $304,000 and
$141,000 in 2001, 2000 and 1999, respectively. Equipment and fixtures possessing
a cost of $77,000 and accumulated depreciation of ($50,000) were sold for
proceeds of $11,000 in 2001. Equipment and fixtures acquired with the
HealthExchange purchase of assets containing a recorded value of $15,000 were
written off in 2000.

Effective January 1, 1999 the Company adopted Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." No internal development costs were capitalized in 2001 or 2000.

The software is amortized over its expected useful life of three years.
Amortization expense related to costs of software developed or obtained for
internal use totaled $282,000, $258,000 and $68,000 in 2001, 2000 and 1999.

Leasehold improvement costs are capitalized and amortized over the remaining
lease term. Costs of $3,000 were incurred in 2000 and amortization of $34,000
and $11,000 was recorded in 2000 and 1999, respectively.

INTANGIBLE ASSETS

The purchase price of HECOM assets acquired from VHx Company in April 2000 (see
Note C) was allocated to intangible assets and research and development based
upon projected cash flows over the estimated useful lives of the assets, net of
additional investment needs, and considering the stage of completion of software
development projects. Intangible assets included trademarks and non-compete
agreements. Initial results of the valuation valued intangibles at $3,700,000
and amortization commenced using straight-line method of depreciation, with a
four year expected life. Amortization of $412,000 was recorded in 2000 prior to
total impairment. Subsequent re-valuations, due to contractual and strategic
revisions resulted in a charge for the full impairment of intangibles in 2000.
                                      F-8


<PAGE>

                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES

Deferred income taxes are provided for the tax effects of differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Valuation reserves are provided
for the deferred tax assets when, based on available evidence, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized.

LOSS PER SHARE

Basic net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding for the period. Diluted net loss per
share is computed by dividing net loss by the weighted average number of common
shares and dilutive common stock equivalents outstanding for the period. Common
stock equivalents, representing options and warrants totaling approximately
1,638,000 shares at December 31, 2001 are not included in the diluted loss per
share as they would be antidilutive. As such, diluted and basic loss per share
are the same.

COMPREHENSIVE INCOME

In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 requires that total comprehensive income (loss) be
disclosed with equal prominence as net income (loss). The Company's
comprehensive net loss is equal to its net loss for all periods presented.

STOCK-BASED COMPENSATION

The Company accounts for employee stock options in accordance with Accounting
Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees". Under APB 25, the Company recognizes no compensation expense related
to employee stock options when options are granted with exercise prices at the
estimated fair value of the stock on the date of grant, as determined by the
Board of Directors. The Company provides the supplemental disclosures required
by Statement of Financial Accounting Standard No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation," which assumes the recognition of compensation
expense based on the fair value of options on the grant date. The Company
follows the provisions of SFAS 123 and Emerging Issues Task Force No. 96-18,
"Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring or in Connection with Selling Goods or Services," for equity
instruments granted to non-employees.

SEGMENT REPORTING

The Company operated during all periods in a single segment when applying the
management approach defined in Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information".

CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

One customer represented 27%, 43% and 21% of the Company's total revenue for
2001, 2000 and 1999, respectively. The Company does not generally require
collateral. Management provides an allowance for doubtful accounts which
reflects its estimate of uncollectible receivables.

USE OF ESTIMATES AND ASSUMPTIONS

Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. On an ongoing basis, management evaluates its estimates,
including those related to customer programs and incentives, bad debts,
investments, intangible assets, financing operations, and contingencies and
litigation. Estimates are based on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the

                                      F-9


<PAGE>
                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results could vary from the estimates that were used.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued Statement of Financial Accounting Standard No. 141
("SFAS 141") "Business Combinations" and Statement of Financial Accounting
Standard No. 142 ("SFAS 142") "Goodwill and Other Intangible Assets". SFAS 141
eliminates the pooling-of-interests method of accounting for business
combinations and SFAS 142 stipulates that goodwill and intangible assets deemed
to have indefinite lives will no longer be amortized, but must be reviewed at
least annually for impairment. Since full impairment of the Company's intangible
assets was recorded in 2000, the adoption of SFAS 142 will have no impact on the
Company's financial position or results of operations.

In August 2001, the FASB issued Statement of Financial Accounting Standard No.
144 ("SFAS 144") "Accounting for the Impairment or Disposal of Long-Lived
Assets," which addresses financial accounting and reporting for the impairment
or disposal of long-lived assets and supersedes SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
and the accounting and reporting provision of APB Opinion No. 30, "Reporting the
Result of Operations for a Disposal of a Segment of a Business." The Company has
adopted SFAS 144 as of January 1, 2002 and does not expect that the adoption
will have a significant impact on the Company's financial position or results of
operations.

ADVERTISING COSTS

Advertising costs are expensed as incurred. Advertising costs of $44,000,
$230,000 and $579,000 were incurred for the years ended December 31, 2001, 2000
and 1999, respectively.

RECLASSIFICATION

Certain 2000 and 1999 amounts have been reclassified to conform with the 2001
presentation.

NOTE C--HEALTHEXCHANGE ASSET ACQUISITION

On April 18, 2000, Claimsnet.com, through its newly formed, wholly-owned
subsidiary, HealthExchange.com, Inc., a Delaware corporation ("HECOM"), executed
an asset purchase agreement (the "Asset Purchase Agreement") with VHx Company, a
Nevada corporation ("VHx"), whereby HECOM acquired selected properties and
assets of VHx, including the HealthExchange.com name and HealthExchange.com
trademarks, related to all efforts of VHx to develop products and services
designed to use Internet technology to facilitate and improve interaction
between physicians, health plans, employers and their members in exchange for
(i) 1,200,000 shares of common stock, par value $.001 per share, which were held
in escrow, (ii) the assumption of certain liabilities, and (iii) the
cancellation of a $2 million advance owed by VHx to the Company. In addition,
the Company issued additional consideration comprised of 13,767 shares of Series
A 8% Convertible Redeemable Preferred Stock, stated value of $725.60 per share,
and 13,767 shares of Series B 8% Convertible Redeemable Preferred Stock, stated
value of $725.60 per share (the Preferred Stock).

The Preferred Stock was contingent upon the completion of specified milestones,
described below, by March 31, 2001. The Preferred Stock was cancelled since the
milestones were not satisfied.

One of the significant assets acquired, an agreement with John Deere Health
("JDH") for development of an Enterprise Care Management System, required the
parties to negotiate mutually agreeable business terms for delivery of the
system after acceptance of beta testing. The Company and JDH were unable to
reach such an agreement. Additionally, the asset purchase agreement contained
provisions related to the satisfaction of pre-existing financial obligations due
to JDH by VHx within 180 days of the acquisition and also contained certain
provisions in the event that such obligations were not satisfied by VHx. VHx was
unable to satisfy the JDH obligations within the 180 days. As a result, the
Company exercised its rights pursuant to the asset purchase agreement and
reclaimed 888,000 of the 1,200,000 million shares of common stock into treasury
stock. The fair market value of the common shares returned to the Company was
$1,415,000 as of the date of the agreement. Contemporaneously, the Company,
HECOM, and JDH reached an agreement in December 2000 by which the parties agreed
                                      F-10


<PAGE>

                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

NOTE C--HEALTHEXCHANGE ASSET ACQUISITION (CONTINUED)

to cancel all pre-existing agreements and JDH agreed to forgive all unpaid
obligations in exchange for 244,000 shares of Claimsnet.com common stock which
was valued at $389,000 at the date of the agreement. The remaining treasury
stock was cancelled in 2001.

The Company allocated the purchase price to the various assets acquired using
standard valuation methodologies, projecting cash flows over the estimated
useful lives of the assets, net of additional investment needs, and considering
the stage of completion of software development projects. A blended state and
federal effective tax rate of 40% was applied to the cash flows. These cash
flows were discounted to their present value using discount rates between 60 and
70 percent, reflective of development products at similar risk. The initial
results valued the intangible assets at $3,700,000 after charges to in-process
technology of $6,154,000, which was recorded in the quarter ended June 30, 2000.

In November 2000, as a result of revised expectations due to the inability to
negotiate mutually agreeable business terms with JDH, the Company reevaluated
the HealthExchange asset purchase using the same valuation methodologies and
determined that there had been an impairment of the assets acquired. The revised
valuation valued the intangible assets acquired at $400,000.

In December 2000, in recognition of the sluggish growth in potential customers,
and future cash requirements to continue product development, the Company
decided to postpone further development of the HealthExchange(TM) products and
terminate the Atlanta facility. The residual value of intangible assets was
written off.

As a result of the revised valuation of intangible assets acquired and the
revised agreement and return of escrowed shares described above, the Company
recognized charges of $3,288,000 for impairment of assets, $15,000 for write off
of fixed assets and a reduction to purchased research and development expense of
$1,026,000 in 2000. Amortization of $412,000 related to the acquisition has been
recognized during the twelve months ended December 31, 2000.

The Company and JDH also entered into a separate business agreement whereby the
Company continued to provide limited services to JDH and its clients at fair
market value through the third quarter of 2001.

The following table reflects the impact of HECOM upon the Company's year 2000
operations:

                  Revenue                                       $     58,000
                                                                -------------

                  Cost of sales                                       21,000
                  Research and development                           944,000
                  Purchased research and development and
                    write-off of intangible assets                 8,430,000
                  Amortization of intangibles                        412,000
                  Selling, general and administrative                900,000
                                                                -------------
                  Total operating expenses                        10,707,000
                                                                -------------
                  NET LOSS                                      $ 10,649,000
                                                                =============

NOTE D--INCOME TAXES

There was no provision or benefit for federal or state income taxes for the
three years ended December 31, 2001.

The differences between the actual income tax benefit and the amount computed by
applying the statutory federal tax rate to the loss before incomes taxes are as
follows:

                                      F-11


<PAGE>

                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

NOTE D--INCOME TAXES (CONTINUED)

<TABLE>
<CAPTION>
                                                                December 31,
                                                           2001             2000
                                                       -------------   -------------
         <S>                                           <C>             <C>
         Benefit computed at federal statutory rate    $ (1,765,851)   $ (6,016,300)
         Permanent differences                               69,123          60,591
         State income tax benefit, net of federal
          tax effect at state statutory rate               (148,214)       (520,249)
         Increase in valuation reserve                    1,844,941       6,475,958
                                                       -------------   -------------
                                                       $         --    $         --
                                                       =============   =============

The components of the deferred tax assets and liabilities are as follows:

                                                                December 31,
                                                           2001             2000
                                                       -------------   -------------
         Deferred tax assets:
           Net operating loss carryforwards            $ 14,038,041    $ 12,399,304
           Fixed assets                                     156,052              --
           Allowance for doubtful accounts                   12,940          10,721
                                                       -------------   -------------
         Total deferred tax assets                       14,207,033      12,410,025
         Valuation allowance for deferred tax assets    (14,207,033)    (12,362,092)
                                                       -------------   -------------
                                                                 --          47,933
         Deferred tax liabilities:
           Equipment and fixtures                                --         (47,933)
                                                       -------------   -------------
         Deferred income tax assets, net of
           deferred tax liabilities                    $         --    $         --
                                                       =============   =============
</TABLE>

At December 31, 2001, the Company has approximately $38,000,000 of federal net
operating loss carryforwards, which begin to expire in 2011. The Company has
approximately $8,000,000 of state net operating losses as of December 31, 2001.

As a result of stock issued during 2000 and 2001, the Company may have
experienced an ownership change as defined in Internal Revenue Code section 382.
As a result, the Company's ability to use net operating loss carryforwards and
certain other deductions to offset future taxable income may be limited. The
annual limit is an amount equal to the value of the Company at the date of an
ownership change multiplied by approximately 5%.

NOTE E--RELATED PARTY TRANSACTIONS

In March 2001, the Company entered into a loan agreement in the amount of
$400,000 with American Medical Finance, Inc., a related party. Principal and
interest, at 9.5% per annum on the unpaid principal, was due in March 2002. In
April 2001, the Company repaid the full amount of the note along with accrued
interest thereon.

In 2000, American Medical Finance acquired 100,000 shares of common stock at
$3.00 per share. As a result, American Medical Finance owns a total 482,000
shares of the Company's common stock or 4.3% of the outstanding shares at
December 31, 2001.

                                      F-12


<PAGE>

                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

NOTE F--STOCKHOLDERS' EQUITY

In December 2001, the Company issued 660,000 shares of common stock, including
440,000 shares resulting from the conversion of 440 shares of Series C 8%
Convertible Redeemable Preferred Stock ("Series C Preferred Stock"), for the
private placement of securities to accredited investors at $0.70 per common
share, for net proceeds of $462,000. The Series C Preferred Stock was issued at
the stated value of $700 per share. No dividends accrued prior to March 31,
2002. Each share of Series C Preferred Stock was automatically convertible into
1,000 shares of common stock upon approval of the shareholders, which was
received at the annual shareholders" meeting held on December 26, 2001. Holders
of the Series C Preferred Stock have the right to vote together with the holders
of common stock on an as converted basis.

In June 2001, the Company issued 16,000 shares of common stock valued at $42,000
to New York Capital AG in connection with an agreement for professional services
to be rendered in 2001. The Company recognized expense of $42,000 for services
rendered.

In April 2001, the Company entered into an agreement with McKesson that
superseded its October 1999 agreement. Under the new agreement, McKesson
acquired 1,514,285 shares of common stock at $1.75 per share, for net proceeds
of $2,650,000, and paid a one-time fee of $200,000. The stock purchase warrant
originally issued to McKesson in October 1999 was cancelled in April 2001.
Additionally, the new agreement eliminates certain Claimsnet operating
requirements to provide dedicated system hosting, operations, and support
services, and eliminates future McKesson license and subscription fees. The new
agreement retains provisions for the payment of transaction fees by McKesson and
expands the scope of transactions that may be processed under the license and
the scope of other business opportunities which the Company and McKesson may
jointly pursue. No registration rights were granted to McKesson for the shares
acquired. The Company received 27% or $366,000 of its 2001 revenues from
McKesson, $288,000 of which was related to software license and support revenues
under the McKesson Development and Services Agreement, and incurred $352,000 of
expense for services provided by McKesson.

Pursuant to the October 1999 agreement, through March 31, 2001 the Company (a)
received payments in the aggregate amount of $2,202,000 (of which approximately
$1,200,000 was received in December 2000) related to development and license fee
provisions, which were recorded as deferred revenue and were being accounted for
by amortizing the total amount, received and to be received, of approximately
$4,500,000 ratably over the expected contract life of 65 months, (b) expended
$428,000 related to development and implementation costs, which was recorded as
software development costs on the balance sheet, and was being amortized ratably
over the expected contract period of 65 months, and (c)recorded in equity a
capital contribution and an offsetting deferred sales discount in the amount of
$1,700,000 for the imputed value of the warrant, which was being amortized
ratably over the expected contract period of 65 months. As of March 31, 2001,
the Company had amortized $1,187,000 of the deferred revenue into revenue,
$112,000 of the deferred development costs into cost of revenues, and $445,000
of the deferred sales discount as a reduction of revenues, leaving balances of
$1,015,000, $316,000 and $1,255,000, respectively. As of March 31, 2001, the
Company accrued the $200,000 payment, received in April 2001 in connection with
the contract modification, as additional deferred revenue. As a result of the
April 2001 modification of the October 1999 agreement with McKesson, as of March
31, 2001 the Company offset the remaining deferred sales discounts against the
remaining deferred revenue. Although the new agreement with McKesson permits
them to continue to use the software, which the Company had developed
specifically to process their transactions, there was no requirement for them to
use the system and no ability to project future transaction revenues.

In March 2001, the Company completed the private placement of 400,000 shares of
common stock to an accredited investor at $1.75 per share for net proceeds of
$596,000. In April 2001, the Company issued warrants to purchase 40,000 shares
of common stock to financial advisors that assisted the Company with the
negotiation and structuring of such investment. The warrants are immediately
exercisable at a price of $1.75 per share and expire on the second anniversary
of the date of grant. The stock price on the date of grant was $1.74 per share.
The warrants are fully vested and issued for services rendered in the current
period. The Company recognized a charge to earnings of $57,000, which was equal
to the imputed value of the warrants, estimated at $1.41 per share using the
Black-Scholes valuation method (using the following assumptions: life of two
years, risk free rate of 5.10 percent, no dividends during the term, and a
volatility of 1.5).




In January 2001, the Company granted employees options to purchase an aggregate
of 385,500 shares of common stock under the 1997 Stock Option Plan. The options
were issued at a price of $1.25 per share, the market price on the date of
grant, expire on the tenth anniversary of the grant, and vest on the first
anniversary of the grant.

                                      F-13


<PAGE>

                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

NOTE F--STOCKHOLDERS' EQUITY (CONTINUED)

In 2000, the Company sold 1,370,000 shares of common stock in private placement
to various accredited investors at prices between $3.00 and $3.50 per share for
proceeds of $4,227,000. In connection with the financing, the Company issued
warrants to purchase 270,000 shares of common stock at a price of $4.60 for a
period of one year and warrants to purchase 270,000 shares of common stock at a
price of $5.60 for a period of two years.

The Company also issued 1,200,000 shares valued at $6,376,000 for the purchase
of assets from VHx Company. Subsequent adjustments pursuant to provisions of the
asset purchase agreement resulted in the return of 888,000 shares to treasury
stock at a value of $1,415,000 and the issuance from treasury stock of 244,000
shares at a value of $389,000 to JDH in forgiveness of all the unpaid
obligations of VHx Company to JDH under a development agreement.

In October 2000, upon completion of the Company's annual meeting and pursuant to
the terms of the Directors' Plan, options exercisable for an aggregate of 25,000
shares of common stock were granted under the Directors' Plan. The option
exercise price of $2.375 was the fair market value of the common stock on the
date the options were granted.

In June 2000, the Company granted certain employees warrants to purchase 178,250
shares of common stock at $3.00 per share, the market price on the date of
grant. The warrants expire on the 10th anniversary of the grant, and become
exercisable one year from the grant date.

In 1999 the Company issued $1,000,000 of Series A 12% Subordinated Notes
("Notes") along with 125,000 shares of common stock for net proceeds of
approximately $892,000 (net of closing fees and cash financing expenses). The
notes and all accrued interest were due upon the earlier of the first day
subsequent to the close of the Company's initial public offering or one year
from the date of issuance. The 125,000 shares of common stock issued with the
Notes were valued at $850,000 ($6.80 per share) and were recorded at that amount
with a corresponding charge to debt discount. The Notes were repaid in April
1999 from the proceeds of the initial public offering which occurred on April 6,
1999 and the debt discount was amortized over the period from issuance to
repayment, resulting in an $850,000 charge to interest expense. Debt issuance

costs of $108,000 were capitalized as deferred financing costs and amortized to
interest expense over the period the Notes were outstanding.

In connection with the Company's initial public offering ("IPO"), 2,875,000
shares of common stock were sold in April and May 1999 at a price of $8.00 per
share. The net proceeds to the Company (after deducting the underwriting
discounts and offering expenses payable by the Company) were approximately $19.5
million. The Company also issued underwriter warrants to purchase an aggregate
of 250,000 shares of common stock at a price of $13.20 per share, exercisable
between the first and fourth anniversaries of the date of grant.

In connection with the initial public offering, the Company granted employees
and non-employees options to purchase 420,000 shares of common stock under the
1997 Stock Option Plan ("1997 Plan"), 27,000 of which were granted to
non-employees. Total shares authorized for grant under the 1997 Plan are
1,307,692. The options were granted at a price of $8.00 or $8.80 per share,
expire on the tenth anniversary of the grant, and the employee options vest
ratably over the first four anniversaries of the grant. The non-employee options
were granted for past services, are fully vested, and become exercisable ratably
over the first four anniversaries of the grant. The options granted to
non-employees required a charge to earnings equal to the imputed value of the
options as of March 31, 1999, which was estimated at $5.73 per option using the
Black-Scholes valuation method (using the following assumptions: life of four
years, risk free rate of 7 percent, no dividends during the term, and a
volatility of 0.8). This resulted in a one-time expense of $155,000.

The Company also granted non-employee directors options to purchase 80,000
shares of common stock under the 1998 Stock Option Plan for Non-Employee
Directors ("Non-Employees and Director's Plan)". The non-employee director
options were issued with an exercise price of $8.00 per share. In May 1999, the
board of directors voted to accelerate the vesting of the directors' option
shares from one year to immediate vesting. The Company did not record a charge
for the acceleration as it determined the modification resulted in a de minimus
change in fair value. All options expire on the tenth anniversary of the date of
the grant.




Also in connection with the initial public offering, the Company issued warrants
to purchase an aggregate of 20,000 shares of common stock at a price of $8.80
per share, exercisable between the first and fifth anniversaries of the date of
grant. The warrants are fully vested and were issued for past services and,
therefore, required a charge to earnings equal to the imputed value of the
warrants, which was estimated at $6.07 per share using the Black-Scholes

                                      F-14


<PAGE>

                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

NOTE F--STOCKHOLDERS' EQUITY (CONTINUED)

valuation method (using the following assumptions: life of four years, risk free
rate of 7 percent, no dividends during the term, and a volatility of 0.8).
Therefore, the Company recognized a one-time expense of $121,400 as of March 31,
1999 related to the issuance of warrants.

In November 1999, the Company granted certain employees and non-employees
options to purchase 62,500 shares of common stock under the 1997 Plan, 5,000 of
which were granted to a non-employee. The options provide for an exercise price
of $8.00 per share, the market price on the date of grant, expire on the tenth
anniversary of the grant, and vest ratably over the first four anniversaries of
the grant. The options granted to the non-employee were valued at $5.06 per
share based on the Black-Scholes valuation method (using the following
assumptions: life of four years, risk free rate of 7 percent, no dividends
during the term, and a volatility of 0.8). The expense is being recognized
ratably over the four year vesting period.

STOCK BASED COMPENSATION ARRANGEMENTS

The Company's 1997 Plan provides for the issuance to employees, officers,
directors, and consultants of incentive and/or non-qualified options to acquire
1,307,692 shares of common stock. The options are to be issued at fair market
value, as defined, and generally vest 25% each year from the date of the option
grant. Options generally expire 10 years from the date of grant and
automatically expire on termination of employment.

The Company's Directors' Plan provides for the issuance to non-employee
directors of options to acquire 361,538 shares of common stock. The options are
to be issued at fair market value, as defined, and vest on the first anniversary
from the date of the option grant. Options generally expire 10 years from the
date of grant and automatically expire one year from the date upon which the
participant ceases to be a Director.

The following table summarizes the stock option activity related to the Company:

                                                                        WEIGHTED
                                                                        AVERAGE
                                             NUMBER OF     PER SHARE    EXERCISE
                                              SHARES       EXERCISE      PRICE
                                             ---------    -----------   --------
Outstanding options-January 1, 1999                --     $       --    $    --
    Granted                                   562,500      7.00-8.80       7.73
    Expired                                   (42,750)          8.00       8.00
                                             ---------    -----------   --------
Outstanding options-December 31, 1999         519,750      7.00-8.80       7.70
    Granted                                   220,000      2.38-8.00       7.36
    Expired                                  (221,837)     7.00-8.00       7.46
                                             ---------    -----------   --------
Outstanding options-December 31, 2000         517,913      2.38-8.80       7.66
    Granted                                   435,500      0.50-1.75       1.21
    Expired                                  (273,813)     1.25-8.00       6.20
                                             ---------    -----------   --------
Outstanding options-December 31, 2001         679,600     $0.50-8.80    $  4.11
                                             =========    ===========   ========
Options exercisable-December 31, 2001         199,050     $2.38-8.80    $  7.56
                                             =========    ===========   ========

Outstanding options as of December 31, 2001, had a weighted average remaining
contractual life of approximately 8.3 years and a weighted average fair value at
issuance of $5.43 based on the Black-Scholes value method. Options available for
grant under the Company's 1997 Plan at December 31, 2001, were 758,092, and
under the Company's Directors' Plan were 231,538.

                                      F-15


<PAGE>
                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

NOTE F--STOCKHOLDERS' EQUITY (CONTINUED)

The following table summarizes the warrant activity related to employee grants:

                                                                       WEIGHTED
                                                                        AVERAGE
                                                 NUMBER OF  PER SHARE  EXERCISE
                                                  SHARES    EXERCISE     PRICE
                                                 ---------  ---------  ---------
Outstanding employee warrants-January 1, 2000          --         --         --
    Granted                                       178,250   $   3.00   $   3.00
    Expired                                       (33,800)      3.00       3.00
                                                 ---------  ---------  ---------
Outstanding employee warrants-December 31, 2000   144,450       3.00       3.00
    Granted                                            --         --         --
    Expired                                       (51,200)      3.00       3.00
                                                 ---------  ---------  ---------
Outstanding employee warrants-December 31, 2001    93,250   $   3.00   $   3.00
                                                 =========  =========  =========
Employee warrants exercisable-December 31, 2001    93,250   $   3.00   $   3.00
                                                 =========  =========  =========

Outstanding employee warrants as of December 31, 2001, had a weighted average
contractual life of approximately 2.4 years and a weighted average fair value at
issuance of $2.53 based on the Black-Scholes value method.

SFAS 123 requires the disclosure of pro forma net loss and net loss per share as
if the Company had adopted the fair value method since inception. The Company's
calculations for employee grants were made using a Black-Scholes model using the
following assumptions: expected life, four years; risk free rate of 3.51 to 7
percent; no dividends during the expected term; and a volatility of 0.8 to 1.4.
If the computed values of all the Company's stock based awards were amortized to
expense over the vesting period of the awards as specified under SFAS 123, net
loss would have been $5,285,000 ($0.53 per basic and diluted share) for the year
ended December 31, 2001, $17,226,000 ($2.11 per basic and diluted share) for the
year ended December 31, 2000 and $9,200,000 ($1.58 per basic and diluted share)
for the year ended December 31, 1999.

NOTE G--COMMITMENTS AND CONTINGENCIES

The Company leases office space under a lease agreement that expires on December
31, 2002. Rent expense totaled $184,000, $492,000 and $248,000 for the years
ended December 31, 2001, 2000 and 1999, respectively. Rent expense commitments
for the year ended December 31, 2002 are $152,000.

From time to time in the normal course of business, the Company is a party to
various matters involving claims or possible litigation. One such dispute
relates to a $500,000 amount associated with the acquisition of HECOM assets in
April 2000, which is accrued in current liabilities as of December 31, 2001.
Management believes the ultimate resolution of these matters will not have a
material adverse effect on the Company's financial position or results of
operations.

NOTE H--RETIREMENT PLAN

The Company utilizes a third party for the processing and administration of its
payroll and benefits. Under the agreement, the third party is legally a
co-employer of all of the Company's employees, which are covered by the third
party's 401(k) retirement plan. Under the plan, employer contributions are
discretionary. The Company has made no contributions to the plan through
December 31, 2001.

NOTE I--SUBSEQUENT EVENTS

On January 2, 2002 the Company granted employees options under the 1997 Plan to
purchase an aggregate of 456,000 shares of common stock. The options contained
an exercise price of $0.60 per share, the market price on the date of grant,
expire on the tenth anniversary of the grant, and vest 100 % one year from the
date of grant.

                                      F-16


<PAGE>

                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

NOTE I--SUBSEQUENT EVENTS (CONTINUED)

On February 21, 2002 the Company granted employees the remaining options under
the 1997 Plan and warrants to purchase an aggregate of 582,045 shares of common
stock in exchange for voluntary salary reductions. The options and warrants
contained an exercise of $0.35 per share, the market price on the date of grant,
expire on the tenth anniversary of the grant, and vest 25 % immediately on the
date of grant and an additional 25% on each 3 month anniversary of the date of
grant.

On March 6, 2002 the Company's common stock ceased trading on the Nasdaq
SmallCap Market and began trading on the OTC Bulletin Board.

On March 12, 2002 the Company announced that a number of changes had been
implemented to significantly improve financial performance, including the
voluntary resignation of Bo W. Lycke as President and Chief Executive Officer in
order to reduce executive compensation and the appointment of Paul W. Miller,
who has been serving in the capacity of Chief Operating Officer and Chief
Financial Officer, to succeed him.

On March 12, 2002 the Company announced that the board of directors had accepted
the resignations of Westcott W. Price, III, Ward L. Bensen, and Robert H. Brown,
Jr. as members of the board of directors and elected two new directors, Thomas
Michel and Jeffrey Black to fill two of the vacated seats. Mr. Black and Mr.
Michel are representatives of the investment syndicate providing funding to the
Company.

In March12, 2002 the Company announced that, in addition to Mr. Lycke's
resignation, the Company had recently implemented a number of staff reductions
along with salary reductions for management personnel and certain employees and
that steps were being taken to reduce other operating expenses. The Company also
announced that it had implemented new pricing to improve profit margins on
current clients and that, in exchange for the salary reductions, the Company had
issued stock options and warrants to participating employees.

On March 13, 2002, contemporaneous with the operational changes, the Company
announced a funding commitment from Claimsnet Partners LLC, a New York based
limited liability corporation, controlled by the principles of a Zurich,
Switzerland based investment group, for an aggregate $826,000 commitment to
acquire preferred stock at a price of $250 per share. Each share of preferred
stock is convertible into one thousand shares of common stock. The offering
supersedes the remaining commitment of the financing announced in November 2001
under which $462,000 was invested.

On March 13, 2002, the Company also announced that material changes had been
made to the operating structure of the business, at the request of the investors
in Claimsnet Partners LLC and that the board and management are utilizing
several key advisory services to review merger and/or acquisitive related
opportunities, review and assess sales and marketing policies and reforms to
expedite revenue generation, and to advise the board on re-establishing
shareholder value. The Company also announced that it was conducting a
feasibility study to re-position and positively modify the Company's offerings
to enable the business to recognize and accelerate revenue growth within the
current fiscal year.

On March 29, 2002, the Company completed the private placement of 1,104 shares
of Series D Preferred Stock to accredited investors at $250 per share for net
proceeds of $276,000. Each share of Series D Preferred Stock has a stated value
of $250 per share, a liquidation preference over holders of common stock, does
not accrue dividends, and is convertible into 1,000 shares of common stock at a
stated value of $0.25 per share at the election of the holder. The Company has
the right to initiate redemption of the Series D Preferred Stock at the stated
value in the event that the average high and low bid price of the Company's
common stock exceeds $.50 for 20 of any 30 consecutive trading days. If the
Company initiates redemption proceedings, the holders may elect to convert to
common shares prior to the redemption date. Holders of the Series D Preferred
Stock have the right to vote together with the holders of common stock on an as
converted basis. The private placement included 100 shares of Series D Preferred
Stock purchased by Mr. Michel, and 620 shares of Series D Preferred Stock
purchased by New York Venture Corp., an entity for which Jeffrey Black, a
Director of the Company, is the corporate secretary. In the foregoing financing
the Company provided certain rights to register resale of the shares at the
Company's expense under the Securities Act of 1933.

                                      F-17


<PAGE>

                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

NOTE I--SUBSEQUENT EVENTS (CONTINUED)

In February and March 2002, the Company entered into four separate unsecured
short-term loan agreements with National Financial Corp., a related party, in
the aggregate amount of $390,000. The Company repaid one note in the principal
amount of $105,000 plus accrued interest thereon in February 2002. The remaining
three notes in the aggregate principal amount of $285,000 plus interest, at 9.5%
per annum on the unpaid principal, are due on September 30, 2002.

                                      F-18


<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

None.


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

MANAGEMENT

Our directors and executive officers, their ages, and their positions held with
us are as follows:

NAME                           AGE     POSITION
----                           ---     --------
Bo W. Lycke. . . . . . . .  .  56      Chairman of the Board of Directors and
                                       Class I Director
Paul W. Miller. . . . . . . .  46      President and Chief Executive Officer
Patricia Davis  . . . . . . .  46      Senior Vice President of Sales, Marketing
                                       and Business Development
Jeff P. Baird . . . . . . . .  40      Senior Vice President of Technology
Sture Hedlund . . . . . . . .  63      Class II Director
John C. Willems, III. . . . .  46      Class II Director
Jeffry M. Black . . . . . . .  45      Class I Director
Thomas Michel . . . . . . . .  50      Class II Director

The following is certain summary information with respect to our executive
officers and directors.

BO W. LYCKE has served since our inception as our Chairman of the Board of
Directors and until March 2002 as our President, and Chief Executive Officer. In
1990, Mr. Lycke founded American Medical Finance for the purpose of financing
and processing medical accounts receivable and, since such time, has served as
the Chairman of the Board of Directors thereof. During the period from 1983 to
1990, Mr. Lycke was involved in a variety of entrepreneurial undertakings in the
fields of satellite antenna manufacturing, precious metal scrap recovery, and
independent radio programming production. He also has extensive experience as a
director of several private companies. In 1972, Mr. Lycke founded, and from 1973
to 1983, was president and director, of Scanoil, Inc., a company engaged in
domestic and international oil futures trading, as well as chartering and
operating ocean-going oil tankers. From 1971 to 1983 Mr. Lycke also served as a
President and director of various domestic operating subsidiaries of the Volvo
Automotive/Beijer Group, the indirect owner of Scanoil, Inc.

PAUL W. MILLER, a Certified Public Accountant, has served as our President and
Chief Executive Officer since March 2002, our Chief Financial Officer since
November 1997, and our Chief Operating Officer from October 2000 to March 2002.
From September 1995 to October 1997, Mr. Miller served as Chief Financial
Officer and Vice President of Quality Management Services for Sweetwater Health
Enterprises, Inc., a NCQA accredited credentials verification organization and
commercial software firm serving the managed healthcare industry. From April
1991 to May 1995, Mr. Miller served as Chief Financial Officer and Secretary of
Quantra Corporation, formerly, Melson Technologies, an information systems
company serving the commercial real estate industry. From January 1984 to
February 1991, Mr. Miller held a variety of financial and operations management
positions in the independent clinical laboratory industry with SmithKline
Beecham Clinical Laboratories, Inc. and Nichols Institute Laboratories North
Texas, Ltd.

PATRICIA DAVIS has served as our Senior Vice President of Sales, Marketing and
Business Development since November 2001. Ms. Davis joined us in October 1999 as
Vice President of Business Development and also served as Senior Vice President
of Sales and Business Operations from October 2000 to November 2001. She has
over 15 years of health industry management experience. From December 1996 to
September 1999 Ms. Davis was the director of quality management services for


                                       32
<PAGE>

Caredata.com, a leading healthcare intelligence provider and Internet content
destination. From November 1993 to November 1996, she was the region
sales/service manager for Quest Diagnostics, one of the leading clinical and
research development laboratories. Prior to Quest Diagnostics, Ms. Davis held
positions managing operations, client services, sales and multi-site information
systems for several of the largest companies in the $35 billion clinical
laboratory industry, including Nichols Institute and SmithKline Beecham Clinical
Laboratories. Ms. Davis began her career in 1980 at International Clinical
Laboratories.

JEFF P. BAIRD has served as our Senior Vice President of Technology since
joining the Company in June 2001. He has over 15 years technical leadership
experience in health care technology business planning, product development,
systems engineering and integration, quality assurance, and IT infrastructure
design, implementation and operational support. From July 2000 to June 2001 Mr.
Baird was Senior Manager of Web Architecture for First Consulting Group (FCG)
providing strategic technical leadership to large health delivery and health
plan organizations. From December 1995 to July 2000 he was Vice President of
Information Technology for Caredata.com, a leading healthcare intelligence
provider and Internet content destination. Mr. Baird's prior experience included
Director, Product Development for S2 Systems, a commercial software development
company specializing in Electronic Data Interchange (EDI), and Director, Systems
Development and Support for Equifax Healthcare Administrative Services, a
healthcare cost management company.

STURE HEDLUND has served as a director of our Company since 1998. Since January
1987, Mr. Hedlund has also been Chairman of the board of directors of
Scandinavian Merchant Group AB, a Swedish corporation engaged in venture capital
investing. From 1993 to April 5, 2001, Mr. Hedlund served as a director of
Ortivus AB, a public company engaged in the business of medical technology, and
a director of Ortivus Medical AB, a subsidiary of Ortivus AB, engaged in the
manufacture of heart monitoring devices.

JOHN C. WILLEMS, III has served as a director of our Company since 1998 and has
been our legal counsel since April 1996. Since September 1993, Mr. Willems has
been an attorney with the law firm of McKinley, Ringer & Zeiger, PC, in Dallas,
Texas, practicing in the area of business law. From January 1992 to August 1993,
Mr. Willems was an attorney in the law firm of Settle & Pou, PC, also located in
Dallas, Texas.

JEFFREY M. BLACK was elected a director of our Company in February 2002. He has
been engaged for over 20 years in advising and developing publicly traded
companies in strategic planning and procedures for many aspects concerning the
business of operating in a public arena. For the past six years, Mr. Black has
served as President of Investors Communications Group, Inc. (ICG) a public
relations firm. ICG focuses on helping companies develop and implement public
relation programs for the investment /broker community, consulting on financing
for new capital infusion and planning/implementing acquisition strategies.

THOMAS MICHEL was elected as a director of our Company in February 2002. Since
1996, Mr. Michel has been a Principal of Switzerland based CIMA Consulting, AG,
of which he was a founder, and which provides financial and fund raising
services in the form of venture capital, private equity, and bridge loan
facilities. From 1980 to 1996, he served in various capacities at Swiss Bank
Corporation in Zurich, Switzerland. Mr. Michel currently serves on the Board of
Directors for Best 243 AG, IQUBE AG and Spirit of Covey AG, a manufacturer of
natural skincare products.

In June 2001, Mr. Abbas R. Kafi, who had been Chief Technology Officer, left the
Company and his responsibilities were assumed by Mr. Baird. In December 2001,
Mr. Westcott W. Price, III, resigned as a director of the Company. In February
2002, Messrs. Ward C. Bensen and Robert H. Brown each resigned as a director of
the Company. Messrs. Black and Michel were elected to fill two of the vacancies,
with one vacancy remaining in the Board .

                                       33
<PAGE>

STRUCTURE OF THE BOARD OF DIRECTORS

The Board of Directors is divided into two classes with each class consisting
of, as nearly as possible, one-half of the total number of directors
constituting the entire board of directors. The Class I directors currently are
Messrs. Lycke and Black, whose terms expire at the 2002 annual meeting of
stockholders. The Class II directors currently are Messrs. Hedlund, Willems, and
Michel, whose terms expire at the 2003 annual meeting of stockholders. Each
director is elected for a term of two years, except when the election is by the
Board to fill a vacancy, in which case, the director's term expires at the next
annual meeting of stockholders.

There are no family relationships among our directors and executive officers.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the compensation paid or accrued by us for
services rendered in all capacities during the years ended December 31, 2001,
2000 and 1999 by the chief executive officer and each of the other most highly
compensated executive officers of our Company who received compensation of at
least $100,000 during the year ended December 31, 2001.


                           SUMMARY COMPENSATION TABLE
                               ANNUAL COMPENSATION
<TABLE>
<CAPTION>
                                                                                      SECURITIES
                                                                                      UNDERLYING
                                                                                       OPTIONS/
NAME AND PRINCIPAL POSITION                              YEAR    SALARY      BONUS     WARRANTS
---------------------------                              ----  ----------  ---------  ----------
<S>                                                      <C>   <C>         <C>           <C>
Bo W. Lycke(1). . . . . . . . . . . . . . . . . . . . .  2001  $ 267,500   $     --      75,000
  Chairman of the Board of Directors, President and      2000    263,173     11,891      22,500
  Chief Executive Officer                                1999    258,390         --      20,000
Paul W. Miller . . . . . . . . . . . . . . . . . . . . . 2001    153,173     35,742      50,000
  Chief Operating Officer and Chief Financial Officer    2000    130,192      7,723      12,000
                                                         1999    106,345     31,487      50,000
Patricia Davis(2). . . . . . . . . . . . . . . . . . . . 2001    143,173     11,029      50,000
  Senior Vice President of Sales, Marketing and          2000    109,680      3,482      12,000
  Business Development                                   1999     19,961        850       8,000
Abbas R. Kafi(3) . . . . . . . . . . . . . . . . . . . . 2001    167,741      4,510          --
  Former Senior Vice President and Chief Technology      2000    139,462      2,759      32,000
  Officer                                                1999    125,000     15,512      12,000
Jeffrey P. Baird(4). . . . . . . . . . . . . . . . . . . 2001     67,308     16,381          --
  Senior Vice President of Technology
</TABLE>

(1)  Mr. Lycke resigned in February 2002 from his position as President and
     Chief Executive Officer.
(2)  Ms. Davis joined us in October 1999.
(3)  Mr. Kafi left us in June 2001.  Mr. Kafi's salary for the year ended
     December 31, 2001 includes $82,060 pursuant to a severance agreement.
(4)  Mr. Baird joined us in June 2001.

The following table provides information on the value of each of the named
executive officers' options at December 31, 2001:

                                       34
<PAGE>

FISCAL YEAR AND FISCAL YEAR-END OPTION/WARRANT VALUES

                                            NUMBER OF          VALUE OF
                                            SECURITIES        UNEXERCISED
                                            UNDERLYING        IN THE MONEY
                                            UNEXERCISED        OPTIONS/
                                          OPTIONS/WARRANTS    WARRANTS AT
                                            AT DECEMBER       DECEMBER 31,
                     SHARES                 31, 2001 (#)        2001 ($)
                    ACQUIRED     VALUE    ----------------  ----------------
                   ON EXERCISE  REALIZED   EXERCISABLE/      EXERCISABLE/
NAME                   (#)        ($)      UNEXERCISABLE     UNEXERCISABLE
-----------------  -----------  --------  ----------------  ----------------
Bo W. Lycke            --          --     10,000 / 107,500      -- / --
Paul W. Miller         --          --     25,000 / 87,000       -- / --
Patricia Davis         --          --      4,000 / 66,000       -- / --
Jeffrey P. Baird       --          --         -- / --           -- / --

The exercise price of the outstanding options/warrants exceeded the fair market
value share price of $0.51 on December 31, 2001, less the share price to be paid
upon exercise. There is no guarantee that if and when these options are
exercised they will have this value.

DIRECTOR COMPENSATION

During the year ended December 31, 2001, directors received no compensation for
their services other than reimbursement of expenses relating to attending
meetings of the board of directors.

DIRECTORS' STOCK OPTION PLAN (THE "DIRECTORS' PLAN")

In April 1998, we adopted the Directors' Plan to tie the compensation of outside
(non-employee) directors to future potential growth in our earnings, and
encourage them to remain on our board of directors, to provide them with an
increased incentive to make significant and extraordinary contributions to our
long-term performance and growth, and to align their interests through the
opportunity for increased stock ownership, with the interests of our
stockholders. Only outside directors are eligible to receive options under the
Directors' Plan.

An aggregate of 361,538 shares of common stock are reserved for issuance to
participants under the Directors' Plan. In the event of any changes in the
common stock by reason of stock dividends, split-ups, recapitalization, mergers,
consolidations, combinations, or other exchanges of shares and the like,
appropriate adjustments will be made by the board of directors to the number of
shares of common stock available for issuance under the Directors' Plan, the
number of shares subject to outstanding options, and the exercise price per
share of outstanding options, as necessary substantially to preserve option
holders' economics interests in their options.

In December 2001, upon completion of our annual meeting, options exercisable for
an aggregate of 25,000 shares of common stock were granted under the Directors'
Plan. The option exercise price of $0.50 was the fair market value of a share of
the outstanding common stock on the date the options were granted.

The period for exercising an option ends ten years from the date the option is
granted. With the exception of those options to purchase 80,000 shares of common
stock issued in April 1999, which were fully exercisable in May 1999, fifty
percent of the options granted become exercisable on the first anniversary of
the date of grant with the remainder becoming exercisable on the second
anniversary of the date of grant. During the period an option is exercisable,
the option holder may pay the purchase price in cash or, under some
circumstances, by surrender of shares of common stock, valued at their then fair
market value on the date of exercise, or by a combination of cash and shares.

Shares subject to an option which has not been exercised at the expiration,
termination, or cancellation of an option will be available for future grants
under the Directors' Plan, but shares surrendered as payment for an option, as
described above will not again be available for use under the Directors' Plan.
As of December 31, 2001 there were outstanding options to purchase an aggregate
of 130,000 shares at exercise prices ranging from $.50 to $8.00 per share.

Unless earlier terminated, the Directors' Plan will terminate on December 31,
2007.

                                       35
<PAGE>

EMPLOYMENT AGREEMENT

Mr. Lycke has been employed since April 1997 pursuant to an employment agreement
providing that, commencing on December 11, 1998, the first effective date of our
initial public offering, and expiring on December 31, 2002, Mr. Lycke is to
serve as our Chairman of the Board of Directors, President, and Chief Executive
Officer at a base salary equal to $250,000, increasing by 5% per annum subject
to increase by the Board of Directors, and any bonuses as may be determined by
the Board of Directors. The agreement allows Mr. Lycke to terminate his
employment at any time upon at least 30 days written notice to us. Upon such
termination, Mr. Lycke is subject to non-compete, non-disturbance, and
non-interference provisions for one year. Mr. Lycke resigned from his position
as President and Chief Executive Officer in March 2002 and has entered into a
severance agreement with the Company providing that Mr. Lycke will (i) receive
payments in the amount of $6,000 per month for four months, $8,000 per month for
the next four months, and $11,000 per month for an additional four months, (ii)
retain stock options and warrants granted him on February 21, 2002 exercisable
for an aggregate of 225,676 shares and 24,324 shares, respectively, of common
stock of the Company, at the exercise price of $0.35 per share.

1997 STOCK OPTION PLAN

In April 1997, our board of directors and stockholders adopted the 1997 Plan.
The 1997 Plan provides for the grant of options to purchase up to 1,307,692
shares of common stock to our employees, officers, directors, and consultants.
Options may be either "incentive stock options" or non-qualified options under
the Federal tax laws. Incentive stock options may be granted only to our
employees, while non-qualified options may be issued to non-employee directors,
consultants, and others, as well as to our employees.

The 1997 Plan is administered by "disinterested members" of the board of
directors or the compensation committee, who determine, among other things, the
individuals who shall receive options, the period during which the options may
be exercised, the number of shares of common stock issuable upon the exercise of
each option, and the option exercise price.

Subject to some exceptions, the exercise price per share of common stock subject
to an incentive option may not be less than the fair market value per share of
common stock on the date the option is granted. The per share exercise price of
the common stock subject to a non-qualified option may be established by the
board of directors, but shall not, however, be less than 85% of the fair market
value per share of common stock on the date the option is granted. The aggregate
fair market value of common stock for which any person may be granted incentive
stock options which first become exercisable in any calendar year may not exceed
$100,000 on the date of grant.

No stock option may be transferred by an optionee other than by will or the laws
of descent and distribution, and, during the lifetime of an optionee, the option
will be exercisable only by the optionee. In the event of termination of
employment or engagement other than by death or disability, the optionee will
have no more than three months after such termination during which the optionee
shall be entitled to exercise the option to the extent exercisable at the time
of termination, unless otherwise determined by the board of directors. Upon
termination of employment or engagement of an optionee by reason of death or
permanent and total disability, the optionee's incentive stock options remain
exercisable for one year to the extent the options were exercisable on the date
of such termination. Options may not be granted under the 1997 Plan beyond a
date ten years from the effective date of the 1997 Plan. Subject to some
exceptions, holders of incentive stock options granted under the 1997 Plan
cannot exercise these options more than ten years from the date of grant.
Options granted under the 1997 Plan generally provide for the payment of the
exercise price in cash and may provide for the payment of the exercise price by
delivery to us of shares of common stock already owned by the optionee having a
fair market value equal to the exercise price of the options being exercised, or
by a combination of these methods.

                                       36
<PAGE>

Any unexercised options that expire or that terminate upon an employee's ceasing
to be employed by us become available again for issuance under the 1997 Plan.

The following table summarizes the stock option activity under the 1997 Plan and
the Directors' Plan through December 31, 2001 related to the Company (none of
the options granted have been exercised):

                                       NUMBER OF    PER SHARE   WEIGHTED AVERAGE
                                        SHARES      EXERCISE     EXERCISE PRICE
                                       ---------   ------------  --------------
Outstanding options-January 1, 1999          --    $        --   $          --
    Granted                             562,500      7.00-8.80            7.73
    Expired                             (42,750)          8.00            8.00
                                       ---------   ------------  --------------
Outstanding options-December 31, 1999   519,750      7.00-8.80            7.70
    Granted                             220,000      2.38-8.00            7.36
    Expired                            (221,837)     7.00-8.00            7.46
                                       ---------   ------------  --------------
Outstanding options-December 31, 2000   517,913      2.38-8.80            7.66
    Granted                             435,500      0.50-1.75            1.21
    Expired                            (273,813)     1.25-8.00            6.20
                                       ---------   ------------  --------------
Outstanding options-December 31, 2001   679,600    $ 0.50-8.80   $        4.11
                                       =========   ============  ==============
Options exercisable-December 31, 2001   199,050    $ 2.38-8.80   $        7.56
                                       =========   ============  ==============

Outstanding options as of December 31, 2001, had a weighted average remaining
contractual life of approximately 8.4 years and a weighted average fair value at
issuance of $5.43 based on the Black-Scholes value method. In January 2002, the
Company granted ten year options to purchase 456,000 shares of common stock at
prices of $.60 per share to employees and officers. In February 2002, the
Company granted to Mr. Lycke and to officers of the Company ten year options to
purchase 253,203 shares of common stock at a price of $.35 per share to its
officers, including 225,676 shares to Mr. Lycke.

WARRANTS

The Company has from time to time, issued warrants to its employees and
directors.

The following table summarizes the warrant activity related to employee grants:

<TABLE>
<CAPTION>
                                                  NUMBER OF   PER SHARE  WEIGHTED AVERAGE
                                                   SHARES     EXERCISE    EXERCISE PRICE
                                                  ---------   ---------   --------------
<S>                                                <C>        <C>         <C>
Outstanding employee warrants-January 1, 2000
    Granted                                        178,250    $   3.00    $        3.00
    Expired                                        (33,800)       3.00             3.00
                                                  ---------   ---------   --------------
Outstanding employee warrants-December 31, 2000    144,450    $   3.00    $        3.00
    Granted                                             --          --               --
    Expired                                        (51,200)       3.00             3.00
                                                  ---------   ---------   --------------
Outstanding employee warrants-December 31, 2001     93,250    $   3.00    $        3.00
                                                  =========   =========   ==============
Employee warrants exercisable-December 31, 2001     93,250    $   3.00    $        3.00
                                                  =========   =========   ==============
</TABLE>

Outstanding employee warrants as of December 31, 2001, had a weighted average
contractual life of approximately 2.4 years and a weighted average fair value at
issuance of $2.53 based on the Black-Scholes value method.

In February 2002, the Company granted to officers and employees ten year
warrants to purchase 253,203 shares of common stock at a price of $0.35 per
share, of which 149,729 were issued to officers.

                                       37
<PAGE>

No options or warrants were exercised during 2001. The following table sets
forth information with respect to options and warrants granted during 2001 to
the individuals set forth in the Summary Compensation Table above:

<TABLE>
<CAPTION>
                                               INDIVIDUAL GRANTS

                 Number of     % of Total                                   Potential Realizable
                 Securities    Options and                                 Value at Assumed Annual
                 Underlying      Warrants                                   Rates of Stock Price
                 Options and   Granted to     Exercise                      Appreciation for Option    Alternative
                 Warrants      Employees in   Price                         or Warrant  Term (1)       Grant Date
    Name         Granted       Fiscal Year    ($/Share)   Expiration Date      5%          10%          Value (2)
------------------------------------------------------------------------------------------------------------------
<S>                <C>            <C>         <C>         <C>               <C>          <C>            <C>
Bo W. Lycke        75,000         17.0%       $   1.25    January 4, 2011   $ 141,501    $ 358,592      $     --

Paul W. Miller     50,000         11.5            1.25    January 4, 2011      94,334      239,061            --

Patricia Davis     50,000         11.5            1.25    January 4, 2011      94,334      239,061            --
</TABLE>

(1)    In accordance with the rules of the Securities and Exchange Commission
       (the "Commission"), shown are the gains or "option spreads" that would
       exist for the options or warrants granted, based on the assumed rates of
       annually compounded stock price appreciation of 5% and 10% from the date
       the option or warrant was granted over the full option or warrant term,
       without adjustment for the present valuation of such potential future
       option or warrant spread.

(2)    The alternative grant date value is based upon the actuarial value of the
       options at the date of grant as estimated using the Black-Sholes method
       using the following average assumption: expected life, four years; risk
       free rate of 3.51 to 7%; no dividends during the expected term; and a
       volatility of 0.8 to 1.4.

We account for our stock based awards to employees using the intrinsic value
method in accordance with APB 25, "Accounting for Stock Issued to Employees,"
and its related interpretations.

DIRECTORS' LIMITATION OF LIABILITY

Our certificate of incorporation and by-laws include provisions to (1) indemnify
the directors and officers to the fullest extent permitted by the Delaware
General Corporation Law, including circumstances under which indemnification is
otherwise discretionary and (2) eliminate the personal liability of directors
and officers for monetary damages resulting from breaches of their fiduciary
duty, except for liability for breaches of the duty of loyalty, acts, or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, violations under Section 174 of the Delaware General
Corporation Law, or for any transaction from which the director derived an
improper personal benefit. We believe that these provisions are necessary to
attract and retain qualified persons as directors and officers.

We provide directors and officers liability insurance coverage of $5,000,000.

Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to our directors, officers, and controlling persons as
stated in the foregoing provisions or otherwise, we have been advised that, in
the opinion of the Commission, this indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.

                                       38
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of March 15, 2002,

o    each person who is known by us to be the beneficial owner of more than 5%
     of the outstanding common stock,
o    each director and each of our executive officers, named in the compensation
     table under Item 11,
o    all our directors and executive officers as a group, and
o    the number of shares of common stock beneficially owned by each such person
     and such group and the percentage of the outstanding shares owned by each
     such person and such group.

As used in the table below and elsewhere in this report, the term BENEFICIAL
OWNERSHIP with respect to a security consists of sole or shared voting power,
including the power to vote or direct the vote, and/or sole or shared investment
power, including the power to dispose or direct the disposition, with respect to
the security through any contract, arrangement, understanding, relationship, or
otherwise, including a right to acquire such power(s). Except as otherwise
indicated, the stockholders listed in the table have sole voting and investment
powers with respect to the shares indicated. Beneficial ownership includes
shares issuable upon exercise of options exercisable within sixty days of
December 31, 2001.

Except as otherwise noted below, the address of each of the persons in the table
is c/o Claimsnet.com inc., 12801 N. Central Expressway, Suite 1515, Dallas,
Texas 75243.

Unless otherwise noted, beneficial ownership consists of sole ownership, voting,
and investment power with respect to all common stock shown as beneficially
owned by them.
                                                       SHARES BENEFICIALLY OWNED
                                                       -------------------------

NAME AND ADDRESS                                        NUMBER OF      PERCENT
OF BENEFICIAL OWNER                                      SHARES         OWNED
-------------------                                    ----------      --------
Bo W. Lycke (1) (2) . . . . . . . . . . . . . . . . .  1,902,993          16.8%
Paul W. Miller (3)  . . . . . . . . . . . . . . . . .    129,671           1.1
Sture Hedlund (4) . . . . . . . . . . . . . . . . . .    119,508           1.1
John C. Willems, III (5)  . . . . . . . . . . . . . .     16,777             *
Thomas Michel (6) . . . . . . . . . . . . . . . . . .    110,000           1.0
Jeffrey M. Black  . . . . . . . . . . . . . . . . . .         --             *
Patricia Davis (7)  . . . . . . . . . . . . . . . . .     82,386             *
Jeffrey P. Baird (8). . . . . . . . . . . . . . . . .     14,286             *
Ward L. Bensen (1) (9)  . . . . . . . . . . . . . . .    614,324           5.4
873 El Quanito Ct.
Danville, California  94526
Robert H. Brown, Jr. (1) (10)   . . . . . . . . . . .    804,854           7.1
2727 N. Harwood, #1000
Dallas, Texas  75201
National Financial Corporation (1)  . . . . . . . . .    481,603           4.3
12801 N. Central Expressway
Suite 1515, Dallas, Texas 75243
McKesson Corporation  . . . . . . . . . . . . . . . .  1,514,285          13.4
One Post Street
San Francisco, California 94104
Sinclair Restructuring Fund   . . . . . . . . . . . .  1,000,000           8.8
P.O. Box 852 GT
George Town, Grand Cayman
Cayman Island, BWI
J. R. Schellenberg (1) (11)   . . . . . . . . . . . .  1,247,603          11.0
Kohlrainstrasse1
Kusnacht
Switzerland CH-8700
Rudolfo Reiser (1) (12)   . . . . . . . . . . . . . .    661,521           5.8
Neuhaustrasse 12
Zurich
Switzerland CH-8044
All our directors and executive officers as a
group (8 persons) (13)  . . . . . . . . . . . . . . .  2,375,621          21.0

                                       39
<PAGE>

*     Less than one percent.

(1)   Includes 481,603 shares of common stock owned of record by National
      Financial Corporation. Messrs. Lycke, Bensen and Brown own 71.1%, 11.2%
      and 17.7%, respectively, of the outstanding capital stock of National
      Financial Corporation. Messrs. Schellenberg, and Reiser are shareholders
      of MNS Enterprises, Inc., a corporation that manages all activities of
      National Financial Corporation pursuant to a Management Agreement. Mr.
      Schellenberg serves as the President and as a Director of MNS Enterprises,
      Inc. Therefore, Messrs. Lycke, Bensen, Brown, Schellenberg and Reiser may
      be deemed to beneficially own the shares of common stock owned by National
      Financial Corporation.
(2)   Consists of 1,246,390 shares of common stock owned of record by Mr. Lycke,
      175,000 shares which Mr. Lycke has the right to acquire, and 481,603
      shares of Common Stock owned of record by National Financial Corporation.
(3)   Consists of 1,600 shares of common stock owned of record by Mr. Miller and
      128,071 shares which Mr. Miller has the right to acquire.
(4)   Consists of 82,157 shares of common stock owned of record by Mr. Hedlund,
      12,884 shares of common stock owned by Scandinavian Export Services, AB
      and 11,967 shares of common stock owned by Scandinavian Merchant Group,
      AB, and 12,500 shares which Mr. Hedlund has the right to acquire.
(5)   Consists of 9,277 shares of common stock owned of record by Mr. Willems
      and 7,500 shares which Mr. Willems has the right to acquire.
(6)   Consists of 110,000 shares of common stock owned of record by Mr. Michel.
(7)   Consists of 100 shares of common stock owned of record by Ms. Davis and
      82,286 shares which Ms. Davis has the right to acquire.
(8)   Consists of 14,286 shares which Mr. Baird has the right to acquire.
(9)   Consists of 105,221 shares of common stock owned of record by Mr. Bensen,
      27,500 shares which Mr. Bensen has the right to acquire, and 481,603
      shares of Common Stock owned of record by National Financial Corporation.
(10)  Consists of 310,751 shares of common stock owned of record by Mr. Brown,
      12,500 shares which Mr. Brown has the right to acquire, and 481,603 shares
      of Common Stock owned of record by National Financial Corporation.
(11)  Consists of 442,000 shares of common stock owned of record by Mr.
      Schellenberg, 324,000 shares which Mr. Schellenberg has the right to
      acquire, and 481,603 shares of Common Stock owned of record by National
      Financial Corporation.
(12)  Consists of 79,918 shares of common stock owned of record by Mr. Reiser,
      100,000 shares which Mr. Reiser has the right to acquire, and 481,603
      shares of Common Stock owned of record by National Financial Corporation.
(13)  Includes an aggregate of 419,673 shares which they have a right to
      acquire.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Bo W. Lycke, our Chairman of the Board and former President and Chief Executive
Officer, Ward L. Bensen, a former Director, and Robert H. Brown, Jr., a former
Director, are, respectively, the Chairman of the Board, a Director and Senior
Vice President, and a Director, and owners, respectively, of 71.1%, 11.2%, and
17.7% of the outstanding capital stock of American Medical Finance.

Messrs. Lycke, Bensen and Brown are owners, respectively, of 71.1%, 11.1, and
17.8 of the outstanding capital stock of National Financial Corporation.

In March 2001, we borrowed $400,000 pursuant to a loan agreement with American
Medical Finance, Inc. Principal and interest, at 9.5% per annum on the unpaid
principal, are due in March 2002. In April 2001, the Company repaid the full
amount of the note along with accrued interest thereon.

In February, March and April 2002, we borrowed $415,000 pursuant to loan
agreements with National Financial Corporation. In February 2002, the Company
prepaid $105,000 of the principal amount along with accrued interest thereon.

                                       40
<PAGE>

Under an October 1999 Development and Services Agreement with McKesson
Corporation we (a) issued a three year warrant to McKesson to purchase 819,184
shares of common stock at $7.00 per share, (b) received fees for the development
of a private label claims processing and statement processing internet
application for McKesson, (c) received one of three scheduled license fee
payments for use of the McKesson internet application, (d) received monthly
support fees for dedicated private label system hosting, operation and support
services commencing at the date of acceptance of the McKesson internet
application, and (e) received transaction fees for claims and statements
processed by the McKesson internet application. On April 12, 2001, we entered
into an agreement with McKesson which amended and replaced our October 1999
agreement. Under the new agreement, (a) McKesson acquired 1,514,285 shares of
common stock at $1.75 per share for net proceeds of $2,650,000, (b) McKesson
paid a one-time fee of $200,000, (c) the stock purchase warrant to purchase
819,184 shares was cancelled, (d) McKesson retained a license to use the
McKesson internet application to process statements and claims without
additional license fee payments, (e) McKesson agreed to eliminate the need for
dedicated private label system hosting, operation, and support services and we
agreed to provide standard system hosting, operation, and support serviced
without the payment of future monthly support fees, (f) we will receive fees for
transactions processed by the McKesson internet application, (g) we and McKesson
agreed to use best efforts to expand the scope of the license agreement to
include additional claim types, and (h) we and McKesson agreed to use best
efforts to pursue other unspecified business opportunities. Under a separate
agreement, we have contracted for McKesson processing services to print patient
statements and submit claims to payers for certain of our customers, for which
we pay McKesson fees for some transactions and share third party revenues for
other transactions.

We recorded the following transactions with McKesson during the year ended
December 31, 2001:

(i)      write off net development costs of $316,000 (net of $112,000
         accumulated depreciation) to cost of revenues and $40,000 unamortized
         sales discount (net of $1,216,000 development revenues) to selling,
         general and administrative expense,
(ii)     recorded cash receipts of $462,500,
(iii)    recorded net revenue of $293,000 (net of $78,000 in deferred sales
         discount amortization), and
(iv)     pursuant to the processing services agreement, we recorded $401,000 of
         expense related to fees paid to McKesson and $73,000 of shared revenue
         for fees received from McKesson during the year.

We recorded the following transactions with McKesson during the year ended
December 31, 2000:

(i)      recorded cash receipts of $2,004,000,
(ii)     recorded net revenue of $681,000 (net of $314,000 in deferred sales
         discount amortization), and
(iii)    pursuant to the processing services agreement, we recorded $411,000 of
         expense related to fees paid to McKesson and $79,000 of shared revenue
         for fees received from McKesson during the year.

We have no other customers for which we are providing services substantially
similar to those under the Development and Services Agreement.

In March 2002, we completed the private placement of 1,104 shares of Series D
Preferred Stock to accredited investors at $250 per share for net proceeds of
$276,000. Each share of Series D Preferred Stock has a stated value of $250 per
share, a liquidation preference over holders of common stock, does not accrue
dividends, and is convertible into 1,000 shares of common stock at a stated
value of $0.25 per share at the election of the holder. We have the right to
initiate redemption of the Series D Preferred Stock at the stated value in the
event that the average high and low bid price of our common stock exceeds $.50
for 20 of any 30 consecutive trading days. If we initiate redemption
proceedings, the holders may elect to convert to common shares prior to the
redemption date. Holders of the Series D Preferred Stock have the right to vote
together with the holders of common stock on an as converted basis. The private
placement included 100 shares of Series D Preferred Stock purchased by Mr.
Michel, and 620 shares of Series D Preferred Stock purchased by New York Venture
Corp., an entity for which Jeffrey Black, a Director of the Company, is the
corporate secretary. Messrs. Michel and Black were elected Directors of the
Company in February 2002. In April 2002, we received a subscription to purchase
an additional 40 shares of Series D Preferred Stock by an accredited investor
for net proceeds of $10,000, which subscription was not formally accepted by us
prior to the filing date of this report.


                                       41
<PAGE>

The foregoing transactions and all future transactions between us and our
officers, directors, and 5% stockholders were and will be on terms at least as
favorable to us than as obtainable from unaffiliated third parties and have been
and will be approved by a majority of our independent and disinterested
directors.


                                     PART IV

ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE

The following documents are filed as part of this report:

(a)            Consolidated Financial Statements: See Index to Consolidated
               Financial Statements at Item 8 on page 28 of this report

(b)            Financial Statement Schedule: See page 43 of this report. All
               other schedules for which provision is made in the applicable
               accounting regulation of the Securities an Exchange Commission
               are not required under the related instructions or are
               inapplicable and therefore have been omitted.

The following exhibits are filed herewith:

2.1*           Asset purchase agreement, dated as of March 23, 2000, related to
               the acquisition of VHX.

3.1**          Certificate of Incorporation

3.1(a)**       Form of Certificate of Amendment to Certificate of Incorporation

3.1(b)         Certificate of Designation of Series A Preferred Stock

3.1(c)         Certificate of Designation of Series B Preferred Stock

3.1(d)         Certificate of Designation of Series C Preferred Stock

3.1(e)         Certificate of Designation of Series D Preferred Stock

3.2**          Bylaws, as amended

4.1**          Form of warrant issued to Cruttenden Roth Inc.

4.2**          Form of Common Stock Certificate

4.3 (a)        Form of Warrant issued to Jeff Baird

4.3 (b)        Form of Warrant issued to Patricia Davis

4.3 (c)        Form of Warrant issued to Bo W. Lycke

4.3 (d)        Form of Warrant issued to Paul W. Miller

10.1**         Employment Agreement, dated as of April 8, 1997 between
               Claimsnet.com inc. and Bo W. Lycke

10.1(a)        Severance Agreement dated April 8, 2002 between Claimsnet.com and
               Bo W. Lycke

10.2**         1997 Stock Option Plan, as amended through October 19, 2000

10.2(a)***     Amendment dated October 20, 2000 to 1997 Stock Option Plan

10.3**         Form of Indemnification Agreement

10.4**         Agreement and Plan of Merger, dated June 2, 1997, among
               Claimsnet.com inc. (formerly, American NET Claims), ANC Holdings,
               Inc., Medica Systems, Inc., and the stockholders of Medica
               Systems Inc.

                                       42
<PAGE>

10.5****       Employment Agreement, dated as of September 17, 1996, between
               Claimsnet.com inc. and Terry A. Lee, as amended as of March 26,
               1997, April 6, 1998 and June 7, 1999.

10.5(a)*****   Severance Agreement with Mr. Lee

10.6**         Service Agreement, dated August 5, 1997, between American Medical
               Finance and Claimsnet.com inc.

10.7**         Form of Agreement, dated September 14, 1998, between
               Claimsnet.com and BlueCross BlueShield of Louisiana

10.8**         Form of Non-Employee Director's Plan

10.9**         Service Agreement, dated November 1998, between Claimsnet.com and
               Southern Medical Association.

10.10****      Development and Services Agreement, dated October 27, 1999,
               between Claimsnet.com and McKesson HBOC, Inc.

10.10(a)***    Agreement, dated April 12, 2001, between Claimsnet.com and
               McKesson HBOC, Inc. superseding October 1999 Agreement.

10.11***       Note dated March 9, 2001 between Claimsnet.com and American
               Medical Finance related to $400,000 loan.

16.1**         Letter from King Griffin & Adamson P.C. as to change in
               certifying accountant to Ernst & Young LLP, dated August 16, 1999
               and filed on Form 8K.
-----------------

*              Incorporated by reference to the corresponding exhibit filed by
               the Registrant with its Current Report on Form 8-K, dated March
               23, 2000.

**             Incorporated by reference to the corresponding exhibit filed by
               the Registrant with the registration statement on Form S-1
               (Registration No. 333-36209).

***            Incorporated by reference to the corresponding exhibit filed by
               the Registrant with its Annual Report on Form 10-K for the year
               ended December 31, 2000 filed on April 16, 2001 and amended on
               October 3, 2001.

****           Incorporated by reference to the corresponding exhibit filed by
               the Registrant with its Annual Report on Form 10-K for the year
               ended December 31, 1999.

*****          Incorporated by reference to the corresponding exhibit filed by
               the Registrant with its Current Report on Form 8-K dated June 28,
               2000.

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                  Years ended December 31, 2001, 2000, and 1999
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                           Charge to
                                                             Other
                                   Beginning   Charge to   Accounts/                  End of
                                   of Period   Operations  Adjustments  Deductions    Period
                                   ----------  ----------  -----------  ----------  ----------
<S>                                <C>         <C>         <C>          <C>         <C>
Allowance for doubtful accounts
  2001                             $      29   $      19   $       --   $     (13)  $      35
  2000                                    26          27           --         (24)         29
  1999                                    43          31           --         (48)         26

Valuation allowance for deferred
 tax assets (1)
  2001                             $  12,362   $   1,845   $       --   $      --   $  14,207
  2000                                 5,886       6,476           --          --      12,362
  1999                                 2,778       3,108           --          --       5,886
</TABLE>

(1)  Offset to deferred tax benefit created primarily by net losses.

                                       43
<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.

CLAIMSNET.COM INC.
(Registrant)

By:  /s/ Paul W. Miller
     -----------------------------
     Paul W. Miller
     President and
     Chief Executive Officer, on
     behalf of the Registrant

By:  /s/ Bo W. Lycke
     -----------------------------
     Bo W. Lycke
     Class I Director and
     Chairman of the Board

By:  /s/ Sture Hedlund
     -----------------------------
     Sture Hedlund
     Class II Director

By:  /s/ John C. Willems, III
     -----------------------------
     John C. Willems, III
     Class II Director

By:  /s/ Thomas Michel
     -----------------------------
     Thomas Michel
     Class II Director

By:  /s/ Jeffrey M. Black
     -----------------------------
     Jeffrey M. Black
     Class I Director

April 15, 2002

                                       44