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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-KSB
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year EndedDecember 31, 2006
 o
    
    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.
  Delaware
    
    75-2649230(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)14860 Montfort Dr., Suite 250Dallas, Texas
    
    75254(Address of principal
    
    (Zip Code)executive offices)
    o
 þ o
 þ
 o þ
     o þ




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TABLE OF CONTENTS  PART IITEM 1. DESCRIPTION OF BUSINESSITEM 2. DESCRIPTION OF PROPERTYITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR COMMON EQUITYAND RELATED STOCKHOLDER MATTERSITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONITEM 7. FINANCIAL STATEMENTSITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 8A. CONTROLS AND PROCEDURESITEM 8B. OTHER INFORMATION.PART IIIITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.ITEM 10. EXECUTIVE COMPENSATIONITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM 13. EXHIBITSITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESSIGNATURESNote between Claimsnet.com and Thomas MichaelSubsidiariesCertification of Don CrosbieCertification of Laura M. BrayCertification Pursuant to Section 906Certification Pursunt to Section 906    Table of Contents  
  
     
    
    the ability to easily configure the system to meet the specific needs of our clients, both in the format and content of
data being exchanged;
    
    the ability to accept input from a variety of sources (direct output from a providers practice management system, EDI
files from clearinghouses and trading partners, and data conversion from scanned paper forms), pre-process the data,
improve the data or reject the transaction according to client-specific business rules, and deliver the data in a
consistent and client-defined format;
    
    the ability to create multiple custom Web site formats to be promoted by partners and sponsors without modification of
the server-based processing systems;
    
    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; and
    
    the minimal software and processing power required for providers to utilize our proprietary software.
     2




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
    
    to utilize our technology to help large healthcare organizations achieve more efficient and less costly administrative
operations;
    
    to market our services directly to the payer community and its trading partners;
    
    to aggressively pursue and support strategic relationships with companies that will in turn aggressively market our
services to large volume healthcare organizations, including insurers, HMOs, third party administrators, provider
networks, re-pricing organizations, clinics, hospitals, laboratories, physicians and dentists;
    
    to provide total claim management services to payer organizations, including Internet claim submission, paper claim
conversion to electronic transactions, and receipt of EDI transmissions;
    
    to continue to expand our product offerings to include additional transaction processing solutions, such as HMO
encounter forms, eligibility and referral verifications, claim status inquiries, electronic remittance advices, claim
attachments, and other healthcare administrative services, in order to diversify sources of revenue; and
    
    to license our technology for other applications, including stand-alone purposes, Internet systems and private label
use, and for original equipment manufacturers.
     3




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
    
    core processing software developed by us which provides claims review, claims editing, and a table-based software
coding of claims variables at a payer-specific level;
    
    data mapping software that allows us to accept a wide variety of data input formats;
    
    data format generating software developed by us that allows us to easily create a wide variety of data output formats;
    
    an integrated web-based user interface that can be easily configured to support co-branded and private-labeled
deployment;
    
    industry standard website management software; and
    
    state-of-the-art commercial security and encryption software.
         4




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
    
    are engaged in electronic claims processing and expect to benefit by using our advanced technology; and
    
    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.
 5




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
    
    significantly reduce operating expenses to a point which would be detrimental to business
operations;
 7




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
    
    curtail research and development activities and marketing efforts;
    
    sell 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.
    
    
    maintain and increase our strategic partnerships,
    
    maintain and increase our customer base,
    
    implement and successfully execute our business and marketing strategy,
    
    continue to develop and upgrade our technology and transaction-processing systems,
    
    continually update and improve our Web site,
    
    provide superior customer service,
    
    respond to competitive developments,
    
    appropriately evaluate merger and acquisition opportunities, and
    
    attract, retain, and motivate qualified personnel.
    
    
    our ability to satisfy capital requirements in an investment climate that has been more reluctant generally to invest
in Internet companies,
    
    our ability to retain existing customers, attract new customers at a steady rate, and maintain customer satisfaction in
an industry in which significant changes are occurring,
    
    our ability to introduce new sites, services and products,
 8




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
    
    our ability to effectively develop and implement plans to potentially reposition our products, services and marketing
efforts,
    
    the effect of announcements or introductions of new sites, services, and products by our competitors in a rapidly
evolving industry,
    
    price competition or price increases in our industry,
    
    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 and delivery of health claims processing services,
    
    our ability to upgrade and develop our systems and infrastructure in a timely and effective manner,
    
    the amount of traffic on our Web site,
    
    the occurrence of technical difficulties, system downtime, or Internet brownouts to which we are acutely sensitive
insofar as our medical claims processing service is Internet-based,
    
    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,
    
    our ability to comply with existing and added government regulations such as HIPAA, and
    
    general economic conditions and economic conditions specific to the Internet, electronic commerce, and the medical
claims processing industry.
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
    
    rapid technological change,
    
    changes in user and customer requirements and preferences,
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
    
    changes in federal legislation and regulation,
    
    frequent new product and service introductions embodying new technologies, and
    
    the emergence of new industry standards and practices that could render our existing Web site and proprietary
technology and systems obsolete.
  
    
    enhance and improve the responsiveness and functionality of our online claims processing services,
    
    license leading technologies useful in our business and to enhance our existing services,
    
    comply with all applicable regulations regarding our industry and the Internet,
    
    develop new services and technology that address the increasingly sophisticated and varied needs of our prospective
or current customers, and
    
    respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis.
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
    
    our ability to raise additional capital and secure additional financing;
    
    our ability to successfully implement our revised business strategy;
    
    our ability to market our services;
    
    our ability to develop and maintain strategic partnerships or alliances;
    
    our ability to maintain and increase our customer base;
    
    our ability to protect our intellectual property rights;
    
    our ability to further develop our technology and transaction processing system;
    
    our ability to respond to competitive developments;
    
    our ability to attract and retain key employees;
    
    our ability to comply with government regulations;
    
    the effects of natural disasters, computer viruses and similar disruptions to our computer systems;
    
    threats to Internet security; and
    
    acceptance of the Internet and other online services in the healthcare industry and in general
 
   
   
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HIGH
    
    LOW2005Three months ended March 31, 2005
    
    
    0.230
    
    
    
    0.120Three months ended June 30, 2005
    
    
    0.200
    
    
    
    0.120Three months ended September 30, 2005
    
    
    0.150
    
    
    
    0.110Three months ended December 31, 2005
    
    
    0.190
    
    
    
    0.1002006Three months ended March 31, 2006
    
    
    0.190
    
    
    
    0.090Three months ended June 30, 2006
    
    
    0.150
    
    
    
    0.070Three months ended September 30, 2006
    
    
    0.190
    
    
    
    0.080Three months ended December 31, 2006
    
    
    0.200
    
    
    
    0.080
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
    
    to utilize our state of the art technology to help large healthcare organizations achieve more efficient and less
costly administrative operations;
    
    to market our services directly to the payer community and its trading partners;
    
    to aggressively pursue and support strategic relationships with companies that will in turn aggressively market our
services to large volume healthcare organizations, including insurers, HMOs, third party administrators, provider
networks, re-pricing organizations, clinics, hospitals, laboratories, physicians and dentists;
    
    to provide total claim management services to payer organizations, including Internet claim submission, paper claim
conversion to electronic transactions, and receipt of EDI transmissions;
    
    to continue to expand our product offerings to include additional transaction processing solutions, such as HMO
encounter forms, eligibility and referral verifications, claim status inquiries, electronic remittance advices, claim
attachments, and other healthcare administrative services, in order to diversify sources of revenue; and
    
    to license our technology for other applications, including stand-alone purposes, Internet systems and private label
use, and for original equipment manufacturers.
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Share-Based
Payment
    Financial Statements 
Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year
Financial Statements Financial Statements  Materiality
 Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109, Accounting for Income Taxes
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How Sales Taxes Collected from Customers and Remitted to Governmental Authorities Should Be
Presented in the Income Statement (That Is, Gross Versus Net Presentation)
 Fair Value Measurements
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PageReport of Independent Registered Public Accounting Firm
    
    
    24Consolidated Balance Sheet  December 31, 2006
    
    
    25Consolidated Statements of Operations for the Years Ended
December 31, 2006 and 2005
    
    
    26Consolidated Statements of Changes in Stockholders Deficit
for the Years Ended December 31, 2006 and 2005
    
    
    27Consolidated Statements of Cash Flows for the Years Ended
December 31, 2006 and 2005
    
    
    28Notes to Consolidated Financial Statements
    
    
    29
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/s/
Whitley Penn LLP
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December 31,2006ASSETSCURRENT ASSETSCash and equivalents
    
    $
    251Accounts receivable, net of allowance for doubtful accounts of $6
    
    
    207Prepaid expenses and other current assets
    
    
    38Total current assets
    
    
    496EQUIPMENT, FIXTURES AND SOFTWARETotal equipment, fixtures and software, net
    
    
    230TOTAL ASSETS
    
    $
    726LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIESAccounts payable
    
    $
    168Accrued payroll and other current liabilities
    
    
    91Accrued interest
    
    
    97Capital leases  current portion
    
    
    35Deferred revenues  current portion
    
    
    44Notes payable to related parties  current portion
    
    
    175Convertible notes payable to related parties  current portion
    
    
    200Convertible notes payable  current portion
    
    
    200Total current liabilities
    
    
    1,010LONG TERM LIABILITIESOther long term liabilities
    
    
    3Capital leases  long-term portion
    
    
    82Deferred revenues  long-term portion
    
    
    23Convertible notes payable to related parties  longterm portion
    
    
    700Total long-term liabilities
    
    
    808Total liabilities
    
    
    1,818COMMITMENTS AND CONTINGENCIES
    
    
    STOCKHOLDERS DEFICITConvertible preferred stock, $.001 par value; 4,000,000 shares authorized, 720
shares of Series D (liquidation preference of $180) and 50 shares of Series E
(liquidation preference of $15) issued and outstanding, convertible into common
shares at 1,000 common share per 1 convertible preferred share
    
    
    Common stock, $.001 par value; 40,000,000 shares authorized; 26,001,180
shares issued and outstanding
    
    
    26Additional capital
    
    
    43,166Accumulated deficit
    
    
    (44,284
    )Total stockholders deficit
    
    
    (1,092
    )TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
    
    $
    726
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Year Ended December 31,2006
    
    
    2005REVENUES
    
    $
    1,464
    
    
    $
    1,266COST OF REVENUES
    
    
    944
    
    
    
    778GROSS PROFIT
    
    
    520
    
    
    
    488OPERATING EXPENSES:Selling, general and administrative
    
    
    844
    
    
    
    723LOSS FROM OPERATIONS
    
    
    (324
    )
    
    
    (235
    )OTHER INCOME (EXPENSE):Interest expense-related parties
    
    
    (44
    )
    
    
    (23
    )Interest expense
    
    
    (21
    )
    
    
    (21
    )Total other expense
    
    
    (65
    )
    
    
    (44
    )NET LOSS
    
    $
    (389
    )
    
    $
    (279
    )NET LOSS PER SHARE  BASIC AND DILUTED
    
    $
    (0.01
    )
    
    $
    (0.01
    )WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING  BASIC AND DILUTED
    
    
    25,983
    
    
    
    25,812
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Number ofConvertible
    
    
    
    
    
    
    Number ofPreferred
    
    
    
    
    
    
    Common
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalShares
    
    
    Preferred
    
    
    Shares
    
    
    Common
    
    
    Additional
    
    
    Accumulated
    
    
    StockholdersOutstanding
    
    
    Stock
    
    
    Outstanding
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    DeficitBalances at December 31, 2004
    
    
    1
    
    
    $
    
    
    
    
    25,226
    
    
    $
    25
    
    
    $
    42,985
    
    
    $
    (43,616
    )
    
    $
    (606
    )Sale of common stock
    
    
    
    
    
    
    
    
    
    
    400
    
    
    
    1
    
    
    
    99
    
    
    
    
    
    
    
    100Warrants exercised for common
stock
    
    
    
    
    
    
    
    
    
    
    350
    
    
    
    
    
    
    
    70
    
    
    
    
    
    
    
    70Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (279
    )
    
    
    (279
    )Balances at December 31, 2005
    
    
    1
    
    
    
    
    
    
    
    25,976
    
    
    
    26
    
    
    
    43,154
    
    
    
    (43,895
    )
    
    
    (715
    )Warrants exercised for common
stock
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    7Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (389
    )
    
    
    (389
    )Balances at December 31, 2006
    
    
    1
    
    
    $
    
    
    
    
    26,001
    
    
    $
    26
    
    
    $
    43,166
    
    
    $
    (44,284
    )
    
    $
    (1,092
    )
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Year Ended December 31,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (389
    )
    
    $
    (279
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation and amortization
    
    
    54
    
    
    
    45Provision for doubtful accounts
    
    
    5
    
    
    
    8Stock based compensation expense
    
    
    7
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (51
    )
    
    
    1Prepaid expenses and other current assets
    
    
    (10
    )
    
    
    (6
    )Accounts payable, accrued payroll and other liabilities
    
    
    75
    
    
    
    48Deferred revenues
    
    
    (67
    )
    
    
    (44
    )Net cash used in operating activities
    
    
    (376
    )
    
    
    (227
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of equipment and leasehold improvements
    
    
    (14
    )
    
    
    Capitalized software development costs
    
    
    (59
    )
    
    
    (63
    )Net cash used in investing activities
    
    
    (73
    )
    
    
    (63
    )CASH FLOWS FROM FINANCING ACTIVITIES:Principal payments on capital lease obligation
    
    
    (4
    )
    
    
    Proceeds from notes payable
    
    
    45
    
    
    
    12Proceeds from notes payable  related parties
    
    
    772
    
    
    
    157Payments of notes payable
    
    
    (69
    )
    
    
    (13
    )Payments of notes payable  related parties
    
    
    (72
    )
    
    
    (76
    )Proceeds from issuance of common stock
    
    
    
    
    
    
    100Proceeds from exercise of common stock warrants
    
    
    
    
    
    
    70Net cash provided by financing activities
    
    
    672
    
    
    
    250NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS
    
    
    223
    
    
    
    (40
    )CASH AND EQUIVALENTS, BEGINNING OF YEAR
    
    
    28
    
    
    
    68CASH AND EQUIVALENTS, END OF YEAR
    
    $
    251
    
    
    $
    28SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid for interest
    
    $
    5
    
    
    $
    6SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:Acquisition of equipment through capital lease
    
    $
    121
    
    
    $
    Payment of accrued interest through issuance of common stock
    
    $
    5
    
    
    $
    
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Share-Based
Payment
   Accounting for Stock Issued to Employees
 Accounting for Stock-Based Compensation  Transition and Disclosure
 Year Ended December 31,2005Net lossAs reported
    
    $
    279Add: Stock-based compensation expense included in net loss
    
    
    Deduct: Stock-based compensation expense
determined under the fair value based method
    
    
    506Pro forma
    
    $
    785Loss per shareAs reported
    
    $
    0.01Pro forma net loss
    
    $
    0.03
 31




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Disclosure About Fair Value of Financial Instruments
  Financial Statements 
Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year
Financial Statements
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Financial Statements 
Materiality
 Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109, Accounting
for Income Taxes
 How Sales Taxes Collected from Customers and Remitted to Governmental Authorities Should Be
Presented in the Income Statement (That Is, Gross Versus Net Presentation)
 Fair Value Measurements
   Computer hardware and software
    
    $
    1,089Software development costs
    
    
    2,104Furniture and fixtures
    
    
    31Office equipment
    
    
    28Leasehold improvements
    
    
    35Equipment under capital lease
    
    
    1213,408Less accumulated depreciation and amortization
    
    
    (3,178
    )$
    230
    33




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Year Ended December 31,2006
    
    
    2005Benefit computed at federal statutory rate
    
    $
    (132
    )
    
    $
    (95
    )Permanent differences
    
    
    26
    
    
    
    20State income tax benefit, net of federal
tax effect at state statutory rate
    
    
    (12
    )
    
    
    (8
    )Increase in valuation reserve
    
    
    157
    
    
    
    141Change in prior year estimate
    
    
    (39
    )
    
    
    (58
    )$
    
    
    
    $
    
  December 31,2006
    
    
    2005Deferred tax assets:Net operating loss carryforwards
    
    $
    15,737
    
    
    $
    15,567Fixed assets
    
    
    11
    
    
    
    10Allowance for doubtful accounts
    
    
    2
    
    
    
    1Deferred revenue
    
    
    25
    
    
    
    49Other
    
    
    37
    
    
    
    28Total deferred tax assets
    
    
    15,812
    
    
    
    15,655Valuation allowance for deferred tax assets
    
    
    (15,812
    )
    
    
    (15,655
    )Deferred income tax assets, net of
deferred tax liabilities
    
    $
    
    
    
    $
    
        34




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Determining Fair Value Under SFAS No. 123R
 Valuation and Amortization Method.
 Expected Life.
 Expected Volatility.
 Risk-Free Interest Rate.
 Expected Dividend Yield.
 Expected Forfeitures.
  December 31,2006Volatility
    
    
    142
    %Weighted-average expected lives
    
    6 yearsExpected dividend yields
    
    
    Weighted-average risk-free interest rates
    
    
    4.68
    %Weighted-average fair value of options/warrants granted
    
    $
    .11
 Share-Based Compensation Under SFAS No. 123R
  December 31, 2006WarrantsStock Options
    
    
    for Common Stock
    
    
    TotalSelling, general andadministrative expense
    
    
    
    
    
    
    7
    
    
    
    7Total share-based compensation
    
    $
    
    
    
    $
    7
    
    
    $
    7
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Unvested Stock
    
    
    Unvested WarrantsOptions
    
    
    for Common Stock
    
    
    Total2007
    
    
    1
    
    
    
    36
    
    
    
    372008
    
    
    1
    
    
    
    36
    
    
    
    372009
    
    
    
    
    
    
    27
    
    
    
    27Total
    
    $
    2
    
    
    $
    99
    
    
    $
    101
  WEIGHTEDAVERAGENUMBER
    
    
    PER SHARE
    
    
    EXERCISEOF SHARES
    
    
    EXERCISE PRICE
    
    
    PRICEOutstanding options-January 1, 2005
    
    
    1,199,442
    
    
    $
    0.30-8.00
    
    
    $
    1.33Granted
    
    
    500,000
    
    
    
    0.13
    
    
    
    0.13Expired
    
    
    (792,666
    )
    
    
    0.13-8.00
    
    
    
    0.79Outstanding options-December 31, 2005
    
    
    906,776
    
    
    $
    0.30-8.00
    
    
    $
    1.15Granted
    
    
    50,000
    
    
    
    0.15
    
    
    
    0.15Expired
    
    
    
    
    
    
    
    
    
    
    Outstanding options-December 31, 2006
    
    
    956,776
    
    
    $
    0.15-8.00
    
    
    $
    1.10Options exercisable-December 31, 2006
    
    
    906,776
    
    
    $
    0.30-8.00
    
    
    $
    1.15
   WEIGHTEDNUMBER
    
    
    PER SHARE
    
    
    AVERAGEOF SHARES
    
    
    EXERCISE PRICE
    
    
    EXERCISE PRICEOutstanding warrants- January 1, 2005
    
    
    4,054,943
    
    
    $
    0.15-3.00
    
    
    $
    0.19Granted
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    (1,430,619
    )
    
    
    0.15-3.00
    
    
    
    0.21Outstanding warrants-December 31, 2005
    
    
    2,624,324
    
    
    $
    0.15-0.35
    
    
    $
    0.18Granted
    
    
    2,000,000
    
    
    
    0.15-0.25
    
    
    
    0.20Expired
    
    
    (1,000,000
    )
    
    
    0.15
    
    
    
    0.15Outstanding warrants-December 31, 2006
    
    
    3,624,324
    
    
    $
    0.15-0.35
    
    
    $
    0.20Warrants exercisable-December 31, 2006
    
    
    2,624,324
    
    
    $
    0.15-0.35
    
    
    $
    0.18
  37




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##### Table of Contents



Note payable to a Director. Principal due on demand;
unsecured. Interest payable at 9.5%.
    
    $
    30,000Note payable to a 5% shareholder. Principal due
on demand; unsecured. Interest payable at 8%.
    
    
    100,000Note payable to a 5% shareholder. Principal due
on demand; unsecured. Interest payable at 9.5%.
    
    
    35,000Note payable to a 5% shareholder. Principal due
on demand; unsecured. Interest payable at 8%.
    
    
    10,000Notes payable  related parties
    
    $
    175,000
  Convertible note to a 5% shareholder. Principal due
September 22, 2007; unsecured. Interest payable at 7%.
    
    $
    50,000Convertible note to a 5% shareholder. Principal due
December 28, 2007; unsecured. Interest payable at 7%.
    
    
    150,000Convertible note to a 5% shareholder. Principal due.
November 2, 2008; unsecured. Interest payable at 7.5%.
    
    
    100,000Convertible note to a 5% shareholder. Principal due.
December 31, 2008; unsecured. Interest payable at 7.5%.
    
    
    100,000Convertible note to a 5% shareholder. Principal due.
December 31, 2008; unsecured. Interest payable at 7.5%.
    
    
    50,000Convertible note to a 5% shareholder. Principal due.
December 31, 2008; unsecured. Interest payable at 7.5%.
    
    
    100,000Convertible note to a Director. Principal due December 31, 2008;
unsecured. Interest payable at 7.5%.
    
    
    50,000Convertible note to a 5% shareholder. Principal due.
November 30, 2010; unsecured. Interest payable at 5%.
    
    
    300,000Convertible
notes payable  related parties
    
    $
    900,000Convertible note. Principal due September 21, 2007; unsecured.
Interest payable at 7%.
    
    $
    50,000Convertible note. Principal due October 4, 2007; unsecured.
Interest payable at 7%.
    
    
    50,000Convertible note. Principal due October 5, 2007; unsecured.
Interest payable at 7%.
    
    
    100,000Convertible notes payable
    
    $
    200,000
    38




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##### Table of Contents



2007
    
    $
    575,0002008
    
    
    400,0002009
    
    
    2010
    
    
    300,000Total
    
    $
    1,275,000
     OPERATING
    
    
    CAPITALLEASES
    
    
    LEASES2007
    
    $
    117,000
    
    
    $
    49,0002008
    
    
    117,000
    
    
    
    49,0002009
    
    
    72,000
    
    
    
    45,0002010
    
    
    
    
    
    
    2011 and Thereafter
    
    
    
    
    
    
    Total minimum lease obligations
    
    $
    306,000
    
    
    
    143,000Less amounts representing interest
    
    
    
    
    
    
    (26,000
    )Present value of capital lease payments
    
    
    
    
    
    
    117,000Current portion
    
    
    
    
    
    
    (35,000
    )Long-term portion
    
    
    
    
    
    $
    82,000
      
 39




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40




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##### Table of Contents



41




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NAME
    
    AGE
    
    POSITIONDon Crosbie
    
    63
    
    President, Chief Executive Officer, Chairman of the Board of Directors and Class I DirectorLaura M. Bray
    
    49
    
    Chief Financial OfficerGary J. Austin
    
    62
    
    Chief Operating OfficerAlfred Dubach
    
    59
    
    Vice Chairman of the Board of Directors and Class I DirectorJohn C. Willems, III
    
    51
    
    Class II DirectorThomas Michel
    
    55
    
    Class II DirectorK. Scott Spurlock
    
    39
    
    Vice President of Development
  1 2
    42




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43




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##### Table of Contents



ALLOTHERNAME AND
    
    
    
    
    
    
    
    
    
    
    
    
    
    STOCK
    
    OPTION
    
    COMPENPRINCIPAL
    
    
    
    
    
    SALARY
    
    BONUS
    
    AWARDS
    
    AWARDS
    
    SATION
    
    TOTALPOSITION
    
    YEAR
    
    $
    
    $
    
    $
    
    $
    
    $ (1)
    
    $Don Crosbie
    
    
    2006
    
    
    $
    145,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,430
    
    
    $
    146,430President and CEO
    
    
    2005
    
    
    
    140,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,437
    
    
    
    141,437Gary Austin
    
    
    2006
    
    
    
    101,231
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,231COO
    
    
    2005
    
    
    
    87,769
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,769Laura Bray
    
    
    2006
    
    
    
    78,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    738
    
    
    
    78,738CFO
    
    
    2005
    
    
    
    78,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    747
    
    
    
    78,747K. Scott Spurlock
    
    
    2006
    
    
    
    127,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    127,000VP  Development
    
    
    2005
    
    
    
    124,615
    
    
    
    2,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    127,115
 
 (1)
    
    Company match on employee contributions to the Companys 401(k) plan. 44




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##### Table of Contents



Option AwardsEquityIncentivePlan Awards:Number of
    
    Number of
    
    Number ofSecurities
    
    Securities
    
    SecuritiesUnderlying
    
    Underlying
    
    UnderlyingUnexercised
    
    Unexercised
    
    Unexercised
    
    OptionOptions
    
    Options
    
    Unearned
    
    Exercise
    
    Option(#)
    
    (#)
    
    Options
    
    Price
    
    ExpirationName
    
    Exercisable
    
    Unexercisable
    
    (#)
    
    ($)
    
    DateDon Crosbie
    
    
    200,000
    (1)
    
    
    
    
    
    
    
    
    
    
    0.20
    
    
    
    10/20/07Don Crosbie
    
    
    1,500,000
    (1)
    
    
    
    
    
    
    
    
    
    
    0.15
    
    
    
    6/3/13Don Crosbie
    
    
    200,000
    (1)
    
    
    
    
    
    
    
    
    
    
    0.29
    
    
    
    9/21/14Gary Austin
    
    
    400,000
    (1)
    
    
    
    
    
    
    
    
    
    
    0.35
    
    
    
    3/24/14Gary Austin
    
    
    100,000
    (1)
    
    
    
    
    
    
    
    
    
    
    0.29
    
    
    
    9/21/14Laura Bray
    
    
    50,000
    (1)
    
    
    
    
    
    
    
    
    
    
    0.15
    
    
    
    6/3/13Laura Bray
    
    
    100,000
    (1)
    
    
    
    
    
    
    
    
    
    
    0.29
    
    
    
    9/21/14
 
 (1)
    
    These are shares underlying a warrant that originally vested over 3 years. All the
shares have vested.         45




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##### Table of Contents



WEIGHTEDNUMBER
    
    
    PER SHARE
    
    
    AVERAGEOF SHARES
    
    
    EXERCISE PRICE
    
    
    EXERCISE PRICEOutstanding options-January 1, 2005
    
    
    1,199,442
    
    
    $
    0.30-8.00
    
    
    $
    1.33Granted
    
    
    500,000
    
    
    
    0.13
    
    
    
    0.13Expired
    
    
    (792,666
    )
    
    
    0.13-8.00
    
    
    
    0.79Outstanding options-December 31, 2005
    
    
    906,776
    
    
    $
    0.30-8.00
    
    
    $
    1.15Granted
    
    
    50,000
    
    
    
    0.15
    
    
    
    0.15Expired
    
    
    
    
    
    
    
    
    
    
    Outstanding options-December 31, 2006
    
    
    956,776
    
    
    $
    0.15-8.00
    
    
    $
    1.10Options exercisable-December 31, 2006
    
    
    906,776
    
    
    $
    0.30-8.00
    
    
    $
    1.15
  46




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##### Table of Contents



WEIGHTEDNUMBER
    
    
    PER SHARE
    
    
    AVERAGEOF SHARES
    
    
    EXERCISE PRICE
    
    
    EXERCISE PRICEOutstanding warrants- January 1, 2005
    
    
    4,054,943
    
    
    $
    0.15-3.00
    
    
    $
    0.19Granted
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    (1,430,619
    )
    
    
    0.15-3.00
    
    
    
    0.21Outstanding warrants-December 31, 2005
    
    
    2,624,324
    
    
    $
    0.15-0.35
    
    
    $
    0.18Granted
    
    
    2,000,000
    
    
    
    0.15-0.25
    
    
    
    0.20Expired
    
    
    (1,000,000
    )
    
    
    0.15
    
    
    
    0.15Outstanding warrants-December 31, 2006
    
    
    3,624,324
    
    
    $
    0.15-0.35
    
    
    $
    0.20Warrants exercisable-December 31, 2006
    
    
    2,624,324
    
    
    $
    0.15-0.35
    
    
    $
    0.18
        47




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##### Table of Contents




    
    each person who is known by us to be the beneficial owner of more than 5% of the outstanding common stock,
    
    each director and each of our named executive officers,
    
    all of our directors and executive officers as a group, and
    
    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.
    SHARES BENEFICIALLY OWNEDAmount andNature of
    
    
    
    
    
    Percent ofName and Address of
    
    
    
    Beneficial
    
    Percent of
    
    VotingBeneficial Owner
    
    Class of Security
    
    Owner
    
    Class
    
    PowerDon Crosbie (1)
    
    Common Stock
    
    
    1,900,000
    
    
    
    7.3
    
    
    
    5.4Gary Austin (2)
    
    Common Stock
    
    
    500,000
    
    
    
    1.9
    
    
    
    1.4Laura Bray (3)
    
    Common Stock
    
    
    150,000
    
    
    
    *
    
    
    
    *John C. Willems, III (5)
    
    Common Stock
    
    
    24,277
    
    
    
    *
    
    
    
    *Thomas Michel (6)
    
    Common Stock
    
    
    1,160,200
    
    
    
    4.5
    
    
    
    3.3Series D Preferred Stock
    
    
    100
    
    
    
    13.9Series E Preferred Stock
    
    
    50
    
    
    
    100.0Alfred Dubach (7)
    
    Common Stock
    
    
    1,220,000
    
    
    
    4.7
    
    
    
    3.5Bo W. Lycke (4) (8)
4730 Melissa Ln.
Dallas, Texas 75229
    
    Common Stock
    
    
    2,581,326
    
    
    
    9.9
    
    
    
    7.3Robert H. Brown, Jr. (4) (9)
2626 Cole Ave, #400
Dallas, Texas 75204
    
    Common Stock
    
    
    1,362,354
    
    
    
    5.2
    
    
    
    3.9McKesson Corporation
One Post Street
San Francisco, CA 94104
    
    Common Stock
    
    
    1,514,285
    
    
    
    5.8
    
    
    
    4.3J. R. Schellenberg (4) (10)
Kohlrainstrasse 1
Kusnacht 
Switzerland CH-8700
    
    Common Stock
    
    
    1,793,603
    
    
    
    6.9
    
    
    
    5.1
 48




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##### Table of Contents



SHARES BENEFICIALLY OWNEDAmount andNature of
    
    
    
    
    
    Percent ofName and Address of
    
    
    
    Beneficial
    
    Percent of
    
    VotingBeneficial Owner
    
    Class of Security
    
    Owner
    
    Class
    
    PowerElmira United
Corporation (11)
Swiss Tower  16th Floor
Panama 
Republic of Panama
    
    Common Stock
    
    
    9,350,000
    
    
    
    36.0
    
    
    
    26.5New York Ventures(12)
    
    Common Stock
    
    
    620,000
    
    
    
    2.4
    
    
    
    1.8c/o BDO Visura
    
    Series D Preferred Stock
    
    
    620
    
    
    
    86.1Entfelderstrasse 1CH-5001 AarauAll our directors and
    
    Common Stock
    
    
    4,954,477
    
    
    
    19.1
    
    
    
    14.0executive officers as a
    
    Series D Preferred Stock
    
    
    100
    
    
    
    13.9group (6 persons) (13)
    
    Series E Preferred Stock
    
    
    50
    
    
    
    100.0
 
 *
    
    Less than one percent.(1)
    
    Consists of 1,900,000 shares which Mr. Crosbie has the right to acquire upon exercise of
options or warrants.(2)
    
    Consists of 500,000 shares which Mr. Austin has the right to acquire upon exercise of options
or warrants.(3)
    
    Consists of 150,000 shares which Ms. Bray has the right to acquire upon exercise of options
or warrants.(4)
    
    Includes 1,051,603 shares of common stock owned of record by National Financial Corporation
(based upon the latest information reported to or known by us). Messrs. Lycke and Brown own
71.1% and 17.7%, respectively, of the outstanding capital stock of National Financial
Corporation. MNS Enterprises, Inc. manages all activities of National Financial Corporation
pursuant to a Management Agreement. Mr. Schellenberg is the President and a Director of MNS
Enterprises, Inc. Therefore, Messrs. Lycke, Brown and Schellenberg may be deemed to
beneficially own the shares of common stock owned by National Financial Corporation.(5)
    
    Consists of 9,277 shares of common stock owned of record by Mr. Willems and 15,000 shares
which Mr. Willems has the right to acquire upon exercise of options or warrants.(6)
    
    Common Stock consists of 395,200 shares of common stock owned of record by Mr. Michel,
150,000 shares which may be issued to Mr. Michel upon conversion of preferred stock, and
755,000 shares which Mr. Michel has the right to acquire upon exercise of options or warrants.(7)
    
    Consists of 615,000 of common stock owned of record by Mr. Dubach, and 605,000 shares which
Mr. Dubach has the right to acquire upon exercise of options or warrants.(8)
    
    Consists of 1,279,723 shares of common stock owned of record by Mr. Lycke (based upon the
latest information reported to or known by us), 250,000 shares which Mr. Lycke has the right
to acquire upon exercise of options or warrants, and 1,051,603 shares of common stock owned of
record by National Financial Corporation.(9)
    
    Consists of 310,751 shares of common stock owned of record by Mr. Brown (based upon the
latest information reported to or known by us) and 1,051,603 shares of common stock owned of
record by National Financial Corporation.(10)
    
    Consists of 742,000 shares of common stock owned of record by Mr. Schellenberg (based upon
the latest information reported to or known by us) and 1,051,603 shares of common stock owned
of record by National Financial Corporation.(11)
    
    Consists of 9,350,000 shares of common stock owned of record by Elmira (based upon the latest
information reported to or known by us).(12)
    
    Common Stock consists of 620,000 shares which may be issued to New York Ventures upon
conversion of preferred stock.(13)
    
    Includes an aggregate of 3,950,000 shares which they have a right to acquire upon exercise of
options or warrants. 49




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##### Table of Contents



NUMBER OF
    
    
    WEIGHTED-SECURITIES TO BE
    
    
    AVERAGE
    
    
    NUMBER OF SECURITIESISSUED UPON EXERCISE
    
    
    EXERCISE PRICE
    
    
    REMAINING AVAILABLEOF OUTSTANDING
    
    
    OF OUTSTANDING
    
    
    FOR FUTURE ISSUANCEOPTIONS AND
    
    
    OPTIONS AND
    
    
    UNDER EQUITYWARRANTS
    
    
    WARRANTS
    
    
    COMPENSATION PLANS*(a)
    
    
    (b)
    
    
    (c)Equity Compensation
Plans Approved By
Stockholders
    
    
    956,776
    
    
    $
    1.10
    
    
    
    712,454Equity Compensation
Plans Not Approved
By Stockholders
    
    
    5,408,324
    
    
    
    0.18
    
    
    
    Total
    
    
    6,365,100
    
    
    $
    0.34
    
    
    
    712,454
 
 *
    
    Excludes securities reflected in column (a).           50




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51




---



##### Table of Contents



3.1(2)
    
    Certificate of Incorporation3.1(a)(2)
    
    Certificate of Amendment to Certificate of Incorporation3.1(b)(4)
    
    Certificate of Designation of Series A Preferred Stock3.1(c)(4)
    
    Certificate of Designation of Series B Preferred Stock3.1(d)(4)
    
    Certificate of Designation of Series C Preferred Stock3.1(e)(4)
    
    Certificate of Designation of Series D Preferred Stock3.1(f)(1)
    
    Certificate of Designation of Series E Preferred Stock3.2(2)
    
    Bylaws, as amended4.1(2)
    
    Form of Common Stock Certificate4.2(4)
    
    Form of Warrant issued to Bo W. Lycke dated February 21, 2002*4.3(1)
    
    Form of Warrant issued to Don Crosbie dated October 21, 2002*4.4(5)
    
    Form of Warrant issued to Don Crosbie dated June 3, 2003*4.5(5)
    
    Form of Warrant issued to certain employees dated June 3, 2003*4.6(5)
    
    Form of Warrant issued to Thomas Michel dated June 3, 2003*4.7(5)
    
    Form of Warrant issued to Alfred Dubach dated June 3, 2003*4.8(6)
    
    Form of Warrant issued to Thomas Michel dated June 30, 2004.*4.9(6)
    
    Form of Warrant issued to Gary J. Austin dated September 21, 2004.*4.10(6)
    
    Form of Warrant issued to Laura M. Bray dated September 21, 2004.*4.11(6)
    
    Form of Warrant issued to Don Crosbie dated September 21, 2004.*10.1(2)
    
    1997 Stock Option Plan, as amended through October 19, 2000*10.2(3)
    
    Amendment dated October 20, 2000 to 1997 Stock Option Plan*10.3(2)
    
    Form of Indemnification Agreement*10.4(2)
    
    Form of Non-Employee Directors Plan10.5(1)
    
    Note dated June 6, 2002 between Claimsnet.com and J. R. Schellenberg related to
$50,000 loan.10.6(1)
    
    Note dated August 1, 2002 between Claimsnet.com and J. R. Schellenberg related to $10,000 loan.*10.7(1)
    
    Note dated August 1, 2002 between Claimsnet.com and Thomas Michel related to $50,000 loan.10.8(6)
    
    Note dated September 21, 2004 between Claimsnet.com and R.L. Armstrong Limited Partnership related to
$50,000 loan.10.9(6)
    
    Note dated September 22, 2004 between Claimsnet.com and Elmira United Corporation related to
$50,000 loan.10.10(6)
    
    Note dated October 4, 2004 between Claimsnet.com and Douglas R. Urquhart related to $50,000 loan.10.11(6)
    
    Note dated October 5, 2004 between Claimsnet.com and Newman Family Trust related to $100,000 loan.
 52




---



##### Table of Contents



10.12(6)
    
    Note dated December 28, 2004 between Claimsnet.com and Elmira United Corporation related to
$150,000 loan.10.13(6)
    
    Form of Registration Rights Agreement10. 14(8)
    
    Note dated November 2, 2005 between Claimsnet.com and Elmira United
Corporation related to $100,000 loan.10.15(8)
    
    Note dated April 5, 2006 between Claimsnet.com and Elmira United Corporation related to
$100,000 loan.10.16(7)
    
    Note dated July 22, 2005 between Claimsnet.com and National Financial Corporation related to
$100,000 loan.*10.17(9)
    
    Offer Letter of Mr. Kent McRee dated May 18, 2006.*10.18(9)
    
    Bonus Agreement Letter of Mr. Kent McRee dated May 18, 2006.10.19(8)
    
    Note dated June 15, 2006 between Claimsnet.com and Elmira United Corporation related to
$50,000 loan.10.20(10)
    
    Note dated August 29, 2006 between Claimsnet.com and Elmira United Corporation related to
$100,000 loan.10.21(11)
    
    Note dated September 29, 2006 between Claimsnet.com and Elmira United Corporation related to
$50,000 loan.10.22(12)
    
    Note dated November 16, 2006 between Claimsnet.com and National Financial Corporation related to
$100,000 loan.10.23(13)
    
    Note dated November 29, 2006 between Claimsnet.com and Elmira United Corporation related to
$300,000 loan.10.24(13)
    
    Equipment Lease Agreement dated December 1, 2006 between Claimsnet.com and E-Link Systems.10.25(14)
    
    Note dated January 16, 2007 between Claimsnet.com and Eganoc Services Corp related to
$100,000 loan.*10.26
    
    Note dated January 24, 2007 between Claimsnet.com and Thomas Michel related to
$10,000 loan.21.1
    
    Subsidiaries of Claimsnet.com inc.31.1
    
    Certification of Don Crosbie31.2
    
    Certification of Laura M. Bray32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 of Don Crosbie32.2
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 of Laura M. Bray
 
 *
    
    Contract with management or compensatory arrangement.(1)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K, for the
Year Ended December 31, 2002 filed on April 1, 2003.(2)
    
    Incorporated by reference to the Registrants registration statement on Form S-1
(Registration No. 333-36209).(3)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K
for the year ended December 31, 2000 filed on April 16, 2001 and amended on October 3, 2001(4)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for the
year ended December 31, 2001 filed on April 15, 2002. 53




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##### Table of Contents



(5)
    
    Incorporated by reference to the Registrants Current Report on Form 10-KSB dated
March 29, 2004.(6)
    
    Incorporated by reference to the Registrants Current Report on Form 10-KSB dated
March 16, 2005.(7)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-KSB for the
year ended December 31, 2005, filed on February 16, 2006.(8)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-QSB
quarter ended June 30, 2006, filed on July 26, 2006.(9)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K dated May
31, 2006.(10)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K dated
August 29, 2006.(11)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-QSB
quarter ended September 30, 2006, filed on October 26, 2006.(12)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K dated
November 16, 2006.(13)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K dated
November 29, 2006.(14)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K dated
January 16, 2007. 54




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##### Table of Contents



FEE CATEGORY
    

WHITLEY
PENN LLP
    
    
    TIMOTHY CARMODY, CPAAudit Fees (1)
    
    $
    43,400
    
    
    $
    Audit-Related Fees (2)
    
    
    
    
    
    
    Tax Fees (3)
    
    
    
    
    
    
    1,610All Other Fees (4)
    
    
    
    
    
    
    Total
    
    $
    43,400
    
    
    $
    1,610
  FEE CATEGORY
    

WHITLEY
PENN LLP
    
    
    TIMOTHY CARMODY, CPAAudit Fees (1)
    
    $
    42,800
    
    
    $
    Audit-Related Fees (2)
    
    
    
    
    
    
    Tax Fees (3)
    
    
    
    
    
    
    1,595All Other Fees (4)
    
    
    
    
    
    
    Total
    
    $
    42,800
    
    
    $
    1,595
 
 (1)
    
    Audit Fees consist of aggregate fees billed for professional services rendered for the audit
of our annual financial statements and review of the interim financial statements included in
quarterly reports or services that are normally provided by the independent auditor in
connection with statutory and regulatory filings or engagements during the fiscal years ended
December 31, 2006 and December 31, 2005.(2)
    
    Audit-Related Fees consist of aggregate fees billed for assurance and related services that
are reasonably related to the performance of the audit or review of our financial statements
and are not reported under Audit Fees. These fees include review of registration statements
and participation at meetings of the board of directors and audit committee.(3)
    
    Tax Fees consist of aggregate fees billed for professional services for tax compliance, tax
advice and tax planning.(4)
    
    All Other Fees consist of aggregate fees billed for products and services provided by the
independent auditor, other than those disclosed above. These fees include services related to
certain accounting research and assistance with a regulatory matter.   55




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##### Table of Contents



CLAIMSNET.COM INC.(Registrant)By:
    
    /s/ Don CrosbieDon CrosbiePresident andChief Executive Officer,
   /s/ Don CrosbieDon CrosbiePresident, 
Chief Executive Officer,Class I Director andChairman of the Board/s/ Laura M. BrayLaura M. BrayChief Financial Officer and Principal
Accounting Officer/s/ Alfred DubachAlfred DubachClass I Director andVice Chairman of the Board/s/ John C. Willems, IIIJohn C. Willems, IIIClass II Director/s/ Thomas MichelThomas MichelClass II Director
 56