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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(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, 2003
                          -----------------

                                       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.)

                          14860 Montfort Dr., Suite 250
              Dallas, Texas                                  75254
              -------------                                  -----
          (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-KSB or any amendment to
this Form 10-KSB [ ]

Registrant's revenues for the year ended December 31, 2003: $652,000.

The aggregate market value of the Common Stock of the registrants held by
non-affiliates of the registrant, based on the closing sales price of $0.40 on
the OTC Bulletin Board stock market on February 27, 2004 was $9,480,472.

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,
23,701,180 shares outstanding as of March 25, 2004.

                       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, SUCCESSFULLY IMPLEMENT OUR
REVISED BUSINESS STRATEGY, DEVELOP AND MAINTAIN STRATEGIC PARTNERSHIPS OR
ALLIANCES, INCREASE OUR CUSTOMER BASE, FURTHER 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

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 eight years, enables the
efficient communication of data between healthcare payers and their provider
networks and trading partners (claim clearinghouses, third party administrators,
preferred provider organizations, health maintenance organizations, claim
re-pricing organizations, independent physician associations, and managed
service organizations), for the purpose of conducting administrative
transactions required to effect financial reimbursement for healthcare services.
Our system improves both the ease of data exchange as well as the quality of the
data being exchanged, allowing the users to realize an increase in electronic
transaction and cost improvements from better data. We accomplish this by
allowing healthcare providers, EDI vendors, and trading partners to download
healthcare claims interactively on the Internet and electronically transmit the
claims to us for pre-processing. 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 payers' specific processing requirements. We
then electronically transmit pre-processed claims directly or indirectly to
medical and dental payers. 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).

We formerly focused our business primarily toward healthcare providers, both
from a marketing perspective and from a system functionality perspective. During
2002, we shifted our business strategy to focus on the payer market and their
trading partners. We effected this transition by selling our provider-focused
client base to a clearinghouse partner and we simultaneously entered into an
agreement to provide the acquirer with a limited license to our proprietary
software. The license allows the providers to continue to use our proprietary
system and also provides a recurring revenue stream to us. Our role changed from
being a full-service clearinghouse for each of the providers to one of a
technology and support services supplier to the acquirer.

We believe that the following are significant advantages of our electronic
transaction pre-processing services:

o    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;

o    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;

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;

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; and

o    the minimal software and processing power required for providers to utilize
     our proprietary software.

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.

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We generate recurring revenue primarily from implementation fees, development
fees, license fees, support fees and transaction-based fees. We use the services
of certain partners and vendors to assist with the conversion of scanned paper
forms, the printing of paper forms from electronic data, and the delivery of
certain electronic transactions.

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 (the most recent data available), of which,
approximately 1.7 billion claims were submitted on paper forms. Health Data
Management estimates that electronic claims processing was used to process
approximately 43% of all medical outpatient claims and 17% of all dental claims
in 1999.

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. Many of 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 offers the provider and
payer a method of communicating directly 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, became effective in
October 2003 for clearinghouse and large payer organizations. The provisions
must be implemented by all entities no later than October 2004. The provisions
relating to standards for privacy were implemented in April 2003 for large
organizations and must be implemented by April 2004 for small organizations. The
provisions relating to security must be implemented by April 2005 for large
organizations and April 2006 for small organizations. The provisions relating to
national provider identifiers must be implemented by May 2007 for large
organizations and May 2008 for small organizations.

We believe that the convergence of HIPAA mandates and the proliferation of
internet technology will cause sweeping changes in the health care industry. At
a minimum, it will cause all payers to implement secure electronic transaction
processing capabilities for a full menu of administrative transactions. We
expect the universal availability of data exchange between healthcare
organizations to generate growth in the healthcare EDI industry. If the industry
evolves toward direct payer submission of claims or real-time adjudication of
claims, we believe our software will be able to offer efficient access to payers
and healthcare providers in a HIPAA-compliant format.

BUSINESS STRATEGY

Our business strategy is as follows:

o    to utilize our state of the art technology to help large healthcare
     organizations achieve more efficient and less costly administrative
     operations;
o    to market our services directly to the payer community and its trading
     partners;


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o    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;
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;
o    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
o    to license our technology for other applications, including stand-alone
     purposes, Internet systems and private label use, and for original
     equipment manufacturers.

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.

MARKETING EFFORTS

We began in October 2002 to build a direct sales organization and launched a
marketing campaign to communicate our service capabilities and value proposition
to our target market, primarily payers, third party administrators, and provider
networks. The direct sales organization currently consists of two
representatives.

In support of our marketing strategy, we are a member of the Cooperative
Exchange Association, an organization seeking to expand the delivery of
HIPAA-defined transactions to the nation's healthcare payers.

Additionally, we have entered into several relationships with strategic partners
for the marketing of our services and use of our proprietary technology,
including:

o    arrangements entered into in 2000, 2003 and 2004 with business-to-business
     healthcare transaction service providers and application service providers
     such as Synertech Systems, Inc., Plexis Healthcare Systems, A&G Healthcare
     Services and Eldorado Computing, Inc. to operate or provide each a
     co-branded or private-labeled 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; and
o    an agreement entered into in September 2002 with a major healthcare
     clearinghouse to operate a private-labeled version of our claims processing
     application for use by certain of their clients, including those clients
     acquired from us.

RECENT DEVELOPMENTS

In February and March 2004, Elmira United Corporation ("Elmira"), a principal
shareholder who as of March 19, 2004, beneficially owned 9,350,000 shares of our
common stock, representing 40% of our then issued and outstanding common stock,
exercised previously issued warrants to purchase 500,000 shares of our common
stock and tendered payment in the amount of $100,000 ($0.20 per share).

HEALTHCARE TRANSACTION PROCESSING SOFTWARE AND SECURITY

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

o    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;
o    data mapping software that allows us to accept a wide variety of data input
     formats;
o    data format generating software developed by us that allows us to easily
     create a wide variety of data output formats;
o    an integrated web-based user interface that can be easily configured to
     support co-branded and private-labeled deployment;
o    industry standard website management software; and
o    state-of-the-art commercial security and encryption software.

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 or trading partners connect to our secure website, our


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software edits claims on-line automatically, using a database containing more
than 22,000 edit variables. 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.

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 submitting 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 user interface 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.

Our personnel access the web server hosting environment remotely via a secure
Virtual Private Network (VPN) for technical operations support. Examples of the
type of support provided include migrating Web site changes to production,
database administration, and Claims Processing Engine monitoring and management.

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.

No significant hardware investment by the customer is required in order to take
advantage of our services. We communicate with our payer gateways using our
public FTP server with PGP encryption, secure FTP with SSL protocol, secure
site-to-site VPN, or point-to-point asynchronous communication protocol. The
client extranet 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, America Online
or Earthlink, offers local telecommunication to the Internet. Our customers are
responsible for obtaining and maintaining their 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. All software
updates and all format changes are available instantly to all customers. 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.

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 user 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 payers accepting claims, (2) the strategic
partners and affiliates with which we jointly operate, and (3) the healthcare
providers submitting claims. Revenues received from two customers represented a
significant portion of our total revenues during the last two years. Revenues


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received from one customer, the clearinghouse partner who acquired certain of
our business assets in September 2002, represented 69% and 23% of our revenues
for 2003 and 2002, respectively, and revenues received from another customer
represented 24% and 9% of our 2003 and 2002 revenues, respectively.

We enter into agreements with our clients. Generally, such agreements protect
our intellectual property rights and define the financial terms of our
relationship. We require each healthcare provider using our services to enter
into an agreement, usually by agreeing to abide by the terms of our standard
license agreement via our website. 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 setup fees, recurring
flat rate fees, and transaction fees to be received by us for certain
transactions, and transaction fees to be paid by us for other transactions.

In September 2000 we entered into an agreement with Synertech Systems, Inc., 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, we operated a
co-branded version of our claims processing application for ProxyMed. This
arrangement also provides for us to use ProxyMed's extensive direct payer
connections to submit certain claims to selected payers.

On September 11, 2002, we sold certain assets consisting primarily of customer
contracts (the "Assigned Contracts") and related revenue streams thereunder to
ProxyMed, Inc. At the same time, we also entered into an Affiliate and Partner
Services and License Agreement pursuant to which (i) we and ProxyMed have agreed
to provide certain administrative and support services for each other in
connection with each other's customers, including without limitation the
customers under the Assigned Contracts, (ii) we agreed to assist ProxyMed in
establishing a "hot-site" which will permit our software application to run on
ProxyMed's hardware platform to service ProxyMed's customers, and (iii) we
granted ProxyMed a limited, non-exclusive, 5-year license to use our software
application at its "hot-site". We are entitled to receive fees for our
liquidation events set forth in such agreement in respect of us.

MARKETING

We are pursuing a two fold marketing and sales strategy.

1. Creating strategic partnerships with organizations that:

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

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 result in material revenues or be profitable.

2. We also maintain a direct sales force, currently two persons, and have
launched an aggressive, yet cost-effective direct sales campaign to the PPO,
HMO, TPA and Medical Insurance carrier marketplace. We continue to review and
assess sales and marketing policies to enable us to accelerate revenue growth.
However, there can be no assurance that such efforts will be successful.

COMPETITION

Several large companies such as WebMD, McKesson, National Data 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


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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 many of which
are larger and have greater financial resources than we do.

A number of additional companies, several of which have greater financial
resources and marketing capabilities than us, 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, however, several of these
companies are already our strategic partners for co-branded or private label
solutions using our technology.

We believe that the flexibility, configurability, and operational efficiency of
our claims processing system will allow us to compete effectively in the payer
market and to partner with clearinghouses and other vendors in the provider
market. We anticipate that competition will increase in the processing of claims
on the Internet. No assurance can be given that any significant revenues will
result or that we will successfully compete in any market in which we conduct or
may conduct operations.

EMPLOYEES

As of December 31, 2003, we had a total of 11 full-time employees, two of whom
were executive officers, five were technical and service personnel, three were
sales and marketing personnel, and one was administrative personnel. None of our
employees is represented by a labor organization. Most of our employees have
been granted incentive stock options and we believe that our relations with our
employees are satisfactory.

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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.

The Report of our independent auditors with respect to our financial statements
as of December 31, 2003 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 our capital
requirements through April 30, 2004. 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 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 is effected, to the extent it includes 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.

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, 1999, 2000,
2001, 2002 and 2003, we incurred net losses of $(8,558,000), $(17,695,000),
$(5,194,000), $(2,927,000) and $(535,000) respectively. As of December 31, 1999,
2000, 2001, 2002 and 2003, we had working capital (deficits) of $6,113,000,
$(1,348,000), $(535,000), $(1,238,000) and $(419,000) respectively. We generated
revenues of $414,000, $1,602,000, $1,336,000, $1,104,000 and $652,000 for the
years ended December 31, 1999, 2000, 2001, 2002 and 2003, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--In General."

TWO CUSTOMERS GENERATED A SIGNIFICANT PORTION OF OUR REVENUES AND WE ENTERED
INTO AN AGREEMENT IN 2002 WHICH HAS HAD A NEGATIVE IMPACT ON OUR NEAR TERM
REVENUES

Revenues from two customers represented a significant portion of the Company's
total revenues during the last two years. Revenues received from one customer,
the clearinghouse partner who acquired certain of our business assets in
September 2002, represented 69% and 23% of our revenues for 2003 and 2002,
respectively, and revenues received from another customer represented 24% and
9%, respectively, of our 2003 and 2002 revenues.

In September 2002, we sold certain assets consisting primarily of customer
contracts (the "Assigned Contracts") and the related revenue streams thereunder,
which generated 76% of our total revenues for 2002, to a customer and
clearinghouse partner. At the same time, we also entered into an agreement with
the acquirer granting it a limited, non-exclusive license to use our software to
service certain of their customers, including the Assigned Contracts. We are
entitled to receive fees under the agreement; however, the acquirer has the
right to terminate the contracts or transition some or all of the customers off
of the licensed software, in which case we would no longer receive ongoing
license fees for those customers. In any event, the license fee revenues are
less than the fees formerly generated by the Assigned Contracts. The transaction
has, therefore, had a material adverse effect on our near term financial
results.

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


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through April 30, 2004. 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 and marketing efforts,

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

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 OUR OPERATIONS HAVE BEEN LIMITED, THERE IS LIMITED INFORMATION UPON
WHICH YOU CAN EVALUATE OUR BUSINESS

Although we have been operating since April 1997, we are prone to all of the
risks inherent to the establishment of a new business venture. Organized in
April 1996, we were a development stage company through March 31, 1997. From
March 1997 until September 2002, we operated as a full service clearinghouse
serving primarily healthcare providers. In September 2002, we sold our
healthcare provider clearinghouse service contracts to a strategic partner to
generate cash, simplify our operations, and focus our attention on the payer
market. 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 recently changed our sales and
marketing strategy. Consequently, you should consider the likelihood of our
future success to be highly speculative in light of our operating history, our
limited resources and problems, expenses, risks, and complications frequently
encountered by 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    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

In comparison with our principal competitors, 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:

                                       9
<PAGE>

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

o    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,

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

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

o    the effect of announcements or introductions 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 and
     delivery 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, 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, 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

In 2002, we modified our marketing strategy from 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 a two-fold approach that also includes a
direct sales and marketing campaign to the PPO, HMO, TPA and Medical Insurance
Carrier marketplace. To penetrate our market we will have to exert significant
efforts and devote material resources to create awareness of and demand for our
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 strategy will prove
successful or that we will have adequate resources to support direct marketing
of our products and services. 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.

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 and processing system. 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


                                       10
<PAGE>

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 ONLY TWO SITES 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
serving the majority of our customers currently resides solely on our servers,
most of which are currently located in a monitored server facility in Dallas,
TX. 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 copies of our system and backup copies of our
data at off-site locations 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. Our proprietary software serving our largest
customer currently resides solely on the customer's servers, in which case we
are reliant on the customer to ensure a secure, efficient and uninterrupted
operation of computer and communication systems. 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. 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
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. 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 or whether we will have sufficient resources to
implement these upgrades.

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

Our senior management currently consists of Don Crosbie, our President and Chief
Executive Officer, and Paul Miller, our Chief Financial Officer, and Gary
Austin, our Chief Operating Officer. We have undergone a number of staffing
reductions since June 2000, requiring remaining employees to handle an
increasingly large and more diverse amount of responsibility. Expansion of our
business would place a significant additional strain on our limited managerial,
operational, and financial resources. In such event, we will be required to
expand our operational and financial systems 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

                                       11
<PAGE>

We currently depend upon the efforts and abilities of our senior executives and
key employees, currently comprising of Don Crosbie, our President and Chief
Executive Officer, Paul Miller, our Chief Financial Officer, Gary Austin, our
Chief Operating Officer, and Scott Spurlock, our Vice President of Development,
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 or such key personnel
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 or key
personnel. 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

Our business is based in large part upon the proprietary nature of our 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
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
OUR 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 factor 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 recover all or a part of 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


                                       12
<PAGE>

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 may be required to issue a new series of preferred stock for continued
funding of operations. The issuance of 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
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 and related
transactions. Rapid growth in the use of, and interest in, the Internet, the
Web, and online services is a comparatively 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.

                                       13
<PAGE>

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.


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 and require material financial
commitment. 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 could have a material adverse effect on our business, prospects,
financial condition, and results of operations.

WE HAVE NOT COMPETED AND MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN OUR INDUSTRY

Based on total assets and annual revenues for the fiscal year ended in 2003, we
are significantly smaller than the majority of our national competitors. We have
not successfully competed and may not in the future successfully compete in any
market in which we conduct or may conduct operations.

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 must 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.

                                       14
<PAGE>

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
technology, changes in general conditions in the economy, and general market
conditions have caused and could in the future 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. There are many days on which there
are no trades or a low volume of trades of our common stock and the lack of
trading volume may contribute to the volatility of the market price of our
common stock.

OUR COMMON STOCK 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 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 and the fact that our common stock trades below $5.00 per share, 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 as defined under applicable rules and
institutional accredited investors. 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, 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 is materially adversely affected.

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 OPERATIONAL AND 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.


ITEM 2. PROPERTIES

We currently sublease 4,703 square feet of office space at a rent of
approximately $3,900 per month, at 14860 Montfort Dr, Suite 250, Dallas, Texas
75254. The sublease expires May 31, 2006. 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 at a cost of
approximately $5,000 per month The Planet 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 pursuant to
an agreement expiring on July 31, 2004. No assurance can be given that an
extension can be obtained without a material cost increase.

                                       15
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

We are not currently party to any litigation proceedings.


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

None.

                                       16
<PAGE>

                                     PART II

ITEM 5. MARKET FOR 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 traded on the OTC Bulletin Board under the symbol "CLAI.OB" and on
the Boston Stock Exchange under the trading symbol "CLAI" from March 6, 2002 to
August 4, 2003. Since August 5, 2003 the Common Stock of Claimsnet.com has
traded only on the OTC Bulletin Board under the symbol "CLAI.OB". The following
table sets forth, for the fiscal periods indicated, the quarterly high and low
per share sales prices, as reported by Nasdaq through March 5, 2002 and the high
and low bid prices as reported by the National Association of Securities Dealer,
Inc. Electronic Bulletin Board for the period from March 6, 2002 through
December 31, 2003:

                                                              HIGH       LOW
                                                            --------   --------
              2002
              January 1, 2002 to March 5, 2002              $ 0.980    $ 0.290
              March 6, 2002 to March 31, 2002                 0.420      0.200
              Three months ended June 30, 2002                0.410      0.150
              Three months ended September 30, 2002           0.300      0.050
              Three months ended December 31, 2002            0.250      0.050

              2003
              Three months ended March 31, 2003               0.240      0.080
              Three months ended June 30, 2003                0.500      0.080
              July 1, 2003 to August 4, 2003                  0.400      0.210
              August 5, 2003 to September 30, 2003            0.260      0.140
              Three months ended December 31, 2003            0.530      0.170

The high bid for the Common Stock on the OTCBB on March 19, 2004 was $0.40 per
share. As of December 31, 2003, there were 124 holders of record of the Common
Stock.

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 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.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The information required by Item 201(d) of Regulation S-B is disclosed in Item
11.

RECENT SALES OF UNREGISTERED SECURITIES

In February and March 2004, Elmira United Corporation ("Elmira"), a principal
shareholder who as of March 19, 2004, beneficially owned 9,350,000 shares of the
Company's common stock, representing 40% of the Company's then issued and
outstanding common stock, exercised previously issued warrants to purchase
500,000 shares of the Company's common stock and tendered payment in the amount
of $100,000 ($0.20 per share).

During 2003, we completed the private placement of 3,800,000 shares of common
stock to accredited investors at $0.20 per share, resulting in net proceeds to
us of $683,000 and the extinguishment of $75,000 of notes payable and accrued
interest. In connection with these private placements, we also issued warrants
to the investors to purchase an aggregate of 3,800,000 shares of common stock.


                                       17
<PAGE>

These warrants contain an exercise price of $0.20 per share and expire December
31, 2007. The investors included National Financial Corporation, a related party
which purchased both 350,000 shares of common stock plus warrants to acquire an
additional 350,000 shares of common stock for net proceeds of $20,000 and
retirement of debt of $50,000; Elmira, our principal shareholder, which
purchased 2,125,000 shares of common stock plus warrants to acquire an
additional 2,125,000 shares of common stock for net proceeds of $425,000; a 5%
shareholder who purchased 100,000 shares of common stock plus warrants to
acquire an additional 100,000 shares of common stock for retirement of debt plus
accrued interest of $20,000, and a director of the Company who purchased 150,000
shares of common stock plus warrants to acquire an additional 150,000 shares of
common stock for net proceeds of $25,000 and payment of accrued interest of
$5,000.

From May through August 2003, we issued an aggregate 2,701,000 shares of our
common stock upon conversion and surrender of 2,701 shares of preferred stock by
the holders thereof.

In April and October 2003, Elmira exercised previously issued warrants to
purchase 1,875,000 shares of our common stock for $375,000 ($0.20 per share).

From June through December 2002, we completed the private placement of 3,675,000
shares of common stock to accredited investors at $0.20 per share for net
proceeds of $735,000. In connection with the private placement, we also issued
warrants to purchase an aggregate of 3,675,000 shares of common stock. The
warrants contain an exercise price of $0.20 per share and expire between June
and December 2007. Included in the investors was Elmira, which purchased
1,750,000 shares of common stock plus warrants to acquire an additional
1,750,000 shares of common stock.

In October 2002, pursuant to a commitment in June 2002, we issued and sold to
four Directors at a price of $300 per share (an aggregate of $50,000), an
aggregate of 167 shares of Series E Preferred Stock, convertible into 166,667
shares of common stock. The terms were set by a committee of disinterested
directors.

In May 2002, we completed the sale of 3,304 shares of Series D Preferred Stock,
convertible into 3,304,000 shares of common stock, to accredited investors at
$250 per share for net proceeds of $826,000. The private placement included 100
shares of Series D Preferred Stock purchased by Mr. Michel, a Director, 565
shares of Series D Preferred Stock purchased by Mr. Dubach, a Director, 1,600
shares of Series D Preferred Stock purchased by Elmira, our principal
shareholder, 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, was
the corporate secretary.

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"); none of the sales of
securities involved the use of an underwriter or the payment of any commissions,
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 investors in such private placements
provided representations to us that the investor is an "accredited investors,"
as defined in Rule 501 under the Act. 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.

                                       18
<PAGE>

ITEM 6. 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 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, 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, 2003, we had a working capital deficit of $(419,000) and
stockholders' deficit of $(354,000). We generated revenues of $652,000 for the
year ended December 31, 2003. We have incurred net losses since inception and
had an accumulated deficit of $(42,959,000) at December 31, 2003. 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, 2003, net cash used in operating activities was $1,177,000.

We have been in existence since 1996, and have operated under several different
business strategies. As a result, the relationships between revenue and cost of
revenue, and operating expenses reflected in the financial information included
in this report may 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 for the year ended December 31,
2002 due to staffing and other cost reductions. Further expense reductions were
effected during the year ended December 31, 2003. In 2002 we recognized a
significant gain on sale of certain business assets. 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

During 2003, we completed the private placement of 3,800,000 shares of common
stock to accredited investors at $0.20 per share, resulting in net proceeds to
us of $683,000 and the extinguishment of $75,000 of notes payable and accrued
interest. In connection with these private placements, we also issued warrants
to the investors to purchase an aggregate of 3,800,000 shares of common stock.
These warrants contain an exercise price of $0.20 per share and expire December
31, 2007. These private placements included 350,000 shares of common stock plus
warrants to acquire an additional 350,000 shares of common stock purchased by
National Financial Corporation, a related entity, for net proceeds of $20,000
and retirement of debt of $50,0002,125,000 shares of common stock plus warrants
to acquire an additional 2,125,000 shares of common stock purchased by Elmira,
which owned at the time and continues to own more than 5% of the outstanding
shares of our common stock for net proceeds of $425,000; 100,000 shares of
common stock plus warrants to acquire an additional 100,000 shares of common
stock purchased by a 5% shareholder for retirement of debt plus accrued interest
of $20,000; and 150,000 shares of common stock plus warrants to acquire an
additional 150,000 shares of common stock purchased by a director for net
proceeds of $25,000 and payment of accrued interest of $5,000.

In November 2003, the Company issued 9,000 shares of common stock to a
non-employee for professional services rendered. The stock was valued at $0.25
per share, the closing price on the date of grant. The Company recognized an
expense of $2,250 related to the stock grant.

In June 2003, the Company issued ten-year warrants to acquire an aggregate of
3,450,000 shares of common stock to certain employees at an exercise price of
$0.15 per share, and ten-year warrants to acquire an aggregate of 1,200,000
shares of common stock to two directors as compensation for services outside of
their director duties at an exercise price of $0.15 per share. The warrants
issued to directors were valued at $0.15 per warrant resulting in a total charge
against earnings of approximately $180,000 based on the Black-Scholes valuation
method. The warrants were valued using the following assumptions: life of ten
years, risk free rate of 4.77%, no dividends during the term, and a volatility
of 2.04.

                                       19
<PAGE>

From May through August 2003, we issued an aggregate 2,701,000 shares of our
common stock upon conversion and surrender of 2,701 shares of preferred stock by
the holders thereof.

Between April and December 2003, Elmira exercised previously issued warrants to
purchase 1,875,000 shares of our common stock for $375,000 ($0.20 per share).

We used $217,000 of the proceeds from the April 2003 private placement and
warrant exercise to make payments pursuant to creditor agreements, as described
in Note I to the consolidated financial statements.

During 2002, we completed the private placement of 3,675,000 shares of common
stock to accredited investors at $0.20 per share for net proceeds of $735,000.
In connection with the private placement, we also issued warrants to purchase an
aggregate of 3,675,000 shares of common stock. The warrants contain an exercise
price of $0.20 per share and expire between June and December 2007.

In October 2002, we hired a new president and chief executive officer and issued
him warrants to acquire an aggregate of 200,000 shares of common stock. The
warrants contain an exercise price of $0.20 per share, expire in October 2007,
and vest in two equal annual installments in October 2003 and in October 2004.

In October 2002, we issued warrants to acquire an aggregate of 500,000 shares of
common stock to a non-employee in connection with an agreement for professional
services to be rendered. The warrants contain an exercise price of $0.20 per
share, were fully vested on the date of grant, expire in September 2007, become
exercisable 50% in September 2003 and will become fully exercisable in September
2004. The warrants were valued at $0.08 per share based on the Black-Scholes
valuation method (using the following assumptions: life of five years, risk free
rate of 2.68%, no dividends during the term, and a volatility of .752). The
Company recognized an expense of $40,000 related to the warrant grant.

In October 2002, pursuant to a commitment in June 2002, we issued and sold to
four Directors at a price of $300 per share (an aggregate of $50,000), an
aggregate of 167 shares of Series E Preferred Stock, convertible into 166,667
shares of common stock. The terms were set by a committee of disinterested
directors.

In June 2002, we issued one-year warrants to acquire an aggregate of 50,000
shares of common stock to a non-employee in connection with an agreement for
professional services to be rendered. The warrants contain an exercise price of
$0.30 per share. The warrants were valued at $0.07 per share based on the
Black-Scholes valuation method (using the following assumptions: life of one
year, risk free rate of 2.12%, no dividends during the term, and a volatility of
..566). The expense was recognized ratably over the service agreement, June 1,
2002 through August 31, 2002. In October 2002, we entered into a new
professional service agreement for the period October 1, 2002 through December
31, 2002 and agreed to cancel the original warrant and issue a replacement
warrant expiring June 2007 under similar terms. The new warrants were valued at
$0.07 per share based on the Black-Scholes valuation method (using the following
assumptions: life of five years, risk free rate of 2.68%, no dividends during
the term, and a volatility of .752). The expense was recognized ratably over the
service agreement, October 1, 2002 through December 31, 2002.

In May 2002, we completed the sale of 3,304 shares of Series D Preferred Stock,
convertible into 3,304,000 shares of common stock, to accredited investors at
$250 per share for net proceeds of $826,000.

In May 2002, upon election of a new non-employee director to the board, we
granted him ten-year options exercisable for 5,000 shares of common stock under
the Non-Employee Directors Plan. The option exercise price of $.30 was the fair
market value of a share of the outstanding common stock on the date the options
were granted. The options vest in two equal annual installments beginning one
year from the date of grant.

In April 2002, we negotiated a severance agreement with Bo W. Lycke, our former
Chief Executive Officer, pursuant to which we extended the exercise period for
250,000 stock options and warrants issued to Mr. Lycke in February 2002. The
company recorded a $51,000 expense related to the modification of exercise
terms.

In February 2002, upon election of two new non-employee directors to the board,
we granted ten-year options exercisable for an aggregate of 10,000 shares of
common stock under the Non-Employee Directors Plan. The option exercise price of


                                       20
<PAGE>

$.35 was the fair market value of a share of the outstanding common stock on the
date the options were granted. The options vest in two equal annual installments
beginning one year from the date of grant.

In February 2002, we granted employees the remaining options to purchase an
aggregate of 328,842 shares of common stock under our 1997 Stock Option Plan and
warrants to purchase an aggregate of 253,203 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.

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 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 investors
in such private placements provided representations to us that the investor is
an "accredited investor," as defined in Rule 501 under the Act, as well as
highly sophisticated (some of whom were existing stockholders of us at the time
of such transaction.) The shares subject to the options have been registered
under the Act.

PLAN OF OPERATIONS

Our business strategy is as follows:

o    to utilize our state of the art technology to help large healthcare
     organizations achieve more efficient and less costly administrative
     operations;
o    to market our services directly to the payer community and its trading
     partners;
o    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;
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;
o    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
o    to license our technology for other applications, including stand-alone
     purposes, Internet systems and private label use, and for original
     equipment manufacturers.

We anticipate that our primary source of revenues will be revenue paid by
healthcare payers and vendors for private-label or co-branded licenses and
services. Historically, our primary source of revenues was fees paid by
healthcare providers 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 technical and customer
support, transaction-based vendor services, sales and marketing, 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 generally enter into services agreements with our customers to provide access
to our hosted software platform for processing of customer transactions. We
operate the software application for all customers and the customers are not
entitled to ownership of our software at any time during or at the end of the
agreements. The end users of our software application access our hosted software
platform or privately hosted versions of our software application via the
internet with no additional software required to be located on the customer's
systems. Customers pay implementation fees, transaction fees and time and


                                       21
<PAGE>

materials charges for additional services. Revenues primarily include fees for
implementation and transaction fees, which may be subject to monthly minimum
provisions. Customer agreements may also 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. We
account for our service agreements by combining the contractual revenues from
development, implementation, license, support and certain additional service
fees and recognizing the revenue ratably over the expected period of
performance. We currently use an estimated expected business arrangement term of
three years which is currently the term of the typical contracts signed by our
customers. We do not segment these services and use the underlying contractual
terms 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. To the extent that implementation fees are
received in advance of recognizing the revenue, we defer these fees and record
deferred revenue. We recognize service fees for transactions and some additional
services as the services are performed. We expense the costs associated with our
customer service agreements as those costs are incurred.

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, and labor-related costs. The
software is amortized over its expected useful life of 3 years or the contract
term, as appropriate.

Management evaluates the recoverability, valuation, and amortization of
capitalized software costs to be sold, leased, or otherwise marketed whenever
events or changes in circumstances indicate that the carrying amount on the
software may not be recoverable. 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.

                                       22
<PAGE>

RESULTS OF OPERATIONS

COMPARISON OF THE YEARS ENDED DECEMBER 31, 2003 AND 2002

REVENUES

Revenues decreased 41% to $652,000 in 2003 from $1,104,000 in 2002. Revenues of
$834,000 during 2002 were generated by our internet-based healthcare provider
clients under customer agreements, the majority of which were sold in September
2002 to a clearinghouse partner. Revenues of $270,000 during 2002 were generated
by clients that were not included in the sale of the agreements. Revenues
received from one customer, the clearinghouse partner who acquired certain of
our business assets in September 2002, represented 69% and 23% of our revenues
for 2003 and 2002, respectively, and revenues received from another customer
represented 24% and 9% of our 2003 and 2002 revenues, respectively. Revenues
received from McKesson Corporation, a 5% shareholder, represented 6% of our
revenues for 2002.

COST OF REVENUES

Cost of revenues were $616,000 in 2003 compared to $1,733,000 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
$187,000 for the year ended December 31, 2003 compared with $341,000 for 2002, a
decrease of 45%. Third party transaction processing expenses were $2,000 in 2003
compared to $356,000 in 2002, representing a 99% decrease. Customer support
operations expense decreased by 51% to $386,000 in 2003 from $786,000 in 2002.
The decreases in third party transaction processing expenses and customer
support operations expense were primarily attributable to the assignment of
customer agreements with a majority of our healthcare provider clients in
September 2002. Data center expenses decreased due to the relocation of our
servers and the reconfiguration of our server network. Amortization of software
and development project amortization was $41,000 in 2003 compared to $250,000 in
2002, representing an 84% decrease. This decrease reflects completion of
software development amortization in 2002.

RESEARCH AND DEVELOPMENT

Research and development expenses were $30,000 in 2003, compared with $252,000
in 2002, representing a decrease of 88%. Research and development expenses are
comprised of personnel costs and related expenses. Development efforts during
2002 and 2003 were concentrated on enhancements to assure compliance with HIPPA
requirements. Development efforts of $55,000 in 2003 and $344,000 in 2002 were
capitalized. In December 2002, we terminated our initial HIPAA remediation
in-process development project in order to pursue a more cost-effective
development alternative in light of our change in business strategy. As a
result, we terminated several development employees causing the decline of R&D
expense. Additionally, we recognized a charge for in-process development
impairment expense of $344,000.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses were $1,412,000 in 2003, compared
with $2,300,000 in 2002, a decrease of 39%. The $888,000 decrease is primarily
related to reduction in personnel and personnel related expenses.

INTEREST (INCOME) EXPENSE

Interest expense was $18,000 for 2003 compared with $20,000 for 2002. Included
in the 2003 expense was $12,000 related to interest on short-term notes payable
to related parties compared with $13,000 for 2002. Interest expense of $5,000 in
2003 and $4,000 in 2002 related to other notes payable. Interest of $1,000 and
$3,000 respectively was paid to vendors in 2003 and 2002 for financing fees.

GAIN ON SALE OF BUSINESS ASSETS

In 2002 we sold certain business assets consisting primarily of customer
contracts and the related revenue streams thereunder and recognized a gain of
$640,000 on the sale. In 2002 we also recorded a loss of $22,000 on sales of
assets related to a reduction in office space leased. In 2003 we recorded a loss
of $27,000 on sale of assets related to the relocation of our offices.

                                       23
<PAGE>

GAIN ON NEGOTIATED SETTLEMENTS

During March and April 2003, the Company entered into settlement agreements with
various creditors, contingent upon the Company making payment within ten days of
the date of agreement. When the agreed payment was made by the Company, the
creditor released the Company from all other liabilities. The agreements entered
into required payments totaling $217,000 to settle certain accounts payable,
accrued severance and accrued acquisition cost liabilities totaling $1,133,000,
resulting in a gain on settlement of liabilities totaling $916,000.

LIQUIDITY AND CAPITAL RESOURCES

For the year ended December 31, 2003 net cash used in operating activities of
$1,168,000 was primarily attributable to an operating loss of $535,000, adjusted
for a gain on settlement of liabilities of $916,000, a loss on sale of assets of
$27,000 and warrants issued for services of $182,000, depreciation of $87,000, a
decrease in accrued severance of $80,000, an increase in deferred revenue of
$160,000 and a change in other working capital accounts of $93,000.

For the year ended December 31, 2002 net cash used in operating activities of
$2,422,000 was primarily attributable to an operating loss of $2,927,000,
adjusted for a gain on sale of business assets of $640,000, a loss on sale of
assets of $22,000 and warrants issued for services of $98,000, depreciation of
$474,000, a charge for in-process development impairment expense of $344,000, an
increase in accrued severance of $151,000, an increase in deferred revenue of
$30,000, and a change in working capital of $26,000.

Net cash used in investing activities was $75,000 in 2003, attributable to
proceeds of $6,000 from the sale of assets, offset by $26,000 for the purchase
of equipment and leasehold improvements, and $55,000 for capitalized software
development costs.

Net cash provided by investing activities was $281,000 in 2002, attributable to
proceeds of $643,000 from the sale of assets, offset by $18,000 for the purchase
of equipment and $344,000 for capitalized software development costs.

Net cash provided by financing activities in 2003 was $1,156,000 as a result of
the private placement of common and preferred stocks for net proceeds of
$683,000, exercise of stock warrants for net proceeds of $375,000 and proceeds
of $100,000 from debt financing, offset by $2,000 used to repay debt.

Net cash provided by financing activities in 2002 was $1,763,000 as a result of
the private placement of common and preferred stocks for net proceeds of
$1,610,000 and proceeds of $610,000 from debt financing, offset by $457,000 used
to repay debt.

Management believes that available cash resources, together with anticipated
revenues from operations and the proceeds of recently completed financing
activities and funding commitments including the foregoing exercise of warrants
by Elmira, will not be sufficient to satisfy our capital requirements through
April 30, 2004. 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 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 is effected,
to the extent it includes 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.

In February and March 2004, Elmira, our principal shareholder, exercised
previously issued warrants to purchase 500,000 shares of the Company's common
stock for $100,000 ($0.20 per share).

                                       24
<PAGE>

ITEM 7. FINANCIAL STATEMENTS

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

                                                                            Page
                                                                            ----
         Independent Auditors' Report of KBA Group LLP                      F-1
         Consolidated Balance Sheet - December 31, 2003                     F-2
         Consolidated Statements of Operations for the Years Ended
              December 31, 2003 and 2002                                    F-3
         Consolidated Statements of Changes in Stockholders' Equity
              (Deficit) for the Years Ended December 31, 2003 and 2002      F-4
         Consolidated Statements of Cash Flows for the Years Ended
              December 31, 2003 and 2002                                    F-5
         Notes to Consolidated Financial Statements                         F-6


                                       25
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

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

     We have audited the accompanying consolidated balance sheet of
Claimsnet.com, Inc. and subsidiaries as of December 31, 2003, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years December 31, 2003 and 2002. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits 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, 2003, and the consolidated
results of their operations and their cash flows for the years ended December
31, 2003 and 2002, in conformity with accounting principles generally accepted
in the United States of America.

    The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has generated losses since inception, incurred
negative cash flows from operations, and has a stockholders' deficit at December
31, 2003. Additionally, 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
near term capital requirements. 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.


/s/ KBA Group LLP
Dallas, Texas
January 28, 2004, except as to Note M for which the date is March 12, 2004

                                      F-1
<PAGE>

                       CLAIMSNET.COM INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                        (In Thousands, Except Share Data)

                                                                    December 31,
                                                                    ------------
                                                                         2003
                                                                       ---------
                                     ASSETS
CURRENT ASSETS
   Cash and equivalents                                                $     66
   Accounts receivable, net of allowance for doubtful accounts of $9        114
   Prepaid expenses and other current assets                                 56
                                                                       ---------
         Total current assets                                               236

EQUIPMENT, FIXTURES AND SOFTWARE
   Computer hardware and software                                         1,077
   Software development costs                                             1,977
   Furniture and fixtures                                                    31
   Office equipment                                                          25
   Leasehold improvements                                                    26
                                                                       ---------
                                                                          3,136
   Accumulated depreciation and amortization                             (3,036)
                                                                       ---------
         Total equipment, fixtures and software, net                        100
                                                                       ---------
TOTAL ASSETS                                                           $    336
                                                                       =========

                     LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
   Notes payable to related parties - short term                       $    151
   Accounts payable                                                         162
   Accrued payroll and other current liabilities                            134
   Deferred revenues                                                        208
                                                                       ---------
         Total current liabilities                                          655

LONG TERM LIABILITIES
   Notes payable to related parties - long term                              10
   Notes payable - long term                                                 25
                                                                       ---------
         Total long term liabilities                                         35
                                                                       ---------
         Total liabilities                                                  690

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT
   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                  --
   Common stock, $.001 par value; 40,000,000 shares
     authorized; 23,201,000 shares issued and outstanding                    23
   Additional capital                                                    42,582
   Accumulated deficit                                                  (42,959)
                                                                       ---------
         Total stockholders' deficit                                       (354)
                                                                       ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                            $    336
                                                                       =========


               The accompanying notes are an integral part of this
                       consolidated financial statement.


                                      F-2
<PAGE>

                       CLAIMSNET.COM INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In Thousands, Except Per Share Data)


                                                       Year Ended December 31,
                                                     ---------------------------
                                                       2003              2002
                                                     ---------         ---------
REVENUES                                             $    652          $  1,104

COST OF REVENUES                                          616             1,733
                                                     ---------         ---------
GROSS PROFIT (LOSS)                                        36              (629)
                                                     ---------         ---------
OPERATING EXPENSES:
   Research and development                                30               252
   Impairment  of in-process software development          --               344
   Selling, general and administrative                  1,412             2,300
                                                     ---------         ---------
LOSS FROM OPERATIONS                                   (1,406)           (3,525)
                                                     ---------         ---------
OTHER INCOME (EXPENSE)
   Interest expense-related parties                       (12)              (13)
   Interest expense-other                                  (6)               (7)
   Gain (loss) on sale of business assets                 (27)              618
   Gain on negotiated settlements of liabilities          916                --
                                                     ---------         ---------
         Total other income, net                          871               598
                                                     ---------         ---------

NET LOSS                                             $   (535)         $ (2,927)
                                                     =========         =========

NET LOSS PER SHARE - BASIC AND DILUTED               $  (0.03)         $  (0.24)
                                                     =========         =========

WEIGHTED AVERAGE COMMON SHARES
   OUTSTANDING - BASIC AND DILUTED                     19,101            12,241
                                                     =========         =========


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

                                      F-3
<PAGE>

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

<CAPTION>
                                  Number of               Number of                                        Total
                                  Preferred                Common                                       Stockholders'
                                    Shares     Preferred   Shares      Common   Additional  Accumulated   Equity
                                 Outstanding   Stock     Outstanding    Stock     Capital     Deficit    (Deficit)
                                 -----------   --------  -----------  ---------  ---------   ---------   ---------
<S>                                      <C>   <C>           <C>      <C>        <C>         <C>         <C>
Balances at January 1, 2002              --    $    --       11,141   $     11   $ 39,571    $(39,497)   $     85

Sale of preferred stock                   3         --           --         --        875          --         875

Sale of common stock                     --         --        3,675          4        731          --         735

Issuance of warrants and
options for services                     --         --           --         --         98          --          98

Net loss                                 --         --           --         --         --      (2,927)     (2,927)
                                 -----------   --------  -----------  ---------  ---------   ---------   ---------

Balances at December 31, 2002             3         --       14,816         15     41,275     (42,424)     (1,134)
                                 -----------   --------  -----------  ---------  ---------   ---------   ---------

Sale of common stock                     --         --        3,425          3        680          --         683

Issuance of common stock in
payment of notes payable and
accrued interest                         --         --          375         --         75          --          75

Warrants exercised for common
stock                                    --         --        1,875          2        373          --         375

Preferred stock converted into
common stock                             (2)        --        2,701          3         (3)         --          --

Issuance of common stock for
services                                 --         --            9         --          2          --           2

Issuance of warrants and
options to related parties for
services                                 --         --           --         --        180          --         180

Net loss                                 --         --           --         --         --        (535)       (535)
                                 -----------   --------  -----------  ---------  ---------   ---------   ---------

Balances at December 31, 2003             1    $    --       23,201   $     23   $ 42,582    $(42,959)   $   (354
                                 ===========   ========  ===========  =========  =========   =========   =========


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

                                                     F-4
</TABLE>
<PAGE>

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

<CAPTION>
                                                                      Year Ended December 31,
                                                                      -----------------------
                                                                         2003       2002
                                                                       --------   --------
<S>                                                                    <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                            $  (535)   $(2,927)
   Adjustments to reconcile net loss to net cash
         used by operating activities:
     Depreciation and amortization                                          87        474
     Common stock and warrants issued for services                         182         98
     Provision for doubtful accounts                                        (3)         9
     Write off deferred development costs                                   --        344
     Gain on sale of business assets                                        --       (640)
     Loss on sale and write-off of equipment and fixtures                   27         22
     Gain on negotiated settlement of liabilities                         (916)        --
   Changes in operating assets and liabilities:
     Accounts receivable                                                    40         39
     Prepaid expenses and other current assets                              22         29
     Accounts payable, accrued payroll and other current liabilities      (152)       (51)
     Accrued severance                                                     (80)       151
     Deferred revenues                                                     160         30
                                                                       --------   --------
         Net cash used in operating activities                          (1,168)    (2,422)
                                                                       --------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of equipment and leasehold improvements                        (26)       (18)
   Proceeds from sale of business assets                                    --        640
   Proceeds from sale of property and equipment                              6          3
   Capitalized software development costs                                  (55)      (344)
                                                                       --------   --------
         Net cash (used in) provided by investing activities               (75)       281
                                                                       --------   --------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from notes                                                      --         25
   Proceeds from notes - related parties                                   100        585
   Payments of notes - related parties                                      (2)      (457)
   Proceeds from issuance of common and preferred stock                    683      1,610
   Proceeds from exercise of stock warrants                                375         --
                                                                       --------   --------
         Net cash provided by financing activities                       1,156      1,763
                                                                       --------   --------
NET DECREASE IN CASH AND EQUIVALENTS                                       (87)      (378)
CASH AND EQUIVALENTS, BEGINNING OF YEAR                                    153        531
                                                                       --------   --------
CASH AND EQUIVALENTS, END OF YEAR                                      $    66    $   153
                                                                       ========   ========


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid for interest                                                 $     3    $     9
                                                                       ========   ========

SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:

Payment of notes payable and accrued interest through
     issuance of common stock                                          $    75    $    --
                                                                       ========   ========

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

                                            F-5
</TABLE>
<PAGE>

                       CLAIMSNET.COM INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


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.

During 2002, the Company sold 3,304 shares of Series D Preferred Stock,
convertible into 3,304,000 shares of common stock, to accredited investors at
$250 per share, sold 167 shares of Series E Preferred Stock, convertible into
166,667 shares of common stock, to directors of the Company at $300 per share,
and sold 3,675,000 shares of common stock to accredited investors at $.20 per
share. During 2002, the Company borrowed an aggregate of $475,000 pursuant to
six separate unsecured short-term loan agreements with National Financial Corp.
("NFC"), a related entity, and repaid an aggregate of $457,000 plus accrued
interest at 9.5% thereon. The Company also borrowed $50,000 from an accredited
investor and $50,000 from a director of the Company pursuant to unsecured
short-term notes bearing interest at 9.5% and $35,000 from two accredited
investors pursuant to unsecured long-term notes bearing interest at 8.0%. In
September 2002, the Company sold certain assets that generated the majority of
its then-recurring revenues. (See Note C).

During 2003, the Company issued an aggregate 2,701,000 shares of common stock
upon conversion and surrender of 2,701 shares of preferred stock by the holders
thereof, issued 1,875,000 shares of common stock to accredited investors at $.20
per share upon exercise of previously issued warrants, and sold 3,800,000 shares
of common stock to accredited investors at $.20 per share. During 2003, the
Company borrowed an aggregate of $100,000 pursuant to an unsecured short-term
loan agreement with NFC, a related entity, and repaid NFC an aggregate of
$52,000 plus accrued interest at 9.5%. During 2003, the Company repaid $15,000
plus accrued interest related to an unsecured note payable to a 5% shareholder.

The Company has generated losses since inception and has incurred negative cash
flow from operations. Through 2003, the Company generated minimal revenues and
relied on an initial public offering, private equity placements, unsecured debt,
the sale of certain assets, and funding from a related entity to fund its
operations and development activities. Between January 1, 2004 and March 12,
2004, the Company issued 500,000 shares of common stock to Elmira Corporation at
$.20 per share upon exercise of previously issued warrants for net proceeds of
$100,000. 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 April 30, 2004. Necessary additional
capital may not be available on a timely basis or on acceptable terms, if at
all. Accordingly, 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 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 is effected, to the extent it includes
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 consolidated financial statements include the accounts of
Claimsnet.com and its subsidiaries. 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.

                                      F-6
<PAGE>

                       CLAIMSNET.COM INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


REVENUE RECOGNITION

The Company generally enters into services agreements with its customers to
provide access to its software application for processing of customer
transactions. The Company operates the software application for all customers
and the customers are not entitled to ownership of the Company's software at any
time during or at the end of the agreements. The customers either host the
application on their own servers or access the Company's hosted software
platform via the internet. Customers pay implementation fees, transaction fees,
and time and materials charges for additional services. Revenues primarily
include fees for implementation and transaction fees, which may be subject to
monthly minimum provisions. Customer agreements may also 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. The Company accounts for its service agreements
by combining the contractual revenues from development, implementation, license,
support and certain additional service fees and recognizing the revenue ratably
over the expected period of the business arrangement. The Company currently uses
an estimated expected business arrangements term of three years, which is
currently the term of the typical contract signed by its customers. The Company
does not segment these services and uses the underlying contractual terms 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. To the extent that implementation fees are received in advance of
recognizing the revenue, the Company defers these fees and records deferred
revenue. The Company recognizes service fees for transactions and some
additional services as the services are performed. The Company expenses the
costs associated with its customer service agreements as those costs are
incurred.

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. Previously
capitalized software development costs of $1,922,000 were fully amortized as of
December 31, 2002. There was no amortization expense related to software
development costs capitalized during the year ended December 31, 2003 totaling
$55,000 due to the future release dates of the new software. Capitalized
computer software costs include direct labor and labor-related costs. The
software is amortized after it is put into use over its expected useful life of
3 years.

In December 2002, the Company terminated an ongoing HIPAA remediation in-process
development project in order to pursue a more cost-effective development
alternative in connection with a change in business strategy. Therefore, in
December 2002, the Company recognized a charge for in-process development
impairment expense of $344,000.

Management evaluates the recoverability, valuation, and amortization of
capitalized software costs to be sold, leased, or otherwise marketed whenever
events or changes in circumstances indicate that the carrying amount of the
software may not be recoverable. As part of this review, management considers
the expected undiscounted future net cash flows. If the cash flows are less than
the stated value, capitalized software costs would 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 $46,000 and $224,000 in 2003
and 2002, respectively.

The Company applies 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 2003. This 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 $41,000 and $250,000 in
2003 and 2002, respectively.

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.

                                      F-7
<PAGE>

                       CLAIMSNET.COM INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

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

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 each respective
year. Common stock equivalents, representing convertible Preferred Stock,
options and warrants totaling approximately 12,839,539 and 9,537,000 shares at
December 31, 2003 and 2002, respectively, are not included in the diluted loss
per share as they would be antidilutive. Accordingly, 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 both years 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. The Company provides the
supplemental disclosures required by Statement of Financial Accounting Standard
No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," as amended by
SFAS No 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure," 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, as amended, 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.

SFAS 123, as amended, requires the disclosure of pro forma net loss and net loss
per share as if the Company applied the fair value method. The Company's
computations for employee grants were made using a Black-Scholes model using the
following assumptions: 2003- expected life of ten years; risk free rate of 3.5%;
no dividends during the expected life; and a volatility of 2.04%; 2002 -
expected life, five to ten years; risk free rate of 2.5%; no dividends during
the expected life; and a volatility of 2.8%.

If the computed fair 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, as amended, net loss would have been:

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                                             2003     2002
                                                                           -------  -------
     <S>                                                                   <C>      <C>
     Net loss (thousands)
              As reported                                                  $  535   $2,927
              Add: Stock-based compensation expense included in net loss       --       --
              Deduct: Stock-based compensation expense
              determined under the fair value based method                    117      368
                                                                           -------  -------
              Pro forma                                                    $  652   $3,295
                                                                           =======  =======
     Loss per share
              As reported                                                  $ 0.03   $ 0.24
              Pro forma                                                    $ 0.03   $ 0.25
</TABLE>

                                      F-8
<PAGE>

                       CLAIMSNET.COM INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


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

SEGMENT REPORTING

The Company operated during the two years presented 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

Revenues from two customers represented a significant portion of the Company's
total revenues during 2003 and 2002. Revenues received from one customer, the
clearinghouse partner who acquired certain of the Company's business assets in
September 2002, represented 69% and 23% of the Company's revenues for 2003 and
2002, respectively, and revenues received from another customer represented 24%
and 9%, respectively, during 2003 and 2002.

Trade accounts receivable are stated at the amount the Company expects to
collect. The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
Management considers the following factors when determining the collectibility
of specific customer accounts: customer credit-worthiness, past transaction
history with the customer, current economic industry trends, and changes in
customer payment terms. If the financial condition of the Company's customers
were to deteriorate, adversely affecting their ability to make payments,
additional allowances would be required. Based on management's assessment, the
Company provides for estimated uncollectible amounts through a charge to
earnings and a credit to a valuation allowance. Balances that remain outstanding
after the Company has used reasonable collection efforts are written off through
a charge to the valuation allowance and a credit to accounts receivable. The
Company generally does not require collateral.

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 including expected
customer business arrangement periods, bad debts, intangible assets, 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 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. Estimates could change based on changing historical experience
and changes in circumstances and assumptions. Actual results could vary from the
estimates that were used.

ADVERTISING COSTS

Advertising costs are expensed as incurred. Advertising costs of $40,000 and
$20,000 were incurred for the years ended December 31, 2003 and 2002,
respectively.

RECLASSIFICATIONS

Certain items recorded in the 2002 statements of operations and cash flows have
been reclassified to conform with the 2003 presentation.

NOTE C--SALE OF ASSETS

On September 11, 2002 the Company sold certain assets consisting primarily of
customer contracts (the "Assigned Contracts") and related revenue streams
thereunder to ProxyMed, Inc. ("Purchaser") in a negotiated arms-length
transaction for a purchase price consideration of $700,000. The Company received
cash consideration of $690,000, net of contractual expenses, recognized a gain
of $640,000 on the sale, and recorded $50,000 as deferred revenue.

The Company and Purchaser also entered into an Affiliate and Partner Services
and License Agreement dated September 11, 2002, pursuant to which (i) the
Company and Purchaser have agreed to provide certain administrative and support
services

                                      F-9
<PAGE>

                       CLAIMSNET.COM INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


NOTE C--SALE OF ASSETS (CONTINUED)

for each other in connection with each other's customers, including without
limitation the customers under the Assigned Contracts, in each case pursuant to
an agreed upon fee schedule, (ii) the Company has agreed to assist Purchaser in
establishing a "hot-site" which will permit Purchaser to run from its own
hardware platform, the Company's software application to service Purchaser's
customers, and (iii) the Company granted Purchaser a limited, non-exclusive,
5-year license to use the Company's software application at its "hot-site". The
Company is entitled to receive fees for its services and use of the Company's
software application unless and until the occurrence of certain bankruptcy and
liquidation events set forth in such agreement in respect of the Company. In
addition to the transaction fees, the Company is also recognizing the $50,000 of
deferred revenue ratably over the term of the agreement.

The Company and Purchaser also entered into a Preferred Escrow Agreement with
DSI Technology Escrow Services, Inc., pursuant to which the Company has
deposited into escrow its proprietary claims processing software and related
materials for potential release to Purchaser for use pursuant to a limited,
non-exclusive license upon the occurrence of certain bankruptcy and liquidation
events.

NOTE D--INCOME TAXES

There was no provision or benefit for federal or state income taxes during the
two years ended December 31, 2003 and 2002.

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:

                                                      Year Ended December 31,
                                                       2003            2002
                                                   -------------   -------------
Benefit computed at federal statutory rate         $   (182,145)   $   (995,180)
Permanent differences                                    99,146          93,775
State income tax benefit, net of federal
     tax effect at state statutory rate                 (14,922)        (83,419)
Increase in valuation reserve                           230,977         946,016
Change in prior year estimate                          (130,570)             --
Other                                                    (2,486)         38,808
                                                   -------------   -------------
                                                   $         --    $         --
                                                   =============   =============


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

                                                           December 31,
                                                       2003             2002
                                                   -------------   -------------
Deferred tax assets:
  Net operating loss carryforwards                 $ 15,240,798    $ 15,335,262
  Fixed assets                                           39,044              --
  Allowance for doubtful accounts                         3,397          12,898
  Deferred revenue                                       76,621          17,504
  Other                                                  24,166           2,211
                                                   -------------   -------------
Total deferred tax assets                            15,384,026      15,367,875
Valuation allowance for deferred tax assets         (15,384,026)    (15,153,049)
                                                   -------------   -------------
                                                             --         214,826
Deferred tax liabilities:
  Fixed assets                                               --        (214,826)
                                                   -------------   -------------
Deferred income tax assets, net of
  deferred tax liabilities                         $         --    $         --
                                                   =============   =============

                                      F-10
<PAGE>

                       CLAIMSNET.COM INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


NOTE D--INCOME TAXES (CONTINUED)

At December 31, 2003, the Company has approximately $41,000,000 of federal net
operating loss carryforwards, which begin to expire in 2012 subject to certain
limitations as described below. The Company has approximately $10,600,000 of
state net operating losses as of December 31, 2003.

As a result of stock issued during 2000, 2001, 2002 and 2003, 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%. In addition, as the ability to
generate future taxable income is highly uncertain, the Company has recorded
valuation allowance against all of its net deferred tax assets.

NOTE E--RELATED PARTY TRANSACTIONS

In June 2003, the Company issued warrants to two directors as compensation for
services outside of their director duties. (See Note F).

In May 2003, the Company entered into an unsecured loan agreement in the amount
of $100,000 pursuant to an unsecured short-term loan agreement with NFC. In June
2003, upon the demand of NFC, the Company repaid principal on the above note in
the aggregate amount of $32,000 by issuing 160,000 share of Company common stock
and warrants to purchase 160,000 shares of Company common stock. Also in June
2003, an aggregate of $2,000 plus accrued interest on the note was paid. The
unpaid principal amount of $66,000 plus interest is due on demand.

In August 2002, the Company borrowed $50,000 under an unsecured loan agreement
with a director of the Company. Principal and interest, at 9.5% per annum on the
unpaid principal, was due on September 30, 2002. The note holder agreed to
forego repayment at September 30, 2002 and to amend the terms of the note to be
due on demand. In August 2003, the Company paid $5,000 accrued interest thereon
by issuing to the shareholder 25,000 shares of Company common stock and warrants
to purchase 25,000 shares of Company common stock. The unpaid principal amount
of $50,000 plus interest is due on demand

In August 2002, the Company borrowed $50,000 under an unsecured loan agreement
with a 5% shareholder of the Company. Principal and interest, at 9.5% per annum
on the unpaid principal, was due on September 30, 2002. The note holder agreed
to forego repayment at September 30, 2002 and to amend the terms of the note to
be due on demand. In June 2003, the Company retired a portion of this loan, in
the principal amount of $15,000 plus $5,000 accrued interest thereon by issuing
to the shareholder 100,000 shares of Company common stock and warrants to
purchase 100,000 shares of Company common stock. The unpaid principal amount of
$35,000 plus interest is due on demand.

In October 2002, based upon the determination of the committee of disinterested
directors as to the terms, the Company completed the private placement to four
directors of an aggregate of 167 shares of Series E Preferred Stock at the rate
of $300 per share for net proceeds of $50,000.

In February, March, April and June 2002, the Company borrowed an aggregate of
$475,000 pursuant to six separate unsecured short-term loan agreements with NFC.
In February, May, August and September 2002, the Company fully repaid principal
pursuant to four notes and partially repaid principal on one note in the
aggregate amount of $412,000 plus accrued interest thereon. An unpaid principal
amount of $63,000 plus interest was due on September 30, 2002. NFC agreed to
forego repayment at September 30, 2002 and to amend the terms of the notes to be
due on demand. In October and December 2002, upon the demand of NFC, the Company
repaid the remaining principal on one note and partially repaid the remaining
note in the aggregate amount of $45,000 plus accrued interest thereon and in
June 2003, the Company repaid the remaining principal amount of $18,000 by
issuing to the shareholder 90,000 shares of Company common stock and warrants to
purchase 90,000 shares of Company common stock. Also in June 2003, all accrued
interest on the note was paid.

NOTE F--STOCKHOLDERS' DEFICIT

During 2003, the Company completed the private placement of 3,800,000 shares of
common stock to accredited investors at $0.20 per share, resulting in net
proceeds of $683,000 and the extinguishment of $75,000 of notes payable and
accrued interest. In connection with these private placements, the Company also
issued warrants to the investors to purchase an aggregate of 3,800,000 shares of
common stock. These warrants contain an exercise price of $0.20 per share and


                                      F-11
<PAGE>

                       CLAIMSNET.COM INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


expire December 31, 2007. These private placements included 350,000 shares of
common stock plus warrants to acquire an additional 350,000 shares of common
stock purchased by NFC for net proceeds of $20,000 and retirement of debt of
$50,000; 2,125,000 shares of common stock plus warrants to acquire an additional
2,125,000 shares of common stock purchased by Elmira United Corporation
("Elmira"), which owned at the time more than 5% of the outstanding shares of
our common stock for net proceeds of $425,000; 100,000 shares of common stock
plus warrants to acquire an additional 100,000 shares of common stock purchased
by a 5% shareholder for retirement of debt plus accrued interest of $20,000; and
150,000 shares of common stock plus warrants to acquire an additional 150,000
shares of common stock purchased by a director of the Company for net proceeds
of $25,000 and payment of accrued interest of $5,000.

In November 2003, the Company issued 9,000 shares of common stock to a
non-employee for professional services rendered. The stock was valued at $0.25
per share, the closing price on the date of grant. The Company recognized an
expense of $2,250 related to the stock grant.

In June 2003, the Company issued ten-year warrants to acquire an aggregate of
3,450,000 shares of common stock to certain employees at an exercise price of
$0.15 per share. In June 2003, the Company issued ten-year warrants to acquire
an aggregate of 1,200,000 shares of common stock to two directors as
compensation for services outside of their director duties at an exercise price
of $0.15 per share. The 1,200,000 warrants were valued at $0.15 per warrant
resulting in a total charge against earnings on the date of grant of
approximately $180,000 based on the Black-Scholes valuation method. The warrants
were valued using the following assumptions: expected life of ten years, risk
free rate of 4.77%, no dividends during the term, and a volatility of 2.04.

From May through August 2003, the Company issued an aggregate 2,701,000 shares
of common stock upon conversion and surrender of 2,584 shares of Series D and
117 shares of Series E preferred stock by the holders thereof.

Between April and December 2003, Elmira, a 5% shareholder, exercised previously
issued warrants to purchase 1,875,000 shares of the Company's common stock for
$375,000 ($0.20 per share).

The Company used $217,000 of the proceeds from the 2003 private placement and
warrant exercise to make payments pursuant to creditor agreements, as described
in Note I to the consolidated financial statements.

During 2002, the Company completed the private placement of 3,675,000 shares of
common stock to accredited investors at $0.20 per share for net proceeds of
$735,000. In connection with the private placement, the Company also issued
five-year warrants to purchase an aggregate of 3,675,000 shares of common stock
at $0.20 per share which warrants expire between June and December 2007.

In October 2002, the Company hired a new president and chief executive officer
and issued him five-year warrants to acquire an aggregate of 200,000 shares of
common stock at an exercise price of $0.20 per share, which vest 50% in October
2003 the rest in October 2004.

In October 2002, the Company issued five-year warrants to acquire an aggregate
of 500,000 shares of common stock to a non-employee in connection with an
agreement for professional services to be rendered. The warrants contain an
exercise price of $0.20 per share, and become exercisable 50% in September 2003
and fully in September 2004. The warrants were valued at $0.08 per share based
on the Black-Scholes valuation method (using the following assumptions: life of
five years, risk free rate of 2.68%, no dividends during the term, and a
volatility of .752). The expense was recognized on the date of the grant.

In October 2002, based upon the determination of the committee of disinterested
directors as to the terms, the Company completed the private placement to four
directors an aggregate of 167 shares of Series E Convertible Redeemable
Preferred Stock (the "Series E Preferred Stock") at the rate of $300 per share.
The Series E Preferred Stock was issued at a stated value of $300 per share.
Each share of Series E Preferred Stock may be converted into 1,000 shares of
common stock at the election of the holder. The Company has the right, but not
the obligation, to redeem all or any portion of the Series E Preferred Stock in
the event that the closing sale price of the Company's common stock exceeds $.60
for twenty of any thirty consecutive trading days. The Series E Preferred Stock
does not accrue dividends but is entitled to a preference over the common stock
on liquidation of the Company. Holders of the Series E Preferred Stock have the
right to vote together with the holders of common stock on an as converted
basis.

                                      F-12
<PAGE>

                       CLAIMSNET.COM INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


In June 2002, the Company issued one-year warrants to acquire an aggregate of
50,000 shares of common stock to a non-employee in connection with an agreement
for professional services to be rendered. The warrants contain an exercise price
of $0.30 per share. The warrants were valued at $0.07 per share based on the
Black-Scholes valuation method (using the following assumptions: life of one
year, risk free rate of 2.12%, no dividends during the term, and a volatility of
..566). The expense was recognized on the date of the grant. In October 2002, the
Company entered into a new professional service agreement for the period October
1, 2002 through December 31, 2002 and agreed to cancel the original warrant and
issue a replacement warrant under similar terms, except that the expiration date
of the warrants was extended to June 2007. The new warrants were valued at $0.07
per share based on the Black-Scholes valuation method (using the following
assumptions: life of five years, risk free rate of 2.68%, no dividends during
the term, and a volatility of .752). The expense was recognized on the date of
the grant.

In May 2002, the Company completed the private placement of 3,304 shares of
Series D Convertible Redeemable Preferred Stock (the "Series D Preferred Stock")
to accredited investors at $250 per share for net proceeds of $826,000. The
Series D Preferred Stock was issued at a stated value of $250 per share. Each
share of Series D Preferred Stock may be converted into 1,000 shares of common
stock at the election of the holder. The Company has the right, but not the
obligation, to redeem all or any portion of the Series D Preferred Stock in the
event that the closing sale price of the Company's common stock exceeds $.50 for
twenty of any thirty consecutive trading days. The Series D Preferred Stock does
not accrue dividends but is entitled to a preference over the common stock on
liquidation of the Company. Holders of the Series D Preferred Stock have the
right to vote together with the holders of common stock on an as converted
basis. A portion of the proceeds of the sale was used to repay $305,000 of
short-term loans incurred in February and March 2002.

In May 2002, upon election of a new non-employee director to the board, the
Company granted ten-year options exercisable for 5,000 shares of common stock
under the Non-Employee Directors Plan. The option exercise price of $.30 was the
fair market value of a share of the outstanding common stock on the date the
options were granted. The options vest to the extent of 50% one each of the
first two anniversaries of the date of grant.

In April 2002, the Company negotiated a severance agreement with Bo W. Lycke,
the former Chief Executive Officer, pursuant to which the Company extended to
February 2012 the exercise period for 250,000 stock options and warrants issued
to Mr. Lycke in February 2002, exercisable at an average price of $0.35 per
share. The Company recorded a $51,000 expense related to the modification of
exercise terms.

In February 2002, upon election of a new non-employee director to the board, the
Company granted ten-year options exercisable for 10,000 shares of common stock
under the Non-Employee Directors Plan. The option exercise price of $.35 was the
fair market value of a share of the outstanding common stock on the date the
options were granted. The options vest to the extent of 50% on each of the first
two anniversaries of the date of grant.

In February 2002, the Company granted employees the then remaining options to
purchase an aggregate of 328,842 shares of common stock under its 1997 Stock
Option Plan and warrants to purchase an aggregate of 253,203 shares of common
stock in exchange for voluntary salary reductions. The options and warrants
contained an exercise price of $0.35 per share, the market price on the date of
grant, expire on the tenth anniversary of the grant, and vested 25% immediately
on the date of grant and an additional 25% on each third month anniversary of
the date of grant.

In January 2002, the Company granted ten-year employees options under its 1997
Stock Option Plan to purchase an aggregate of 456,000 shares of common stock.
The options contain an exercise price of $0.60 per share, the market price on
the date of grant, and vested 100% one year from the date of grant.

NOTE G --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 anniversary of 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.

                                      F-13
<PAGE>

                       CLAIMSNET.COM INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


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

<TABLE>
<CAPTION>
                                                NUMBER       PER SHARE       WEIGHTED
                                              OF SHARES    EXERCISE PRICE     AVERAGE
                                                                           EXERCISE PRICE
                                             ------------   ------------    ----------
     <S>                                       <C>           <C>              <C>
     Outstanding options-January 1, 2002         679,600     $0.50-8.80       $ 4.11
         Granted                                 799,842      0.30-0.60         0.49
         Expired                                (418,875)     0.50-8.80         1.96
                                             ------------   ------------    ----------
     Outstanding options-December 31, 2002     1,060,567      0.30-8.00         2.23
         Granted                                      --             --           --
         Expired                                (361,125)     7.00-8.00         2.61
                                             ------------   ------------    ----------
     Outstanding options-December 31, 2003       699,442     $0.30-8.00       $ 2.04
                                             ============   ============    ==========
     Options exercisable-December 31, 2003       691,942     $0.30-8.00       $ 2.60
                                             ============   ============    ==========
</TABLE>

Outstanding options as of December 31, 2003, had a weighted average remaining
contractual life of approximately 7.4 years. No compensation expense has been
recognized for options granted to employees in 2002. There were no stock options
granted to employees during 2003. At December 31, 2003, options available for
grant under the Company's 1997 Plan were 638,250, and under the Company's
Directors' Plan were 331,538.

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

<TABLE>
<CAPTION>
                                                NUMBER       PER SHARE       WEIGHTED
                                              OF SHARES    EXERCISE PRICE     AVERAGE
                                                                           EXERCISE PRICE
                                             ------------   ------------    ----------
     <S>                                       <C>           <C>              <C>
     Outstanding warrants- January 1, 2002        93,250     $  3.00          $ 3.00
         Granted                                 453,203      0.20-0.35         0.28
         Expired                                 (87,226)     0.35-3.00         1.85
                                             ------------   ------------    ----------
     Outstanding warrants-December 31, 2002      459,227      0.20-3.00         0.54
         Granted                               3,450,000        0.15            0.15
         Expired                                (204,284)     0.35-3.00         0.66
                                             ------------   ------------    ----------
     Outstanding warrants-December 31, 2003    3,704,943     $0.15-3.00       $ 0.17
                                             ============   ============    ==========
     Warrants exercisable-December 31, 2003      154,943     $0.20-3.00       $ 0.59
                                             ============   ============    ==========
</TABLE>

Outstanding employee warrants as of December 31, 2003, had a weighted average
contractual life of approximately 4.4 years. The weighted average fair value of
warrants issued during 2003 was $0.15 based on the Black-Scholes value method.

NOTE H--NOTES PAYABLE TO RELATED PARTIES AND OTHER NOTE PAYABLE

       The following is a summary of notes payable at December 31, 2003:

       Note payable to a Director.  Principal due
           on demand; unsecured.  Interest payable at 9.5%.           $  50,000
       Note payable to a 5% shareholder.  Principal due
           on demand; unsecured.  Interest payable at 9.5%.              35,000
       Note payable to NFC, a related party.  Principal due
           on demand; unsecured. Interest payable at 9.5%.               65,704


                                      F-14
<PAGE>

                       CLAIMSNET.COM INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


       Note payable to a 5% shareholder. Principal due August 31,
           2005; unsecured.  Interest payable at 8%.                     10,000
       Note payable. Principal due August 31,
           2005; unsecured.  Interest payable at 8%.                     25,000
                                                                      ----------
           Total                                                      $ 185,704
                                                                      ==========

The following are the maturities of notes payable for years ended December 31,

                  2004                                   $  150,704
                  2005                                       35,000
                                                         -----------
                  Total                                  $  185,704
                                                         ===========
NOTE I --GAIN ON SETTLEMENT OF LIABILITIES

During March and April 2003, the Company entered into settlement agreements with
various creditors, contingent upon the Company making payment within ten days of
the date of agreement. When the agreed payment was made by the Company, each
creditor released the Company from all other liabilities. The agreements entered
into required payments totaling $217,000 to settle certain accounts payable,
accrued severance and accrued acquisition cost liabilities totaling $1,133,000,
resulting in a gain on settlement of liabilities totaling $916,000.

NOTE J--COMMITMENTS

The Company leases office space under a lease agreement that expires on May 31,
2006. Rent expense totaled $109,000 and $147,000 for the years ended December
31, 2003 and 2002, respectively. The Company leases servers and Web server
management facilities under an agreement that expires in 2004. The Company has
also entered into a software license commitment related to HIPAA validation
software totaling $20,000 per year that expires in 2006. The Company's aggregate
lease and software license commitments are shown below.

                Year ended December 31,
                           2004                      $  63,111
                           2005                      $  67,030
                           2006                      $  15,677

From time to time in the normal course of business, the Company is a party to
various matters involving claims or possible litigation. Currently there are no
such asserted claims.

NOTE K--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 during 2003 or
2002.


NOTE L--FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments", requires disclosure about the fair value of all
financial assets and liabilities for which it is practicable to estimate. Cash,
accounts receivable, accounts payable, notes payable and other liabilities are
carried at amounts that reasonably approximate their fair values.

NOTE M--SUBSEQUENT EVENTS

Between January 1, 2004 and March 12, 2004, the Company issued 500,000 shares of
common stock to Elmira, a principal shareholder, at $0.20 per share upon
exercise of previously issued warrants for net proceeds of $100,000.

                                      F-15
<PAGE>

                       CLAIMSNET.COM INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


NOTE N--RESTATEMENT OF 2003 QUARTERLY FINANCIAL RESULTS

Subsequent to the issuance of the Company's financial results for the quarters
ended March 31, June 30, and September 30, 2003, the Company, after consultation
with its auditors, determined that certain implementation fees previously
reported as revenue during the quarters did not meet the technical requirements
to be accounted for as a separate unit of accounting, as defined in the Emerging
Issues Task Force Issue No. 00-21, "Revenue Arrangements with Multiple
Deliverables", and as further clarified by Staff Accounting Bulleting No. 104,
"Revenue Recognition", as issued by the SEC on December 17, 2003. As a result,
the implementation fees must be recognized as revenue ratably over the expected
period of the customer business arrangement.

Accordingly, the consolidated financial statements for the quarters have been
restated to defer implementation fees and recognize those fees over the expected
life of the customer arrangement. The Company expenses costs related to
implementation services as they are incurred. Therefore, the quarterly net
income (loss) changed by the same amount as the net revenue deferral. The
revenue restatement also resulted in a restatement of deferred revenues on each
of the respective balance sheets.

The following table sets forth the Company's restated selected quarterly
financial data (unaudited) along with comparative data for the quarter ended
December 31, 2003 (unaudited).

<TABLE>
<CAPTION>
                                             Quarter Ended   Quarter Ended   Quarter Ended   Quarter Ended
                                            March 31, 2003   June 30, 2003   September 30,   December 31,
                                                                                 2003             2003
                                             -------------   -------------   -------------   -------------
                                              As Restated     As Restated     As Restated
SELECTED BALANCE SHEET DATA:

<S>                                          <C>             <C>             <C>             <C>
Deferred revenues *                          $         56    $         64    $        149    $        208
 Accumulated deficit *                            (42,783)        (42,392)        (42,704)        (42,959)

CONDENSED STATEMENT OF OPERATIONS DATA:

Revenues *                                   $        162    $        168    $        157    $        165
Cost of revenues                                      200             174             115             127
                                             -------------   -------------   -------------   -------------
Gross profit (loss) *                                 (38)             (6)             42              38
Total operating expenses                              321             510             318             293
                                             -------------   -------------   -------------   -------------
Loss from operations *                               (359)           (516)           (276)           (255)
Gain on settlement of liabilities                       4             912              --              --
Other income (expense), net                            (4)             (5)            (36)             --
                                             -------------   -------------   -------------   -------------
Net income (loss) *                          $       (359)   $        391    $       (312)   $       (255)
                                             =============   =============   =============   =============
Net income (loss) per common share - basic
  and diluted *                              $      (0.02)   $       0.02    $      (0.02)   $      (0.01)
                                             =============   =============   =============   =============
</TABLE>

*Denotes an item that has been restated for the interim quarters including March
31, June 30 and September 30, 2003.

                                      F-16
<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

On February 20, 2003 we discontinued the engagement of Ernst & Young LLP, which
served as our independent auditors since 1999. The report issued by Ernst &
Young LLP on the financial statements for the year ended December 31, 2001 did
not contain an adverse opinion nor a disclaimer of opinion, and was not
qualified or modified as to audit scope or accounting principles. The report
issued by Ernst & Young LLP on our financial statements for the year ended
December 31, 2001 was modified to include an explanatory paragraph describing
conditions that raised substantial doubt about our ability to continue as a
going concern. Based on the recommendation of our Audit Committee of the Board
of Directors, the Board approved the decision to change independent auditors. In
connection with its audits for the years ended December 31, 2000 and 2001 and
through February 20, 2003, there were no disagreements with Ernst & Young LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Ernst & Young LLP, would have caused Ernst & Young LLP to
make reference thereto in their report on the financial statements for such
years or such interim periods. Ernst & Young LLP furnished us with a letter
addressed to the Commission stating that it agrees with the above statements. A
copy of such letter, dated February 26, 2003, is filed as Exhibit 1 to the Form
8-K, dated February 26, 2003.

We engaged King Griffin & Adamson P.C. as our new independent auditors as of
February 20, 2003. Our Audit Committee approved the engagement. During the two
most recent fiscal years and through February 20, 2003, we have not consulted
with King Griffin & Adamson P.C. with respect to the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on our consolidated financial
statements, or any other matters or reportable events as set forth in Items
304(a)(1)(v) and (ii) of Regulation S-K. We allowed King Griffin & Adamson P.C.
to review the aforementioned Form 8-K before it was filed with the Commission.
King Griffin & Adamson, P.C. has not furnished us with a letter containing any
new information, clarification, or disagreement with the information set forth
herein.

On March 14, 2003, King Griffin & Adamson P.C. resigned to allow its successor
entity, KBA Group LLP, to be engaged as our independent public accountants. King
Griffin & Adamson P.C. had not issued reports on our financial statements for
the prior two fiscal periods nor has King Griffin & Adamson P.C. completed any
reviews of our interim financial statements since being engaged on February 20,
2003. From February 20, 2003, through March 14, 2003 there were no disagreements
with King Griffin & Adamson P.C. on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of King Griffin & Adamson
P.C., would have caused King Griffin & Adamson P.C. to make reference thereto
for such interim periods. King Griffin & Adamson P.C. furnished us with a letter
addressed to the Commission stating whether or not it agrees with the above
statements. A copy of such letter, dated March 14, 2003, is filed as Exhibit
16.1 to the Form 8-K, dated March 17, 2003.

Our Audit Committee approved the engagement of KBA Group LLP and we engaged KBA
Group LLP as our new independent public accountants as of March 14, 2003. We
allowed KBA Group LLP to review the aforementioned Form 8-K before it was filed
with the Commission. King Griffin & Adamson P.C. has not furnished us with a
clarification or disagreement with the information set forth herein.

ITEM 8A. CONTROLS AND PROCEDURES.

The Company's management, including the Company's principal executive officer
and principal financial officer, has evaluated the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) as of the year ended
December 31, 2003, the period covered by the Annual Report on Form 10-KSB. Based
upon that evaluation, the Company's principal executive officer and principal
financial officer have concluded that the disclosure controls and procedures
were effective as of December 31, 2003 to provide reasonable assurance that
material information relating to the Company is made known to management
including the CEO and CFO.

                                       26
<PAGE>

                                    PART III

ITEM 9. 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
---------              ------    --------------
Don Crosbie             60       President, Chief Executive Officer, Chairman of
                                 the Board of Directors and Class I Director
Paul W. Miller          47       Chief Financial Officer and Class II Director
Gary J. Austin          59       Chief Operating Officer
Alfred Dubach           56       Vice Chairman of the Board of Directors and
                                 Class I Director
John C. Willems, III    48       Class II Director
Jeffrey M. Black        47       Class I Director
Thomas Michel           52       Class II Director
K. Scott Spurlock       36       Vice President of Development

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

DON CROSBIE has served as our President, Chief Executive Officer and Chairman of
the Board since October 2002. From July 2001 until October 2002, Mr. Crosbie was
President and CEO of Xactimed, a claims processing and clearinghouse company
serving the hospital market. In the year he was at Xactimed, it experienced a
dramatic turnaround, with revenue growing 150% over the prior year and an
operating profit was achieved as compared to a significant operating loss for
the prior year. From September 2000 to July 2001, Mr. Crosbie served as CFO and
President of North American Operations of Blue Wave Systems, a high density DSP
board supplier to the telecom infrastructure market, including media gateways
and 2 1/2 and 3 G wireless. He joined Blue Wave with a corporate strategic
direction to identify and complete a sale of the company. This was accomplished
in July 2001 with the sale of the company to Motorola for $125 million. From
September 1999 to June 2000, Mr. Crosbie served as President, COO and CFO of
Ypay.com, an internet start up company in the free ISP/media rich advertising
space. From June 1997 to December 1998, Mr. Crosbie served as CEO of
Rheumatology Research International, a Site Management Organization performing
clinical trials for pharmaceutical and biotech companies in pre-FDA approval
trials for new arthritis drugs. Prior to Rheumatology Research International,
Mr. Crosbie served as founder, Chairman and CEO of ComVest Partners Inc., an
institutional research boutique with an emphasis on networking, wireless, voice
and remote access; and Executive Vice President and Chief Financial Officer of
InterVoice Inc, a high technology provider of customized voice response systems.

PAUL W. MILLER, a Certified Public Accountant, has served as our Chief Financial
Officer since November 1997 and as a director since October 2002. Mr. Miller
also served as our Chief Operating Officer from October 2000 to March 2004. From
March 2002 to October 2002, Mr. Miller also served as our Chief Executive
Officer. 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 January 2000 to February 2004, Mr. Miller served as Chief
Financial Officer of Campus Door, Inc., a provider of education loans. 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.

GARY J. AUSTIN joined us in March 2004 as our Chief Operating Officer. From
September 2002 to December 2003, Mr. Austin served as the President and Chief
Operating Officer of Gold Lake Technologies Corporation, a document management
services firm. From March 1999 to September 2002, Mr. Austin served as the
Senior Vice President and Chief Operating Officer of GTESS Corporation, a health
claim processing service provider. Mr. Austin previously held a variety of
executive and management positions with Peerless Group, Electronic Data Systems,
Shared Medical Systems, and Crittenden Memorial Hospital.

ALFRED DUBACH has served as the Vice Chairman of our board of directors since
January 2002. He has been an independent business consultant and financial
advisor in Zurich, Switzerland for more than 10 years, working with non-food
consumer goods, luxury goods, cosmetics, retail and wholesale, banking,
e-banking, e-commerce, and pharmaceuticals. From March 2001 to February 2002,


                                       27
<PAGE>

Mr. Dubach served as the Chief Investment Officer for Swissquote Bank and a
member of the Executive Management Team that developed the first pure Internet
Bank in Switzerland. CASH magazine voted Swissquote Bank the best Swiss online
broker in Autumn 2001 and the bank reached a market share of twenty percent by
the end of 2001. From June 1994 to February 2001, Mr. Dubach was a Director of
Credit Suisse, where he served as a member of the project team for the legal
integration of Volksbank and Credit Suisse as well as the restructuring of the
Credit Suisse Group. Prior to June 1994, Mr. Dubach served in several capacities
within management and executive management in the pharmaceutical industry and
other leading Swiss banks (Louis Widmer Intl, Union Bank of Switzerland, Swiss
Volksbank).

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 18 months Mr. Black has
concentrated much of his efforts on Connectifi, Inc., a national Wireless
Internet Service Provider (WISP), that primarily targets the recreational
vehicle resort industry by building wireless high-speed PoPs. Mr. Black serves
Connectifi, Inc. which he founded as a director and investor.

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.

K. SCOTT SPURLOCK has served as our Vice President of Development since joining
us in June of 1997 through our acquisition of Medica Systems, Inc., a software
development company serving the healthcare industry. From September 1994 through
June 1997, Mr. Spurlock served as the Vice President and acted as architect and
lead developer of a majority of the software developed by Medica. Mr. Spurlock
has extensive software development experience in the healthcare arena, including
more than a decade developing software for medical electronic data interchange
(EDI). From August 1993 to September 1994, Mr. Spurlock was a Senior Developer
for Vision Software, a vendor of healthcare practice management system software.
Previously, Mr. Spurlock was an independent consultant developing customized
accounting, appointment and patient record programs for various hospitals and
medical groups.

Messrs. Crosbie, Miller and Austin are our executive officers.

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. Crosbie, Dubach and Black, whose terms expire at the next annual meeting
of stockholders, which we expect to hold in 2004. The Class II directors
currently are Messrs. Miller, Willems, and Michel, whose terms expire at the
following 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.

AUDIT COMMITTEE

At present, we do not have a separately standing audit committee and our entire
board of directors acts as our audit committee.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, (the "Exchange
Act"), requires officers, directors and persons who beneficially own more than
10% of a class of our equity securities registered under the Securities and
Exchange Commission to file reports of ownership and changes in ownership with
the Securities and Exchange Commission. Based solely upon a review of Forms 3
and 4 and amendments thereto furnished to us during fiscal 2003 and Forms 5 and


                                       28
<PAGE>

amendments thereto furnished to us with respect to fiscal 2003, or written
representations that Form 5 was not required for fiscal 2003, we believe that
all Section 16(a) filing requirements applicable to each of our officers,
directors and greater-than-ten-percent stockholders were not fulfilled in a
timely manner. All of our officers and directors are in the process of filing
Forms 5 to regain compliance and we have notified all known beneficial owners of
more than 10% of our common stock of their requirement to file ownership reports
with the Securities and Exchange Commission.

CODE OF ETHICS

We have adopted a code of ethics that applies to all of our employees, executive
officers and directors, including our principal executive officer, principal
financial officer and principal accounting officer. The code of ethics includes
provisions covering compliance with laws and regulations, insider trading
practices, conflicts of interest, confidentiality, protection and proper use of
our assets, accounting and record keeping, fair competition and fair dealing,
business gifts and entertainment, payments to government personnel and the
reporting of illegal or unethical behavior. The code of ethics is posted on our
website at www.claimsnet.com.

ITEM 10. 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, 2003,
2002, and 2001 by the chief executive officer and each of the most highly
compensated executive officers of our Company whose compensation exceeded
$100,000 during the year ended December 31, 2003.

                           SUMMARY COMPENSATION TABLE
                               ANNUAL COMPENSATION
                                                                     SECURITIES
                                                                     UNDERLYING
                                                                      OPTIONS/
NAME AND PRINCIPAL POSITION               YEAR   SALARY     BONUS     WARRANTS
----------------------------------------  ----  ---------  --------  -----------
Don Crosbie(1).                           2003  $140,000   $    --    1,500,000
  President and Chief Executive Officer   2002    21,538        --      200,000

Paul W. Miller (2)                        2003   135,000        --      900,000
  Chief Financial Officer and, formerly,  2002   124,231        --      189,285
   Chief Operating Officer                2001   153,173    35,742       50,000

K. Scott Spurlock                         2003   120,000     1,750      400,000
  Vice President of Development           2002   120,000        --       30,000
                                          2001   115,769     5,998       20,000

(1)    Mr. Crosbie joined us in October 2002.
(2)    Mr. Miller served as our Chief Operating Officer until March 2004 and as
       our Chief Executive Officer between March 2002 and October 2002.

The following table provides information on the value of each of the named
executive officers' options at December 31, 2003:

<TABLE>
              FISCAL YEAR AND FISCAL YEAR-END OPTION/WARRANT VALUES

<CAPTION>
                                            NUMBER OF SECURITIES  VALUE OF UNEXERCISED
                                          UNDERLYING UNEXERCISED  IN THE MONEY OPTIONS/
                                            OPTIONS/WARRANTS AT        WARRANTS AT
                     SHARES                DECEMBER 31, 2003 (#)  DECEMBER 31, 2003 ($)
                    ACQUIRED     VALUE    ----------------------  ---------------------
                   ON EXERCISE  REALIZED        EXERCISABLE/          EXERCISABLE/
NAME                   (#)        ($)          UNEXERCISABLE          UNEXERCISABLE
---------------  -------------  --------  ----------------------  ---------------------
<S>                    <C>         <C>      <C>                    <C>
Don Crosbie            --          --       100,000 / 1,600,000    $25,000 / $475,000
Paul W. Miller         --          --        301,285 / 900,000      11,429 / 300,000
</TABLE>

                                       29
<PAGE>

All options were granted at an exercise price not less than the fair value of
the common stock on the date of the grant.

The value of unexercised in the money options/warrants was calculated based on
the closing bid price for our common stock on the NASD Electronic Bulleting
Board on December 31, 2003, $.45.

DIRECTOR COMPENSATION

During the year ended December 31, 2003, directors received no compensation for
their services as directors other than reimbursement of expenses relating to
attending meetings of the board of directors. In June 2003, we issued ten-year
warrants to acquire an aggregate of 1,200,000 shares of common stock at an
exercise price of $.15 to two directors as compensation for services outside of
their director duties.

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.

The period for exercising an option ends ten years from the date the option is
granted. 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, 2003 there were outstanding options to purchase an aggregate
of 30,000 shares at exercise prices ranging from $.30 to $8.00 per share and
331,538 shares remained available for option grants.

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

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.

                                       30
<PAGE>

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 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.

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. As
of December 31, 2003, there were outstanding options to purchase an aggregate of
699,442 shares at exercise prices ranging from $.30 to $8.00 per share and
638,250 shares remain available for option grants.

The following table summarizes the stock option activity under the 1997 Plan and
the Directors' Plan through December 31, 2003 (none of the options granted have
been exercised):

                                                NUMBER      PER SHARE   WEIGHTED
                                              OF SHARES     EXERCISE    AVERAGE
                                                             PRICE      EXERCISE
                                                                         PRICE
                                             -----------  ------------  --------
     Outstanding options-January 1, 2002        679,600   $ 0.50-8.80   $  4.11
         Granted                                799,842     0.30-0.60      0.49
         Expired                               (418,875)    0.50-8.80      1.96
                                             -----------  ------------  --------
     Outstanding options-December 31, 2002    1,060,567     0.30-8.00      2.23
         Granted                                     --            --        --
         Expired                               (361,125)    7.00-8.00      2.61
                                             -----------  ------------  --------
     Outstanding options-December 31, 2003      699,442   $ 0.30-8.00   $  2.04
                                             ===========  ============  ========
     Options exercisable-December 31, 2003      691,942   $ 0.30-8.00   $  2.60
                                             ===========  ============  ========

Outstanding options as of December 31, 2003, had a weighted average remaining
contractual life of approximately 7.4 years.

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:

                                                NUMBER      PER SHARE   WEIGHTED
                                              OF SHARES     EXERCISE    AVERAGE
                                                             PRICE      EXERCISE
                                                                         PRICE
                                             -----------  ------------  --------
     Outstanding warrants- January 1, 2002       93,250   $   3.00      $  3.00
         Granted                                453,203     0.20-0.35      0.28
         Expired                                (87,226)    0.35-3.00      1.85
                                             -----------  ------------  --------
     Outstanding warrants-December 31, 2002     459,227     0.20-3.00      0.54
         Granted                              3,450,000       0.15         0.15
         Expired                               (204,284)    0.35-3.00      0.66
                                             -----------  ------------  --------
     Outstanding warrants-December 31, 2003   3,704,943    $0.15-3.00   $  0.17
                                             ===========  ============  ========
     Warrants exercisable-December 31, 2003     154,943    $0.20-3.00   $  0.59
                                             ===========  ============  ========


                                       31
<PAGE>

Outstanding employee warrants as of December 31, 2003, had a weighted average
contractual life of approximately 4.4 years. The weighted average fair value of
warrants issued during 2003 is $0.15 based on the Black-Scholes value method.

No employee options or warrants were exercised during 2003. The following table
sets forth information with respect to options and warrants granted during 2003
to the individuals set forth in the Summary Compensation Table above:

<TABLE>
                               INDIVIDUAL GRANTS

<CAPTION>
                     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
                      Warrants     Employees in    Price     Expiration       or Warrant Term (1)
Name                  Granted      Fiscal Year   ($/Share)      Date           5%            10%
------------------  -----------    ------------  ---------  ------------   -----------     ----------
<S>                  <C>              <C>         <C>       <C>            <C>             <C>
Don Crosbie          1,500,000        43.5%       $ 0.15    June 3, 2013   $  141,501      $ 358,592

Paul W. Miller         900,000        26.1%         0.15    June 3, 2013       84,901        215,155

K. Scott Spurlock      400,000        11.6%         0.15    June 3, 2013       37,734         95,625
</TABLE>

(1)    In accordance with the rules of the Securities and Exchange Commission
       (the "Commission"), shown are the gains or "option or warrant 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%, respectively, 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.

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.

                                       32
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following table sets forth, as of March 25, 2004,

    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
February 24, 2004, and issuable upon conversion of the preferred stock. The
shares of preferred stock allow the holder to vote with the holders of common
stock as though one class to the extent of the number of shares issuable upon
conversion of the preferred.

Except as otherwise noted below, the address of each of the persons in the table
is c/o Claimsnet.com inc., 14860 Montfort Dr., Suite 250, Dallas, Texas 75254.

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.

<TABLE>
<CAPTION>
                                                                     SHARES BENEFICIALLY OWNED
                                                          ----------------------------------------------
Name and Address of                                        Number of Shares    Percent of    Percent of
Beneficial Owner                Class of Security         Beneficially Owned     Class      Voting Power
-----------------------------   ------------------------  ------------------   -----------  ------------
<S>                             <C>                        <C>                    <C>            <C>
Don Crosbie (1)                 Common Stock                 100,000                 *             *

Paul W. Miller (2)              Common Stock                 302,885               1.3           1.0

John C. Willems, III (4)        Common Stock                  24,777                 *             *

Thomas Michel (5)               Common Stock                 468,000               2.0           1.5
                                Series D Preferred Stock         100              13.9
                                Series E Preferred Stock          50          1   00.0

Jeffrey M. Black (6)            Common Stock                   5,000                 *             *

Alfred Dubach (7)               Common Stock                 620,000               2.6           2.0

Bo W. Lycke (3) (8)             Common Stock               2,611,326              11.1           8.4
4730 Melissa Ln.
Dallas, Texas 75229

Robert H. Brown, Jr. (3) (9)    Common Stock               1,392,354               5.9           4.5
2626 Cole Ave, #400
Dallas, Texas 75204

McKesson Corporation            Common Stock               1,514,285               6.5           4.9
One Post Street
San Francisco, CA 94104

J. R. Schellenberg (3) (10)     Common Stock               1,743,603               7.4           5.6
Kohlrainstrasse 1
Kusnacht
Switzerland CH-8700


                                       33
<PAGE>

Elmira United                   Common Stock               9,350,000              39.9          30.1
  Corporation (11)
Swiss Tower - 16th Floor
Panama
Republic of Panama

New York Ventures (12)          Common Stock                 620,000               2.6           2.0
c/o BDO Visura                  Series D Preferred Stock         620              86.1
Entfelderstrasse 1
CH-5001 Aarau

All our directors and           Common Stock               1,520,162               6.5           4.9
executive officers as a         Series D Preferred Stock         100              13.9
group (6 persons) (13)          Series E Preferred Stock          50             100.0
</TABLE>

*      Less than one percent.
(1)    Consists of 100,000 shares which Mr. Crosbie has the right to acquire
       upon exercise of options or warrants.
(2)    Consists of 1,600 shares of common stock owned of record by Mr. Miller
       and 301,285 shares which Mr. Miller has the right to acquire upon
       exercise of options or warrants.
(3)    Includes 1,081,603 shares of common stock owned of record by National
       Financial Corporation (based upon last information reported to or known
       by the Company). 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.
(4)    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.
(5)    Common Stock consists of 160,000 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 158,000 shares which Mr. Michel has
       the right to acquire upon exercise of options or warrants.
(6)    Consists of 5,000 shares which Mr. Black 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 5,000 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 last information reported to or known by the Company),
       250,000 shares which Mr. Lycke has the right to acquire upon exercise of
       options or warrants, and 1,081,603 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 last information reported to or known by the Company) and
       1,081,603 shares of common stock owned of record by National Financial
       Corporation.
(10)   Consists of 562,000 shares of common stock owned of record by Mr.
       Schellenberg (based upon last information reported to or known by the
       Company), 100,000 shares which Mr. Schellenberg has the right to acquire
       upon exercise of options or warrants, and 1,081,603 shares of common
       stock owned of record by National Financial Corporation.
(11)   Consists of 7,600,000 shares of common stock owned of record by Elmira
       United (based upon last information reported to or known by the Company),
       and 1,750,000 shares which Elmira United has the right to acquire upon
       exercise of options or warrants.
(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 576,785 shares which they have a right to
       acquire upon exercise of options or warrants.

                                       34
<PAGE>

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table sets forth, as of December 31, 2003, information regarding
compensation plans under which equity securities are authorized for issuance.

<TABLE>
<CAPTION>
                                      NUMBER OF SECURITIES TO BE       WEIGHTED-AVERAGE      NUMBER OF SECURITIES REMAINING
                                        ISSUED UPON EXERCISE OF       EXERCISE PRICE OF       AVAILABLE FOR FUTURE ISSUANCE
                                        OUTSTANDING OPTIONS AND    OUTSTANDING OPTIONS AND     UNDER EQUITY COMPENSATIONS
                                               WARRANTS                    WARRANTS                      PLANS*
                                                  (a)                        (b)                           (c)
<S>                                           <C>                           <C>                          <C>
Equity Compensation Plans Approved
By Stockholders                                 699,442                     $ 2.04                       969,788

Equity Compensations Plans Not
Approved By   Stockholders**
                                              5,770,097                     $ 0.77                          -
                                             -----------                    -------                     ---------
Total                                         6,469,539                     $ 0.91                       969,788
                                             ===========                    =======                     =========
</TABLE>

*Excludes securities reflected in column (a).
**Excludes warrants to acquire 5,600,000 shares of common stock at an exercise
price of $0.20 per share which were outstanding at December 31, 2003 pursuant to
private equity placements.

Equity compensation plans approved by shareholders include the 1997 Stock Option
Plan and the Directors' Plan, as more fully described in Item 10.

Equity compensation plans not approved by shareholders are described below.

In connection with the Company's initial public offering in April 1999, the
Company 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 also granted non-employees warrants to purchase
31,154 shares of common stock. The warrants were granted at a price of $8.80 per
share, are fully exercisable, and expire on the fifth anniversary of the grant.

In June 2000, the Company granted certain employees warrants to purchase shares
of common stock at $3.00 per share, of which 19,500 warrants remain outstanding.
The warrants are fully exercisable and expire on the 10th anniversary of the
grant.

In February 2002, the Company granted executive officers warrants to purchase
35,443 shares of common stock in exchange for voluntary salary reductions. The
warrants contain an exercise price of $0.35 per share, expire on the tenth
anniversary of the grant, and are fully exercisable.

In June 2002, the Company issued warrants to acquire an aggregate of 50,000
shares of common stock to a non-employee in connection with an agreement for
professional services to be rendered. The warrants contain an exercise price of
$0.30 per share, are fully exercisable, and expire in June 2007.

In October 2002, the Company issued warrants to acquire an aggregate of 500,000
shares of common stock to a non-employee in connection with an agreement for
professional services to be rendered. The warrants contain an exercise price of
$0.20 per share, are fully exercisable, expire in September 2007, became 50%
exercisable in September 2003 and will become fully exercisable in September
2004.

In October 2002, the Company hired a new president and chief executive officer
and issued him warrants to acquire an aggregate of 200,000 shares of common
stock. The warrants contain an exercise price of $0.20 per share, expire in
October 2007, became 50% exercisable in October 2003 and will become fully
exercisable in October 2004.

                                       35
<PAGE>

In January 2003, the Company issued warrants to acquire an aggregate of 34,000
shares of common stock to a non-employee for services rendered. The warrants
contain an exercise price of $0.25 per share, are fully exercisable, and expire
in April 2007.

In June 2003, the Company issued warrants to acquire an aggregate of 3,450,000
shares of common stock to certain employees. These warrants contain an exercise
price of $0.15 per share and expire in June 2013. The warrants will become
one-third exercisable in June 2004, two-thirds exercisable in June 2005, and
fully exercisable in June 2006.

In June 2003, the Company issued ten-year warrants to acquire an aggregate of
1,200,000 shares of common stock to two directors as compensation for services
outside of their director duties. These warrants contain an exercise price of
$0.15 per share and expire in June 2013. The warrants will become 50%
exercisable in June 2004 and fully exercisable in June 2005.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Bo W. Lycke, formerly our Chairman of the Board, 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%, 11.1%, and
17.8% of the outstanding capital stock of National Financial Corporation.

In February, March, April and June 2002, we borrowed an aggregate of $475,000
pursuant to six separate unsecured short-term loan agreements with NFC. In
February, May, August and September 2002, we fully repaid principal pursuant to
four notes and partially repaid principal on one note in the aggregate amount of
$412,000 plus accrued interest thereon. The unpaid principal amount of $63,000
plus interest was due on September 30, 2002. NFC agreed to forego repayment at
September 30, 2002 and to amend the terms of the notes to be due on demand. In
October and December 2002, upon the demand of NFC, we repaid the remaining
principal on one note and partially repaid the remaining note in the aggregate
amount of $45,000 plus accrued interest thereon and in June 2003, we repaid the
remaining principal amount or $18,000 plus accrued interest thereon.

In May 2002, we completed the private placement of 3,304 shares of Series D
Preferred Stock to accredited investors at $250 per share for net proceeds of
$826,000. Each share of Series D Preferred Stock has a stated value and
liquidation preference of $250 per share, a liquidation preference over holders
of common stock, does not accrue dividends but is entitled to a preference over
the common stock on liquidation of the Company, 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 as though one
class to the extent of the number of shares issuable upon conversion of the
preferred. The private placement included 100 shares of Series D Preferred Stock
purchased by Mr. Michel, 565 shares of Series D Preferred Stock purchased by Mr.
Dubach, 1,600 shares of Series D Preferred Stock purchased by Elmira United, a
5% stockholder, 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, was
the corporate secretary. Messrs. Michel and Black were elected Directors of the
Company in February 2002. Mr. Dubach and Elmira United exercised the option to
convert their Series D Preferred Stock into common stock during 2003.

In October 2002, we sold on terms set by a committee of disinterested directors
to Messrs. Michel, Dubach, Lycke and Hedlund, four of our then directors, an
aggregate of 167 shares of Series E Preferred Stock at the rate of $300 per
share, its stated value. Each share of Series E Preferred Stock may be converted
into 1,000 shares of common stock at the election of the holder. We have has the
right, but not the obligation, to redeem all or any portion of the Series E
Preferred Stock in the event that the closing sale price of our common stock
exceeds $.60 for twenty of any thirty consecutive trading days. The Series E
Preferred Stock does not accrue dividends but is entitled to a preference over
the common stock on liquidation of the Company. Holders of the Series E
Preferred Stock have the right to vote together with the holders of common stock
as though one class to the extent of the number of shares issuable upon
conversion of the preferred. Messrs. Dubach, Lycke and Hedlund converted their
Series E Preferred Stock into 116,667 shares of common stock during 2003.

In August 2002, we borrowed $50,000 from Mr. Michel at an interest rate of 9.5%
per annum on the unpaid principal, which was due on September 30, 2002. Mr.
Michel agreed to forego repayment at September 30, 2002 and to amend the terms
of the note to be due on demand. We have not repaid the principal amount of the


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<PAGE>

note. In June 2003, we paid $5,000 accrued interest thereon by issuing to Mr.
Michel 25,000 shares of our common stock and five-year warrants to purchase
25,000 shares of our common stock at an exercise price of $0.20 per share. The
remaining principal amount of $50,000 plus interest, at 9.5% per annum on the
unpaid principal, is due on demand.

In August 2002, we borrowed $50,000 from Mr. Schellenberg at an interest rate of
9.5% per annum on the unpaid principal, which was due on September 30, 2002. Mr.
Schellenberg agreed to forego repayment at September 30, 2002 and to amend the
terms of the note to be due on demand. In June 2003, we repaid $15,000 of
principal plus $5,000 accrued interest thereon by issuing to Mr. Schellenberg
100,000 shares of our common stock and five-year warrants to purchase 100,000
shares of our common stock at an exercise price of $0.20 per share. The
remaining principal amount of $35,000 plus interest, at 9.5% per annum on the
unpaid principal, is due on demand.

In May 2003, we borrowed $100,000 under an unsecured short-term loan agreement
with NFC. In June 2003, upon the demand of NFC, we repaid principal on the above
note in the aggregate amount of $34,000 plus accrued interest thereon. The
unpaid principal amount of $66,000 plus interest is due on demand.

During 2002 and 2003, we completed the private placement of 7,475,000 shares of
common stock to accredited investors at $0.20 per share for net proceeds of
$1,491,000. In connection with the private placement, we also issued five-year
warrants to purchase an aggregate of 7,475,000 shares of common stock at an
exercise price of $0.20 per share. The private placement included: (i) 3,875,000
shares of common stock plus warrants to acquire an additional 3,875,000 shares
of common stock purchased by Elmira, a principal stockholder, (ii) 350,000
shares of common stock plus warrants to acquire an additional 350,000 shares of
common stock purchased by NFC, and (iii) 150,000 shares of common stock plus
warrants to acquire an additional 150,000 shares of common stock purchased by
Mr. Thomas Michel. Between April 2003 and March 2004, Elmira exercised warrants
to acquire an aggregate of 2,375,000 shares of common stock.

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
approved and will be subject to approval by a majority of our independent and
disinterested directors.

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<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

a) Exhibits

The following exhibits are filed herewith or are incorporated herein by
reference:

3.1(2)          Certificate of Incorporation

3.1(a) (2)      Certificate of Amendment to Certificate of Incorporation

3.1(b) (6)      Certificate of Designation of Series A Preferred Stock

3.1(c) (6)      Certificate of Designation of Series B Preferred Stock

3.1(d) (6)      Certificate of Designation of Series C Preferred Stock

3.1(e) (6)      Certificate of Designation of Series D Preferred Stock

3.1(f) (1)      Certificate of Designation of Series E Preferred Stock

3.2(2)          Bylaws, as amended

4.1(2)          Form of warrant issued to Cruttenden Roth Inc.

4.2(2)          Form of Common Stock Certificate

4.3(a) (6)      Form of Warrant issued to Bo W. Lycke dated February 21, 2002

4.3(b) (6)      Form of Warrant issued to Paul W. Miller dated February 21, 2002

4.3(c) (1)      Form of Warrant issued to Don Crosbie dated October 21, 2002

4.3(d)          Form of Warrant issued to Don Crosbie dated June 3, 2003

4.3(e)          Form of Warrant issued to Paul W. Miller dated June 3, 2003

4.3(f)          Form of Warrant issued to certain employees dated June 3, 2003

4.3(g)          Form of Warrant issued to Thomas Michel dated June 3, 2003

4.3(h)          Form of Warrant issued to Alfred Dubach dated June 3, 2003

10.2(2)         1997 Stock Option Plan, as amended through October 19, 2000

10.2(a) (3)     Amendment dated October 20, 2000 to 1997 Stock Option Plan

10.3(2)         Form of Indemnification Agreement

10.4(2)         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.

10.8(2)         Form of Non-Employee Director's Plan

10.11           Note dated May 8, 2003 between Claimsnet.com and National
                Financial Corporation related to $100,000 loan.

10.12 (1)       Note dated February 1, 2002 between Claimsnet.com and
                National Financial Corporation related to $105,000 loan.

10.13 (1)       Note dated February 27, 2002 between Claimsnet.com and National
                Financial Corporation related to $100,000 loan.

10.14 (1)       Note dated March 12, 2002 between Claimsnet.com and National
                Financial Corporation related to $100,000 loan.

10.15 (1)       Note dated March 20, 2002 between Claimsnet.com and National
                Financial Corporation related to $85,000 loan.

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<PAGE>

10.16 (1)       Note dated April 8, 2002 between Claimsnet.com and National
                Financial Corporation related to $25,000 loan.

10.17 (1)       Note dated June 6, 2002 between Claimsnet.com and J. R.
                Schellenberg related to $50,000 loan.

10.18 (1)       Note dated June 6, 2002 between Claimsnet.com and National
                Financial Corporation related to $60,000 loan.

10.19 (1)       Note dated August 1, 2002 between Claimsnet.com and J. R.
                Schellenberg related to $10,000 loan.

10.20 (1)       Note dated August 1, 2002 between Claimsnet.com and Thomas
                Michel related to $50,000 loan.

10.21(7)        Note dated August 20, 2002 between Claimsnet.com and J. D.
                Stauffer related to $25,000 loan.

10.22(8)        Asset Purchase Agreement dated September 11, 2002 by and between
                Claimsnet.com, Inc. and ProxyMed, Inc.

10.23(8)        Affiliate and Partner Services and License Agreement dated
                September 11, 2002, by and between Claimsnet.com, Inc. and
                ProxyMed, Inc.

10.24(8)        Form of Preferred Escrow Agreement by and among Claimsnet.com,
                Inc., ProxyMed, Inc. and DSI Technology
                Escrow Services, Inc.

16.2(9)         Letter from Ernst & Young LLP as to change in certifying
                accountant to King Griffin & Adamson P.C., dated February 26,
                2003 and filed on Form 8K.

16.3(10)        Letter from King Griffin & Adamson P.C. as to change in
                certifying accountant to KBA Group LLP, dated March 14, 2003 and
                filed on Form 8K.

31.1            Certification of Don Crosbie

31.2            Certification of Paul W. Miller

32.1            Certification pursuant to 18 U.S.C. Section 1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Don
                Crosbie

32.2            Certification pursuant to 18 U.S.C. Section 1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
                Paul W. Miller

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

(1)             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, 2002 filed on April 1, 2003.

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

(3)             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.

(4)             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.

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

(6)             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, 2001 filed on April 15, 2002.

(7)             Incorporated by reference to the corresponding exhibit filed by
                the Registrant with its Current Report on Form 8-K dated
                September 4, 2002.

                                       39
<PAGE>

(8)             Incorporated by reference to the corresponding exhibit filed by
                the Registrant its Current Report on Form 8-K dated September
                17, 2002.

(9)             Incorporated by reference to the corresponding exhibit filed by
                the Registrant with its Current Report on Form 8-K dated
                February 26, 2003.

(10)            Incorporated by reference to the corresponding exhibit filed by
                the Registrant its Current Report on Form 8-K dated March 17,
                2002.

b)              Reports on Form 8-K

     Not applicable

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<PAGE>

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following is a summary of the fees billed to us by KBA Group LLP, our
current independent auditors, and Ernst & Young LLP, our former independent
auditors, for professional services rendered during the fiscal years ended
December 31, 2003 and 2002.

Fiscal year ended December 31, 2003

     FEE CATEGORY             KBA GROUP LLP   ERNST & YOUNG LLP
     ------------             -------------    ---------------
     Audit Fees (1)           $     34,000     $           --
     Audit-Related Fees (2)         16,400                 --
     Tax Fees (3)                    5,300                 --
     All Other Fees (4)                 --                 --
                              -------------    ---------------
              Total           $     55,700     $           --
                              =============    ===============

Fiscal year ended December 31, 2002

     FEE CATEGORY             KBA GROUP LLP   ERNST & YOUNG LLP
     ------------             -------------    ---------------
     Audit Fees (1)           $     25,000     $       29,000
     Audit-Related Fees (2)             --                 --
     Tax Fees (3)                    6,225                 --
     All Other Fees (4)                 --                 --
                              -------------    ---------------
              Total           $     31,225     $       29,000
                              =============    ===============

(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, 2003 and December 31, 2002.
(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 and
     restatement of the interim financial data for the quarters ended December
     31, 2003.
(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.

POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES OF INDEPENDENT AUDITORS

At present, our entire board of directors acts as our audit committee and
approves each engagement for audit or non-audit services before we engage a firm
to provide those services.

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<PAGE>

                                                                 Exhibit 10.1(a)


                                   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/ Don Crosbie
       -----------------------------
       Don Crosbie
       President,
       Chief Executive Officer,
       Class I Director and
       Chairman of the Board on
       behalf of the Registrant


By:      /s/ Paul W. Miller
       ----------------------------
       Paul W. Miller
       Chief Financial Officer and
       Class II Director


By:      /s/ Alfred Dubach
       -----------------------------
       Alfred Dubach
       Class I Director and
       Vice Chairman of the Board


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


March 26, 2004

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