##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period from  to
 Commission file number 001-14665
 CLAIMSNET.COM INC.
  Delaware
    
    75-2649230(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 14860 Montfort Dr, Suite 250Dallas, Texas
    
    75254(Address of principal executive offices)
    
    (Zip Code)
 
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller Reporting Company þ
 o þ




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##### 



PART I. FINANCIAL INFORMATIONITEM 1. Financial Statements
    
    
    2Consolidated Balance Sheets as of June 30, 2010 (unaudited) and December 31, 2009
    
    
    2Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended
June 30, 2010 and 2009
    
    
    3Consolidated Statements of Changes in Stockholders Deficit for the Year Ended December
31, 2009 and the Six Months Ended June 30, 2010 (unaudited)
    
    
    4Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30,
2010 and 2009
    
    
    5Notes to Consolidated Financial Statements
    
    
    6ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    8ITEM 4T. Controls and Procedures
    
    
    12PART II. OTHER INFORMATIONITEM 6. Exhibits
    
    
    13SIGNATURES
    
    
    15CERTIFICATIONS31.1 Certification of Don Crosbie31.2 Certification of Laura M. Bray32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley




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(Unaudited)June 30,
    
    
    December 31,2010
    
    
    2009ASSETSCURRENT ASSETSCash and equivalents
    
    $
    40
    
    
    $
    18Accounts receivable, net of allowance for
doubtful accounts of $5 and $6
    
    
    306
    
    
    
    313Prepaid expenses and other current assets
    
    
    53
    
    
    
    43Total current assets
    
    
    399
    
    
    
    374EQUIPMENT, FIXTURES AND SOFTWARETotal equipment, fixtures and software, net
    
    
    113
    
    
    
    119INTANGIBLE AND OTHER ASSETSGoodwill
    
    
    138
    
    
    
    138TOTAL ASSETS
    
    $
    650
    
    
    $
    631LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIESAccounts payable
    
    $
    344
    
    
    $
    369Accrued payroll and other current liabilities
    
    
    68
    
    
    
    99Accrued interest  related parties
    
    
    84
    
    
    
    70Deferred revenues  current portion
    
    
    14
    
    
    
    18Notes payable to related parties
    
    
    990
    
    
    
    875Convertible notes payable to related parties
    
    
    10
    
    
    
    10Total current liabilities
    
    
    1,510
    
    
    
    1,441LONG-TERM LIABILITIESDeferred revenues  long-term portion
    
    
    11
    
    
    
    14Total long-term liabilities
    
    
    11
    
    
    
    14Total liabilities
    
    
    1,521
    
    
    
    1,455STOCKHOLDERS DEFICITConvertible preferred stock, $.001 par value; 4,000,000 shares
authorized; 720
Shares of Series D (liquidation preference of $180) and 50 shares
of Series E
(liquidation preference of $15) issued and outstanding,
convertible into common
shares at 1,000 common shares per 1
convertible preferred share as of June 30,
2010 and December 31, 2009
    
    
    
    
    
    
    Common stock, $.001 par value; 40,000,000 shares authorized; 34,874,696
shares issued and outstanding as of June 30, 2010 and December 31, 2009
    
    
    35
    
    
    
    35Additional capital
    
    
    44,896
    
    
    
    44,896Accumulated deficit
    
    
    (45,802
    )
    
    
    (45,755
    )Total stockholders deficit
    
    
    (871
    )
    
    
    (824
    )TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
    
    $
    650
    
    
    $
    631
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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009REVENUES
    
    $
    596
    
    
    $
    563
    
    
    $
    1,175
    
    
    $
    1,082COST OF REVENUES
    
    
    434
    
    
    
    419
    
    
    
    848
    
    
    
    832GROSS PROFIT
    
    
    162
    
    
    
    144
    
    
    
    327
    
    
    
    250OPERATING EXPENSESSelling, general and administrative
    
    
    186
    
    
    
    221
    
    
    
    360
    
    
    
    472Total operating expenses
    
    
    186
    
    
    
    221
    
    
    
    360
    
    
    
    472LOSS FROM OPERATIONS
    
    
    (24
    )
    
    
    (77
    )
    
    
    (33
    )
    
    
    (222
    )OTHER INCOME (EXPENSE)Interest expense  related parties
    
    
    (7
    )
    
    
    (7
    )
    
    
    (14
    )
    
    
    (15
    )Interest expense  other
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (7
    )Total other income (expense)
    
    
    (7
    )
    
    
    (10
    )
    
    
    (14
    )
    
    
    (22
    )NET LOSS
    
    $
    (31
    )
    
    $
    (87
    )
    
    $
    (47
    )
    
    $
    (244
    )NET LOSS PER COMMON SHARE
(BASIC AND DILUTED)
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.01
    )WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (BASIC AND DILUTED)
    
    
    34,875
    
    
    
    34,078
    
    
    
    34,875
    
    
    
    33,352
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Number of
    
    
    
    
    
    
    Number ofPreferred
    
    
    
    
    
    
    Common
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalShares
    
    
    Preferred
    
    
    Shares
    
    
    Common
    
    
    Additional
    
    
    Accumulated
    
    
    StockholdersOutstanding
    
    
    Stock
    
    
    Outstanding
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    DeficitBalances at
December 31, 2008
    
    
    1
    
    
    $
    
    
    
    
    31,147
    
    
    $
    31
    
    
    $
    44,001
    
    
    $
    (45,391
    )
    
    $
    (1,359
    )Issuance of common
stock in payment of
accrued interest -
related party
    
    
    
    
    
    
    
    
    
    
    195
    
    
    
    
    
    
    
    49
    
    
    
    
    
    
    
    49Issuance of common
stock in payment of
note principal 
related party
    
    
    
    
    
    
    
    
    
    
    3,533
    
    
    
    4
    
    
    
    846
    
    
    
    
    
    
    
    850Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (364
    )
    
    
    (364
    )Balances at
December 31, 2009
    
    
    1
    
    
    
    
    
    
    
    34,875
    
    
    
    35
    
    
    
    44,896
    
    
    
    (45,755
    )
    
    
    (824
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47
    )
    
    
    (47
    )Balances at June
30, 2010
    
    
    1
    
    
    $
    
    
    
    
    34,875
    
    
    $
    35
    
    
    $
    44,896
    
    
    $
    (45,802
    )
    
    $
    (871
    )
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Six Months EndedJune 30,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (47
    )
    
    $
    (244
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation and amortization
    
    
    6
    
    
    
    27Bad debt expense
    
    
    
    
    
    
    3Changes in operating assets and liabilities:Accounts receivable
    
    
    7
    
    
    
    (60
    )Prepaid expenses and other current assets
    
    
    (10
    )
    
    
    (31
    )Current liabilities and deferred revenue
    
    
    (49
    )
    
    
    11Net cash used in operating activities
    
    
    (93
    )
    
    
    (294
    )CASH FLOWS FROM INVESTING ACTIVITIES:Net cash used in investing activities
    
    
    
    
    
    
    CASH FLOWS FROM FINANCING ACTIVITIES:Principal payments on capital lease obligation
    
    
    
    
    
    
    (25
    )Payment of note payable to related parties
    
    
    
    
    
    
    (50
    )Proceeds from notes payable to related parties
    
    
    115
    
    
    
    375Net cash provided by financing activities
    
    
    115
    
    
    
    300NET INCREASE IN CASH AND EQUIVALENTS
    
    
    22
    
    
    
    6CASH AND EQUIVALENTS, BEGINNING OF PERIOD
    
    
    18
    
    
    
    CASH AND EQUIVALENTS, END OF PERIOD
    
    $
    40
    
    
    $
    6SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid for interest
    
    $
    
    
    
    $
    12Cash paid for taxes
    
    $
    
    
    
    $
    SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:Payment of accrued interest through issuance of common stock
    
    $
    
    
    
    $
    49Payment of note principal through issuance of common stock
    
    $
    
    
    
    $
    750
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1.
    
    BASIS OF PRESENTATION
 In the opinion of management, the accompanying unaudited consolidated financial statements
include all necessary adjustments (consisting of normal recurring adjustments) and present
fairly the consolidated financial position of Claimsnet.com inc. and subsidiaries (the
Company) as of June 30, 2010 and the results of their operations and cash flows for the
three and six months ended June 30, 2010 and 2009, in conformity with generally accepted
accounting principles for interim financial information applied on a consistent basis. The
results of operations for the three and six months ended June 30, 2010 are not necessarily
indicative of the results to be expected for the full year.
 Certain information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been omitted.
These financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Companys Annual Report on Form 10-K
for the year ended December 31, 2009, as filed with the Securities and Exchange Commission
on March 4, 2010.
 2.
    
    NEED FOR ADDITIONAL CAPITAL AND LIQUIDITY
 Management believes that available cash resources, together with anticipated revenues from
operations and the proceeds of recently completed financing activities and funding
commitments may not be sufficient to satisfy the Companys capital requirements past
December 31, 2010. Necessary additional capital may not be available on a timely basis or on
acceptable terms, if at all. In any of these events, the Company may be unable to implement
current plans for expansion or to repay debt obligations as they become due. If sufficient
capital cannot be obtained, the Company may be forced to significantly reduce operating
expenses to a point which would be detrimental to business operations, curtail research and
development activities, sell 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 its operations and financial position, or cease
operations altogether. In the event that any future financing should take the form of the
sale of equity securities, the holders of the common stock and preferred stock may
experience additional dilution. In the event of a cessation of operations, there may not be
sufficient assets to fully satisfy all creditors, in which case the holders of equity
securities will be unable to recoup any of their investment.
 3.
    
    EQUIPMENT, FIXTURES AND SOFTWARE
 Equipment, fixtures and software consists of the following at June 30, 2010 (in thousands):
 Computer hardware and software
    
    $
    524Software development costs
    
    
    2,103Furniture and fixtures
    
    
    31Office equipment
    
    
    28Leasehold improvements
    
    
    352,721Less accumulated depreciation and amortization
    
    
    (2,608
    )$
    113
  On February 16, 2010, the Company issued an unsecured promissory note upon receipt of
$35,000 from Mr. Thomas Michel, a director (Michel). The note bears interest at the rate
of 3% per annum. Payments equal to the principal and accrued and unpaid interest on the
note are due on demand, with thirty days notice.
 On March 18, 2010, the Company issued an unsecured promissory note upon receipt of $80,000
from National Financial Corporation, a related party (NFC). The note bears interest at the rate of 3%
per annum. Payments equal to the principal and accrued and unpaid interest on the note
are due on demand.
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5.
    
    FAIR VALUE OF FINANCIAL INSTRUMENTS
 The Company evaluates the fair value of certain of its financial assets and liabilities
under FASB Accounting Standards Codification (ASC) Topic 820, based on the observability
of the inputs used in the valuation techniques. The Company is required to provide the
following information according to the fair value hierarchy. The fair value hierarchy ranks
the quality and reliability of the information used to determine fair values. Financial
assets and liabilities carried at fair value will be classified and disclosed in one of the
following three categories:
 
    
    Level 1. Observable inputs such as quoted market prices in active markets
 
    
    Level 2. Inputs, other than the quoted prices in active markets, that are
observable either directly or indirectly, and
 
    
    Level 3. Unobservable inputs in which there is little or no market data,
which require the reporting entity to develop its own assumptions.
 The Companys cash and equivalents, accounts receivable, prepaid expenses and other current
assets, accounts payable, and accrued payroll and other current liabilities, and deferred
revenues carrying values approximates their fair value amounts due to their current
maturities as of June 30, 2010. The Companys goodwill is measured on a non-recurring basis
and is in Level 3 of the fair value hierarchy. Notes payable do not approximate fair
value, as they are with related parties, and do not bear market rates of
interest. There were no movements of assets and liabilities between levels within the
hierarchy as of June 30, 2010.
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
    
    our ability to raise additional capital and secure additional financing;
 
    
    our ability to successfully implement our revised business strategy;
 
    
    our ability to market our services;
 
    
    our ability to develop and maintain strategic partnerships or alliances;
 
    
    our ability to maintain and increase our customer base;
 
    
    our ability to protect our intellectual property rights;
 
    
    our ability to further develop our technology and transaction processing system;
 
    
    our ability to respond to competitive developments;
 
    
    our ability to attract and retain key employees;
 
    
    our ability to comply with government regulations;
 
    
    the effects of natural disasters, computer viruses and similar disruptions to our
computer systems;
 
    
    the ability of our clients to pay their debts when they become due;
 
    
    threats to Internet security; and
 
    
    acceptance of the Internet and other online services in the healthcare industry and
in general.
     -8-




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
    
    to utilize our state of the art technology to help large healthcare organizations achieve
more efficient and less costly administrative operations;
 
    
    to market our services directly to the payer community and its trading partners;
 
    
    to aggressively pursue and support strategic relationships with companies that will in turn
aggressively market our services to large volume healthcare organizations, including insurers,
HMOs, third party administrators, provider networks, re-pricing organizations, clinics,
hospitals, laboratories, physicians and dentists;
 
    
    to provide total claim management services to payer organizations, including internet claim
submission, paper claim conversion to electronic transactions, and receipt of EDI
transmissions;
 
    
    to continue to expand our product offerings to include additional transaction processing
solutions, such as HMO encounter forms, eligibility and referral verifications, claim status
inquiries, electronic remittance advices, claim attachments, and other healthcare
administrative services, in order to diversify sources of revenue;
 
    
    to license our technology for other applications, including stand-alone purposes, internet
systems and private label use, and for original equipment manufacturers; and
 
    
    to seek merger and acquisition opportunities that enhance our growth and profitability
objectives.
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3.1
    (1)
  
    Certificate of Incorporation.3.1(a)
    (1)
    


    Certificate of Amendment to Certificate of Incorporation.3.1(b)
    (3)
    
    Certificate of Designation of Series A Preferred Stock.3.1(c)
    (3)
    
    Certificate of Designation of Series B Preferred Stock.3.1(d)
    (3)
    

    Certificate of Designation of Series C Preferred Stock.3.1(e)
    (3)
    

    Certificate of Designation of Series D Preferred Stock.3.1(f)
    (2)
    

    Certificate of Designation of Series E Preferred Stock.3.2
    (1)
    

    Bylaws, as amended.4.1
    (1)
    

    Form of Common Stock Certificate.4.2
    (3)
    


    Form of Warrant issued to Bo W. Lycke dated February 21, 2002.4.3
    (4)
    

    Form of Warrant issued to Don Crosbie dated June 3, 2003.4.4
    (4)
    

    Form of Warrant issued to certain employees dated June 3, 2003.4.5
    (4)
    




    Form of Warrant issued to Thomas Michel dated June 3, 2003.4.6
    (4)
    


    Form of Warrant issued to Alfred Dubach dated June 3, 2003.4.7
    (5)
    
    Form of Warrant issued to Gary J. Austin dated September 21, 2004.4.8
    (5)
    

    Form of Warrant issued to Laura M. Bray dated September 21, 2004.4.9
    (5)
    


    Form of Warrant issued to Don Crosbie dated September 21, 2004.
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10.1
    (6)
    


    Unsecured Convertible Promissory Note between Claimsnet.com and Thomas Michel dated February 16, 2010.10.2
    (7)
    


    Unsecured Promissory Note between Claimsnet.com and National Financial Corporation dated March 18, 2010.31.1
    
    
    Certification of Don Crosbie.31.2
    
    
    Certification of Laura M. Bray.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 Laura M. Bray.
 
 (1)
    
    Incorporated by reference to the Registrants registration statement on Form S-1
(Registration No. 333-36209).(2)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K, for the
Year Ended December 31, 2002 filed on April 1, 2003.(3)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for the
year ended December 31, 2001 filed on April 15, 2002.(4)
    
    Incorporated by reference to the Registrants Current Report on Form 10-KSB dated
March 29, 2004.(5)
    
    Incorporated by reference to the Registrants Current Report on Form 10-KSB dated
March 16, 2005.(6)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K dated
February 16, 2010 filed on February 18, 2010.(7)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K dated March
18, 2010 filed on March 22, 2010.  -14-




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CLAIMSNET.COM INC.
(Registrant)July 29, 2010By:
    
    /s/ Don CrosbieDon CrosbieChief Executive OfficerJuly 29, 2010By:
    
    /s/ Laura M. BrayLaura M. BrayChief Financial Officer
  -15-