##### 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 September 30, 2008
 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
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



PART I. FINANCIAL INFORMATIONITEM 1. Financial Statements
    
    3Consolidated Balance Sheets as of September 30, 2008 (unaudited) and December 31, 2007
(audited)
    
    3Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended
September 30, 2008 and 2007
    
    4Consolidated Statements of Changes in Stockholders Deficit for the Year Ended December
31, 2007 (audited) and the Nine Months Ended September 30, 2008 (unaudited)
    
    5Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September
30, 2008 and 2007
    
    6Notes to Consolidated Financial Statements
    
    7ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    12ITEM 4T. Controls and Procedures
    
    18PART II. OTHER INFORMATIONITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    19ITEM 6. Exhibits
    
    19SIGNATURES
    
    21CERTIFICATIONS31.1 Certification of Don Crosbie31.2 Certification of Laura M. Bray32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, of    Don Crosbie32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, of    Laura M. BrayEX-31.1EX-31.2EX-32.1EX-32.2
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##### Table of Contents



(Unaudited)
    
    
    (Audited)September 30,
    
    
    December 31,2008
    
    
    2007ASSETSCURRENT ASSETSCash and equivalents
    
    $
    53
    
    
    $
    98Accounts receivable, net of allowance for
doubtful accounts of $3 and $2
    
    
    268
    
    
    
    255Prepaid expenses and other current assets
    
    
    51
    
    
    
    22Total current assets
    
    
    372
    
    
    
    375EQUIPMENT, FIXTURES AND SOFTWARETotal equipment, fixtures and software, net
    
    
    187
    
    
    
    109INTANGIBLE AND OTHER ASSETSGoodwill
    
    
    138
    
    
    
    TOTAL ASSETS
    
    $
    697
    
    
    $
    484LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIESAccounts payable
    
    $
    301
    
    
    $
    136Accrued payroll and other current liabilities
    
    
    139
    
    
    
    103Accrued interest
    
    
    161
    
    
    
    135Capital leases  current portion
    
    
    48
    
    
    
    40Deferred revenues  current portion
    
    
    23
    
    
    
    30Notes payable to related parties  current portion
    
    
    345
    
    
    
    295Convertible notes payable to related parties  current portion
    
    
    400
    
    
    
    600Convertible notes payable  current portion
    
    
    
    
    
    
    200Total current liabilities
    
    
    1,417
    
    
    
    1,539LONG-TERM LIABILITIESOther long-term liabilities
    
    
    
    
    
    
    1Capital leases  long-term portion
    
    
    9
    
    
    
    42Deferred revenues  long-term portion
    
    
    24
    
    
    
    28Convertible notes payable to related parties  long-term portion
    
    
    760
    
    
    
    310Convertible notes payable  long-term portion
    
    
    100
    
    
    
    100Total long-term liabilities
    
    
    893
    
    
    
    481Total liabilities
    
    
    2,310
    
    
    
    2,020STOCKHOLDERS 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 September
30, 2008 and December 31, 2007
    
    
    
    
    
    
    Common stock, $.001 par value; 40,000,000 shares authorized; 29,466,236
shares issued and outstanding as of September 30, 2008 and 26,101,180 as of
December 31, 2007
    
    
    30
    
    
    
    26Additional capital
    
    
    43,582
    
    
    
    43,179Accumulated deficit
    
    
    (45,225
    )
    
    
    (44,741
    )Total stockholders deficit
    
    
    (1,613
    )
    
    
    (1,536
    )TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
    
    $
    697
    
    
    $
    484
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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007REVENUES
    
    $
    527
    
    
    $
    414
    
    
    $
    1,545
    
    
    $
    1,240COST OF REVENUES
    
    
    408
    
    
    
    274
    
    
    
    1,218
    
    
    
    846GROSS PROFIT
    
    
    119
    
    
    
    140
    
    
    
    327
    
    
    
    394OPERATING EXPENSESSelling, general and administrative
    
    
    245
    
    
    
    195
    
    
    
    732
    
    
    
    594Total operating expenses
    
    
    245
    
    
    
    195
    
    
    
    732
    
    
    
    594LOSS FROM OPERATIONS
    
    
    (126
    )
    
    
    (55
    )
    
    
    (405
    )
    
    
    (200
    )OTHER INCOME (EXPENSE)Interest income
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    6Interest expense  related parties
    
    
    (21
    )
    
    
    (18
    )
    
    
    (62
    )
    
    
    (27
    )Interest expense  other
    
    
    (4
    )
    
    
    (9
    )
    
    
    (17
    )
    
    
    (54
    )Total other income (expense)
    
    
    (25
    )
    
    
    (26
    )
    
    
    (79
    )
    
    
    (75
    )NET LOSS
    
    $
    (151
    )
    
    $
    (81
    )
    
    $
    (484
    )
    
    $
    (275
    )NET LOSS PER COMMON SHARE(BASIC AND DILUTED)
    
    $
    (0.01
    )
    
    $
    (0.00
    )
    
    $
    (0.02
    )
    
    $
    (0.01
    )WEIGHTED AVERAGE COMMON SHARESOUTSTANDING (BASIC AND DILUTED)
    
    
    29,247
    
    
    
    26,051
    
    
    
    28,160
    
    
    
    26,048
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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, 2006
    
    
    1
    
    
    $
    
    
    
    
    26,001
    
    
    $
    26
    
    
    $
    43,166
    
    
    $
    (44,284
    )
    
    $
    (1,092
    )Warrants exercised
for common stock
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    20Stock based
compensation
(reversal)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (457
    )
    
    
    (457
    )Balances at
December 31, 2007
    
    
    1
    
    
    
    
    
    
    
    26,101
    
    
    
    26
    
    
    
    43,179
    
    
    
    (44,741
    )
    
    
    (1,536
    )Common stock issued
for asset
acquisition
    
    
    
    
    
    
    
    
    
    
    1,700
    
    
    
    2
    
    
    
    117
    
    
    
    
    
    
    
    119Issuance of common
stock in payment of
accrued interest -
related party
    
    
    
    
    
    
    
    
    
    
    102
    
    
    
    
    
    
    
    38
    
    
    
    
    
    
    
    38Issuance of common
stock in payment of
note principal -
related party
    
    
    
    
    
    
    
    
    
    
    1,563
    
    
    
    2
    
    
    
    248
    
    
    
    
    
    
    
    250Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (484
    )
    
    
    (484
    )Balances at
September 30, 2008
    
    
    1
    
    
    $
    
    
    
    
    29,466
    
    
    $
    30
    
    
    $
    43,582
    
    
    $
    (45,225
    )
    
    $
    (1,613
    )
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Nine Months EndedSeptember 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (484
    )
    
    $
    (275
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation and amortization
    
    
    54
    
    
    
    55Bad debt expense
    
    
    7
    
    
    
    Stock based compensation (reversal)
    
    
    
    
    
    
    (7
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (19
    )
    
    
    (77
    )Prepaid expenses and other current assets
    
    
    (29
    )
    
    
    2Current and non-current liabilities
    
    
    229
    
    
    
    6Net cash used in operating activities
    
    
    (242
    )
    
    
    (296
    )CASH FLOWS FROM INVESTING ACTIVITIES:Acquisition, net of cash received
    
    
    (22
    )
    
    
    Purchases of property and equipment
    
    
    
    
    
    
    (2
    )Capitalized software development costs
    
    
    (98
    )
    
    
    (6
    )Net cash used in investing activities
    
    
    (120
    )
    
    
    (8
    )CASH FLOWS FROM FINANCING ACTIVITIES:Principal payments on capital lease obligation
    
    
    (33
    )
    
    
    (26
    )Proceeds from notes payable
    
    
    
    
    
    
    100Payment of notes payable
    
    
    (200
    )
    
    
    Proceeds from notes payable to related parties
    
    
    575
    
    
    
    60Payment of notes payable to related parties
    
    
    (25
    )
    
    
    (30
    )Proceeds from exercise of stock warrants
    
    
    
    
    
    
    10Net cash provided by financing activities
    
    
    317
    
    
    
    114NET DECREASE IN CASH AND EQUIVALENTS
    
    
    (45
    )
    
    
    (190
    )CASH AND EQUIVALENTS, BEGINNING OF PERIOD
    
    
    98
    
    
    
    251CASH AND EQUIVALENTS, END OF PERIOD
    
    $
    53
    
    
    $
    61SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid for interest
    
    $
    16
    
    
    $
    32Cash paid for taxes
    
    $
    
    
    
    $
    SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:Acquisition of equipment through capital lease
    
    $
    8
    
    
    $
    Payment of notes payable and accrued interest through issuance of common stock
    
    $
    288
    
    
    $
    Replacement note issued to pay off debt
    
    $
    250
    
    
    $
    Non-cash payments related to asset acquisition
    
    $
    124
    
    
    $
    Liabilities relieved in acquisition
    
    $
    25
    
    
    $
    
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1.
    
    BASIS OF PRESENTATIONIn 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 September 30, 2008 and the results of their operations and cash flows for
the three and nine months ended September 30, 2008 and 2007, in conformity with generally
accepted accounting principles for interim financial information applied on a consistent
basis. The results of operations for the three and nine months ended September 30, 2008 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-KSB for the year ended December 31, 2007, as filed with the Securities and Exchange
Commission on February 26, 2008.2.
    
    NEED FOR ADDITIONAL CAPITAL AND LIQUIDITYManagement 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, 2008. 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.
    
    ACQUISITIONOn February 20, 2008, the Company acquired substantially all the assets of Acceptius, Inc.
(Acceptius). Acceptius was engaged in the business of providing transaction processing
services to the healthcare industry. The Company anticipates that the acquisition will
expand its current revenue generating opportunities by adding paper conversion and claims
repricing, extend its claims processing capabilities and increase its client base. The
$179,000 purchase price consisted of:
 
    
    cash paid to the sellers in the aggregate amount of $25,000
    
    an aggregate of 1,700,000 shares of common stock of the Company issued to the
Sellers, valued at $0.07 per share in accordance with Emerging Issues Task Force
(EITF) 99-12, Determination of the Measurement Date for the Market Price of
Acquirer Securities Issued in a Purchase Business Combination
    
    an aggregate of $30,000 in direct transaction costs; and
    
    cash to be paid to the sellers by August 20, 2008 in the aggregate amount of
$5,000.
 The Company was to pay Acceptius an additional $5,000 within the six months following
February 20, 2008. Several attempts have been made to tender payment of this additional
$5,000, but the Company has been unable to make contact with any Acceptius representatives
since July. The obligation is recorded as a current payable by the Company, awaiting
communication from Acceptius representatives concerning payment instructions.
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Operating results of Acceptius have been included in the Companys consolidated financial
statements since February 1, 2008, when the Company assumed the risk of loss for Acceptiuss
operations, by recording revenue and cost of revenue transactions from that date directly in
the accounts of the Company.The following table summarizes the initial fair values of the assets acquired and
liabilities assumed, in thousands, at the date of acquisition based on a preliminary
valuation. Subsequent adjustments may be recorded upon the completion of the valuation and
the final determination of the purchase price allocation.
 Cash
    
    $
    4Accounts receivable
    
    
    24Computer hardware and software
    
    
    6Software development costs
    
    
    20Goodwill
    
    
    138Current liabilities
    
    
    (13
    )$
    179
 The following unaudited pro forma information presents the 2007 and 2008 results of
operations of the Company as if the acquisition had occurred on January 1, 2007. The
unaudited pro forma results are not necessarily indicative of results that would have
occurred had the acquisition been in effect for the periods presented, nor are they
necessarily indicative of future results.
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Revenues
    
    $
    527
    
    
    $
    554
    
    
    $
    1,583
    
    
    $
    1,690Net loss
    
    $
    (151
    )
    
    $
    (112
    )
    
    $
    (477
    )
    
    $
    (398
    )Net loss per common share (basic and diluted)
    
    $
    (0.01
    )
    
    $
    (0.00
    )
    
    $
    (0.02
    )
    
    $
    (0.01
    )Weighted average common shares outstanding
(basic and diluted)
    
    
    29,247
    
    
    
    27,751
    
    
    
    28,471
    
    
    
    27,748
 4.
    
    EQUIPMENT, FIXTURES AND SOFTWAREEquipment, fixtures and software consists of the following at September 30, 2008 (in
thousands):
 Computer hardware and software
    
    $
    395Software development costs
    
    
    2,103Furniture and fixtures
    
    
    31Office equipment
    
    
    28Leasehold improvements
    
    
    35Equipment under capital lease
    
    
    1292,721Less accumulated depreciation and amortization
    
    
    (2,534
    )$
    187
 The assets held under capital leases have been included in property and equipment and total
$129,000 with accumulated amortization of $76,076 for the quarter ended September 30, 2008.
Amortization expense related to capital leases is included in depreciation expense.
 -8-




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5.
    
    REVENUE RECOGNITIONThe Company generally enters into service agreements with its customers to provide access to
its hosted software platform for processing of customer transactions. The Company operates
the software application for all customers and the customers are not entitled to ownership
of its software at any time during or at the end of the agreements. The end users of the
Companys software application access its hosted software platform or privately hosted
versions of its 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 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 its 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 performance. The Company currently uses an estimated expected business
arrangement term of three years which is currently the term of the typical contracts 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 them as 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.6.
    
    SHARE BASED PAYMENTSThe Company accounts for options and warrants issued to employees under Statement of
Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment, as of January 1,
2006, using the modified prospective application method. This statement requires the
recognition of compensation expense when an entity obtains employee services in stock-based
payment transactions.Upon the adoption of SFAS 123(R), the Company began recording compensation cost related to
all new stock based compensation grants after our adoption date. The compensation cost to be
recorded is based on the fair value at the grant date.No compensation expense in stock-based payment transactions was recognized for the three
months ended September 30, 2008 or 2007. No compensation expense in stock-based payment
transactions was recognized for the nine months ended September 30, 2008. A reversal of
compensation expense in stock-based payment transactions of $7,000 was recognized for the
nine months ended September 30, 2007, as a result of an unvested warrant cancellation.The following table summarizes the stock option activity related to employee grants:
 WEIGHTEDNUMBER
    
    
    PER SHARE
    
    
    AVERAGEOF SHARES
    
    
    EXERCISE PRICE
    
    
    EXERCISE PRICEOutstanding options-December 31, 2007
    
    
    900,776
    
    
    $
    0.30-8.00
    
    
    $
    1.15Granted
    
    
    
    
    
    
    
    
    
    
    Expired or cancelled
    
    
    
    
    
    
    
    
    
    
    Outstanding options-September 30, 2008
    
    
    900,776
    
    
    $
    0.30-8.00
    
    
    $
    1.15Options exercisable-September 30, 2008
    
    
    900,776
    
    
    $
    0.30-8.00
    
    
    $
    1.15
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##### Table of Contents



Outstanding options as of September 30, 2008, had a weighted average remaining exercise
period of approximately 4.2 years. At September 30, 2008, options available for grant under
the Companys 1997 Stock Option Plan were 431,916. There was no intrinsic value related to
outstanding options at September 30, 2008.The following table summarizes the warrant activity related to employee grants:
 WEIGHTEDNUMBER
    
    
    PER SHARE
    
    
    AVERAGEOF SHARES
    
    
    EXERCISE PRICE
    
    
    EXERCISE PRICEOutstanding warrants-December 31, 2007
    
    
    2,399,324
    
    
    $
    0.15-0.35
    
    
    $
    0.18Granted
    
    
    
    
    
    
    
    
    
    
    Expired or cancelled
    
    
    
    
    
    
    
    
    
    
    Outstanding warrants-September 30, 2008
    
    
    2,399,324
    
    
    $
    0.15-0.35
    
    
    $
    0.18Warrants exercisable-September 30, 2008
    
    
    2,399,324
    
    
    $
    0.15-0.35
    
    
    $
    0.18
 Outstanding employee warrants as of September 30, 2008, had a weighted average remaining
exercise period of approximately 4.9 years. There was no intrinsic value related to
outstanding options at September 30, 2008.7.
    
    LOANS FROM RELATED PARTIESOn September 29, 2008, the Company issued an unsecured promissory note upon receipt of
$20,000 from a director of the Company. The note bears interest at the rate of 5% per
annum. Payments equal to the principal and accrued and unpaid interest on the note are
due on demand, with thirty days notice.On September 16, 2008, the Company issued an unsecured promissory note upon receipt of
$30,000 from a director of the Company. The note bears interest at the rate of 5% per
annum. Payments equal to the principal and accrued and unpaid interest on the note are
due on demand, with thirty days notice.On September 1, 2008, the Company exercised its option to convert into its common stock a
portion of debt evidenced by an unsecured promissory note with a 5% shareholder of the
Company. The note was issued March 20, 2008 with a maturity date of March 31, 2011, and
bears interest at the rate of 3.5% per annum. $50,000 of the outstanding principal was
converted into 312,500 shares of the Companys common stock at a conversion price of
62,500 shares per $10,000 of principal. In addition, $2,152 of accrued and unpaid interest
was converted into 13,450 shares of the Companys common stock at a conversion price of
62,500 shares per $10,000 of interest.On August 20, 2008, the Company issued an unsecured promissory note upon receipt of
$50,000 from a related party. The note bears interest at the rate of 5% per annum.
Payments equal to the principal and accrued and unpaid interest on the note are due on
demand, with thirty days notice.On May 29, 2008, the Company exercised its option to convert into its common stock a
portion of debt evidenced by an unsecured promissory note with a 5% shareholder of the
Company. The note was issued March 20, 2008 with a maturity date of March 31, 2011, and
bears interest at the rate of 3.5% per annum. $200,000 of the outstanding principal was
converted into 1,250,000 shares of the Companys common stock at a conversion price of
62,500 shares per $10,000 of principal.On May 13, 2008, the Company issued a convertible unsecured promissory note upon receipt
of $200,000 from a 5% shareholder of the Company. The note bears interest at the rate of
4% per annum. Payments equal to the principal and accrued and unpaid interest on the note
are due on March 31, 2011. At the option of the Company, at any time or from time to time
prior to the maturity date, all or any portion of the outstanding principal may be
converted into a number of shares of the Companys common stock at a conversion price of
47,500 shares per $10,000 of principal.
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On April 29, 2008, the Company issued an unsecured promissory note upon receipt of $25,000
from a director of the Company. The note bears interest at the rate of 5% per annum.
Payments equal to the principal and accrued and unpaid interest on the note are due on
demand, with thirty days notice. On June 17, 2008, the Company repaid the note plus
accrued interest.On March 20, 2008, the Company converted interest in the aggregate amount of $35,642 into
common shares at the conversion price of $0.40 per share in accordance with two earlier
convertible promissory notes held by a 5% shareholder of the Company.On March 20, 2008, the Company issued a convertible unsecured promissory note upon receipt
of $250,000 from a 5% shareholder of the Company. The note bears interest at the rate of
3.5% per annum. Payments equal to the principal and accrued and unpaid interest on the
note are due on March 31, 2011. At the option of the Company, at any time or from time to
time prior to the maturity date, all or any portion of the outstanding principal may be
converted into a number of shares of the Companys common stock at a conversion price of
62,500 shares per $10,000 of principal.On March 20, 2008, the Company issued a convertible unsecured promissory note upon receipt
of $250,000 from a 5% shareholder of the Company. The note bears interest at the rate of
4% per annum. Payments equal to the principal and accrued and unpaid interest on the note
are due on March 31, 2011. At the option of the Company, at any time or from time to time
prior to the maturity date, all or any portion of the outstanding principal may be
converted into a number of shares of the Companys common stock at a conversion price of
47,500 shares per $10,000 of principal. The Company repaid principal on a previously
issued convertible note payable to the shareholder in the aggregate amount of $250,000 by
entering into this unsecured note.The conversion price for all of the above described convertible notes was in excess of the
trading price on the date of issuance, therefore no beneficial conversion feature exists for
these agreements.8.
    
    SUBSEQUENT EVENTSOn October 28, 2008, the Company issued an unsecured promissory note upon receipt of
$50,000 from a related party. The note bears interest at the rate of 5% per annum.
Payments equal to the principal and accrued and unpaid interest on the note are due on
demand, with thirty days notice.
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
    
    our ability to raise additional capital and secure additional financing;
    
    our ability to successfully implement our revised business strategy;
    
    our ability to market our services;
    
    our ability to develop and maintain strategic partnerships or alliances;
    
    our ability to maintain and increase our customer base;
    
    our ability to protect our intellectual property rights;
    
    our ability to further develop our technology and transaction processing system;
    
    our ability to respond to competitive developments;
    
    our ability to attract and retain key employees;
    
    our ability to comply with government regulations;
    
    the effects of natural disasters, computer viruses and similar disruptions to our
computer systems;
    
    threats to Internet security; and
    
    acceptance of the Internet and other online services in the healthcare industry and
in general.
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
    
    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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2.1(1)
    
    Asset Purchase Agreement by and between Claimsnet.com inc. and Acceptius, Inc. dated February 20, 2008.3.1(3)
    
    Certificate of Incorporation.3.1(a)(3)
    
    Certificate of Amendment to Certificate of Incorporation.3.1(b)(4)
    
    Certificate of Designation of Series A Preferred Stock.3.1(c)(4)
    
    Certificate of Designation of Series B Preferred Stock.3.1(d)(4)
    
    Certificate of Designation of Series C Preferred Stock.3.1(e)(4)
    
    Certificate of Designation of Series D Preferred Stock.3.1(f)(2)
    
    Certificate of Designation of Series E Preferred Stock.3.2(3)
    
    Bylaws, as amended.4.1(3)
    
    Form of Common Stock Certificate.4.2(4)
    
    Form of Warrant issued to Bo W. Lycke dated February 21, 2002.4.3(5)
    
    Form of Warrant issued to Don Crosbie dated June 3, 2003.4.4(5)
    
    Form of Warrant issued to certain employees dated June 3, 2003.4.5(5)
    
    Form of Warrant issued to Thomas Michel dated June 3, 2003.4.6(5)
    
    Form of Warrant issued to Alfred Dubach dated June 3, 2003.4.7(6)
    
    Form of Warrant issued to Gary J. Austin dated September 21, 2004.4.8(6)
    
    Form of Warrant issued to Laura M. Bray dated September 21, 2004.4.9(6)
    
    Form of Warrant issued to Don Crosbie dated September 21, 2004.10.1(7)
    
    Amendment No. 1 to the Unsecured Promissory Note by and between Claimsnet.com
and National Financial Corporation dated March 20, 2008.
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10.2(7)
    
    Unsecured Convertible Promissory Note between Claimsnet.com and Elmira United
Corporation dated March 20, 2008.10.3(7)
    
    Unsecured Convertible Promissory Note between Claimsnet.com and Elmira United
Corporation dated March 20, 2008.10. 4(8)
    
    Unsecured Promissory Note between Claimsne.com and Thomas Michel dated April
29, 2008.31.1
    
    Certification of Don Crosbie, Principal Executive Officer.31.2
    
    Certification of Laura M. Bray, Principal Financial Officer.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, Principal Executive Officer.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, Principal Financial Officer.
 
 (1)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K dated
February 20, 2008 filed on February 21, 2008.(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 registration statement on Form S-1
(Registration No. 333-36209).(4)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for the
year ended December 31, 2001 filed on April 15, 2002.(5)
    
    Incorporated by reference to the Registrants Current Report on Form 10-KSB dated
March 29, 2004.(6)
    
    Incorporated by reference to the Registrants Current Report on Form 10-KSB dated
March 16, 2005.(7)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K dated March
20, 2008 filed on March 24, 2008.(8)
    
    Incorporated by reference to the Registrants Current Report on Form 10-Q dated
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CLAIMSNET.COM INC.(Registrant)October 30, 2008By:
    
    /s/ Don CrosbieDon CrosbieChief Executive OfficerPrincipal Executive OfficerOctober 30, 2008By:
    
    /s/ Laura M. Bray

Laura M. BrayChief Financial OfficerPrincipal Financial Officer
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