<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB


(Mark One)

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

                For the Quarterly Period Ended September 30, 2004

                                       OR

[ ]      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

                               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 executive offices)                        (Zip Code)


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 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,
25,226,180 shares outstanding as of October 19, 2004.




<PAGE>

                       CLAIMSNET.COM INC. AND SUBSIDIARIES

                                TABLE OF CONTENTS




PART I.  FINANCIAL INFORMATION

         ITEM 1.    Financial Statements

                    Consolidated Balance Sheets as of September 30, 2004
                    (unaudited) and December 31, 2003 (audited)

                    Consolidated Statements of Operations (unaudited) for the
                    Three Months Ended September 30, 2004 and 2003, and for the
                    Nine Months Ended September 30, 2004 and 2003

                    Consolidated Statements of Changes in Stockholders' Deficit
                    for the Year Ended December 31, 2003 (audited) and the Nine
                    Months Ended September 30, 2004 (unaudited)

                    Consolidated Statements of Cash Flows (unaudited) for the
                    Nine Months Ended September 30, 2004 and 2003

                    Notes to Consolidated Financial Statements

         ITEM 2.    Management's Discussion and Analysis of Financial Condition
                    and Results of Operations

         ITEM 3.    Controls and Procedures


PART II.  OTHER INFORMATION

         ITEM 2.    Changes in Securities

         ITEM 6.    Exhibits and Reports on Form 8-K


SIGNATURES




                                       2

<PAGE>
PART I - FINANCIAL INFORMATION

ITEM 1:   FINANCIAL STATEMENTS
<TABLE>

                                CLAIMSNET.COM INC. AND SUBSIDIARIES
                                    CONSOLIDATED BALANCE SHEETS
                                 (In thousands, except share data)
<CAPTION>

                                                                      (Unaudited)       (Audited)
                                                                      September 30,    December 31,
                                                                          2004            2003
                                                                      -------------   -------------
<S>                                                                   <C>             <C>
ASSETS

CURRENT ASSETS
   Cash and equivalents                                               $         51    $         66
   Accounts receivable, net of allowance for
     doubtful accounts of $6 and $9, respectively                              163             114
   Prepaid expenses and other current assets                                    53              56
                                                                      -------------   -------------
     Total current assets                                                      267             236

EQUIPMENT, FIXTURES AND SOFTWARE
   Computer hardware and software                                            1,077           1,077
   Software development costs                                                1,979           1,977
   Furniture and fixtures                                                       31              31
   Office equipment                                                             25              25
   Leasehold improvements                                                       35              26
                                                                      -------------   -------------
                                                                             3,147           3,136
   Accumulated depreciation and amortization                                (3,068)         (3,036)
                                                                      -------------   -------------
     Total equipment, fixtures and software                                     79             100
                                                                      -------------   -------------
TOTAL ASSETS                                                          $        346    $        336
                                                                      =============   =============
LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
   Accounts payable                                                   $         99    $        162
   Accrued payroll and other current liabilities                               165             134
   Customer prepayments                                                         43              --
   Deferred revenues                                                           163             208
   Notes payable to related parties - short term                               180             151
   Notes payable - short term                                                   25              --
                                                                      -------------   -------------
     Total current liabilities                                                 675             655

LONG TERM LIABILITIES
   Notes payable to related parties - long term                                 50              10
   Notes payable - long term                                                    50              25
                                                                      -------------   -------------
     Total long term liabilities                                               100              35
                                                                      -------------   -------------
     Total liabilities                                                         775             690

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 as of September 30, 2004
     and December 31, 2003                                                      --              --
   Common stock, $.001 par value; 40,000,000 shares authorized;
     25,226,180 shares and 23,201,000 shares issued and outstanding
     as of September 30, 2004 and December 31, 2003, respectively               25              23
   Additional capital                                                       42,985          42,582
   Accumulated deficit                                                     (43,439)        (42,959)
                                                                      -------------   -------------
     Total stockholders' deficit                                              (429)           (354)
                                                                      -------------   -------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                           $        346    $        336
                                                                      =============   =============

                          See notes to consolidated financial statements.

                                                 3
</TABLE>


<PAGE>
<TABLE>

                             CLAIMSNET.COM INC. AND SUBSIDIARIES
                            CONSOLIDATED STATEMENTS OF OPERATIONS
                            (In thousands, except per share data)
                                         (Unaudited)
<CAPTION>

                                                 Three Months Ended       Nine Months Ended
                                                    September 30,           September 30,
                                                ---------------------   ---------------------
                                                  2004        2003        2004        2003
                                                ---------   ---------   ---------   ---------
<S>                                             <C>         <C>         <C>         <C>
REVENUES                                        $    291    $    157    $    731    $    487

COST OF REVENUES                                     184         115         492         489
                                                ---------   ---------   ---------   ---------
GROSS PROFIT (LOSS)                                  107          42         239          (2)
                                                ---------   ---------   ---------   ---------
OPERATING EXPENSES
   Research and development                           --          10          --          24
   Selling, general and administrative               258         308         795       1,125
                                                ---------   ---------   ---------   ---------
     Total operating expenses                        258         318         795       1,149
                                                ---------   ---------   ---------   ---------

LOSS FROM OPERATIONS                                (151)       (276)       (556)     (1,151)

OTHER INCOME (EXPENSE)
   Gain on settlement of liabilities                  --          --          91         916
   Interest expense - related parties                 (4)         (4)        (12)         (9)
   Interest expense - other                           (1)         (1)         (3)         (5)
   Loss on sale of assets                             --         (31)         --         (31)
                                                ---------   ---------   ---------   ---------
     Total other income (expense)                     (5)        (36)         76         871
                                                ---------   ---------   ---------   ---------
NET LOSS                                        $   (156)   $   (312)   $   (480)   $   (280)
                                                =========   =========   =========   =========
NET LOSS PER COMMON SHARE (BASIC AND DILUTED)   $  (0.01)   $  (0.02)   $  (0.02)   $  (0.02)
                                                =========   =========   =========   =========
WEIGHTED AVERAGE COMMON SHARES
     OUTSTANDING (BASIC AND DILUTED)              25,014      20,537      24,204      17,882
                                                =========   =========   =========   =========



                       See notes to consolidated financial statements.

                                              4
</TABLE>



<PAGE>
<TABLE>

                                               CLAIMSNET.COM INC. AND SUBSIDIARIES
                                   CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
                 Year Ended December 31, 2003 (audited) and the Nine Months Ended September 30, 2004 (unaudited)
                                                         (In thousands)
<CAPTION>

                                 Number of                   Number of
                                 Preferred                   Common                                                  Total
                                 Shares        Preferred     Shares        Common        Additional    Accumulated   Stockholders'
                                 Outstanding   Stock         Outstanding   Stock         Capital       Deficit       Deficit
                                 -----------   -----------   -----------   -----------   -----------   -----------   -----------
<S>                                       <C>  <C>               <C>      <C>            <C>           <C>           <C>
Balances at January 1, 2003               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 - related
party                                    --            --           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 warrants and
options 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)
                                 -----------   -----------   -----------   -----------   -----------   -----------   -----------

Issuance of common stock in
payment of notes payable and
accrued interest - related
party                                    --            --            25            --             5            --             5

Warrants exercised for common
stock                                    --            --         2,000             2           398            --           400

Net loss                                 --            --            --            --            --          (480)         (480)
                                 -----------   -----------   -----------   -----------   -----------   -----------   -----------
Balances at September 30, 2004            1    $       --        25,226    $       25    $   42,985    $  (43,439)   $     (429)
                                 ===========   ===========   ===========   ===========   ===========   ===========   ===========


                                         See notes to consolidated financial statements.

                                                               5

</TABLE>

<PAGE>
<TABLE>

                         CLAIMSNET.COM INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (In thousands)
                                     (Unaudited)
<CAPTION>
                                                                Nine Months Ended
                                                                  September 30,
                                                                2004         2003
                                                             ----------   ----------
<S>                                                          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                  $    (480)   $    (280)
     Adjustments to reconcile net loss to net cash
     used in operating activities:
       Depreciation and amortization                                32           81
       Provision for doubtful accounts                              (3)          (3)
       Stock options and warrants issued for services               --          180
       Gain on settlement of liabilities                           (91)        (916)
       Loss on sale of assets                                       --           31
     Changes in operating assets and liabilities:
         Accounts receivable                                       (46)           9
         Prepaid expenses and other current assets                   3           (4)
         Current liabilities                                        61          (90)
                                                             ----------   ----------
         Net cash used in operating activities                    (524)        (992)
                                                             ----------   ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of equipment and fixtures                            (9)         (46)
     Proceeds from sale of assets                                   --            2
     Capitalized software development costs                         (2)         (43)
                                                             ----------   ----------
       Net cash used in investing activities                       (11)         (87)
                                                             ----------   ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from notes payable to related parties                 70          100
     Payment of notes payable to related parties                    --           (2)
     Proceeds from notes payable                                    50           --
     Proceeds from issuance of common stock                        400          857
                                                             ----------   ----------
       Net cash provided by financing activities                   520          955
                                                             ----------   ----------
NET DECREASE IN CASH AND EQUIVALENTS                               (15)        (124)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD                           66          153
                                                             ----------   ----------
CASH AND EQUIVALENTS, END OF PERIOD                          $      51    $      29
                                                             ==========   ==========


SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:

Payment of notes payable and accrued interest through
     issuance of common stock                                $       5    $      75
                                                             ==========   ==========


                   See notes to consolidated financial statements.

                                         6
</TABLE>


<PAGE>

                       CLAIMSNET.COM INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

1. BASIS OF PRESENTATION

    In the opinion of management, the accompanying unaudited consolidated
    financial statements include all necessary adjustments (consisting of normal
    recurring accruals) and present fairly the consolidated financial position
    of Claimsnet.com inc. (the "Company") and subsidiaries as of September 30,
    2004 and the results of their operations and cash flows for the three months
    and nine months ended September 30, 2004 and 2003, 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, 2004 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 accounting principles generally
    accepted in the United States 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, 2003, as filed with the Securities
    and Exchange Commission on March 29, 2004.

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 will not be sufficient to satisfy the
    Company's capital requirements past January 31, 2005. Necessary additional
    capital may not be available on a timely basis or on acceptable terms, if at
    all. 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
    equity securities, the holders of the Company's 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. REVENUE RECOGNITION

    The 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 a majority of the 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 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.

                                       7

<PAGE>

4. SALE OF COMMON STOCK

    From February through August 2004, Elmira United Corporation, which owned at
    the time more than 5% of the outstanding shares of common stock of the
    Company, exercised previously issued warrants to purchase 2,000,000 shares
    of the Company's common stock at $0.20 per share, for net proceeds of
    $400,000. The offer and sale of the securities referenced in the previous
    sentence were exempt from registration under the Securities Act of 1933, as
    amended, (the "Act") by virtue of Section 4(2) thereof and the rules
    promulgated thereunder.

    In June 2004, the Company issued, in a private placement transaction exempt
    from registration under the Act pursuant to Section 4(2) thereof, 25,000
    shares of its common stock to a director of the Company at a deemed purchase
    price of $0.20 per share in satisfaction of debt and accrued interest
    aggregating $5,000. In connection therewith, the Company also issued
    warrants to the director to purchase an aggregate of 25,000 shares of common
    stock. The warrants have an exercise price of $0.20 per share and expire
    December 31, 2007.

5. ISSUANCE OF OPTIONS

    In March 2004, the Company issued options to acquire an aggregate of 500,000
    shares of common stock to certain employees. These options have an exercise
    price of $0.35 per share, the fair market value of the stock on the date of
    grant, vest over three years, and expire in March 2014.

6. ISSUANCE OF WARRANTS

    In September 2004, the Company issued warrants to acquire an aggregate of
    550,000 shares of common stock to certain employees. These warrants have an
    exercise price of $0.29 per share, the fair market value of the stock on the
    date of grant, vest over three years, and expire in September 2014.

7. GAIN ON SETTLEMENT OF LIABILITIES

    In May 2004, the Company entered into a settlement agreement with a
    nonaffiliated creditor pursuant to which the Company made a payment totaling
    $20,000 to settle certain accounts payable of $111,000, resulting in a gain
    on settlement of liabilities totaling $91,000.

8. LOANS FROM RELATED PARTIES

    In May 2004, the Company entered into an unsecured short-term loan agreement
    with National Financial Corp. ("NFC"), a related entity, pursuant to which
    NFC loaned the Company an aggregate amount of $20,000. The principal amount
    plus interest, at 9.5% per annum on the unpaid principal, is due on demand.

    In September 2004, the Company entered into a convertible long-term loan
    agreement with Elmira United Corporation ("Elmira"), a related entity,
    pursuant to which Elmira loaned the Company an aggregate amount of $50,000.
    The principal amount plus interest, at 7% per annum on the unpaid principal,
    is due September 22, 2007. At the option of the holder, at any time or from
    time to time prior to the maturity date, all or any portion of the
    outstanding principal and interest may be converted into shares of the
    Company's common stock at a conversion price of $0.40 per share.

    In September 2004, the Company entered into a convertible long-term loan
    agreement with an accredited investor, pursuant to which the investor loaned
    the Company an aggregate amount of $50,000. The principal amount plus
    interest, at 7% per annum on the unpaid principal is due September 22, 2007.
    At the option of the holder, at any time or from time to time prior to the
    maturity date, all or any portion of the outstanding principal and interest
    may be converted into shares of the Company's common stock at a conversion
    price of $0.40 per share.


                                       8

<PAGE>

9. STOCK-BASED COMPENSATION

    The Company accounts for its stock-based employee compensation plan using
    the intrinsic value-based method prescribed by Accounting Principles Board
    Opinion No. 25, "Accounting for Stock Issued to Employees," and related
    interpretations. As such, compensation expense is recorded on the date of
    grant to the extent the current market price of the underlying stock exceeds
    the exercise price. The Company recorded no compensation expense associated
    with options issued to employees during the three or nine months ended
    September 30, 2004 and 2003. The Company's calculations for employee grants
    were made using a Black-Scholes model using the following assumptions:

                                                      2004               2003
                                                     ------             ------
         Expected life                               10 years           10 years
         Risk free rate                            3.84% - 4.13%         4.77%
         Dividends                                     None               None
         Volatility                                 1.20 - 1.78           2.04

    If the computed values of all the Company's stock based awards were
    calculated and expensed (over the vesting period of the awards) using the
    fair value method specified under SFAS 123 "Accounting for Stock-Based
    Compensation," as amended by SFAS No. 148 "Accounting for Stock-Based
    Compensation - Transition and Disclosure," the net loss would have been as
    follows (in thousands, except per share data):
<TABLE>

                                                        Three Months Ended            Nine Months Ended
                                                           September 30,                 September 30,
                                                         2004           2003           2004           2003
                                                      ------------  ------------    ------------  ------------
<S>                                                   <C>           <C>             <C>           <C>
    Net loss, as reported                             $      (156)  $      (312)    $      (480)  $      (280)
    Stock-based compensation expense:
       Included in reported net loss                           --            --              --            --
       Determined using the fair value method                 (60)          (45)           (165)          (64)
                                                      ------------  ------------    ------------  ------------
    Pro forma net loss                                $      (216)  $      (357)    $      (645)  $      (344)
                                                      ------------  ------------    ------------  ------------

    Net loss per share - basic and diluted
       As reported                                    $     (0.01)  $     (0.02)    $     (0.02)  $     (0.02)
       Pro forma                                      $     (0.01)  $     (0.02)    $     (0.03)  $     (0.02)
</TABLE>

10. SUBSEQUENT EVENTS

    In October 2004, the Company entered into two convertible long-term loan
    agreements with accredited investors, pursuant to which the investors loaned
    the Company an aggregate amount of $150,000. The principal amount plus
    interest, at 7% per annum on the unpaid principal, is due in October 2007.
    At the option of the holders, at any time or from time to time prior to the
    maturity date, all or any portion of the outstanding principal and interest
    may be converted into shares of the Company's common stock at a conversion
    price of $0.40 per share.

                                       9

<PAGE>


ITEM 2. 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.

GENERAL OVERVIEW

As of September 30, 2004, we had a working capital deficit of $(408,000) and
stockholders' deficit of $(429,000). We generated revenues of $731,000 for the
nine months ended September 30, 2004 and $487,000 for the nine months ended
September 30, 2003. We have incurred net losses since inception and had an
accumulated deficit of $(43,439,000) at September 30, 2004. We expect to
continue to operate at a loss for the near future. There can be no assurance
that we will ever achieve profitability. See Note 2 of the Notes to Consolidated
Financial Statements regarding our need for additional capital and liquidity.

We have been in operation 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. The
majority of the cost of revenue and operating expenses reflected in our
consolidated financial statements are associated with the cost of personnel and
other expenditures which are fixed or semi-fixed in nature, and not directly
related to the number of clients we serve or transactions we process to generate
revenues. Accordingly, we believe that, at our current stage of operations,
period-to-period comparisons of results of operations are not meaningful.

PRIVATE PLACEMENTS, OPTIONS AND WARRANTS

In June 2004, we completed the private placement of 25,000 shares of common
stock to a member of our Board of Directors at $0.20 per share, for the
satisfaction of $5,000 of notes payable and accrued interest. We also issued
warrants to the Director to purchase an aggregate of 25,000 shares of common
stock at an exercise price of $0.20 per share on or prior to December 31, 2007.

From February through August 2004, Elmira United Corporation, a greater than 5%
shareholder, exercised previously issued warrants to purchase 2,000,000 shares
of our common stock at $0.20 per share or an aggregate amount of $400,000.

In March 2004, we issued options to acquire an aggregate of 500,000 shares of
common stock to certain employees. These options have an exercise price of $0.35
per share, the fair market value of the stock on the date of grant, vest over
three years and expire in March 2014.

In September 2004, we issued warrants to acquire an aggregate of 550,000 shares
of common stock to certain employees. These warrants have an exercise price of
$0.29 per share, the fair market value of the stock on the date of grant, vest
over three years, and expire in September 2014.

None of the above sales of securities involved the use of an underwriter and no
commissions were paid in connection with the sale of such securities. 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 offerees
and investors in such private placements provided representations to us that the
offeree or 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). None of the warrants,
options or the shares subject thereto have been registered under the Act.


                                       10

<PAGE>

PLAN OF OPERATIONS

Our current 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 healthcare payer community and its
       trading partners;
o      to aggressively pursue and support strategic relationships with companies
       that will in turn 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;
o      to license our technology for other applications, including stand-alone
       purposes, internet systems and private label use, and for original
       equipment manufacturers; and
o      to seek merger and acquisition opportunities that enhance our growth and
       profitability objectives.

We anticipate that our primary source of revenues will be fees paid by
healthcare payers and vendors for private-label or co-branded licenses and
services. 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. No assurance
can be given that our development and upgrading efforts will be successful.
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 our customers and retain ownership of our
software during and 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 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 majority of our 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.

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<PAGE>

SOFTWARE FOR SALE OR LICENSE

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

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


RESULTS OF OPERATIONS FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004
COMPARED TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003

REVENUES

Revenues in the three months ended September 30, 2004 (the "2004 third quarter")
were $291,000 compared to $157,000 in the three months ended September 30, 2003
(the "2003 third quarter"), representing an increase of 85%. Revenues for the
2004 third quarter from recurring revenue sources totaled $273,000 and
represented 94% of total revenues. Revenues from non-recurring sources totaled
$18,000 and were related to support and other fees. This increase in sales is a
result of the effort we have put into marketing and sales over the past eighteen
months that has added over forty new customers.

Revenues in the nine months ended September 30, 2004 (the "2004 nine months")
were $731,000 compared to $487,000 in the nine months ended September 30, 2003
(the "2003 nine months"), representing an increase of 50%. Revenues for the 2004
nine months from recurring revenue sources totaled $696,000 and represented 95%
of total revenues. Revenues from non-recurring sources totaled $35,000 and were
related to support and other fees.

COST OF REVENUES

Cost of revenues in the 2004 third quarter was $184,000, compared with $115,000
in the 2003 third quarter, representing an increase of 60%. The four ordinary
components of cost of revenues are data center expenses, transaction processing
expenses, customer support operation expenses and software amortization. Data
center expenses decreased by 55% to $15,000 for the 2004 third quarter compared
with $33,000 for the 2003 third quarter due to relocation of our servers in
November 2003. Transaction processing expenses were $21,000 in the 2004 third
quarter compared to $0 in the 2003 third quarter. Customer support operations
expense increased by 75% to $140,000 in the 2004 third quarter from $80,000 in
the 2003 third quarter. The increase in third party transaction processing
expenses was primarily attributable to new contracts with clearing houses. The
increase in customer support operations expense was primarily attributable to
additional staffing added during 2004. Software amortization and development
project amortization expenses increased to $8,000 in the 2004 third quarter from
$2,000 in the 2003 third quarter.

Cost of revenues in the 2004 nine months was $492,000, compared with $489,000 in
the 2003 nine months, representing an increase of 1%. Data center expenses
decreased by 71% to $46,000 for the 2004 nine months compared with $157,000 for
the 2003 nine months due to relocation of our servers in November 2003.
Transaction processing expenses were $30,000 in the 2004 nine months compared to
$2,000 in the 2003 nine months. Customer support operations expense increased by
34% to $392,000 in the 2004 nine months from $292,000 in the 2003 nine months.
The increase in third party transaction processing expenses was primarily
attributable to new contracts with clearing houses. The increase in customer
support operations expense was primarily attributable to additional staffing
added during 2004. Software amortization and development project amortization
expenses decreased 37% to $24,000 in the 2004 nine months from $38,000 in the
2003 nine months

OPERATING EXPENSES

Research and development expenses were $0 in the 2004 third quarter, compared
with $10,000 in the 2003 third quarter, representing a decrease of 100%.
Research and development expenses were $0 in the 2004 nine months, compared with
$24,000 in the 2003 nine months, representing a decrease of 100%. In September
2004, we began development of a configurable 837 standard output engine project
and capitalized development costs of $2,000 during the 2004 third quarter and
2004 nine months. During early 2003, we began development of a HIPAA remediation
project and capitalized development costs of $27,000 and $43,000 during the 2003
third quarter and 2003 nine months, respectively.

                                       12

<PAGE>

Selling, general and administrative expenses were $258,000 in the 2004 third
quarter, compared with $308,000 in the 2003 third quarter, a decrease of 16%.
Selling, general and administrative expenses were $795,000 in the 2004 nine
months, compared with $1,125,000 in the 2003 nine months, a decrease of 29%. The
reductions are a result of cost containment measures including staff reductions,
salary reductions and other cost containment measures. A one-time charge of
$195,000 was recorded in the 2003 nine months for services performed by two of
our directors outside of their director duties, of which $180,000 related to the
issuance of warrants.

OTHER INCOME (EXPENSE)

Interest expense of $5,000 and $15,000 was incurred in the 2004 third quarter
and 2004 nine months, respectively, on financing fees and affiliate debt
compared with $5,000 and $14,000 in the 2003 third quarter and 2003 nine months,
respectively. A $91,000 gain on settlement of liabilities was recognized during
the 2004 nine months related to a settlement agreement with a creditor. A
$916,000 gain on settlement of liabilities was recognized during the 2003 nine
months related to settlement agreements with several creditors. A loss on sale
of assets of $31,000 in the 2003 third quarter and 2003 nine months related to
the retirement of certain assets during relocation of the Company's offices.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities of $524,000 in the 2004 nine months was
primarily related to a net loss of $480,000 and a non-cash gain of $91,000 from
the settlement of liabilities, offset by depreciation of $32,000 and changes in
working capital of $15,000. Net cash used in operating activities of $992,000 in
the 2003 nine months was primarily related to a net loss of $280,000, a
reduction of $3,000 in the allowance for doubtful accounts, changes in working
capital of $85,000, and a non-cash gain of $916,000 from the settlement of
liabilities offset by depreciation of $81,000, a non-cash loss of $31,000 from
the sale of assets, and non-cash expense of $180,000 from the issuance of
options and warrants.

Net cash used in investing activities in the 2004 nine months of $11,000 related
to the cost of software development capitalized during the year of $2,000 plus
the purchase of computer hardware of $1,000 and leasehold improvements of
$8,000. Net cash used in investing activities in the 2003 nine months of $87,000
related to the cost of software development capitalized during the year of
$43,000 plus the purchase of software of $20,000 and leasehold improvements of
$26,000, less $2,000 of proceeds from the sale of assets.

Net cash provided by financing activities in the 2004 nine months was $520,000,
of which $400,000 was related to the issuance of common stock and $119,000
related to proceeds of $120,000 from debt financing. Net cash provided by
financing activities in the 2003 nine months was $955,000, of which $857,000 was
related to the issuance of common stock and $98,000 related to proceeds of
$100,000 from debt financing, offset by $2,000 used to repay debt.

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
past January 31, 2005. 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, 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 should take the form of equity securities, the holders
of the common stock and preferred stock may experience additional dilution. In
the event of a cessation of operations, there may not be sufficient assets to
fully satisfy all creditors, in which case the holders of equity securities will
be unable to recoup any of their investment.


                                       13

<PAGE>

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS QUARTERLY REPORT ON
FORM 10-QSB AND IN OTHER SEC FILINGS BY THE COMPANY CONTAINS "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO VARY MATERIALLY FROM THOSE
PROJECTED IN SUCH FORWARD-LOOKING STATEMENTS. THESE RISKS AND UNCERTAINTIES ARE
DISCUSSED IN MORE DETAIL IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB WHICH WAS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 2004. NO
ASSURANCE CAN BE GIVEN THAT FUTURE RESULTS COVERED BY THE FORWARD-LOOKING
STATEMENTS WILL BE ACHIEVED.

     ITEM 3. Controls and Procedures

         (a)      Evaluation of Disclosure Controls and Procedures

          As of the end of the period, the Company carried out an evaluation,
          under the supervision and with the participation of the Company's
          management, including the Company's Chief Executive Officer and Chief
          Financial Officer, of the effectiveness of the design and operation of
          the Company's disclosure controls and procedures pursuant to Exchange
          Act Rule 13a-14. Based upon that evaluation, the Chief Executive
          Officer and Chief Financial Officer concluded that the Company's
          disclosure controls and procedures are effective in gathering,
          analyzing and disclosing information needed to satisfy the Company's
          disclosure obligations under the Exchange Act.

         (b)      Changes in Internal Controls

          There were no significant changes in the Company's internal controls
          or in other factors that could significantly affect those controls
          during the quarter ended September 30, 2004.


                                       14


<PAGE>



PART II - OTHER INFORMATION

ITEM 2.  Changes in Securities

(c) See Part I, Item 1, Note 4 for a description of equity securities sold by
the Company during the period covered by this Report that were not registered
under the Securities Act of 1933, as amended.

ITEM 5.  OTHER INFORMATION

         Paul W. Miller will be resigning as Chief Financial Officer of the
         Company effective November 24, 2004, in order to join Tatum Partners, a
         professional services firm providing financial leadership. Laura Bray
         has been appointed by the Company to succeed Mr. Miller as Chief
         Financial Officer as of that date.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(b) REPORTS:

         During the quarter ended September 30, 2004, the Company filed a Report
         on Form 8-K dated September 22, 2004, and filed October 6, 2004
         containing information under item 2.


The following Additional Exhibits are filed herewith:

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


                                       15


<PAGE>





                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


CLAIMSNET.COM INC.
(Registrant)


By:      /s/ Don Crosbie
         -----------------------------
         Don Crosbie
         President and
         Chief Executive Officer

By:      /s/ Paul W. Miller
         ----------------------------
         Paul W. Miller
         Chief Financial Officer


October 19, 2004

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