##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-QSB (Mark One)þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the quarterly period ended March 31, 2005 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 For the Transition Period fromto Commission file number 001-14665 CLAIMSNET.COM INC.  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    75-2649230
(I.R.S. Employer
Identification No.)
 14860 Montfort Dr, Suite 250
Dallas, Texas 75254
(Address of principal executive offices) ###-##-####
(Issuers telephone number) N/A
(Former name, former address and former fiscal year, if changed since last report) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 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 þ No
o State the number of shares outstanding of each of the issuers classes of common equity, as of the
latest practicable date: Common Stock, $.001 par value, 25,626,180 shares outstanding as of April
22, 2005. Transitional Small Business Disclosure Format (check one): Yes o
 No þ   1




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CLAIMSNET.COM INC. AND SUBSIDIARIES TABLE OF CONTENTS  
 PagePART I. FINANCIAL INFORMATIONITEM 1. Financial Statements
    
    
    3Consolidated Balance Sheets as of March 31, 2005
(unaudited) and December 31, 2004 (audited)
    
    
    3Consolidated Statements of Operations (unaudited) for the
Three Months Ended March 31, 2005 and 2004
    
    
    4Consolidated Statements of Changes in Stockholders Deficit
for the Year Ended December 31, 2004 (audited) and the
Three Months Ended March 31, 2005 (unaudited)
    
    
    5Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended March 31, 2005 and 2004
    
    
    6Notes
to Consolidated Financial Statements
    
    
    7ITEM
2. Managements Discussion and Analysis or Plan of Operation
    
    
    9ITEM 3. Controls and Procedures
    
    
    12PART
II. OTHER INFORMATIONITEM
2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    13ITEM
6. Exhibits
    
    
    13SIGNATURES
    
    
    14CERTIFICATIONSCertification of Don CrosbieCertification of Laura M. BrayCertification of Don Crosbie - Section 906Certification of Laura M. Bray - Section 906
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION 
 ITEM 1: Financial Statements CLAIMSNET.COM INC. AND SUBSIDIARIES 
 
 (Unaudited)
    
    
    (Audited)March 31,
    
    
    December 31,2005
    
    
    2004ASSETSCURRENT ASSETSCash and equivalents
    
    $
    86
    
    
    $
    68Accounts receivable, net of allowance for
doubtful accounts of $1 and $5, respectively
    
    
    111
    
    
    
    170Prepaid expenses and other current assets
    
    
    32
    
    
    
    22Total current assets
    
    
    229
    
    
    
    260EQUIPMENT, FIXTURES AND SOFTWAREComputer hardware and software
    
    
    1,078
    
    
    
    1,078Software development costs
    
    
    2,013
    
    
    
    1,982Furniture and fixtures
    
    
    31
    
    
    
    31Office equipment
    
    
    25
    
    
    
    25Leasehold Improvements
    
    
    35
    
    
    
    353,182
    
    
    
    3,151Accumulated depreciation and amortization
    
    
    (3,088
    )
    
    
    (3,078
    )Total equipment, fixtures and software, net
    
    
    94
    
    
    
    73TOTAL ASSETS
    
    $
    323
    
    
    $
    333LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIESAccounts payable
    
    $
    117
    
    
    $
    91Accrued payroll and other current liabilities
    
    
    138
    
    
    
    150Deferred revenues
    
    
    166
    
    
    
    179Notes payable to related parties  short term
    
    
    75
    
    
    
    94Notes payable  short term
    
    
    25
    
    
    
    25Total current liabilities
    
    
    521
    
    
    
    539LONG TERM LIABILITIESNotes payable to related parties  long term
    
    
    200
    
    
    
    200Notes payable  long term
    
    
    200
    
    
    
    200Total long term liabilities
    
    
    400
    
    
    
    400Total liabilities
    
    
    921
    
    
    
    939STOCKHOLDERS DEFICITPreferred 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 March 31, 2005
and December 31, 2004
    
    
    
    
    
    
    Common stock, $.001 par value; 40,000,000 shares authorized;
25,626,000 shares and 25,226,000 shares issued and outstanding as of
March 31, 2005 and December 31, 2004, respectively
    
    
    26
    
    
    
    25Additional capital
    
    
    43,084
    
    
    
    42,985Accumulated deficit
    
    
    (43,708
    )
    
    
    (43,616
    )Total stockholders deficit
    
    
    (598
    )
    
    
    (606
    )TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
    
    $
    323
    
    
    $
    333
 See notes to consolidated financial statements. 3




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CLAIMSNET.COM INC. AND SUBSIDIARIES 
 
 Three Months EndedMarch 31,2005
    
    
    2004REVENUES
    
    $
    288
    
    
    $
    215COST OF REVENUES
    
    
    168
    
    
    
    140GROSS PROFIT
    
    
    120
    
    
    
    75OPERATING EXPENSESSelling, general and administrative
    
    
    202
    
    
    
    267Total operating expenses
    
    
    202
    
    
    
    267LOSS FROM OPERATIONS
    
    
    (82
    )
    
    
    (192
    )OTHER EXPENSEInterest expense  related parties
    
    
    (5
    )
    
    
    (4
    )Interest expense  other
    
    
    (5
    )
    
    
    (1
    )Total other expense
    
    
    (10
    )
    
    
    (5
    )NET LOSS
    
    $
    (92
    )
    
    $
    (197
    )NET LOSS PER COMMON SHARE (BASIC AND DILUTED)
    
    $
    (0.00
    )
    
    $
    (0.01
    )WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (BASIC AND DILUTED)
    
    
    25,537
    
    
    
    23,667
 See notes to consolidated financial statements. 4




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CLAIMSNET.COM INC. AND SUBSIDIARIES 
 
 Number of
    
    
    
    
    
    
    Number ofPreferred
    
    
    
    
    
    
    Common
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalShares
    
    
    Preferred
    
    
    Shares
    
    
    Common
    
    
    Additional
    
    
    Accumulated
    
    
    StockholdersOutstanding
    
    
    Stock
    
    
    Outstanding
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    DeficitBalances at January 1, 2004
    
    
    1
    
    

    $
    
    
    
    
    23,201
    
    
    $
    23
    
    
    $
    42,582
    
    
    $
    (42,959
    )
    
    $
    (354
    )Issuance of common stock
in payment of notes
payable and accrued
interest
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5Warrants exercised for
common stock
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    2
    
    
    
    398
    
    
    
    
    
    
    
    400Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (657
    )
    
    
    (657
    )Balances at December 31,
2004
    
    
    1
    
    
    
    
    
    
    
    25,226
    
    
    
    25
    
    
    
    42,985
    
    
    
    (43,616
    )
    
    
    (606
    )Sale of common stock
    
    
    
    
    
    
    
    
    
    
    400
    
    
    
    1
    
    
    
    99
    
    
    
    
    
    
    
    100Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (92
    )
    
    
    (92
    )Balances at March 31, 2005
    
    
    1
    
    
    $
    
    
    
    
    25,626
    
    
    $
    26
    
    
    $
    43,084
    
    
    $
    (43,708
    )
    
    $
    (598
    )
 See notes to consolidated financial statements. 5




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CLAIMSNET.COM INC. AND SUBSIDIARIES 
 
 Three Months EndedMarch 31,2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (92
    )
    
    $
    (197
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation and amortization
    
    
    10
    
    
    
    11Bad Debt
    
    
    (4
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    63
    
    
    
    9Prepaid expenses and other current assets
    
    
    (10
    )
    
    
    32Current liabilities
    
    
    1
    
    
    
    36Net cash used in operating activities
    
    
    (32
    )
    
    
    (109
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    
    
    
    
    (9
    )Capitalized software development costs
    
    
    (31
    )
    
    
    Net cash used in investing activities
    
    
    (31
    )
    
    
    (9
    )CASH FLOWS FROM FINANCING ACTIVITIES:Payment of notes  related parties
    
    
    (19
    )
    
    
    Proceeds from issuance of common stock
    
    
    100
    
    
    
    100Net cash provided by financing activities
    
    
    81
    
    
    
    100NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS
    
    
    18
    
    
    
    (18
    )CASH AND EQUIVALENTS, BEGINNING OF PERIOD
    
    
    68
    
    
    
    66CASH AND EQUIVALENTS, END OF PERIOD
    
    $
    86
    
    
    $
    48SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONCash paid for interest
    
    $
    2
    
    
    $
    
 See notes to consolidated financial statements. 6




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CLAIMSNET.COM INC. AND SUBSIDIARIES 
   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 March 31, 2005 and the results of its operations and cash flows for the
three months ended March 31, 2005 and 2004, in conformity with generally accepted accounting
principles for interim financial information applied on a consistent basis. The results of
operations for the three months ended March 31, 2005 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, 2004, as filed with the Securities and Exchange Commission on March
16, 2005.  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 through
December 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, 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 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 We generally enter into services agreements with our customers to provide access to our
hosted software platform for processing of customer transactions. We operate the software
application for all customers and the customers are not entitled to ownership of our software
at any time during or at the end of the agreements. The end users of our software
application access our hosted software platform or privately hosted versions of our software
application via the internet with no additional software required to be located on the
customers systems. Customers pay implementation fees, transaction fees and time and
materials charges for additional services. Revenues primarily include fees for
implementation and transaction fees, which may be subject to monthly minimum provisions.
Customer agreements may also provide for development fees related to private labeling of our
software platform (i.e. access to our servers through a web site which is in the name of
and/or has the look and feel of the customers other web sites) and some customization of the
offering and business rules. We account for our service agreements by combining the
contractual revenues from development, implementation, license, support and certain
additional service fees and recognizing the revenue ratably over the expected period of
performance. We currently use an estimated expected business arrangement term of three years
which is currently the term of the typical contracts signed by our customers. We do not
segment these services and use the underlying contractual terms to recognize revenue because
we do not have objective and reliable evidence of fair value to allocate the arrangement
consideration to the deliverables in the arrangement. To the extent that implementation fees
are received in advance of recognizing the revenue, we defer these fees and record deferred
revenue. We recognize service fees for transactions and some additional services as the
services are performed. We expense the costs associated with our customer service agreements
as those costs are incurred.  4.
    SALE OF COMMON STOCK In January 2005, National Financial Corporation (NFC), a related entity who, as of January
1, 2005 beneficially owned 1,081,603 shares of the Companys common stock, representing 4.3%
of the Companys then issued and outstanding common stock, purchased 400,000 shares of the
Companys common stock and tendered payment in the amount of $100,000 ($0.25 per share). The
offer and sale of the securities in each of the transactions referenced in the previous
sentence was exempt from registration under the Securities Act of 1933, as amended, by virtue
of Section 4(2) thereof and the rules promulgated thereunder. 7




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5.
    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 months ended March 31, 2005 and 2004. No
employee stock options were issued in the first quarter of 2005 or the first quarter of 2004. 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, net loss would have been as follows: Three Months Ended March 31,2005
    
    
    2004Loss as reported (thousands)
    
    $
    (92
    )
    
    $
    (197
    )Stock-based compensation expense:As reported
    
    
    
    
    
    
    Determined using the fair value method
    
    
    (66
    )
    
    
    (45
    )Pro forma loss
    
    $
    (158
    )
    
    $
    (242
    )Loss per share (basic and diluted)As reported
    
    $
    (0.00
    )
    
    $
    (0.01
    )Pro forma
    
    $
    (0.01
    )
    
    $
    (0.01
    )
  6.
    SUBSEQUENT EVENTS NONE. 8




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ITEM 2. Managements Discussion and Analysis of Financial Condition or Plan of Operation MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND OTHER
PORTIONS OF THIS REPORT CONTAIN FORWARD-LOOKING INFORMATION THAT INVOLVES RISKS AND UNCERTAINTIES.
OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED BY THE FORWARD-LOOKING
INFORMATION. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, AVAILABILITY
OF FINANCIAL RESOURCES FOR LONG TERM NEEDS, PRODUCT DEMAND, MARKET ACCEPTANCE AND OTHER FACTORS
DISCUSSED ELSEWHERE IN THIS REPORT. THIS MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL
STATEMENTS AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS REPORT. IN GENERAL As of March 31, 2005, we had a working capital deficit of $(292,000) and stockholders deficit of
$(598,000). We generated revenues of $288,000 for the three months ended March 31, 2005 and
$215,000 for the three months ended March 31, 2004. We have incurred net losses since inception and
had an accumulated deficit of $(43,708,000) at March 31, 2005. We expect to continue to operate at
a loss for the foreseeable future. There can be no assurance that we will ever achieve
profitability. 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 January 2005, NFC, a related entity who, as of January 1, 2005 beneficially owned 1,081,603
shares of our common stock, representing 4.3% of our then issued and outstanding common stock,
purchased 400,000 shares of our common stock and tendered payment in the amount of $100,000 ($0.25
per share). $21,000 of the proceeds were used to repay debt and accrued interest, the remainder to
finance operations. The above sale of securities to NFC did not involve the use of an underwriter and no commissions
were paid in connection with this sale of securities. The certificate evidencing the common stock
issued to NFC was appropriately legended as unregistered shares. The offer and sale of the securities to NFC was exempt from registration under the Securities Act
of 1933 (the Act) by virtue of Section 4(2) thereof and the rules promulgated thereunder. NFC
provided representations to us that it is an accredited investor, as defined in Rule 501 under
the Act, as well as highly sophisticated. PLAN OF OPERATIONS Our business strategy is as follows:  
    to utilize our state of the art technology to help large healthcare organizations achieve more efficient and less
costly administrative operations;
    to market our services directly to the payer community and its trading partners;
    to aggressively pursue and support strategic relationships with companies that will in turn aggressively market our
services to large volume healthcare organizations, including insurers, HMOs, third party administrators, provider
networks, re-pricing organizations, clinics, hospitals, laboratories, physicians and dentists;
    to provide total claim management services to payer organizations, including internet claim submission, paper claim
conversion to electronic transactions, and receipt of EDI transmissions;
    to continue to expand our product offerings to include additional transaction processing solutions, such as HMO
encounter forms, eligibility and referral verifications, claim status inquiries, electronic remittance advices, claim
attachments, and other healthcare administrative services, in order to diversify sources of revenue;
    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. 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. Historically, our primary sources
of revenue were fees paid by healthcare providers or insurance claims and 9




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patient statement services and fees from medical and dental payers for processing claims
electronically. We expect most of our revenues to be recurring in nature. Our principal costs to operate are anticipated to be technical and customer support,
transaction-based vendor services, sales and marketing, research and development, acquisition of
capital equipment, and general and administrative expenses. We intend to continue to develop and
upgrade our technology and transaction-processing systems and continually update and improve our
website to incorporate new technologies, protocols, and industry standards. Our development and
upgrading efforts may not 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
all customers and the customers are not entitled to ownership of our software at any time during or
at the end of the agreements. The end users of our software application access our hosted software
platform or privately hosted versions of our software application via the internet with no
additional software required to be located on the customers systems. Customers pay implementation
fees, transaction fees and time and materials charges for additional services. Revenues primarily
include fees for implementation and transaction fees, which may be subject to monthly minimum
provisions. Customer agreements may also provide for development fees related to private labeling
of our software platform (i.e. access to our servers through a web site which is in the name of
and/or has the look and feel of the customers other web sites) and some customization of the
offering and business rules. We account for our service agreements by combining the contractual
revenues from development, implementation, license, support and certain additional service fees and
recognizing the revenue ratably over the expected period of performance. We currently use an
estimated expected business arrangement term of three years which is currently the term of the
typical contracts signed by our customers. We do not segment these services and use the underlying
contractual terms to recognize revenue because we do not have objective and reliable evidence of
fair value to allocate the arrangement consideration to the deliverables in the arrangement. To
the extent that implementation fees are received in advance of recognizing the revenue, we defer
these fees and record deferred revenue. We recognize service fees for transactions and some
additional services as the services are performed. We expense the costs associated with our
customer service agreements as those costs are incurred. SOFTWARE FOR SALE OR LICENSE We begin capitalizing costs incurred in developing a software product once technological
feasibility of the product has been determined. Capitalized computer software costs include direct
labor, labor-related costs and interest. The software is amortized over its expected useful life
of 3 years or the contract term, as appropriate. Management evaluates the recoverability, valuation, and amortization of capitalized software costs
to be sold, leased, or otherwise marketed whenever events or changes in circumstances indicate that
the carrying amount on the software may not be recoverable. As part of this review, management
considers the expected undiscounted future net cash flows. If they are less than the stated value,
capitalized software costs will be written down to fair value. RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THREE MONTHS ENDED MARCH
31, 2004 REVENUES Revenues in the three months ended March 31, 2005 (the 2005 first quarter) were $288,000 compared
to $215,000 in the three months ended March 31, 2004 (the 2004 first quarter), representing an
increase of 34%. Revenues for the 2005 first quarter from recurring revenue sources totaled
$284,000 and represented 99% of total revenues. Revenues from non-recurring sources totaled $4,000
and were related to support and other fees. Revenues for the 2004 first quarter from recurring
revenue sources totaled $204,000 and represented 95% of total revenues. Revenues from non-recurring
sources totaled $11,000 and were related to support and other fees. 10




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COST OF REVENUES Cost of revenues in the 2005 first quarter was $168,000, compared with $140,000 in the 2004 first
quarter, representing an increase of 20%. 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 increased to $17,000 for the 2005 first quarter
compared with $15,000 for the 2004 first quarter. Transaction processing expenses increased to
$24,000 for the 2005 first quarter compared to less than $1,000 for the 2004 first quarter.
Customer support operations expense increased by 5% to $123,000 in the 2005 first quarter from
$117,000 in the 2004 first quarter. Software amortization and development project amortization
expenses decreased 43% to $4,000 in the 2005 first quarter from $7,000 in the 2004 first quarter.
The increase in third party transaction processing expenses was primarily attributable to new
contracts with clearing houses. OPERATING EXPENSES There were no research and development expenses in the 2005 or the 2004 first quarter. No research
or development projects were undertaken during the 2004 first quarter. During the 2005 first
quarter, we continued development of a configurable 837 standard output engine project and
capitalized development costs of $31,000. Selling, general and administrative expenses were $202,000 in the 2005 first quarter, compared with
$267,000 in the 2004 first quarter, a decrease of 24%. The reduction is a result of cost
containment measures including staff reductions and other cost containment measures. OTHER INCOME (EXPENSE) Interest expense of $10,000 was incurred in the 2005 first quarter on financing fees and affiliate
debt compared with $5,000 in the 2004 first quarter. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities of $32,000 in the 2005 first quarter was primarily related to
net operating losses of $92,000, less depreciation of $10,000 and changes in working capital of
$50,000. Net cash used in operating activities of $109,000 in the 2004 first quarter was primarily
related to net operating losses of $197,000, less depreciation of $11,000 and changes in working
capital of $77,000. Net cash used in investing activities in the 2005 first quarter was $31,000 related to the cost of
software development capitalized during the year. Net cash used in investing activities in the
2004 first quarter was $9,000 related to leasehold improvements made during the quarter. Net cash provided by financing activities in the 2005 first quarter was $81,000 of which $100,000
was related to the issuance of common stock offset by $19,000 related to repayment of related party
debt. Net cash provided by financing activities in the 2004 first quarter was $100,000 related to
the conversion of warrants into common stock. We believe that our 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 our capital requirements through December 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, curtail
research and development activities, sell 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. In
addition, compliance with Sarbanes-Oxley Section 404 will place additional strain on our limited
managerial, operational, and financial resources which we believe will be very significant and
could have a material adverse effect on our business, prospects, financial condition and results of
operations. 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 11




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Report on Form 10-KSB which was filed with the Securities and Exchange Commission on March 16,
2005. No assurance can be given that future results covered by the forward-looking statements will
be achieved. 
 ITEM 3. Controls and Procedures The Companys management, including the Companys principal executive officer and principal
financial officer, has evaluated the effectiveness of the Companys disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934)
as of the period ended March 31, 2005, the period covered by this Quarterly Report on Form 10-QSB.
Based upon that evaluation, the Companys principal executive officer and principal financial
officer have concluded that the disclosure controls and procedures were effective as of March 31,
2005 to provide reasonable assurance that material information relating to the Company is made
known to management including the CEO and CFO. There were no changes in the Companys internal control over financial reporting that occurred
during the period ended March 31, 2005 that have materially affected, or are reasonable likely to
materially affect, the Companys internal control over financial reporting. 12




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PART II  OTHER INFORMATION 
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 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 Act. 
 ITEM 6. Exhibits The following exhibits are filed herewith: 31.1
    
    Certification of Don Crosbie31.2
    
    Certification of Laura M. Bray32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, of Don Crosbie32.2
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, of Laura M. Bray
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SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized. CLAIMSNET.COM INC.
(Registrant) April 22, 2005 By:
    
    /s/ Don CrosbieDon CrosbiePresident andChief Executive Officer, onbehalf of the Registrant
 April 22, 2005 By:
    
    /s/ Laura M. BrayLaura M. BrayChief Financial Officer
 14