10-K/A

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K/A

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

For the Fiscal Year Ended December 31, 2000
                          -----------------

                                       OR

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

For the Transition Period from _____________ to ______________

                                    001-14665
                             COMMISSION FILE NUMBER


                               CLAIMSNET.COM INC.
                               ------------------

             (Exact name of registrant as specified in its charter)

                   Delaware                              75-2649230
                   --------                              ----------

       (State or other jurisdiction of                (I.R.S. Employer
        incorporation or organization)               Identification No.)

                     12801 N. Central Expressway, Suite 1515
                  Dallas, Texas                            75243
                  -------------                            -----
               (Address of principal                     (Zip Code)
                executive offices)

Registrant's telephone number, including area code: 972-458-1701

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]

The aggregate market value of the Common Stock of the registrants held by
non-affiliates of the registrant, based on the closing sales price on Nasdaq
SmallCap stock market on September 28, 2001 was $16,665,607.

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,
10,481,514 shares outstanding as of September 28, 2001.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None.


                                       1





                                     PART I

THIS REPORT CONTAINS FORWARD-LOOKING INFORMATION THAT INVOLVES RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
BY THE FORWARD-LOOKING INFORMATION. FACTORS THAT MAY CAUSE SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED ELSEWHERE IN THIS REPORT
INCLUDING OUR ABILITY TO SECURE ADDITIONAL FUNDING, DEVELOP AND MAINTAIN
STRATEGIC PARTNERSHIPS OR ALLIANCES, INCREASE OUR CUSTOMER BASE, DEVELOP OUR
TECHNOLOGY AND TRANSACTION PROCESSING SYSTEM, RESPOND TO COMPETITIVE
DEVELOPMENTS, OR COMPLY WITH GOVERNMENT REGULATIONS. ANY FORWARD-LOOKING
STATEMENT THAT WE MAKE IS INTENDED TO SPEAK ONLY AS OF THE DATE ON WHICH WE MADE
THE STATEMENT. WE WILL NOT UPDATE ANY FORWARD-LOOKING STATEMENT TO REFLECT
EVENTS OR CIRCUMSTANCES THAT OCCUR AFTER THE DATE ON WHICH THE STATEMENT IS
MADE. THESE RISKS AND UNCERTAINTIES, AMONG OTHERS, MAY CAUSE OUR ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE DESCRIBED IN FORWARD-LOOKING STATEMENTS MADE IN
THIS REPORT OR PRESENTED ELSEWHERE BY MANAGEMENT FROM TIME TO TIME.


ITEM 1. BUSINESS


TRANSACTION PROCESSING BUSINESS

We are an electronic commerce company engaged in healthcare transaction
processing for the medical and dental industries by means of the Internet. Our
proprietary software, which was developed over the last seven years and resides
entirely on our servers, allows healthcare providers to prepare healthcare
claims interactively on the Internet and electronically transmits the claims to
us for processing. It also allows us to download claims from the healthcare
providers' computers directly to our servers. Our software provides real-time
editing of the claims data for compliance with the format and content
requirements of payers and converts the claims to satisfy payer's specific
processing requirements. We then electronically transmit processed claims on
behalf of healthcare providers directly or indirectly to medical and dental
payers that accept claims processing transmissions electronically. In addition,
our software provides for secure encryption of all claims data transmitted in
compliance with the regulations of the United States Health Care Financing
Administration. The payers to which claims processed by us are submitted,
primarily through clearinghouses operated by McKesson HBOC, Inc. ("McKesson")
and ProxyMed, include plans and affiliates of Aetna Life & Casualty Company,
Inc., MetLife Healthcare/Metropolitan Healthcare Corporation, Cigna Healthcare,
Inc., The Prudential Insurance Company of America, various Blue Shield/Blue
Cross organizations, and United Healthcare Corporation.


We believe that the following are significant advantages of our electronic
claims transmission services over other currently available services:

o    the ability of healthcare providers utilizing their Web sites to
     interactively process claims on the Internet and receive real time edits
     prior to claim submission,
o    the ease and availability of Claimsnet.com-provided training over the
     Internet,
o    the minimal software and processing power required for providers to utilize
     our proprietary software,
o    the scalability of our software allows us the ability to add incremental
     services, such as patient statements, managed care encounter forms,
     eligibility verification, electronic remittance advices, and data modeling,
     through the same browser interface and Web site as our claims processing
     services, and o the ability to create multiple custom Web site formats to
     be promoted by partners and sponsors without modification of the
     server-based processing systems.

We believe that the improved claims processing procedure will result in a
sharply reduced average number of outstanding days revenue tied up in accounts
receivable, which should improve a provider's working capital. We believe that
the services offered by our competitors are generally based on legacy mainframe
technology, proprietary networks, and proprietary file formats, which limit the
ability of those competitors to offer interactive Internet-based processing
services on an economical basis. In addition, competitors' services generally
require extensive formal training, the installation of substantial software on
each healthcare provider's computer, and significant processing power.

We generate revenue from claims processing services by 1) charging commercial
payers, or clearinghouses acting for commercial payers, a transaction fee for
certain claims submitted electronically, 2) by charging healthcare providers a
subscription fee and certain transaction fees for use of our services, or 3)
charging our business partners fees for our services. We also offer patient
statement processing services and real time eligibility verification of patient
benefit coverage for healthcare providers and generate revenue by charging
additional subscription and transaction fees for such services. We use various
subcontractors to print and mail the bar-coded and customized statements along
with a return envelope.


                                       2



ELECTRONIC CLAIMS PROCESSING MARKET

The healthcare electronic claims processing market, including dental claims, has
been estimated by Faulkner & Gray's Health Data Directory, an industry
publication, to include over 4.7 billion healthcare claim and HMO encounter form
or claim submissions in 1999, of which, approximately 1.7 billion claims are
submitted on paper forms. Health Data Management estimates that electronic
claims processing is currently used to process approximately 43% of all medical
outpatient claims and 17% of all dental claims. We believe that, as a result of
the low penetration of electronic claims processing among healthcare providers
and dentists, this market presents an attractive opportunity for us to offer a
low cost-effective service. We intend to focus our marketing efforts on
outpatient claims, including claims of clinics, hospitals, physicians, dentists,
and other outpatient service providers, as we believe they are the underserved
segments of the market.

The number of non-electronic paper transactions in the HMO market is increasing
rapidly and we believe that HMO encounters are another underserved segment of
the outpatient claims processing market. Currently there is no formal
transmission document standard. Accordingly, we believe that the opportunity
exists for us to utilize our claims processing configuration to make available a
document scanning service using hypertext markup language (HTML). This will
enable us to convert an encounter form into a document that appears identical to
the printed version, yet is designed to reconfigure the data entered and present
it in a format that conforms to a payer's specific requirements.

Healthcare claims are traditionally processed by clearinghouses using a similar
operating structure to that which exists in the credit card industry. A merchant
that accepts a credit card for payment does not send payment requests directly
to the bank that issued the card, but sends the payment request to a
clearinghouse. The payment request is processed and transmitted to the
appropriate bank. Healthcare claim clearinghouses accept, sort, process, edit,
and then forward the claims to the appropriate payers, either electronically or
on paper. The major healthcare clearinghouses operate in a mainframe computer
environment. Furthermore, traditional clearinghouses process claims in off-line
batches and return edit results to the submitters in a subsequent batch
transmission. This operating configuration is both expensive and time consuming
due to the source code changes required to continuously process claims correctly
to meet payer requirements. In contrast, our healthcare transaction processing
software system on the Internet is designed to operate in a real-time, open
client-server configuration. This operating alternative can offer the provider a
method of bypassing the clearinghouse and communicating directly with the payer
in a rapid, accurate, and cost-effective manner.

The Health Insurance Portability and Accountability Act of 1996 ("HIPAA")
includes a section on administrative simplification requiring improved
efficiency in health care delivery by standardizing electronic data interchange,
and protection of confidentiality and security of health data through setting
and enforcing standards. More specifically, HIPAA calls for (a) standardization
of electronic patient health, administrative and financial data, (b) unique
health identifiers for individuals, employers, health plans and health care
providers, and (c) security standards protecting the confidentiality and
integrity of "individually identifiable health information,". All healthcare
organizations are effected, including health care providers, health plans,
employers, public health authorities, life insurers, clearinghouses, billing
agencies, information systems vendors, service organizations, and universities.
HIPAA calls for severe civil and criminal penalties for noncompliance. The
provisions relating to standards for electronic transactions, including health
claims and equivalent managed care encounter information, must be implemented by
October 2002 for large organizations and October 2003 for small organizations.
The provisions relating to standards for privacy must be implemented by April
2003 for large organizations and April 2004 for small organizations. The
deadlines for standards related to security and unique identifiers have not yet
been established.

We believe that the convergence of HIPAA mandates and the introduction of
internet technology will cause sweeping changes in the health care industry. If
the industry evolves toward direct payer submission of claims or real-time
adjudication of claims, our software will be able to offer efficient access to
payers and healthcare providers in a HIPAA-compliant format.

BENEFIT MANAGEMENT BUSINESS

On April 18, 2000, we, through our wholly-owned subsidiary, HealthExchange.com,
Inc., a Delaware corporation ("HECOM"), acquired from VHx Company, a Nevada
corporation ("VHx"), selected properties and assets, including it's
HealthExchange.com name and trademark, and in-process research and development
(together, "HealthExchange").

Several factors have caused us to delay continued development of the
HealthExchange(TM) products, including lack of existing customer commitment to
continued product development, lack of market acceptance at this time, future
cash requirements to continue product development, and cost of sales and
marketing efforts to create a market niche.


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On January 4, 2001, we adopted a refined business strategy plan that focuses on
near-term financial performance. The new plan dedicates our resources to the
implementation of services for existing partnerships, and selective growth
opportunities with near-term profit potential and long-term benefit. Our new
business plan does not allocate resources for the additional development of the
HealthExchange(TM) product at this time.

BENEFIT MANAGEMENT MARKET

According to the U.S. Bureau of the Census, approximately 225 million Americans
are covered by some form of health insurance. It was estimated by President
Clinton in his September 8, 1999 Remarks on Health Care Priorities that over 160
million of these people are enrolled in some form of managed care. Employers pay
for a large proportion of the cost of these health plans. We believe that the
complexity of managed care plans has increased the administrative burden and
related costs of healthcare and has negatively effected both member satisfaction
and provider satisfaction. Benefit management services are marketed to managed
care organizations, including health maintenance organizations, preferred
provider organizations, and third party administrators. While we may actively
pursue the benefit management market in the future, we have not allocated
resources to do so at this time.

BUSINESS STRATEGY

Our business strategy is as follows:

o    to aggressively pursue and support strategic relationships with companies
     that will in turn aggressively market electronic claims processing and our
     other services to outpatient healthcare providers, including clinics,
     hospitals, physicians, HMOs, third party administrators, dentists, and
     other outpatient service providers;
o    to continue to expand our services to include additional transaction
     processing functions, such as HMO encounter forms, eligibility and referral
     verifications, patient statements, 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.

There can be no assurance that any of our business strategies will succeed or
that any of our business objectives will be met with any success.

MARKETING EFFORTS

We have entered into several alliances with potentially strategic partners for
the marketing of our services and proprietary technology, including:

o    an October 1999 agreement, superseded in April 2001 (described below),
     granting a multi-year, non-exclusive, private label license to McKesson as
     to certain of our proprietary technology and providing for us to manage
     McKesson's operation on a fully outsourced basis and permitting us to use
     McKesson's extensive direct payer connections to submit certain claims to
     selected payers.
o    arrangements entered into in 2000 with business-to-business healthcare
     transaction service providers, application service providers and other
     internet service providers; such as Proxy Med Inc. ("Proxy Med"), Passport
     Health Communications, Inc. ("Passport"), and Synertech, to operate or
     provide each a co-branded version of our claims processing application to
     be marketed by the other party either directly throughout the United States
     or, in the case of Passport, as part of its Passport OneSource(TM), its
     internet-based service delivering time critical healthcare administration
     data to hospitals and physicians in selected geographic areas.

The foregoing is in addition to several joint marketing arrangements with other
partners, including a department of Blue Cross/Blue Shield of Louisiana and an
affiliate of Premier Inc.

RECENT DEVELOPMENTS

In connection with the new business plan adopted on January 4, 2001, we
significantly reduced our work force and other operating expenses. In addition,
Mr. Bo W. Lycke, our Chairman of the Board, President, and Chief Executive
Officer, voluntarily agreed to defer one half of the salary due pursuant to his
employment agreement for an indefinite period of time.

In February 2001, we entered into a joint arrangement with Quality Care
Solutions, Inc. (QCSI), a leading provider of enterprise-wide solutions for
healthcare payer organizations to provide a co-branded version of our claims
processing application to QCSI and be able to submit claims directly to QCSI.


                                       4


In March 2001, we borrowed $400,000 pursuant to a loan agreement with American
Medical Finance, Inc., a related party. Principal and interest, at 9.5% per
annum on the unpaid principal, are due in March 2002.

In March 2001, we completed the private placement of 400,000 shares of common
stock at $1.75 per share for net proceeds of $630,000.

In the foregoing financing, we provided certain rights to register resale of the
shares at our expense under the Securities Act of 1933.

On April 12, 2001, we entered into an agreement with McKesson which superseded
our October 1999 agreement. Under the 1999 Development and Services Agreement we
(a) issued a three year warrant to McKesson to purchase 819,184 shares of common
stock at $7.00 per share, (b) received fees for the development of a private
label claims processing and statement processing internet application for
McKesson, (c) received one of three scheduled license fee payments for use of
the McKesson internet application, (d) received monthly support fees for
dedicated private label system hosting, operation and support services
commencing at the date of acceptance of the McKesson internet application, and
(e) received transaction fees for claims and statements processed by the
McKesson internet application. Under the new agreement, (a) McKesson acquired
1,514,285 shares of common stock at $1.75 per share for net proceeds of
$2,650,000, (b) McKesson paid a one-time fee of $200,000 to us, (c) the stock
purchase warrant originally issued to McKesson in October 1999 was cancelled,
(d) McKesson retained a license to use the McKesson internet application to
process statements and claims without additional license fee payments, (e)
McKesson agreed to eliminate the need for dedicated private label system
hosting, operation, and support services and we agreed to provide standard
system hosting, operation, and support serviced without the payment of future
monthly support fees, (f) we will receive fees for transactions processed by the
McKesson internet application, (g) we and McKesson agreed to use best efforts to
expand the scope of the license agreement to include additional claim types, and
(h) we and McKesson agreed to use best efforts to pursue other unspecified
business opportunities. Under a separate agreement, we have contracted for
McKesson processing services to print patient statements and submit claims to
payers for certain of our customers, for which we pay McKesson fees for some
transactions and share third party revenues for other transactions.

Pursuant to the 1999 Development and Services Agreement, we recorded cash
payments received for development and license fees as deferred revenue and
amortized the total expected contract payments to revenue ratably over the life
of the contract. We recorded, in shareholders' equity, the imputed value of the
warrant as deferred sales discount and amortized the amount as an offset to
revenues ratably over the life of the license. During the year ended December
31, 2000, we received cash payments of $2,004,000 and recorded net revenue of
$681,000 (net of $314,000 in deferred sales discount amortization). Pursuant to
the processing services agreement, we recorded $411,000 of expense related to
fees paid to McKesson and $79,000 of shared revenue for fees received from
McKesson during the year ended December 31, 2000. We have no other customers for
which we are providing services substantially similar to those under the
Development and Services Agreement. The fees paid to and received from McKesson
pursuant to the processing services agreement are similar to fees with
non-affiliates.

HEALTHCARE TRANSACTION PROCESSING SOFTWARE AND SECURITY

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

o    industry standard website management software,
o    state-of-the-art commercial security and encryption software, and
o    core processing software developed by us which provides claims review,
     claims processing, hard-coding of claims, and a "table-based" software
     coding of claims variables.

The expensive and time-consuming hard-coding routines required by traditional
systems have been replaced by a user friendly system that is table-based. This
permits payer-specific edits to meet the requirements of payers and avoids
expensive onsite software changes. Our personnel input new edits. Once
healthcare providers connect to our secure website, our software edits claims
on-line automatically, using a database containing more than 22,000 edit
variables. The direct provider-payer connections offered by our system are
designed to allow for immediate billing data and information exchange when it
becomes available from the payers. In the event that a particular payer cannot
accept submission of claims electronically, we either print and mail hard copies
of the claims to these payers and charge the provider for this additional
service or allow the provider to print and mail the claims.

During the initial application process, a new customer interacts with our
proprietary "Print Wizard," that downloads claim files from the provider's
practice management system. When connecting to the Internet, the provider's
browser encryption is automatically enabled at the client extranet site. The
user must "log-in" through a security firewall to reach the user's secure


                                       5



extranet site of our healthcare transaction processing system. At this point,
all communications with the healthcare provider are automatically encrypted,
claims are extracted from the provider's PC, and editing begins. Only claims
containing errors are identified for editing. Once claims are edited, they are
queued with accurate claims for transmission to payers. Should a claim not be
acceptable electronically by a payer, the claim is automatically printed and
mailed by the payer gateways. This mailing service is optional to the providers.
To assure proper network operation and allow other revenue producing services,
such as custom reports, eligibility inquiries, and decision support tools, we
monitor all traffic through our private application server and firewall.

Our healthcare transaction processing software is a Web-based system, based upon
a client-server computing model, and includes a variety of different software
applications. Individual applications work together to provide the extraction
and encryption of claims from a provider's practice management system to our
Internet claims processing server, where editing and formatting occurs in a
secure environment. Our system then delivers the claims to the payer gateway.
The different software applications have been purchased, licensed, or developed
by us.

Our website is structured into three sections: "PUBLIC INTERNET," "CLIENT
EXTRANET," and "PRIVATE INTRANET." The PUBLIC INTERNET site provides company
background, product demonstrations, and customer enrollment forms. The CLIENT
EXTRANET provides a secure individual customer area for private customer
communication and encrypted claims transmission. The United States Health Care
Financing Administration has defined security requirements for Internet
communications including healthcare data. We operate in compliance with these
requirements. Traditional claims clearinghouses that use regular phone and
private data networks cannot provide this level of data security. The PRIVATE
INTRANET site is designed for internal communications, website operating
reports, customer support, and reporting.

With the exception of the commercial software, such as that provided by
Microsoft, we have either identified back-up sources for all the software used
or, in the event of a business failure by the licensing vendor, we own the
source code.

TRAINING AND HARDWARE REQUIREMENTS

The training for the various products and services offered by us is included in
the initial setup fee. User manuals and reference information is available
online through our client extranet to the provider, seven days a week, 24 hours
a day. The tutorial and other training documents are always available at our Web
home page, the location of which is http://www.claimsnet.com. After an initial
free period of unlimited service, we will charge users a fee for technical
support comparable to those charged by other healthcare software vendors.

No significant hardware investment by the customer is required in order to take
advantage of our services. The system requires the provider to use a 28,800 bps
or better asynchronous modem and a PC with Windows 3.11 or higher operating
system installed. An Internet Service Provider, such as AT&T Worldnet, MCI, and
Physicians' Online, offers local telecommunication to the Internet. Our
customers are responsible for obtaining and maintaining the Internet Service
Provider connection.

INTERNET/INTRANET

The processing configuration used by us requires limited electronic claims
processing software to reside at the level of the healthcare provider. All
editing and formatting takes place at our Internet application server site. From
the standpoint of the user, we believe our system has the latest software
version and all format changes available instantly. Our healthcare transaction
processing software has the effect of turning a provider's old or outdated
hardware into a terminal capable of operating in a 32-bit Windows environment.

Our processing does not take place on the Internet, but rather in an extranet
configuration. The main advantage of this approach is to assure that the
communication between our servers and a provider takes place in a
highly-controlled, secure, and encrypted environment.

The dual encryption utilized by us occurs at the browser software and
application server level. All processing and data storage occurs behind a
firewall, providing secure and controlled access to all data.

CUSTOMERS

We view our customers as (1) the healthcare providers submitting claims, (2) the
strategic partners and affiliates with which we jointly operate, and (3) the
payers accepting claims. We are currently processing claims for approximately
3,700 providers. The providers are geographically dispersed and represent a mix
of physician specialties and dentists. We are authorized to submit claims to
more than 2,000 payers that are also geographically dispersed and represent a
mix of commercial insurers, managed care organizations, third party
administrators, and Medicare and Medicaid carriers. Revenues from one strategic
partner represented 43% and 21%, respectively, of our total revenues for 2000
and 1999.

We require each healthcare provider using our services to enter into a standard
subscription agreement available on the home page of our website. This system


                                       6



allows the healthcare provider to access, complete, and return the subscription
agreement on the Internet, and enables the provider to immediately access our
services. Each subscription agreement provides that the healthcare provider
shall pay us monthly all applicable fees and sets forth the nature of our
services and the terms and conditions under which they are to be rendered. The
contracts are terminable by the healthcare provider upon 30 days prior written
notice.

We also enter into agreements with the commercial medical and dental payers or
clearinghouses to which we submit processed claims. Generally, such agreements
provide for the payment of a fee per claim to be paid to us for certain payers
once certain minimum volume requirements have been met. As a result of the
varying submission requirements of many insurance and other plans within any
payer, we treat each plan as a separate payer with its own particular
requirements.

Under a September 1998 agreement with Electronic Data Interchange Services, a
department of Blue Cross/Blue Shield of Louisiana, we provide claims processing
services to Blue Cross/Blue Shield of Louisiana Network providers. Under this
agreement, we and Blue Cross/Blue Shield of Louisiana are to jointly promote our
services to the 9,600 network providers of Blue Cross/Blue Shield of Louisiana
through website links, Blue Cross/Blue Shield of Louisiana network communication
resources, educational seminars, telemarketing, and direct mail campaigns.

In a Development and Services Agreement with McKesson, originally entered into
in October 1999 and superseded by a new agreement on April 12, 2001, we granted
McKesson a multi-year, non-exclusive, private label license for certain of our
proprietary technology and agreed to manage McKesson's operation of the system
on a fully outsourced basis, with our being allowed to operate the system in the
way we determine to be the most efficient. McKesson is the leading provider of
information technology services in the worldwide healthcare market. Under the
agreement, we are to integrate our proprietary Internet-based claims processing
technology into selected McKesson's electronic commerce solutions for the
purposes of better serving the claims processing needs of the independent
physician practice market, and we are allowed to use McKesson's extensive direct
payer connections to submit certain claims to selected payers.

Under the April 2001 agreement, McKesson acquired 1,514,285 shares of common
stock at a cost of $2,650,000 and paid $200,000; and a three year warrant to
purchase 819,184 shares of our common stock at $7.00 per share, granted under
the October 1999 agreement, was cancelled. The April 2001 agreement granted
McKesson additional license rights for co-branding the services to third parties
and for an expanded set of transactions. McKesson will continue to pay
transaction fees for all transactions processed under the license, but will not
pay additional license fees and subscription fees that were included in the
October 1999 agreement.

Since October 2000 we have provided Passport with a co-branded version of our
claims processing application integrated into Passport OneSource (TM),
Passport's internet-based service delivering time critical healthcare
administrative data. Passport markets Passport OneSource, including the claims
processing application, to hospitals and physicians in selected geographic
markets. We market Passport's eligibility and referral verification services to
our customers and we and Passport cooperate on payer opportunities from time to
time.

In 2001 we expect to provide Synertech, a premier application service provider
and administrative outsourcer for the healthcare industry, and its customers,
primarily payer organizations, with co-branded versions of our claims processing
application.

Under an arrangement entered into in September 2000 with ProxyMed, a leading
provider of business-to-business healthcare transaction services, linking more
than 50,000 physicians' offices to pharmacies, clinical laboratories, and
payers, we are to operate a co-branded version of our claims processing
application and ProxyMed is to market the service throughout the United States.
This arrangement also provides for us to use ProxyMed's extensive direct payer
connections to submit certain claims to selected payers.

In February 2001 we agreed with Quality Care Solutions, Inc. (QCSI), a leading
provider of enterprise-wide solutions for healthcare payer organizations, to
provide a co-branded version of our claims processing application to QCSI and be
able to submit claims directly to QCSI.

MARKETING

We believe that a direct sales and marketing campaign to the large and
fragmented healthcare provider community can be prohibitively expensive and
impractical at this time. We are, accordingly, pursuing a primary marketing
strategy of creating strategic partnerships with organizations that:

o    are engaged in electronic claims processing and expect to benefit by using
     our advanced technology,
o    serve or are engaged in direct sales and marketing to the healthcare market
     and desire to expand the products and services they offer to their clients
     without incurring substantial costs by using our advanced technology in a
     co-branded or private-label arrangement.


                                       7



We have established valuable strategic relationships and are actively seeking
additional partners for alliances and joint ventures, including managed care
companies, Internet service and information providers, traditional healthcare
information systems providers, clearinghouses, payer organizations, and
consulting firms, each seeking solutions to the costly handling of healthcare
claims and other administrative transactions.

We also believe that there are opportunities for joint marketing with banks,
insurance companies, and pharmaceutical companies that desire online interfacing
with healthcare providers.

We believe that our strategic alliance marketing strategy will allow us to
capture a share of the claims processing market without a costly direct sales
and marketing effort as the healthcare industry adopts new technology, either
because of greater efficiencies or due to required compliance with HIPAA
mandates and other regulatory initiatives. If such a transition continues to
move at a relatively slow pace, we expect to benefit by conserving expenses, or
if it escalates dramatically due to HIPAA compliance deadlines or for other
reasons, we expect to benefit by having a broad provider distribution network.

There can be no assurance that we will secure any additional alliances or joint
venture relations, or if we do, that such alliances or joint venture
relationships will be profitable.

COMPETITION

Several large companies such as WebMD, McKesson, National Data Corporation,
QuadraMed Corporation, PerSe Technologies, and ProxyMed dominate the claims
processing industry in which we operate. Each of these companies operates a
regional or national clearinghouse of medical and dental claims. In most cases,
these companies have large existing capital and software investments and focus
on large healthcare providers, such as hospitals and large clinics, or act as
wholesale clearinghouses for smaller electronic claims processing companies. We
estimate, based on information from various trade journals, that in addition to
these large competitors, there are approximately 300 or more small independent
electronic claims processing companies and clearinghouses which operate as local
sub-clearinghouses for the processing of medical and dental claims.

A number of additional companies such as MedUnite, Axolotl, Zirmed, RealMed, and
Merallis have announced that they intend to enter the claims processing
industry. Some of these companies have indicated a desire to primarily serve the
payer community and some are primarily focused on the provider community.

All of these companies are considered competitors for our provider clients that
subscribe to the Claimsnet.com-branded service. However, several of these
companies are already our strategic partners for co-branded or private label
solutions and many of the others are potential strategic partners.

While we compete with many other providers of electronic claims processing
services in some markets, we are not aware of any other companies that provide
healthcare electronic claims processing services in the same manner as those
provided by us. We believe that we are the only claims processing company
currently providing a real time, two-way, streaming transmission over the
internet, with the ability and intent to market the service via multiple
internet brands connected to a single, highly configurable, processing engine.

We believe that our pricing structure and total cost is very competitive with
other providers of electronic claims processing services. We further believe
that some competitors and potential partners are constrained not only by capital
investments and existing hardware/software configurations, but also by existing
customer agreements. Despite these limitations, we anticipate that competition
will increase in the processing of claims on the Internet. No assurance can be
given that we will successfully compete in any market in which we conduct or may
conduct operations.

Some segments of the medical and dental claims processing industry are not
currently suited to the use of electronic claims processing, such as psychiatry
and surgery, each of which requires substantial documentation in addition to the
claim to be submitted. Accordingly, we have not designed our business plan to
address these market segments.

EMPLOYEES

As of December 31, 2000, we had a total of 52 full-time employees, of whom two
are executive officers, 39 are technical and service personnel, four are sales
and marketing personnel, and seven are administrative personnel. None of our
employees are represented by a labor organization. All of our employees have
been granted incentive stock options and we believe that our relations with our
employees are satisfactory.


                                       8



RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS REPORT, THE FOLLOWING FACTORS
SHOULD BE CONSIDERED CAREFULLY IN EVALUATING OUR BUSINESS AND PROSPECTS.

WE HAVE A HISTORY OF NET LOSSES, LIMITED REVENUES, ANTICIPATE FURTHER LOSSES AND
HAVE A WORKING CAPITAL DEFICIT

We have incurred net losses since inception and expect to continue to operate at
a loss for the foreseeable future. For the period from our inception in April
1996 through December 1996 and the years ended December 31, 1997, 1998, 1999,
and 2000, we incurred net losses of $(2,781,000), $(4,663,000), $(8,858,000),
and $(17,695,000), respectively. As of December 31, 1997, 1998, 1999, and 2000,
we had working capital (deficits) of $36,000, $(1,089,000), $6,224,000, and
$(1,012,000), respectively. We generated revenues of $414,000 for the year ended
December 31, 1999, and $1,602,000 for the year ended 2000. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--In
General."

ONE CUSTOMER HAS GENERATED A SIGNIFICANT SHARE OF OUR REVENUES AND WE HAVE
RECENTLY ENTERED INTO A NEW AGREEMENT WHICH WILL HAVE A NEGATIVE IMPACT ON OUR
NEAR TERM REVENUES

One customer represented 43% and 21% of our total revenues for the years ended
December 31, 2000 and 1999, respectively. We have recently entered into a new
agreement that supersedes the agreement under which the revenues were earned.
The new agreement eliminates further payments for software development, software
license, and dedicated support services, which accounted for nearly all of the
revenues from this customer recognized during 1999 and 2000. The new agreement
will, therefore, have a material effect on our near term financial results. The
nature of all future cash payments to be received pursuant to the new agreement
are dependent on the volume of services provided. In the event of a complete
termination of the McKesson agreement, our future business prospects and results
of operations may be negatively effected. While we would expect to replace the
lost revenues primarily by a combination (a) fees from increasing transaction
volumes with our existing customers and business partners, (b) fees from new
customers and business partners, and (c) fees generated by services for
additional types of health care transactions, no assurances can be given that we
would be successful in such revenue replacement efforts.

WE CANNOT PREDICT OUR FUTURE CAPITAL NEEDS AND WE MAY NOT BE ABLE TO SECURE
ADDITIONAL FINANCING

We believe that our available cash resources, together with anticipated revenues
from operations and the proceeds of recently completed financing activities,
will be sufficient to satisfy our capital requirements through December 31,
2001. Our belief is based on the existence of net working capital of $377,000 at
December 31, 2000, excluding deferred revenue of $1,225,000 and a $500,000
disputed accrued liability which we do not expect to require a cash settlement
in 2001; plus net cash proceeds of $3,880,000 received from transactions
described above, less (i)$3,849,000 of net cash operating losses for 2001 and
(ii)$90,000 for capital expenditures. The projected net cash operating losses
for 2001 are based upon annualized actual results for January and February 2001,
and a further loss of $477,000 for the effect of the restructured agreement with
McKesson. Some of these assumptions may prove to be incorrect. As a result,
financial resources may not be sufficient to satisfy our capital requirements
for this period. We are currently seeking additional funding. Management cannot
predict whether this additional financing will be in the form of equity or debt,
or be in another form. 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 current plans can not be implemented, we may be forced to
significantly reduce operating expenses to a point which would be detrimental to
business operations, curtail research and development activities, sell certain
business assets or discontinue some or all of our business operations, or take
other actions which could be detrimental to business prospects and result in
charges which could be material to our operations and financial position. In the
event that any future financing should take the form of equity securities, the
holders of the common stock may experience additional dilution.

BECAUSE WE HAVE BEEN IN BUSINESS FOR A SHORT PERIOD OF TIME, THERE IS LIMITED
INFORMATION UPON WHICH YOU CAN EVALUATE OUR BUSINESS

We have a limited operating history upon which you may base an evaluation of us
and determine our prospects for achieving our intended business objectives. We
are prone to all of the risks inherent to the establishment of any new business
venture. Organized in April 1996, we were a development stage company through
March 31, 1997. We are currently processing claims for accounts representing


                                       9



approximately 3,700 providers, some of which receive favorable pricing as early
stage clients. We have entered into agreements with clearinghouses providing
access to more than 2,000 payers. The revenues received or costs incurred under
these agreements are highly dependent upon transaction volumes. Additionally, we
endeavored to diversify our business during the year ended December 31, 2000,
through an asset acquisition, which due to delay in market readiness resulted in
a large non-recurring loss. We have also changed our sales and marketing
strategy from a direct sales model to a strategic partner distribution model.
Consequently, you should consider the likelihood of our future success to be
highly speculative in light of our limited operating history, our limited
resources and problems, expenses, risks, and complications frequently
encountered by similarly situated companies in the early stages of development,
particularly companies in new and rapidly evolving markets, such as electronic
commerce. To address these risks, we must, among other things:

o    maintain and increase our strategic partnerships,

o    maintain and increase our customer base,

o    implement and successfully execute our business and marketing strategy,

o    continue to develop and upgrade our technology and transaction-processing
     systems,

o    continually update and improve our Web site,

o    provide superior customer service,

o    respond to competitive developments, and

o    attract, retain, and motivate qualified personnel.


We may not be successful in addressing these risks, and our failure to do so
could have a material adverse effect on our business, prospects, financial
condition, and results of operations.

WE EXPECT TO EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR FUTURE OPERATING RESULTS
DUE TO A VARIETY OF FACTORS, MANY OF WHICH ARE OUTSIDE OUR CONTROL

We are a relatively young company in the rapidly evolving and highly competitive
internet-based medical claims processing industry. Our ability to achieve
operating results in this industry will depend on several factors, including:

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

o    our ability to retain existing customers, attract new customers at a steady
     rate, and maintain customer satisfaction in an industry in which there is
     as of yet no uniformly accepted standard or methodology for claims
     processing,

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

o    the announcement or introduction of new sites, services, and products by
     our competitors in a rapidly evolving industry,

o    price competition or price increases in our industry,

o    the level of use of the Internet and online services and the rate of market
     acceptance of the Internet and other online services for the purchase of
     health claims processing services,

o    our ability to upgrade and develop our systems and infrastructure in a
     timely and effective manner,

o    the amount of traffic on our Web site,

o    the incurrance of technical difficulties, system downtime, or Internet
     brownouts to which we are acutely sensitive insofar as our medical claims
     processing service is Internet-based,

o    the amount and timing of operating costs and capital expenditures relating
     to expansion of our business, operations, and infrastructure which cannot
     be predicted with any large degree of accuracy in light of the rapidly
     evolving nature of the medical claims processing industry,

o    our ability to comply with existing and added government regulation such as
     HIPAA or privacy regulations relating to the Internet or patient
     information, and

o    general economic conditions and economic conditions specific to the
     Internet, electronic commerce, and the medical claims processing industry.


                                       10



If we are unable to handle or satisfactorily respond to these factors, our
operating results may fall below the expectations of securities analysts and
investors. In this event, the market price of our common stock would likely be
materially adversely affected.

OUR MARKETING STRATEGY HAS NOT BEEN SUFFICIENTLY TESTED AND MAY NOT RESULT IN
SUCCESS

We have recently changed our marketing strategy from direct marketing to
reliance on the development and maintenance of strategic relationships with
companies that will aggressively market electronic claims processing and our
other services to outpatient healthcare providers. To date, we and our strategic
partners have conducted limited marketing efforts for such purpose. To penetrate
our market we will have to rely on our strategic partners to exert significant
efforts and devote material resources to create awareness of and demand for our
co-branded products and services. No assurance can be given that our strategic
partners will devote significant efforts and resources to, and be successful in,
these marketing services or that they will result in material sales of our
products and services. No representation can be made that our reliance on this
strategy will prove successful and that if not successful that we will have
adequate resources to attempt to engage in direct marketing of our products and
services or that such efforts will prove successful. Our failure to develop our
marketing capabilities, successfully market our products or services, or recover
the cost of our services will have a material adverse effect on our business,
prospects, financial condition, and results of operations.

IF WE ARE UNABLE TO UPGRADE OUR SYSTEMS, WE MAY BE UNABLE TO PROCESS AN
INCREASED VOLUME OF CLAIMS

A key element of our strategy is to generate a high volume of traffic on, and
use of, our Web site. We are currently processing less than 10 million medical
claims per year in an industry that processes approximately 4.7 billion claims
annually. If the volume of traffic on our Web site or the number of claims
submitted by customers substantially increases, we will have to expand and
further upgrade our technology, claims processing systems, and network
infrastructure to accommodate these increases or our systems may suffer from
unanticipated system disruptions, slower response times, degradation in levels
of customer service, impaired quality and speed of claims processing, and delays
in reporting accurate financial information. We may be unable to effectively
upgrade and expand our claims processing system or to integrate smoothly any
newly developed or purchased modules with our existing systems, which could have
a material adverse effect on our business, prospects, financial condition, and
results of operations.

BECAUSE WE DEPEND UPON A SINGLE SITE FOR OUR COMPUTER SYSTEMS WE ARE VULNERABLE
TO THE EFFECTS OF NATURAL DISASTERS, COMPUTER VIRUSES, AND SIMILAR DISRUPTIONS

Our ability to successfully receive and process claims and provide high-quality
customer service largely depends on the efficient and uninterrupted operation of
our computer and communications hardware systems. Our proprietary software
resides solely on our servers, most of which are located in a monitored server
facility in Washington, DC. Our systems and operations are in a secured facility
with hospital-grade electrical power, redundant telecommunications connections
to the Internet backbone, uninterruptible power supplies, and generator back-up
power facilities. Further, we maintain redundant systems at a separate facility
for backup and disaster recovery. Despite such safeguards, we remain vulnerable
to damage or interruption from fire, flood, power loss, telecommunications
failure, break-ins, earthquake, and similar events. In addition, we do not, and
may not in the future, carry sufficient business interruption insurance to
compensate us for losses that may occur. Despite our implementation of network
security measures, our servers are vulnerable to computer viruses, physical or
electronic break-ins, and similar disruptions, which could lead to
interruptions, delays, loss of data, or the inability to accept and process
customer claims. The occurrence of any of these events could have a material
adverse effect on our business, prospects, financial condition, and results of
operations.

WE RELY ON INTERNALLY DEVELOPED ADMINISTRATIVE SYSTEMS THAT ARE INEFFICIENT,
WHICH MAY PUT US AT A COMPETITIVE DISADVANTAGE

Some of the systems and processes used by our business office to prepare
information for financial, accounting, billing, and reporting, are inefficient,
inadequate, and require a significant amount of manual effort. For example, our
systems require cumbersome data manipulation using spreadsheets in order to
prepare information for both billing and client reporting purposes. The manual
effort is both costly and negatively affects the timeliness of these processes.
These inefficiencies may place us at a competitive disadvantage when compared to
competitors with more efficient systems. We intend to continue to upgrade and
expand our administrative systems and to integrate newly-developed and purchased
modules with our existing systems in order to improve the efficiency of our
reporting methods, although we are unable to predict whether these upgrades will
improve our competitive position.


                                       11



WE HAVE LIMITED SENIOR MANAGEMENT RESOURCES, AND WE NEED TO ATTRACT AND RETAIN
HIGHLY SKILLED PERSONNEL; WE MAY BE UNABLE TO EFFECTIVELY MANAGE GROWTH WITH OUR
LIMITED RESOURCES

Our senior management currently consists of Bo W. Lycke, our Chairman of the
Board of Directors, President, and Chief Executive Officer, Paul W. Miller, our
Chief Financial Officer, Patricia Davis, our Senior Vice President of Sales and
Operations and Jeffrey P. Baird, our Senior Vice President of Technology. Any
expansion of our business would place a significant strain on these individuals
and on our limited managerial, operational, and financial resources. We will be
required to expand our operational and financial systems significantly and to
expand, train, and manage our work force in order to manage the expansion of our
operations. Our failure to fully integrate our new employees into our operations
could have a material adverse effect on our business, prospects, financial
condition, and results of operations. Our ability to attract and retain highly
skilled personnel is critical to our operations and expansion. We face
competition for these types of personnel from other technology companies and
more established organizations, many of which have significantly larger
operations and greater financial, marketing, human, and other resources than we
have. We may not be successful in attracting and retaining qualified personnel
on a timely basis, on competitive terms, or at all. If we are not successful in
attracting and retaining these personnel, our business, prospects, financial
condition, and results of operations will be materially adversely affected.

BECAUSE OF THEIR SPECIALIZED KNOWLEDGE OF OUR PROPRIETARY TECHNOLOGY AND THE
MEDICAL CLAIMS PROCESSING INDUSTRY, WE DEPEND UPON OUR SENIOR MANAGEMENT AND
CERTAIN KEY PERSONNEL; THE LOSS OR UNAVAILABILITY OF ANY OF THEM COULD PUT US AT
A COMPETITIVE DISADVANTAGE

We currently depend upon the efforts and abilities of our senior executives and
any other key personnel, each of whom has a distinctive body of knowledge
regarding electronic claims submissions and related technologies, the medical
claims processing industry and our services. The loss or unavailability of the
services of any of these individuals for any significant period of time could
have a material adverse effect on our business, prospects, financial condition,
and results of operations. We have obtained, own, and are the sole beneficiary
of, key-person life insurance in the amount of $2,000,000 on the life of Bo W.
Lycke, our Chairman of the Board of Directors, President, and Chief Executive
Officer. This insurance may not continue to be available to us on reasonable
terms, or at all. Mr. Lycke and Messrs. Ward L. Bensen and Robert H. Brown Jr.,
two of our Directors, serve as the Chairman of the board of directors, a
Director and Senior Vice President, and a Director, respectively, of American
Medical Finance, one of our affiliates. In addition, our employment agreement
with Mr. Lycke permits him to terminate the agreement on 30 days' notice.

WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND WE MAY BE
LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS

The Company's business is based in large part upon the proprietary nature of its
services and technologies. Accordingly, our ability to compete effectively will
depend on our ability to maintain the proprietary nature of these services and
technologies, including our proprietary software and the proprietary software of
others with which we have entered into software licensing agreements. We hold no
patents and rely on a combination of trade secrets and copyright laws,
nondisclosure, and other contractual agreements and technical measures to
protect our rights in our technological know-how and proprietary services. In
addition, we have been advised that trademark and service mark protection of our
corporate name is not available. We depend upon confidentiality agreements with
our officers, directors, employees, consultants, and subcontractors to maintain
the proprietary nature of our technology. These measures may not afford us
sufficient or complete protection, and others may independently develop know-how
and services similar to ours, otherwise avoid our confidentiality agreements, or
produce patents and copyrights that would materially and adversely affect our
business, prospects, financial condition, and results of operations. We believe
that our services are not subject to any infringement actions based upon the
patents or copyrights of any third parties; however, our know-how and technology
may in the future be found to infringe upon the rights of others. Others may
assert infringement claims against us, and if we should be found to infringe
upon their patents or copyrights, or otherwise impermissibly utilize their
intellectual property, our ability to continue to use our technology could be
materially restricted or prohibited. If this event occurs, we may be required to
obtain licenses from the holders of their intellectual property, enter into
royalty agreements, or redesign our products so as not to utilize their
intellectual property, each of which may prove to be uneconomical or otherwise
impossible. Licenses or royalty agreements required in order for us to use this
technology may not be available on terms acceptable to us, or at all. These
claims could result in litigation, which could materially adversely affect our
business, prospects, financial condition, and results of operations.


                                       12



BECAUSE WE ARE NOT CURRENTLY PAYING CASH DIVIDENDS, INVESTORS MAY HAVE TO SELL
CLAIMSNET.COM SHARES IN ORDER TO REALIZE THEIR INVESTMENT

We have not paid any cash dividends on our common stock and do not intend to pay
cash dividends in the foreseeable future. We intend to retain future earnings,
if any, for reinvestment in the development and expansion of our business. Any
credit agreements which we may enter into with institutional lenders may
restrict our ability to pay dividends. Whether we pay cash dividends in the
future will be at the discretion of our Board of Directors and will be dependent
upon our financial condition, results of operations, capital requirements, and
any other factors that the board of directors decides is relevant. Holders of
our common stock may have to sell all or a part of these shares in order to
realize their investment.

SOME PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BY-LAWS MAY DETER OUR
ACQUISITION

A number of provisions of our amended certificate of incorporation and Delaware
law may be deemed to have an anti-takeover effect. Our certificate of
incorporation and by-laws provide that our board of directors is divided into
two classes serving staggered two-year terms, resulting in approximately
one-half of the directors being elected each year and other provisions relating
to voting and the removal of the officers and directors. Further, our by-laws
contain provisions which regulate the introduction of business at annual
meetings of our stockholders by other than the board of directors. In addition,
we are subject to the anti-takeover provisions of Section 203 of the Delaware
General Corporation Law. In general, this statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner.

In addition, our certificate of incorporation, as amended, authorizes our board
of directors to issue up to 4,000,000 shares of preferred stock, which may be
issued in one or more series, the terms of which may be determined at the time
of issuance by the board of directors, without further action by stockholders,
and may include voting rights (including the right to vote as a series on
particular matters), preferences as to dividends and liquidation, conversion,
and redemption rights, and sinking fund provisions. We have no present plans for
the issuance of any series of preferred stock. However, the issuance of any such
preferred stock could materially adversely affect the rights of holders of
shares of our common stock and, therefore, could reduce the value of the common
stock. In addition, specific rights granted to future holders of preferred
stock, could be used to restrict our ability to merge with, or sell our assets
to, a third party. The ability of the board of directors to issue preferred
stock could have the effect of rendering more difficult, delaying, discouraging,
preventing, or rendering more costly an acquisition of us or a change in control
of us, thereby preserving our control by the current stockholders.

INTERNET SECURITY POSES RISKS TO OUR ENTIRE BUSINESS

The electronic submission of healthcare claims and other electronic healthcare
transaction processing services by means of our proprietary software involves
the transmission and analysis of confidential and proprietary information of the
patient, the healthcare provider, or both, as well as our own confidential and
proprietary information. The compromise of our security or misappropriation of
proprietary information could have a material adverse effect on our business,
prospects, financial condition, and results of operations. We rely on encryption
and authentication technology licensed from other companies to provide the
security and authentication necessary to effect secure Internet transmission of
confidential information, such as medical information. Advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments may result in a compromise or breach of the technology used by us
to protect customer transaction data. Anyone who is able to circumvent our
security measures could misappropriate proprietary information or cause
interruptions in our operations. We may be required to expend significant
capital and other resources to protect against security breaches or to minimize
problems caused by security breaches. Concerns over the security of the Internet
and other online transactions and the privacy of users may also inhibit the
growth of the Internet and other online services generally, and the Web site in
particular, especially as a means of conducting commercial transactions. To the
extent that our activities or the activities of others involve the storage and
transmission of proprietary information, such as diagnostic and treatment data,
security breaches could damage our reputation and expose us to a risk of loss or
litigation and possible liability. Our security measures may not prevent
security breaches. Our failure to prevent these security breaches may have a
material adverse effect on our business, prospects, financial condition, and
results of operations.

WE WILL ONLY BE ABLE TO EXECUTE OUR BUSINESS PLAN IF ELECTRONIC COMMERCE
CONTINUES TO GROW GENERALLY AND SPECIFICALLY IN THE HEALTH CARE INDUSTRY

Our future revenues and any future profits are substantially dependent upon the
widespread acceptance and use of the Internet and other online services as an
effective medium of commerce by submitters of medical claims. Rapid growth in


                                       13



the use of, and interest in, the Internet, the Web, and online services is a
recent phenomenon, and may not continue on a lasting basis. In addition,
customers may not adopt, and continue to use, the Internet and other online
services as a medium of commerce. Demand and market acceptance for recently
introduced services and products over the Internet are subject to a high level
of uncertainty, and few services and products have generated profits. For us to
be successful, the healthcare community must accept and use novel and cost
efficient ways of conducting business and exchanging information.

In addition, the public in general, and the healthcare industry in particular,
may not accept the Internet and other online services as a viable commercial
marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. To the extent that the
Internet and other online "business to business" services continue to experience
significant growth in the number of users, their frequency of use, or in their
bandwidth requirements, the infrastructure for the Internet and online services
may be unable to support the demands placed upon them. In addition, the Internet
or other online services could lose their viability due to delays in the
development or adoption of new standards and protocols required to handle
increased levels of Internet activity, or due to increased governmental
regulation. Changes in, or insufficient availability of, telecommunications
services to support the Internet or other online services also could result in
slower response times and adversely affect usage of the Internet and other
online services generally and our product and services in particular. If use of
the Internet and other online services does not continue to grow or grows more
slowly than we expect, if the infrastructure for the Internet and other online
services does not effectively support the growth that may occur, or if the
Internet and other online services do not become a viable commercial
marketplace, our business, prospects, financial condition, and results of
operations could be materially adversely affected.

WE MAY NOT BE ABLE TO ADAPT AS THE INTERNET, ELECTRONIC COMMERCE, AND CUSTOMER
DEMANDS CONTINUE TO EVOLVE

The Internet and the medical claims processing industry are characterized by:

o    rapid technological change,

o    changes in user and customer requirements and preferences,

o    changes in federal legislation and regulation,

o    frequent new product and service introductions embodying new technologies,
     and

o    the emergence of new industry standards and practices that could render our
     existing Web site and proprietary technology and systems obsolete.


Our success will depend, in part, on our ability to:

o    enhance and improve the responsiveness and functionality of our online
     claims processing services,

o    license leading technologies useful in our business and to enhance our
     existing services,

o    comply with all applicable regulations regarding our industry and the
     Internet,

o    develop new services and technology that address the increasingly
     sophisticated and varied needs of our prospective or current customers, and

o    respond to technological advances and emerging industry standards and
     practices on a cost-effective and timely basis.


The development of our Web site and other proprietary technology will involve
significant technical and business risks. We may not be able to adapt
successfully to such demands. Our failure to respond in a timely manner to
changing market conditions or customer requirements would have a material
adverse effect on our business, prospects, financial condition, and results of
operations.

WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN OUR INDUSTRY

Based on total assets and annual revenues, we are significantly smaller than the
majority of our national competitors: we are one-seventh the size of our next
largest competitor in terms of total assets and one-thirtieth their size in
terms of total revenues. If we compete with them for the same geographical or
institutional markets, their financial strength could prevent us from capturing
those markets. We may not successfully compete in any market in which we conduct
or may conduct operations. In addition, in certain market segments, including
psychiatry and surgery, we believe that we are not currently able to compete
with existing potential competitors and, accordingly, we have designed our
business plan to address other market segments.


                                       14



REGULATORY AND LEGAL UNCERTAINTIES COULD HARM OUR BUSINESS

We are not currently subject to direct regulation by any government agency other
than laws or regulations applicable to electronic commerce, but we process
information which, by law, must remain confidential. The U.S. Health Care
Financing Administration has defined security requirements for Internet
communications including healthcare data. We operate in compliance in all
material respects with these requirements. Due to the increasing popularity and
use of the Internet and other online services, federal, state, and local
governments may adopt laws and regulations, or amend existing laws and
regulations, with respect to the Internet or other online services covering
issues such as user privacy, pricing, content, copyrights, distribution, and
characteristics and quality of products and services. Furthermore, the growth
and development of the market for electronic commerce may prompt calls for more
stringent consumer protection laws to impose additional burdens on companies
conducting business online. The adoption of any additional laws or regulations
may decrease the growth of the Internet or other online services, which could,
in turn, decrease the demand for our services and increase our cost of doing
business, or otherwise have a material adverse effect on our business,
prospects, financial condition, and results of operations. Moreover, the
relevant governmental authorities have not resolved the applicability to the
Internet and other online services of existing laws in various jurisdictions
governing issues such as property ownership and personal privacy, and it may
take time to resolve these issues definitively. Any new legislation or
regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to our business, or the application of existing laws
and regulations to the Internet and other online services could have a material
adverse effect on our business, prospects, financial condition, and results of
operations.

THE MARKET PRICE FOR OUR COMMON STOCK MAY BE HIGHLY VOLATILE; WE MUST CONTINUE
TO SATISFY THE APPLICABLE REQUIREMENTS FOR OUR COMMON STOCK TO TRADE ON THE
NASDAQ SMALLCAP MARKET

The market price of our common stock has experienced, and may continue to
experience, significant volatility. Our operating results, announcements by us
or our competitors regarding acquisitions or dispositions, new procedures or
technology, changes in general conditions in the economy, and general market
conditions could cause the market price of our common stock to fluctuate
substantially. The equity markets have, on occasion, experienced significant
price and volume fluctuations that have affected the market prices for many
companies' common stock and have often been unrelated to the operating
performance of these companies.

Under the currently effective criteria for continued listing on the Nasdaq
SmallCap Market, a company must maintain (a) either (i) $2,000,000 in net
tangible assets, (ii) $500,000 net income in the last fiscal year, or (iii)
market capitalization of $35 million, (b) a minimum bid price of $1.00, and (c)
a public float of at least $1,000,000. By letter dated April 19, 2001, the
Company was requested to provide to the Staff of the Nasdaq SmallCap Market a
specific plan to achieve compliance with these criteria, in connection with its
review of the Company's continuing eligibility for listing on the Nasdaq
SmallCap Market. By letter dated June 14, 2001, the Company was notified that
the Staff has determined that the Company complies with the Rule for continued
listing and that the matter is closed. If we cannot maintain the standards for
continued listing, our common stock could be subject to delisting from the
Nasdaq SmallCap Market. Trading, if any, in our common stock would then be
conducted in the over-the-counter market on the OTC Bulletin Board established
for securities that do not meet the Nasdaq SmallCap Market listing requirements
or in what are commonly referred to as the "pink sheets." As a result, an
investor may find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, our shares.

THE MARKET FOR OUR COMMON STOCK MAY SUFFER IN THE EVENT OF DELISTING FROM THE
NASDAQ SMALLCAP MARKET AND IF OUR COMMON STOCK IS "PENNY STOCK"

If our common stock were to be delisted from the Nasdaq SmallCap Market, and no
other exclusion from the definition of a "penny stock" under the Exchange Act
were available, our common stock would be subject to the penny stock rules that
impose additional sales practice requirements on broker-dealers who sell these
securities to persons other than established customers and accredited investors.
Accredited investors are generally those investors with net worth in excess of
$1,000,000 or an annual income exceeding $200,000 or $300,000 together with a
spouse. For transactions covered by these rules, the broker-dealer must make a
special suitability determination for the purchase, and must have received the
purchaser's written consent to the transaction prior to sale. As a result,
delisting, if it were to occur, could materially adversely affect the ability of
broker-dealers to sell our common stock and the ability of purchasers of our
stock to sell their shares in the secondary market.

FUTURE SALES OF COMMON STOCK BY OUR EXISTING STOCKHOLDERS COULD ADVERSELY AFFECT
OUR STOCK PRICE

The market price of our common stock could decline as a result of sales of a
large number of shares of our common stock in the market, or the perception that
these sales could occur. These sales also might make it more difficult for us to
sell equity securities in the future at a time and at a price that we deem
appropriate.


                                       15



CAUTIONARY NOTES REGARDING THE FORWARD-LOOKING STATEMENTS

This report contains, and incorporates by reference, forward-looking statements
regarding our plans and objectives for the future. These forward-looking
statements are based on current expectations that involve numerous risks and
uncertainties. Our plans and objectives are based on a successful execution of
our expansion strategy and are based upon a number of assumptions, including
assumptions relating to the growth in the use of the Internet and that there
will be no unanticipated material adverse change in our operations or business.
These assumptions involve judgments with respect to, among other things, future
economic, political, competitive, and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. Although we believe that the assumptions
underlying our forward-looking statements are reasonable, any of the assumptions
could prove inaccurate. The forward-looking statements included, or incorporated
by reference, in this report may prove to be inaccurate. In light of the
significant uncertainties inherent in these forward-looking statements, you
should not regard these statements as representations by us or any other person
that we will achieve our objectives and plans.


ITEM 2. PROPERTIES

We currently lease 8,735 square feet of office space at a rent of $15,546 per
month, at 12801 North Central Expressway, Suite 1515, Dallas, Texas 75243. The
lease expires December 31, 2001. We believe that, in the event alternative or
larger offices are required, such space is available at competitive rates. For
our servers, we utilize DIGEX Business Internet Solutions, including a
nationwide DS-3 backbone, a substantial dedicated Web server management
facility, and a 24 hour per day, 7 day per week Network Operations Center at a
cost of $28,500 per month.


ITEM 3. LEGAL PROCEDINGS

We are not currently party to any litigation proceedings.


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

On October 20, 2000, the annual meeting of stockholders was held in Dallas,
Texas. The stockholders approved, by a vote of 5,632, 980 shares for and 89,634
shares against, with holders of 1,866,703 shares not voting and 37,271 shares
abstaining, the proposal to increase the number of shares issuable pursuant to
the 1997 Stock Option Plan by 750,000. The stockholders approved, by a vote of
5,669,533 for and 51,842 against, with holders of 1,866,703 not voting and
32,510 abstaining, the reservation of 1,427,076 shares of Common Stock of the
Company, for issuance upon the conversion of the Company's Series A Convertible
Redeemable Preferred Stock and Series B Convertible Redeemable Preferred Stock.
The stockholders elected, by a vote of 7,611,053 shares for and 9,535 shares
withheld, Bo W. Lycke, Ward L. Bensen, and Robert H. Brown, Jr., to serve as
Class I Directors for a two year period and until their successors are elected
and qualified. The stockholders also ratified, by a vote of 7,610,758 shares
for, and 6,530 shares against, with holders of 3,300 shares abstaining, the
selection of Ernst & Young LLP as independent auditors for the fiscal year
ending December 31, 2000.


                                       16





                                     PART II


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS


PRICE RANGE OF COMMON STOCK

The Common Stock of Claimsnet.com has been traded on the Nasdaq SmallCap Market
under the symbol "CLAI" and on the Boston Stock Exchange under the trading
symbol "CLA" since April 6, 1999. The following table sets forth, for the fiscal
periods indicated, the quarterly high and low per share sales prices, as
reported by Nasdaq:



                                                                    HIGH                LOW
                                                                    ----                ---
                                                                                  
          1999
          From April 6, 1999 through June 30,1999                  $19.125           $  7.563
          Three months ended September 30, 1999                      8.500              4.000
          Three months ended December 31, 1999                      12.625              4.000

          2000
          Three months ended March 31, 2000                       $ 11.250           $  6.500
          Three months ended June 30,2000                            9.500              2.000
          Three months ended September 30, 2000                      4.813              1.625
          Three months ended December 31, 2000                       3.750              1.063

          2001
          Three months ended March 31, 2001                       $  2.313          $   1.063
          Three months ended June 30, 2001                           2.820              1.313
          Three months ended September 30, 2001                      3.290              1.250


The last reported sale price of the Common Stock on the Nasdaq SmallCap Market
on September 28, 2001 was $1.59 per share. As of September 14, 2000, there were
2,192 holders of record of the Common Stock.

DIVIDEND POLICY

We have not paid any cash dividends on our Common Stock and, in view of net
losses and our operating requirements, do not intend to pay cash dividends in
the foreseeable future. If we achieve profitability, we intend to retain future
earnings, if any, for reinvestment in the development and expansion of our
business. Any credit agreements, which we may enter into with institutional
lenders, may restrict our ability to pay dividends. Whether we pay cash
dividends in the future will be at the discretion of our Board of Directors and
will be dependent upon our financial condition, results of operations, capital
requirements, and any other factors that the Board of Directors determines to be
relevant.

RECENT SALES OF UNREGISTERED SECURITIES

In June 2001, we issued 16,000 shares of common stock with a fair market value
of $41,600 to New York Capital AG in connection with an agreement for
professional services to be rendered in 2001.

In April 2001, we entered into an agreement with McKesson by which McKesson
acquired 1,514,285 shares of common stock at $1.75 per share for net proceeds of
$2,650,000 and the stock purchase warrant originally issued to McKesson in 1999
was cancelled. No registration rights were granted to McKesson for the shares
acquired.

In March 2001, we completed a private placement of 400,000 shares of common
stock issued to an accredited investor at $1.75 per share for net proceeds of
$630,000. In April 2001, we granted warrants to purchase 40,000 shares of common
stock to financial advisors that assisted us with the negotiation and
structuring of such investment. The warrants are immediately exercisable at a
price of $1.75 per share and expire on the second anniversary of the date of
grant.

In October 2000, upon completion of our annual meeting, options exercisable for
an aggregate of 25,000 shares of common stock were granted under the Directors'
Plan. The option exercise price of $2.375 was the fair market value of a share
of the outstanding common stock on the date the options were granted.

In August 2000, we completed a private placement of 270,000 shares of common
stock at $3.50 per share for net proceeds of $927,000 to various accredited
investors. In connection with the financing, we also issued warrants to purchase


                                       17



270,000 shares of common stock at a price of $4.60 per share exercisable for a
period of one year from their issue date and warrants to purchase 270,000 shares
of common stock at a price of $5.60 exercisable for a period of two years from
their issue date.

In June 2000, we completed a private placement of 1,000,000 shares of common
stock issued to an accredited investor at $3.00 per share for net proceeds of
$2,982,000.

In June 2000, we granted certain employees ten-year warrants to purchase 178,250
shares of common stock at a price of $3.00 per share, the market price on the
date of grant. They become exercisable in June 2001.

In May 2000, we sold at a price of $3.00 per share, 100,000 shares of common
stock to American Medical Finance, Inc., a related party and the owner of record
of 381,603 shares of common stock prior to the transaction. Bo W. Lycke, the
Chairman of the Board, President and Chief Executive Officer of the Company,
Robert H. Brown, Jr., a Director of the Company, and Ward L. Bensen, a Director
of the Company, control 71.1%, 17.7%, and 11.2%, respectively, of the
outstanding common stock of American Medical Finance, Inc.

In April 2000, we issued 1,200,000 shares valued at $6,376,000 to acquire
certain assets from VHx Company. In December 2000, pursuant to provisions of the
asset purchase agreement, we withdrew from escrow and returned to our treasury
888,000 shares at a value of $1,415,000, and we issued 244,000 shares valued at
$389,000 from treasury stock to JDH, a major creditor, in satisfaction of debt
owed by VHx Company.

Except as otherwise indicated, in each of the security issuances referenced
above, we provided certain rights to register resale of the shares at our
expense under the Securities Act of 1933. Except as indicated, no sales of
securities involved the use of an underwriter and no commissions were paid in
connection with the sale of any securities. Except as otherwise indicated, the
proceeds from each of the private placements referenced above was used for
general corporate purposes. The certificates evidencing the common stock issued
in each of the transactions referenced above were appropriately legended.

The offer and sale of the securities in each of the private placements
referenced above was exempt by virtue of Section 4(2) of the Securities Act of
1933 and the rules promulgated thereunder. Each of the offerees and investors in
such private placements provided representations to us that they were each
"accredited investors," as defined in Rule 501 under the Securities Act of 1933,
as well as highly sophisticated investors, and (ii) some of the investors in the
2000 private placements were existing stockholders of us at the time of such
transaction. Each investor in such private placements, whether a new investor or
existing investor, was afforded the right to conduct a complete due diligence
review of us if they so desired, and was offered the opportunity to ask
questions of, and receive answers from Claimsnet.com.


                                       18



ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data are derived from our consolidated
financial statements. The financial statements as of, and for the years ended
December 31, 2000 and 1999 have been audited by Ernst & Young LLP, independent
auditors. The financial statements as of, and for the years ended December 31,
1998, 1997 and 1996 have been audited by King Griffin & Adamson, P.C.,
independent auditors.

The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the related notes
appearing elsewhere in this form 10-K.



                                                                                                                   April 8, 1996
                                                                        Year Ended December 31,                     (Inception
                                               ----------------------------------------------------------------       Through)
                                                  2000              1999               1998            1997             1996
                                                 ------            ------             ------          ------           ------
                                                                                                    
STATEMENT OF OPERATIONS DATA:
-----------------------------
Revenues .................................     $  1,602,000      $    414,000      $   155,000      $    82,000      $       -
                                               ------------      ------------      -----------      -----------      ---------
Total operating expenses..................       19,432,000         8,485,000        4,510,000        2,514,000        148,000
                                               ------------      ------------      -----------      -----------      ---------
Interest expense - affiliate..............            6,000           142,000          314,000          390,000        158,000
Interest expense - bridge debt............                -           967,000                -                -              -
Interest income...........................         (141,000)         (322,000)          (6,000)         (41,000)             -
                                               ------------      ------------      -----------      -----------      ---------
Net loss..................................     $(17,695,000)     $ (8,858,000)     $(4,663,000)     $(2,781,000)     $(306,000)
                                               ============      ============      ===========      ===========      =========
Loss per weighted average common
  share outstanding (basic and diluted)...     $      (2.16)     $      (1.52)     $     (1.41)     $     (0.98)     $   (0.13)
                                               ============      ============      ===========      ===========      =========
Weighted average common shares
 outstanding (basic and diluted)..........        8,174,000         5,811,000        3,309,000        2,851,000      2,349,000
                                               ============      ============      ===========      ===========      ========





                                                                                   December 31,
                                               -------------------------------------------------------------------------------
                                                   2000             1999               1998             1997           1996
                                                  ------           ------             ------           ------         ------
                                                                                                      
BALANCE SHEET DATA:
-------------------
Current assets............................     $  1,562,000      $  7,124,000      $   105,000      $   419,000      $  16,000
Total assets..............................        3,076,000         9,034,000        1,653,000        2,175,000        978,000
Working capital (deficit).................       (1,348,000)        6,113,000       (1,089,000)          36,000         16,000
Long-term debt............................                -                 -        4,323,000        3,468,000      4,408,000
Accumulated deficit.......................      (34,303,000)      (16,608,000)      (7,750,000)      (3,087,000)      (306,000)
Stockholders' equity (deficit)............          166,000         7,971,000       (3,864,000)      (1,677,000)    (3,430,000)



                                       19




                                                                                        Quarters
                                               ---------------------------------------------------------------------------------
                                                 First              Second            Third           Fourth           Total
                                                 -----              ------            -----           ------           -----
                                                                                                      
QUARTERLY FINANCIAL DATA (UNAUDITED)
------------------------------------
FISCAL 2000                                                         (Note 2)         (Note 3)         (Note 4)        (Note 5)
Revenues                                       $    280,000      $    330,000      $   483,000      $   509,000      $ 1,602,000
Gross loss (Note 1)                                (547,000)         (612,000)        (373,000)        (140,000)      (1,672,000)
Net loss                                         (1,934,000)       (9,308,000)      (3,728,000)      (2,725,000)     (17,695,000)
Basic loss per common share                           (0.29)            (1.20)           (0.41)           (0.30)           (2.16)

FISCAL 1999
Revenues                                             65,000            64,000           84,000          201,000          414,000
Gross loss (Note 1)                                (319,000)         (515,000)        (583,000)        (587,000)      (2,004,000)
Net loss                                         (2,475,000)       (1,914,000)       2,080,000)      (2,389,000)      (8,858,000)
Basic loss per common share                           (0.67)            (0.30)           (0.31)           (0.36)           (1.52)



(1)  Quarterly gross loss has been revised to include amortization of software
     costs. Previously issued reports filed on forms 10-K and 10-Q reported
     those costs as operating expenses.

(2)  The three months ended June 30, 2000 includes revenues of $15,000 and
     operating expenses of $7,020,000 (including $6,153,000 of purchased
     research and development costs) for a net loss of $7,005,000 associated
     with the April 18, 2000 acquisition of HealthExchange assets.

(3)  The three months ended September 30, 2000 includes revenues of $19,000 and
     operating expenses of $2,206,000 (including $1,540,000 for impairment of
     acquired intangible assets) for a net loss of $2,187,000 associated with
     the April 18, 2000 acquisition of HealthExchange assets.

(4)  The three months ended December 31, 2000 includes revenues of $24,000 and
     operating expenses of $1,481,000 (including $722,000 for impairment of
     acquired intangible assets) for a net loss of $1,457,000 associated with
     the April 18, 2000 acquisition of HealthExchange assets.

(5)  The year ended December 31, 2000 includes revenues of $58,000 and operating
     expenses of $10,707,000 (including $8,415,000 for purchased research and
     development and impairment of acquired intangible assets) for a net loss of
     $10,649,000 associated with the April 18, 2000 acquisition of
     HealthExchange assets.


                                       20






ITEM 7. 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 INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED BY THE FORWARD-LOOKING INFORMATION. FACTORS THAT MAY
CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, AVAILABILITY OF
FINANCIAL RESOURCES FOR LONG TERM NEEDS, PRODUCT DEMAND, MARKET ACCEPTANCE AND
OTHER FACTORS DISCUSSED ELSEWHERE IN THIS REPORT. THIS MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN
CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES
INCLUDED ELSEWHERE IN THIS REPORT.


IN GENERAL

As of December 31, 2000, we had a working capital deficit of $(1,348,000) and
stockholders' equity of $166,000. We generated revenues of $1,602,000 for the
year ended December 31, 2000, $414,000 for the year ended December 31, 1999 and
$155,000 for the year ended December 31, 1998, incurred net losses since
inception and had an accumulated deficit of ($34,303,000) at December 31, 2000.
We expect to continue to operate at a loss for the foreseeable future. There can
be no assurance that we will ever achieve profitability. In addition, during the
year ended December 31, 2000, net cash used in operating activities was
$6,737,000.

We are in the early stage of operations and, as a result, the relationships
between revenue and cost of revenue, and operating expenses reflected in the
financial information included in this report do not represent future expected
financial relationships. Much of the cost of revenue and operating expenses
reflected in our consolidated financial statements are associated with people
costs, and not directly related to transaction volumes. Our expenses increased
with the escalation of sales and marketing activities and transaction volumes,
but at a much slower rate of increase than the corresponding revenue increase.
Research and development reported a significant one-time, non-recurring expense
due to delay in development of an asset acquisition made during the year.
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 2001, we issued 16,000 shares of common stock with a fair market value
of $41,600 to New York Capital AG in connection with an agreement for
professional services to be rendered in 2001.

In April 2001, we entered into an agreement with McKesson by which McKesson
acquired 1,514,285 shares of common stock at $1.75 per share for net proceeds of
$2,650,000 and the stock purchase warrant originally issued to McKesson in 1999
was cancelled. No registration rights were granted to McKesson for the shares
acquired.

In March 2001, we completed a private placement of 400,000 shares of common
stock issued to an accredited investor at $1.75 per share for net proceeds of
$630,000. In April 2001, we granted warrants to purchase 40,000 shares of common
stock to financial advisors that assisted us with the negotiation and
structuring of such investment. The warrants are immediately exercisable at a
price of $1.75 per share and expire on the second anniversary of the date of
grant.

In October 2000, upon completion of our annual meeting, options exercisable for
an aggregate of 25,000 shares of common stock were granted under the Directors'
Plan. The option exercise price of $2.375 was the fair market value of a share
of the outstanding common stock on the date the options were granted.

In August 2000, we completed a private placement of 270,000 shares of common
stock at $3.50 per share for net proceeds of $927,000 to various accredited
investors. In connection with the financing, we also issued warrants to purchase
270,000 shares of common stock at a price of $4.60 per share exercisable for a
period of one year from their issue date and warrants to purchase 270,000 shares
of common stock at a price of $5.60 exercisable for a period of two years from
their issue date.

In June 2000, we completed a private placement of 1,000,000 shares of common
stock issued to an accredited investor at $3.00 per share for net proceeds of
$2,982,000.

In June 2000, we granted certain employees ten-year warrants to purchase 178,250
shares of common stock at a price of $3.00 per share, the market price on the
date of grant. They become exercisable in June 2001.


                                       21



In May 2000, we sold at a price of $3.00 per share, 100,000 shares of common
stock to American Medical Finance, Inc., a related party and the owner of record
of 381,603 shares of common stock prior to the transaction. Bo W. Lycke, the
Chairman of the Board, President and Chief Executive Officer of the Company,
Robert H. Brown, Jr., a Director of the Company, and Ward L. Bensen, a Director
of the Company, control 71.1%, 17.7%, and 11.2%, respectively, of the
outstanding common stock of American Medical Finance, Inc.

In April 2000, we issued 1,200,000 shares valued at $6,376,000 to acquire
certain assets from VHx Company. In December 2000, pursuant to provisions of the
asset purchase agreement, we withdrew from escrow and returned to our treasury
888,000 shares at a value of $1,415,000, and we issued 244,000 shares valued at
$389,000 from treasury stock to JDH, a major creditor, in satisfaction of debt
owed by VHx Company.

Except as otherwise indicated, in each of the security issuances referenced
above, we provided certain rights to register resale of the shares at our
expense under the Securities Act of 1933. Except as indicated, no sales of
securities involved the use of an underwriter and no commissions were paid in
connection with the sale of any securities. Except as otherwise indicated, the
proceeds from each of the private placements referenced above was used for
general corporate purposes. The certificates evidencing the common stock issued
in each of the transactions referenced above were appropriately legended.

The offer and sale of the securities in each of the private placements
referenced above was exempt by virtue of Section 4(2) of the Securities Act of
1933 and the rules promulgated thereunder. Each of the offerees and investors in
such private placements provided representations to us that they were each
"accredited investors," as defined in Rule 501 under the Securities Act of 1933,
as well as highly sophisticated investors, and (ii) some of the investors in the
2000 private placements were existing stockholders of us at the time of such
transaction. Each investor in such private placements, whether a new investor or
existing investor, was afforded the right to conduct a complete due diligence
review of us if they so desired, and was offered the opportunity to ask
questions of, and receive answers from Claimsnet.com.

PLAN OF OPERATIONS

Our business strategy is as follows:

o    to aggressively pursue and support strategic relationships with companies
     that will in turn aggressively market electronic claims processing and our
     other services to outpatient healthcare providers, including clinics,
     hospitals, physicians, HMOs, third party administrators, dentists, and
     other outpatient service providers;
o    to continue to expand our services to include additional transaction
     processing functions, such as HMO encounter forms, eligibility and referral
     verifications, patient statements, 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, private label use, and original equipment
     manufacturers.

We anticipate that our primary source of revenues will be fees paid by strategic
partners for private-label and co-branded licenses and services, fees paid by
users for insurance claim and patient statement services, and fees from medical
and dental payers for delivering claims electronically. We expect most of our
revenues to be recurring in nature.

Our principal operating costs are anticipated to be processing fees for certain
transactions, technical and customer support, research and development,
acquisition of capital equipment, and general and administrative expenses. We
intend to continue to develop and upgrade our technology and
transaction-processing systems and continually update and improve our website to
incorporate new technologies, protocols, and industry standards. Selling,
general and administrative expenses include all corporate and administrative
functions that serve to support our current and future operations and provide an
infrastructure to support future growth. Major items in this category include
management and staff salaries and benefits, travel, professional fees, network
administration, business insurance, and rent.


RESULTS OF OPERATIONS

COMPARISON OF THE YEARS ENDED DECEMBER 31, 2000 AND 1999

REVENUES

Revenues increased 287% to $1,602,000 in 2000 from $414,000 in 1999. Revenues of
$681,000 and $87,000, respectively, during 2000 and 1999 are related to software
license and support revenue under the McKesson Development and Services
Agreement and revenues of $921,000 and $327,000, respectively during 2000 and
1999, are related to our Internet-based clients. Increased revenues from


                                       22



internet-based clients are attributable to volume and pricing improvements and
increased customer interest in the patient statement product. Revenues from
recurring revenue sources for 2000 represented 47% of total revenues. Recurring
revenues were comprised of $644,000 from transaction-based fees and $115,000
from subscription fees. Revenues from non-recurring sources totaled $162,000 and
were related to setup, support, and other fees. Revenues under the McKesson
Development and Services Agreement accounted for approximately 43% of 2000
revenues and 21% of 1999 revenues.

Transactions processed by us increased 88% to 5,283,000 in 2000 from 2,809,000
in 1999. All of the increase was attributable to internal growth in the number
of accounts and healthcare providers subscribing to our services. Additionally,
88% of all transactions were for physician and dental claim submission services
and 12% were from patient statement processing. We had 399 accounts processing
transactions for 3,696 providers at December 31, 2000 compared with 365 accounts
and 3,001 providers at December 31, 1999, representing increases of 9% and 23%,
respectively.

Transaction-based revenue averaged $.12 per transaction and $.07 per transaction
for the years ended December 31, 2000 and 1999, respectively, representing an
increase of 71%. Pricing changes implemented early in the year on certain
transactions and the growth in statement transactions contributed to the
improvement. We expect the average revenue per transaction to continue to
increase in future periods for several reasons. Revenue per transaction for the
2,543,000 commercial electronic claims averaged $.04 during 2000 as compared to
1,649,000 claims which averaged $.02 during 1999. We expect commercial
electronic claim prices to increase due to additional payer rebate contracts
with volume-based pricing structures. Revenue per transaction for the 1,803,000
Medicare and Medicaid claims averaged $.09 during 2000, compared to 842,000
Medicare and Medicaid claims which averaged $.01 during 1999. This increase
resulted from the implementation of a new pricing structure charging a per
transaction fee to a broader group of customers. Average revenue per transaction
for the 310,000 paper claims was $.48 during the year compared to 287,000 paper
claims at $.47 for the prior year. Patient statement volumes increased to
626,000 in 2000 from approximately 30,000 in 1999. Patient statement revenues
averaged $.34 per transaction in 2000.

COST OF REVENUES

Cost of revenues were $3,274,000 in 2000 compared to $2,418,000 for the prior
year. The four components of cost of revenues are data center expenses,
transaction processing expenses, customer support operation expenses and
amortization of software. Data center expenses were $394,000 for the year ended
December 31, 2000 compared with $324,000 for 1999, an increase of 22%.
Transaction processing expenses were $498,000 in 2000 compared to $208,000 in
1999, representing a 139% increase. Customer support operations expense
increased by 62% to $1,832,000 in 2000 from $1,133,000 in 1999, while the number
of accounts and providers served at the end of each year increased by 9% and
23%, respectively. The increases in customer support operations expense were
primarily attributable to increased staffing. Amortization of software and
development project amortization was $550,000 in 2000 compared to $753,000 in
1999, representing a 27% decrease. This decrease reflects completion of software
development amortization in 2000.

RESEARCH AND DEVELOPMENT

Research and development expenses were $2,019,000 in 2000, compared with
$981,000 in 1999, representing an increase of 106%. Research and development
expenses are comprised of personnel costs and related expenses. No internal use
software costs were capitalized in the current year compared to $161,000
capitalized during 1999. Development efforts during 2000 were concentrated on
development of the McKesson project started during 1999 and additional
development of HealthExchange(TM) products which have not yet reached
marketability. Development efforts during 1999 relating to our proprietary
software system represented continuous incremental enhancements, which are
individually and simultaneously implemented for all clients on our centralized
operating system. No costs were capitalized for these development efforts.
Development costs capitalized during 1999 were related to several internal
infrastructure system projects.

PURSCHASED RESEARCH AND DEVELOPMENT AND WRITE-OFF  OF PURCHASED INTANGIBLES AND
OTHER ASSETS

On April 18, 2000, the Company executed an asset purchase agreement (the "Asset
Purchase Agreement") with VHx Company ("VHx") to acquire selected properties and
assets of VHx, including the HealthExchange.com name and HealthExchange.com
trademarks, related to all efforts of VHx to develop products and services
designed to use Internet technology to facilitate and improve interaction
between physicians, health plans, employers and their members.

The Company allocated the purchase price to the various assets acquired using
standard valuation methodologies, projecting cash flows over the estimated
useful lives of the assets, net of additional investment needs, and considering
the stage of completion of software development projects. The initial results
valued the intangible assets at $3,700,000 after charges to in-process
technology of $6,154,000, recorded in the quarter ended June 30, 2000.

One of the significant assets acquired, an agreement with John Deere Health
("JDH") for development of an Enterprise Care Management System, required the
parties to negotiate mutually agreeable business terms for delivery of the
system after acceptance of beta testing. The Company and JDH were unable to
reach such an agreement.


                                       23



In November and December 2000, as a result of the inability to negotiate
mutually agreeable business terms with JDH, an industry consolidation of system
vendors, sluggish sales in the payer market, and dramatic changes in the
financial markets, the Company substantially lowered its estimates of future
revenues less costs of completing the product. The Company reevaluated the
HealthExchange asset purchase using the same valuation methodologies and
determined that there had been a total impairment of the assets acquired. The
Company ceased further development of the HealthExchange(TM) products and all
marketing efforts. As a result of the revised valuation, the Company recognized
charges of $2,276,000 for the write-off of the unamortized balance of purchased
intangibles and other assets.

AMORTIZATION OF INTANGIBLES

Amortization of intangible assets of $412,000 was recorded in 2000 on trademarks
and non-compete agreements acquired in the April 18,2000 purchase of
HealthExchange assets.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses were $5,297,000 in 2000, compared
with $5,086,000 in 1999, an increase of 4%. The $211,000 increase includes a
$913,000 increase for other general and administrative expenses, primarily
related to salaries and benefits for additional employees and increases in
professional and insurance fees. Offsetting this increase were decreases of
$380,000 in sales and marketing expenses and $46,000 in technology
infrastructure and support expenses and a one-time charge of $276,000 in 1999
for the cost of past services related to the grant of stock options and warrants
to non-employees. The sales and marketing decrease primarily reflects reduced
marketing efforts during 2000.

OTHER INCOME (EXPENSE)

Interest expense was $6,000 for 2000 compared with $1,109,000 in 1999. Included
in the 1999 expense was $850,000 related to amortization of debt discount
related to bridge financing, $108,000 related to amortization of deferred
financing costs and $9,000 of cash interest at 12% per annum. Interest of
$142,000 was paid to affiliates in 1999. Interest income of $141,000 and
$322,000 was provided in 2000 and 1999, respectively, from investment of the net
proceeds from the April 6, 1999 Initial Public Offering.


COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999 AND 1998

REVENUES

Revenues increased 167% to $414,000 in 1999 from $155,000 in 1998. Revenues of
$87,000 during 1999 (21% of total revenues) are related to software license
revenue under the McKesson Development and Services Agreement and revenues of
$327,000 (79% of revenue) are related to our internet-based clients. Although we
provided internet-based services during 1998, there were no related revenues
recognized because we waived fees as an introductory promotional offer for our
initial clients. We do not currently waive fees to new customers, although we
still have some long-time customers for which some fees are waived. We do not
recognize any revenues from waived fees. Revenues for 1998 were exclusively
derived from the remaining business of Medica Systems, Inc. (Medica), which was
acquired by us in June 1997. The acquisition was made primarily for the value of
Medica's claims processing software technology. A majority of Medica's revenues
related to business that was not transferable to our internet-based system.
Nearly all of the Medica business was phased out during 1998. Revenues from
recurring revenue sources for 1999 represented 61% of total revenues. Recurring
revenues were comprised of $199,000 from transaction-based fees and $53,000 from
subscription fees. Revenues from non-recurring sources totaled $75,000 and were
related to setup, support, and other fees. Transactions processed by us
increased 302% to 2,809,000 in 1999 from 699,000 in 1998, attributable to
internal growth in the number of accounts and healthcare providers subscribing
to our services. Additionally, 99.1% of all transactions were for physician and
dental claim submission services. We had 365 accounts processing transactions
for 3,001 providers at December 31, 1999 compared with 175 accounts and 1,364
providers at December 31, 1998, representing increases of 109% and 120%,
respectively.

Transaction-based revenue averaged $.07 per transaction for 1999. Revenue per
transaction for the 1,649,000 commercial electronic claims averaged $.02 during
1999 and revenue per transaction for the 842,000 Medicare and Medicaid claims
averaged $.01for the year. Revenue per transaction for the 287,000 paper claims
averaged $.47 during 1999.

We processed approximately 31,000 patient statements during 1999, representing
1% of total transactions during the period.


                                       24



COST OF REVENUES

Cost of revenues were $2,418,000 in 1999 compared to $1,321,000 for the prior
year. The four components of cost of revenues are data center expenses,
transaction processing expenses, customer support operation expenses, and
amortization of software. Data center expenses were $324,000 for 1999 compared
with $114,000 for 1998, an increase of 184%. Transaction processing expenses
were $208,000 in 1999 compared to $110,000 in 1998, representing a 89% increase.
Customer support operations expense increased by 167% to $1,133,000 in 1999 from
$425,000 in 1998, while the number of accounts and providers served at the end
of each year increased by 109% and 120%, respectively. The increases in customer
support operations expense were primarily attributable to increased staffing.
Software amortization expenses and development project amortization increased
12% to $753,000 in 1999 from $672,000 in 1998 as a result of additional
amortization for software costs capitalized in 1999.

RESEARCH AND DEVELOPMENT

Research and development expenses were $981,000 in 1999, compared with $531,000
in 1998, representing an increase of 85%. Research and development expenses are
comprised of personnel costs and related expenses. Internal use software costs
of $161,000, all related to several internal infrastructure system projects,
were capitalized during 1999 while no costs were capitalized during 1998.
Development efforts during both periods relating to our proprietary software
system represented continuous incremental enhancements, which are individually
and simultaneously implemented for all clients on our centralized operating
system. No costs were capitalized for these development efforts.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses were $5,086,000 in 1999, compared
with $2,658,000 in 1998, an increase of 91%. The $2,428,000 increase includes a
$1,413,000 increase in sales and marketing expenses and a $192,000 increase in
technology infrastructure and support expenses, both of which are primarily
related to personnel costs and related expenses. The sales and marketing
increase also reflects marketing efforts during 1999. A one-time charge of
$276,000 for the cost of past services related to the grants of stock options
and warrants to non-employees contributed to the increase. Other general
administrative expenses increased by $547,000, primarily due to increases in
office rent, telephone expenses, employee recruiting expenses, outside
professional fees, and employment agreement contractual increases.

OTHER INCOME (EXPENSE)

Interest expense was $1,109,000 in 1999 compared with $314,000 in 1998. Included
in the 1999 expense was $850,000 of amortization of debt discount related to
bridge financing, $108,000 of amortization of deferred financing costs and
$9,000 of cash interest at 12% per annum. Interest of $142,000 was paid to
affiliates in 1999 and $314,000 in 1998. Interest income of $322,000 in 1999
arose from investment of the net proceeds from the April 6, 1999 initial public
offering. Interest income of $6,000 was earned in 1998.

LIQUIDITY AND CAPITAL RESOURCES

For the year ended December 31, 2000 net cash used in operating activities of
$6,496,000 was primarily attributable to operating losses of $17,695,000, less:
non-cash amortizations and write offs of $8,842,000 associated with HECOM,
depreciation of $855,000 and change in working capital of $1,162,000. The
acquisition of HECOM assets in the second quarter of 2000 was responsible for
$10,649,000 of our $17,695,000 net loss. The following table presents HECOM's
impact on our consolidated statement of operations:

       Revenue                                                  $    58,000
                                                                -----------

       Cost of revenue                                               21,000
       Research and development                                     944,000
       Purchased research and development and write-off
         of intangible assets                                     8,430,000
       Amortization of intangibles                                  412,000
       Selling, general and administrative                          900,000
                                                                -----------
       Total operating expenses                                  10,707,000
                                                                -----------
       NET LOSS                                                 $10,649,000
                                                                ===========
In connection with the acquisition of HealthExchange assets, the Company has
accrued contractual acquisition costs of $500,000 representing a disputed
investment banking fee. There has been no resolution of the dispute or
substantial discussions from which to better estimate either the amount, if any,
or the timing of any such settlement.


                                       25



For the year ended December 31, 1999 net cash used in operating activities of
$6,264,000 was primarily attributable to operating losses of $8,858,000, less:
depreciation of $882,000, issuance of common stock for services rendered of
$276,000, amortization of debt discount and deferred financing costs related to
bridge financing, and change in working capital of $361,000. For the year ended
December 31, 1998 net cash used in operating activities of $2,994,000 was
primarily attributable to operating losses of $4,663,000, less: depreciation of
$707,000, non-cash write off of offering costs of $412,000 and change in working
capital of $516,000.

Net cash provided by investing activities was $380,000 in 2000 compared to net
cash used in investing activities in 1999 of $5,493,000 and $120,000 in 1998.
Cash was provided in 2000 by the sale of $3,832,000 marketable securities and
collection of employee loans. Primary uses in 2000 consisted of the purchase of
$2,978,000 of intangible assets and research and development from the VHx
Company, and the purchase of $499,000 in property and equipment.

Net cash used by investing activities in 1999 consisted of the net purchases of
$3,832,000 of marketable securities and the purchases of $1,500,000 in property
and equipment. In addition, we purchased operating licenses and began
implementation for several internal support systems during 1999. In connection
with the implementation of such systems, we capitalized $161,000 of internal
development. Net cash was used in 1998 for purchase of property and equipment
and loans to employees.

Net cash provided by financing activities in 2000 was $4,227,000 as a result of
sales in: May 2000 of 100,000 shares of common stock to American Medical
Finance, Inc. for $300,000; June 2000, in a private placement of 1,000,000
shares of common stock for $3,000,000; and August 2000 of 270,000 shares of
common stock at $3.50 per share for net proceeds of $927,000. In connection with
the financing, we issued warrants to purchase 270,000 shares of common stock at
a price of $4.60 per share for a period of one year and warrants to purchase
270,000 shares of common stock at a price of $5.60 per share for a period of two
years.

In March 2001, we entered into the following financing transactions:

(i)  a one year loan from American Medical Finance, Inc., a related party, in
     the amount of $400,000 bearing interest at 9.5% per annum, and

(ii) a private placement of 400,000 shares of common stock at $1.75 per share
     for net proceeds of $630,000.

On April 12, 2001, we entered into an agreement with McKesson which superseded
our October 1999 agreement. Under the 1999 Development and Services Agreement we
(a) issued a three year warrant to McKesson to purchase 819,184 shares of common
stock at $7.00 per share, (b) received fees for the development of a private
label claims processing and statement processing internet application for
McKesson, (c) received one of three scheduled license fee payments for use of
the McKesson internet application, (d) received monthly support fees for
dedicated private label system hosting, operation and support services
commencing at the date of acceptance of the McKesson internet application, and
(e) received transaction fees for claims and statements processed by the
McKesson internet application. Under the new agreement, (a) McKesson acquired
1,514,285 shares of common stock at $1.75 per share for net proceeds of
$2,650,000, (b) McKesson paid a one-time fee of $200,000 to us, (c) the stock
purchase warrant originally issued to McKesson in October 1999 was cancelled,
(d) McKesson retained a license to use the McKesson internet application to
process statements and claims without additional license fee payments, (e)
McKesson agreed to eliminate the need for dedicated private label system
hosting, operation, and support services and we agreed to provide standard
system hosting, operation, and support serviced without the payment of future
monthly support fees, (f) we will receive fees for transactions processed by the
McKesson internet application, (g) we and McKesson agreed to use best efforts to
expand the scope of the license agreement to include additional claim types, and
(h) we and McKesson agreed to use best efforts to pursue other unspecified
business opportunities. Under a separate agreement, we have contracted for
McKesson processing services to print patient statements and submit claims to
payers for certain of our customers, for which we pay McKesson fees for some
transactions and share third party revenues for other transactions.

Pursuant to the 1999 Development and Services Agreement, we recorded cash
payments received for development and license fees as deferred revenue and
amortized the total expected contract payments to revenue ratably over the life
of the contract. We recorded, in shareholders' equity, the imputed value of the
warrant as deferred sales discount and amortized the amount as an offset to
revenue ratably over the life of the license. During the year ended December 31,
2000, we received cash payments of $2,004,000 and recorded net revenue of
$681,000 (net of $314,000 in deferred sales discount amortization). Pursuant to
the processing services agreement, we recorded $411,000 of expense related to
fees paid to McKesson and $79,000 of shared revenue for fees received from
McKesson during the year ended December 31, 2000. We have no other customers for
which we are providing services substantially similar to those under the


                                       26



Development and Services Agreement. The fees paid to and received from McKesson
pursuant to the processing services agreement are similar to fees with
non-affiliates. The renegotiated agreement eliminates future payments for
services and fees that accounted for nearly all of the $681,000 of revenue
recognized pursuant to the McKesson agreement for the year ended December 31,
2000. The new agreement will, therefore, have a material effect on our near term
financial results. The nature of all future cash payments to be received
pursuant to the new McKesson agreement are dependent on the volume of services
provided. Since the new agreement already eliminates any future guaranteed
payments, in the event of complete termination of the McKesson agreement, our
future business prospects and results of operations could be negatively
effected, but it would not have a significant impact on our current evaluation
of liquidity and capital resources because that evaluation included de minimus
revenues from McKesson. We expect to replace the lost revenues primarily by a
combination (a) fees from increasing transaction volumes with our existing
customers and business partners, including McKesson, (b) fees from new customers
and business partners, and (c) fees generated by services for additional types
of health care transactions.

Net cash provided by financing was $14,734,000 in 1999 as a result of: sales in
February 1999 of Series A 12% Subordinated Notes ("Notes") along with 125,000
shares of common stock for net proceeds of $892,000; sales in April 1999 of
2,875,000 shares of common stock in an initial public offering at $8.00 per
share for net proceeds of $19,515,000; and borrowings of $911,000 against a line
of credit facility with American Medical Finance, Inc., a related party. Net
cash from the initial public offering was used to repay: $5,234,000 of
outstanding principal and accrued interest on the 9.5% note payable and line of
credit facility with American Medical Finance, Inc.; $1,000,000 of outstanding
principal and accrued interest under the Series A 12% Subordinated Notes; and
$350,000 of contingent notes.

Net cash provided by financing was $2,763,000 in 1998 as a result of private
placement of 27,512 shares of common stock for net proceeds of $2,025,000 and
borrowings of $1,530,000 against a line of credit facility with American Medical
Finance, Inc. Net cash of $792,000 was used for payment of deferred financing
costs associated with failed initial public offering attempts.

In the foregoing financing we provided certain rights to register resale of the
shares at our expense under the Securities Act of 1933.

We believe that our available cash resources, together with anticipated revenues
from operations and the proceeds of recently completed financing activities,
will be sufficient to satisfy our capital requirements through December 31,
2001. Our belief is based on the existence of net working capital of $377,000 at
December 31, 2000, excluding deferred revenue of $1,225,000 and a $500,000
disputed accrued liability which we do not expect to require a cash settlement
in 2001; plus net cash proceeds of $3,880,000 received from transactions
described above, less (i)$3,849,000 of net cash operating losses for 2001 and
(ii)$90,000 for capital expenditures. The projected net cash operating losses
for 2001 are based upon annualized actual results for January and February 2001,
and a further loss of $477,000 for the effect of the restructured agreement with
McKesson. Some of these assumptions may prove to be incorrect. As a result,
financial resources may not be sufficient to satisfy our capital requirements
for this period. We are currently seeking additional funding. Management cannot
predict whether this additional financing will be in the form of equity or debt,
or be in another form. 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 current plans can not be implemented, we may be forced to
significantly reduce operating expenses to a point which would be detrimental to
business operations, curtail research and development activities, sell certain
business assets or discontinue some or all of our business operations, or take
other actions which could be detrimental to business prospects and result in
charges which could be material to our operations and financial position. In the
event that any future financing should take the form of equity securities, the
holders of the common stock may experience additional dilution.


                                       27





ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

THE FOLLOWING DISCUSSION AND ANALYSIS ABOUT MARKET RISK DISCLOSURES MAY CONTAIN
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT AND SECTION 21E OF THE EXCHANGE ACT. SUCH STATEMENTS INCLUDE DECLARATIONS
REGARDING OUR INTENT, BELIEF OR CURRENT EXPECTATIONS AND OUR MANAGEMENT AND
INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS.

We believe that our available cash resources, together with anticipated revenues
from operations and the proceeds of recently completed financing activities,
will be sufficient to satisfy our capital requirements through December 31,
2001. Our belief is based on the existence of net working capital of $377,000 at
December 31, 2000, excluding deferred revenue of $1,225,000 and a $500,000
disputed accrued liability which we do not expect to require a cash settlement
in 2001; plus net cash proceeds of $3,880,000 received from transactions
described above, less (i)$3,849,000 of net cash operating losses for 2001 and
(ii)$90,000 for capital expenditures. The projected net cash operating losses
for 2001 are based upon annualized actual results for January and February 2001,
and a further loss of $477,000 for the effect of the restructured agreement with
McKesson. Some of these assumptions may prove to be incorrect. As a result,
financial resources may not be sufficient to satisfy our capital requirements
for this period. We are currently seeking additional funding. Management cannot
predict whether this additional financing will be in the form of equity or debt,
or be in another form. 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 current plans can not be implemented, we may be forced to
significantly reduce operating expenses to a point which would be detrimental to
business operations, curtail research and development activities, sell certain
business assets or discontinue some or all of our business operations, or take
other actions which could be detrimental to business prospects and result in
charges which could be material to our operations and financial position. In the
event that any future financing should take the form of equity securities, the
holders of the common stock may experience additional dilution.

At December 31, 2000 we had $91,000 in cash accounts which were subject to
interest rate fluctuations. Changes in interest rates will not materially effect
our operations. We operate in the United States and are not subject to foreign
currency fluctuations and run away inflation.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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



                                                                                  Page
                                                                                  ----
                                                                               
   Independent Auditors' Report                                                   F-1
   Independent Auditors' Report                                                   F-2
   Consolidated Balance Sheets - December 31, 2000 and 1999                       F-3
   Consolidated Statements of Operations for the Years Ended
     December 31, 2000, 1999 and 1998                                             F-4
   Consolidated Statements of Changes in Stockholders' Equity (Deficit)
     for the Years Ended December 31, 2000, 1999 and 1998                         F-5
   Consolidated Statements of Cash Flows for the Years Ended
     December 31, 2000, 1999 and 1998                                             F-6
   Notes to Consolidated Financial Statements                                     F-8



                                       28



                          INDEPENDENT AUDITORS' REPORT

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

     We have audited the accompanying consolidated balance sheets of
Claimsnet.com, inc. and subsidiaries as of December 31, 2000, and 1999, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the two years in the period ended December 31, 2000.
Our audit also included the financial statement schedule listed at 14(b). These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Claimsnet.com, inc. and subsidiaries at December 31, 2000, and 1999, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.


                                             /S/  Ernst & Young LLP

Dallas, Texas
February 2, 2001, except for Notes A and J
as to which the date is April 13, 2001


                                      F-1



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
Claimsnet.com inc.

We have audited the accompanying consolidated statements of operations,
stockholders' deficit, and cash flows of Claimsnet.com, inc. and subsidiary for
the year ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We have conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of
Claimsnet.com, inc. and subsidiary for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.



                                      /S/ KING GRIFFIN & ADAMSON, P.C.


Dallas, Texas
January 22, 1999


                                      F-2



                        CLAIMSNET.COM INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                        (In Thousands, Except Share Data)



                                                                                                   December 31,
                                                                                         ----------------------------
                                                                                           2000               1999
                                                                                           ----               ----
                                                                                                       
                               ASSETS
CURRENT ASSETS
Cash and equivalents                                                                     $  1,132            $  3,021
Marketable securities                                                                          --               3,832
Accounts receivable, net of allowance for doubtful accounts of
  $29 and $26 in 2000 and 1999, respectively                                                  307                  98
Interest receivable                                                                            --                 100
Prepaid expenses and other current assets                                                     123                  73
                                                                                         --------            --------
       Total current assets                                                                 1,562               7,124
EQUIPMENT, FIXTURES AND SOFTWARE
Computer hardware and software                                                              1,875               1,617
Software development costs                                                                  2,351               2,110
Furniture and fixtures                                                                        125                 109
Office equipment                                                                               25                  25
Leasehold improvements                                                                         --                  31
                                                                                         --------            --------
                                                                                            4,376               3,892
Accumulated depreciation and amortization                                                  (2,862)             (2,007)
                                                                                         --------            --------
   Total equipment, fixtures and software                                                   1,514               1,885

OTHER ASSETS                                                                                   --                  25
                                                                                         --------            --------
TOTAL ASSETS                                                                             $  3,076            $  9,034
                                                                                         ========            ========

                LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
   Accounts payable                                                                      $    434            $    554
   Accrued severance                                                                          363                  --
   Accrued acquisition costs                                                                  500                  --
   Accrued payroll and other current liabilities                                              388                 398
   Deferred revenues                                                                        1,225                 111
                                                                                         --------            --------
TOTAL CURRENT LIABILITIES                                                                   2,910               1,063

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
   Preferred stock, $.001 par value; 4,000,000 shares authorized, no shares
     issued or outstanding
   Common stock, $.001 par value; 40,000,000 shares authorized; 9,195,000 shares
     and 6,625,000 shares issued as of December 31, 2000 and 1999, respectively                 9                   7
   Additional capital                                                                      36,820              26,220
   Deferred sales discount                                                                 (1,334)             (1,648)
   Accumulated deficit                                                                    (34,303)            (16,608)
   Treasury stock, 644,000 shares, at cost                                                 (1,026)                 --
                                                                                         --------            --------
       Total stockholders' equity                                                             166               7,971
                                                                                         --------            --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                               $  3,076            $  9,034
                                                                                         ========            ========

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


                                      F-3



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



                                                                            Year Ended December 31,
                                                                     -----------------------------------
                                                                       2000          1999          1998
                                                                       ----          ----          ----
                                                                                         
REVENUES                                                             $  1,602        $ 414        $  155

Cost of revenues                                                        3,274        2,418         1,321
                                                                     --------        -----        ------
Gross loss                                                             (1,672)      (2,004)       (1,166)
                                                                     --------       -------       ------
OPERATING EXPENSES:
 Research and development                                              2,019           981           531
 Purchased research and development and write-off of
  purchased intangibles and other assets                                8,430           --            --
 Amortization of intangibles                                              412           --            --
 Selling, general and administrative                                    5,297        5,086         2,658
                                                                     --------       ------        ------
LOSS FROM OPERATIONS                                                  (17,830)      (8,071)       (4,355)
                                                                     --------       -------       ------
OTHER INCOME (EXPENSE)
 Interest expense-affiliate                                                (6)        (142)         (314)
 Interest expense-bridge debt                                              --         (967)           --
 Interest income                                                          141          322             6
                                                                     --------       -------       ------
   Total Other Income (Expense)                                           135         (787)         (308)
                                                                     --------       -------       ------

NET LOSS                                                             $(17,695)     $(8,858)      $(4,663)
                                                                     ========      =======       =======
NET LOSS PER SHARE - BASIC AND DILUTED                               $  (2.16)     $ (1.52)      $ (1.41)
                                                                     ========      =======       =======

WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (Basic and diluted)                                         8,174        5,811         3,309
                                                                     ========      =======       =======



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


                                      F-4



                        CLAIMSNET.COM INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF CHANGES IN
                         STOCKHOLDERS' EQUITY (DEFICIT)
                                 (In Thousands)



                                                                                                                      Total
                                     Number of   Common   Additional   Deferred Sales   Accumulated   Treasury     Stockholders'
                                      Shares     Stock     Capital        Discount        Deficit      Stock      Equity (Deficit)
                                     ---------   ------   ----------   --------------   -----------   --------    ----------------
                                                                                             
Balances at January 1, 1998            3,111      $ 3       $ 1,407        $    --       $ (3,087)    $    --        $ (1,677)

Sale of stock for cash                   514        1         2,475           --               --          --           2,476

Net loss                                  --       --            --           --           (4,663)         --          (4,663)
                                       -----      ---       -------        -------       --------     -------        --------
Balances at December 31, 1998          3,625        4         3,882             --         (7,750)         --          (3,864)
                                       -----      ---       -------        -------       --------     -------        --------
Issuance of common stock with
 Series A 12% Subordinated Notes         125       --           850             --             --          --             850

Non-employee stock option grants          --       --           155             --             --          --             155

Issuance of common stock warrants         --       --           121             --             --          --             121

Sale of common stock in initial
 public offering                       2,875        3        19,512             --             --          --          19,515

Issuance of warrants in connection
 with development agreement               --       --         1,700         (1,700)            --          --              --

Amortization of deferred
 sales discount                           --       --            --             52             --          --              52

Net loss                                  --       --            --             --         (8,858)         --          (8,858)
                                        -----     ---       -------        -------       --------     -------        --------
Balances at December 31, 1999          6,625        7        26,220         (1,648)       (16,608)         --           7,971
                                       -----      ---       -------        -------       --------     -------        --------
Sale of common stock                   1,370        1         4,226             --             --          --           4,227

Issuance of common stock for asset
 purchase                              1,200        1         6,374             --             --          --           6,375

Return to treasury of stock issued
 for asset purchase                     (888)      --            --             --             --      (1,415)         (1,415)

Issuance from treasury of common
 stock for settlement of acquired
 obligation                              244       --            --             --             --         389             389

Amortization of deferred sales
 discount                                 --       --            --            314             --          --             314

Net loss                                  --       --            --             --        (17,695)         --         (17,695)
                                       -----      ---       -------        -------       --------     -------        --------
Balances at December 31, 2000          8,551      $ 9       $36,820        $(1,334)      $(34,303)    $(1,026)       $    166
                                       =====      ===       =======        =======       ========     =======        ========



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


                                      F-5



                        CLAIMSNET.COM INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (In Thousands)



                                                                                           Year Ended December 31,
                                                                                   2000           1999            1998
                                                                                 --------       --------         --------
                                                                                                        
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                    $(17,695)         $(8,858)         $(4,663)
   Adjustments to reconcile net loss to net cash
     used by operating activities:
     Depreciation and amortization                                                  855              882              707
     Common stock issued for services                                                --              276               --
     Provision for doubtful accounts                                                 27               65               34
     Amortization  of intangibles                                                   412               --               --
     Purchased research and development and write off of
       purchased intangibles                                                      8,415               --               --
    Write-off of property and equipment                                              15               --               --
     Amortization of debt discount and deferred financing costs                      --              958               --
     Offering costs written off                                                      --               --              412
     Amortization of deferred sales discount                                        313               52               --
     Changes in operating assets and liabilities, net of acquisitions:
       Accounts receivable                                                         (236)            (121)             (62)
       Prepaid expenses and other current assets                                     51             (154)              (9)
       Accounts payable and other accrued expenses                                 (130)             525              587
       Accrued severance                                                            363               --               --
       Deferred revenues                                                          1,114              111               --
                                                                               --------          -------          -------
  Net cash used in operating activities                                          (6,496)          (6,264)          (2,994)
                                                                               --------          -------          -------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of marketable securities                                                 --           (5,757)              --
   Proceeds from sale of marketable securities                                    3,832            1,925               --
   Purchase of intangible assets and research and development                    (2,978)              --               --
   Employee loan                                                                     25               --              (25)
   Purchase of property and equipment                                              (499)          (1,500)             (95)
   Capitalized cost of internal software development                                 --             (161)              --
                                                                               --------          -------          -------
   Net cash provided by (used in) investing activities                              380           (5,493)            (120)
                                                                               --------          -------          -------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Increase in line of credit - affiliate                                            --              911            1,530
   Payments of notes and line of credit - affiliate                                  --           (5,234)              --
   Issuance of Series A 12% Subordinated Notes                                       --              892               --
   Payment of Series A 12% Subordinated Notes                                        --           (1,000)              --
   Payment of contingent notes                                                       --             (350)              --
   Proceeds from issuance of common stock                                         4,227           19,515            2,025
   Payments of deferred offering costs                                               --               --             (792)
                                                                               --------          -------          -------
   Net cash provided by financing activities                                      4,227           14,734            2,763
                                                                               --------          -------          -------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS                                  (1,889)           2,977             (351)
CASH AND EQUIVALENTS, BEGINNING OF YEAR                                           3,021               44              395
                                                                               --------          -------          -------
CASH AND EQUIVALENTS, END OF YEAR                                              $  1,132          $ 3,021          $    44
                                                                               ========          =======          =======



                                      F-6



                        CLAIMSNET.COM INC. AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                 (In Thousands)



                                                                                           Year Ended December 31,
                                                                                 2000              1999              1998
                                                                               --------          --------           --------
                                                                                                           
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
NON CASH TRANSACTIONS:

Common stock issued in connection with Series A
12% Subordinated Notes                                                         $     --          $   850          $    --
                                                                               ========          =======          =======
Conversion of portion of line of credit - affiliate
 to equity                                                                     $     --          $    --          $   450
                                                                               ========          =======          =======
Common stock warrants issued in connection with development
 and services agreement                                                        $     --          $ 1,700          $    --
                                                                               ========          =======          =======

Issuance of common stock for intangible assets and research
 and development                                                               $  6,375          $    --          $    --
                                                                               ========          =======          =======

Return to treasury of stock issued for asset purchase                          $ (1,415)         $    --          $    --
                                                                               ========          =======          =======

Issuance from treasury of common stock for settlement of
 acquired obligation                                                           $    389          $    --          $    --
                                                                               ========          =======          =======


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


                                      F-7



                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE A--ORGANIZATION, BACKGROUND AND LIQUIDITY

Claimsnet.com inc. ("Claimsnet.com" or the "Company") is a Delaware corporation
originally formed in April 1996. The Company owns, operates and licenses
software used for processing medical insurance claims on the internet.

In 1996, the Company acquired all the internet software, licenses, intellectual
property rights and technology developed by an affiliated company, American
Medical Finance ("American Medical Finance"). American Medical Finance is
affiliated through common stockholders, and as a stockholder of the Company. On
June 2, 1997, the Company acquired Medica Systems, Inc., which owned the
CyberClaim software source code previously licensed to the Company for use in
conjunction with the software purchased from American Medical Finance.

The Company completed an initial public offering in April 1999, for 2,875,000
shares of common stock at $8.00 per share including the underwriter's
overallotment of 375,000 shares.

During 2000, the Company made private placements of 1,370,000 shares of common
stock at prices between $3.00 and $3.50 per share. In April 2000, the Company
formed a wholly owned subsidiary, HealthExchange.com (HECOM), to purchase
certain research and development and other assets from VHx Company. (See Note C)

In March 2001, the Company entered into a twelve-month loan agreement with
American Medical Finance, Inc., a related party, in the amount of $400,000
bearing interest at 9.5% per annum. In March 2001, the Company completed the
private placement of 400,000 shares of common stock at $1.75 per share for net
proceeds of $630,000.

On April 12, 2001, the Company entered into an agreement with McKessonHBOC
("McKesson") that superseded its October 1999 agreement. Under the new
agreement, McKesson acquired 1,514,285 shares of common stock at $1.75 per
share, for net proceeds of $2,650,000, and paid a one-time fee of $200,000. The
stock purchase warrant originally issued to McKesson in October 1999 was
cancelled in April 2001. Additionally, the new agreement eliminates certain
Claimsnet operating requirements to provide dedicated system hosting,
operations, and support services, and eliminates future McKesson license and
subscription fees. The new agreement retains provisions for the payment of
transaction fees by McKesson and expands the scope of transactions that may be
processed under the license and the scope of other business opportunities which
Claimsnet and McKesson may jointly pursue.

The Company has generated losses since inception and has had negative cash flow
from operations. Through 2000, the Company generated minimal revenues and relied
on an initial public offering, private equity placements, and funding from an
affiliate to fund its operations and development activities. In 2001 the Company
has acquired additional funding from a one year loan, a private placement of
common stock, and a sale to McKesson of shares of common stock in conjunction
with a contract restructuring. The Company's business strategy has been refined
to focus on existing partnerships and selective growth opportunities with
near-term profit potential and long-term benefit in order to improve near-term
financial performance.

Management believes that available cash resources, together with anticipated
revenues from operations and the proceeds of recently completed funding will be
sufficient to satisfy the Company's capital requirements through December 31,
2001. This belief is based on the existence of net working capital of $377,000
at December 31, 2000, excluding deferred revenue of $1,225,000 and a $500,000
disputed liability which has been accrued and which the Company does not expect
to require a cash settlement in 2001; plus net cash proceeds of $3,880,000
received from transactions described above, less (i)$3,849,000 of net cash
operating losses for 2001 and (ii)$90,000 for capital expenditures. The
projected net cash operating losses for 2001 are based upon annualized actual
results for January and February 2001, and a further loss of $477,000 for the
effect of the restructured agreement with McKesson. Some of these assumptions
may prove to be incorrect. As a result, financial resources may not be
sufficient to satisfy capital requirements for this period. The Company is
currently seeking additional funding. Management cannot predict whether this
additional financing will be in the form of equity or debt, or be in another
form. 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 current plans can not be implemented, 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
certain business assets or discontinue some or all of the Company's business
operations, or take other actions which could be detrimental to business
prospects and result in charges which could be material to the Company's
operations and financial position. In the event that any future financing should
take the form of equity securities, the holders of the common stock may
experience additional dilution.


                                      F-8



                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

The accompanying financial statements include the accounts of Claimsnet.com and
its subsidiary. All material intercompany accounts and transactions from that
date have been eliminated in consolidation.

CASH EQUIVALENTS

Cash equivalents include time deposits, certificates of deposits and all highly
liquid debt instruments with original maturities of 3 months or less when
purchased.

MARKETABLE SECURITIES

Management determines the appropriate classification of securities at the time
of purchase and reevaluates such designations as of each balance sheet date. In
1999 the Company classified all investments in debt securities as
held-to-maturity because the Company had the positive intent and perceived
ability to hold the securities to maturity. Held-to-maturity securities are
stated at amortized cost, adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in investment income.
Interest on securities classified as held-to-maturity is included in investment
income.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Accounts receivable are considered to be equivalent to market value, as stated
net of allowance for doubtful accounts.

REVENUE RECOGNITION

The Company enters into services agreements with its customers to provide access
to its hosted software platform for processing of customer transactions,
including base level support. The customers are not entitled to delivery of the
Company's software at any time during or at the end of the agreements. The
customers access the Company's hosted software platform via the internet with no
additional software required to be located on the customer's systems. Customers
pay transaction fees and pay time and materials charges for support above the
base level and one customer pays monthly hosting fees for dedicated servers and
databases. Customer agreements also may (i) provide for development fees related
to private labeling of the Company's software platform (ie access to the
Company's servers through a web site which is in the name of and/or has the look
and feel of the customer's other web sites) and some customization of the
offering and business rules, and (ii) have periodic license fees. The Company
accounts for its service agreements by combining the contractual revenues from
development, license and support fees and recognizing the revenue ratably over
the estimated period covered by the development and license. The Company does
not segment these services and use the contractual allocation 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. The Company recognizes service fees for transactions, above base
support and monthly hosting as the services are performed.

SOFTWARE FOR SALE OR LICENSE

The Company begins capitalizing costs incurred in developing a software product
once technological feasibility of the product has been determined. Software
development costs capitalized through December 31, 2000 were $2,351,000.
Capitalized computer software costs include direct labor, labor-related costs
and interest. The software is amortized over its expected useful life of 3
years. Amortization expense related to internally developed software totaled
$292,000, $673,000 and $629,000 for 2000, 1999 and 1998, respectively.

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.


                                      F-9



                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998

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

EQUIPMENT, FIXTURES AND INTERNAL USE SOFTWARE

Equipment and fixtures are stated at cost. Depreciation is provided using the
straight line method over the estimated useful lives of the depreciable assets
which range from three to seven years. Maintenance and repairs are expensed as
incurred. Significant replacements and betterments are capitalized. Depreciation
expense related to equipment and fixtures totaled $304,000, $141,000 and $57,000
in 2000, 1999 and 1998, respectively.

Effective January 1, 1999 the Company adopted Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Software purchases of $79,000 in 2000 and $559,000 in 1999,
related to software utilized in several of the Company's internal support
systems, and internal development costs in 1999 of $161,000 were capitalized in
compliance with this Statement.

The software is amortized over its expected useful life of three years.
Amortization expense related to costs of software developed or obtained for
internal use totaled $258,000, $68,000 and $21,000 in 2000, 1999 and 1998.

Leasehold improvement costs are capitalized and amortized over the remaining
lease term. Costs incurred in 2000 and 1999 were $3,000 and $42,000,
respectively. Amortization totaled $34,000 and $11,000 in 2000 and 1999,
respectively.

INTANGIBLE ASSETS

The purchase price of HECOM assets acquired from VHx in April 2000 (see Note C)
was allocated to intangible assets and research and development based upon
appraisals provided by an independent valuation firm. The appraisals utilized
standard appraisal methodologies, projecting cash flows over the estimated
useful lives of the assets, net of additional investment needs, and considering
the stage of completion of software development projects. Intangible assets
included trademarks and non-compete agreements. Initial results of the valuation
valued intangibles at $3,700,000 and amortization commenced using straight-line
method of depreciation, with a four year expected life. Amortization of $412,000
was recorded in 2000 prior to total impairment. Subsequent re-valuations, due to
contractual and strategic revisions resulted in a charge for the full impairment
of intangibles.

INCOME TAXES

Deferred income taxes are provided for the tax effects of differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Valuation reserves are provided
for the deferred tax assets when realization of the assets is not reasonably
assured.

LOSS PER SHARE

Basic net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding for the period. Diluted net loss per
share is computed by dividing net loss by the weighted average number of common
shares and dilutive common stock equivalents outstanding for the period. Common
stock equivalents, representing options and warrants totaling approximately
2,329,000 shares at December 31, 2000 are not included in the diluted loss per
share as they would be antidilutive. As such, diluted and basic loss per share
are the same.

COMPREHENSIVE INCOME

In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 requires that total
comprehensive income (loss) be disclosed with equal prominence as net income
(loss). The Company's comprehensive loss is equal to its net losses for all
periods presented.


                                      F-10



                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998


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

STOCK-BASED COMPENSATION

The Company accounts for employee stock options in accordance with Accounting
Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees". Under APB 25, the Company recognizes no compensation expense related
to employee stock options when options are granted with exercise prices at the
estimated fair value of the stock on the date of grant, as determined by the
Board of Directors. The Company provides the supplemental disclosures required
by Financial Accounting Standard No. 123 (FAS 123), "Accounting for Stock-Based
Compensation", which assumes the recognition of compensation expense based on
the fair value of options on the grant date. The Company follows the provisions
of FAS 123 and Emerging Issues Task Force No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring or in
Connection with Selling Goods or Services", for equity instruments granted to
nonemployees.

SEGMENT REPORTING

The Company operated during all periods in a single segment when applying the
management approach defined in Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information".

CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

One customer represented 43% and 21% of the Company's total revenue for 2000 and
1999, respectively. The Company does not generally require collateral.
Management provides an allowance for doubtful accounts which reflects its
estimate of uncollectible receivables.

USE OF ESTIMATES AND ASSUMPTIONS

Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from the estimates that were
used.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Standard No. 133
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. SFAS 133
is effective for all fiscal quarters of all fiscal years beginning after June
15, 2000. In management's opinion, Claimsnet's adoption of SFAS 133 will not
have a material impact on its financial position or results of operations.

ADVERTISING COSTS

Advertising costs are expensed as incurred. Advertising expense totaled
$230,000, $579,000 and $99,000 for the years ended December 31, 2000, 1999 and
1998, respectively.

RECLASSIFICATION

Certain 1999 and 1998 amounts have been reclassified to conform with the 2000
presentation.



                                      F-11



                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE C--HEALTHEXCHANGE ASSET ACQUISITION

On April 18, 2000, Claimsnet.com, through its newly formed, wholly-owned
subsidiary, HealthExchange.com, Inc., a Delaware corporation ("HECOM"), executed
an asset purchase agreement (the "Asset Purchase Agreement") with VHx Company, a
Nevada corporation ("VHx"), whereby HECOM acquired selected properties and
assets of VHx, including the HealthExchange.com name and HealthExchange.com
trademarks, related to all efforts of VHx to develop products and services
designed to use Internet technology to facilitate and improve interaction
between physicians, health plans, employers and their members in exchange for
(i) 1,200,000 shares of common stock, par value $.001 per share, which were held
in escrow, (ii) the assumption of certain liabilities, and (iii) the
cancellation of a $2 million advance owed by VHx to the Company. In addition,
the Company issued additional consideration comprised of 13,767 shares of Series
A 8% Convertible Redeemable Preferred Stock , stated value of $725.60 per share,
and 13,767 shares of Series B 8% Convertible Redeemable Preferred Stock, stated
value of $725.60 per share (the Preferred Stock).

The Preferred Stock is contingent upon the completion of specified milestones,
described below, by March 31, 2001. The Preferred Stock is either (i) cancelled
in the event that the milestones are not satisfied or (ii) convertible into
common stock in the event that the milestones are satisfied.

The performance milestone for the Series A Preferred Stock is the existence of
1,000,000 lives covered by the business operation attributable to assets
acquired. The performance milestone for the Series B Preferred Stock is the
recognition of revenue from 6,000,000 member-months attributable to assets
acquired. Neither performance milestone was satisfied by March 31, 2001.
Therefore, both series of Preferred Stock will be cancelled.

One of the significant assets acquired, an agreement with John Deere Health
("JDH") for development of an Enterprise Care Management System, required the
parties to negotiate mutually agreeable business terms for delivery of the
system after acceptance of beta testing. The Company and JDH were unable to
reach such an agreement. Additionally, the asset purchase agreement contained
provisions related to the satisfaction of pre-existing financial obligations due
to JDH by VHx within 180 days of the acquisition and also contained certain
provisions in the event that such obligations were not satisfied by VHx. VHx was
unable to satisfy the JDH obligations within the 180 days. As a result, the
Company exercised its rights pursuant to the asset purchase agreement and
reclaimed 888,000 of the 1.2 million shares of common stock back into treasury
stock. The fair market value of the common shares returned to the Company was
$1,415,000 as of the date of the agreement. Contemporaneously, the Company,
HECOM, and JDH reached an agreement in December 2000 by which the parties agreed
to cancel all pre-existing agreements and JDH agreed to forgive all unpaid
obligations in exchange for 244,000 shares of Claimsnet common stock which was
valued at $389,000 at the date of the agreement.

The Company allocated the purchase price to the various assets acquired using
standard valuation methodologies, projecting cash flows over the estimated
useful lives of the assets, net of additional investment needs, and considering
the stage of completion of software development projects. A blended state and
federal effective tax rate of 40% was applied to the cash flows. These cash
flows were discounted to their present value using discount rates between 60 and
70 percent, reflective of development products at similar risk. The initial
results valued the intangible assets at $3,700,000 after charges to in-process
technology of $6,154,000, recorded in the quarter ended June 30, 2000.

In November 2000, as a result of revised expectations due to the inability to
negotiate mutually agreeable business terms with JDH, the Company reevaluated
the HealthExchange asset purchase using the same valuation methodologies and
determined that there had been an impairment of the assets acquired. The
revised valuation valued the intangible assets acquired at $400,000.

In December 2000, in recognition of the sluggish growth in potential customers,
and future cash requirements to continue product development, the Company
decided to postpone further development of the HealthExchange(TM) products and
terminate the Atlanta facility. The residual value of intangible assets was
written off.

As a result of the revised valuation of intangible assets acquired and the
revised agreement and return of escrowed shares described above, the Company


                                      F-12



                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE C--HEALTHEXCHANGE ASSET ACQUISITION (CONTINUED)

recognized charges of $3,288,000 for impairment of assets, $15,000 for write off
of fixed assets and a reduction to purchased research and development expense of
$1,026,000. Amortization of $412,000 related to the acquisition has been
recognized during the twelve months ended December 31, 2000.

The Company and JDH also entered into a separate business agreement whereby the
Company will continue to provide limited services to JDH and its clients at fair
market value for a period not to exceed eighteen months.

The following table reflects the impact of HECOM upon the Company's current year
operations:

                                                               
        Revenue                                                   $    58,000
                                                                  -----------

        Cost of sales                                                  21,000
        Research and development                                      944,000
        Purchased research and development and write-off
          of intangible assets                                      8,430,000
        Amortization of intangibles                                   412,000
        Selling, general and administrative                           900,000
                                                                  -----------
        Total operating expenses                                   10,707,000
                                                                  -----------
        NET LOSS                                                  $10,649,000
                                                                  ===========



NOTE D--MARKETABLE SECURITIES

Securities classified in 1999 as held-to-maturity debt securities were converted
to cash in 2000 to fund operations. Of the $3,832,000 outstanding at December
31, 1999, $2,232,000 matured and $1,600,000 were sold prior to maturity,
incurring a $7,000 loss.

NOTE E--INCOME TAXES

There was no provision or benefit for federal or state income taxes for the two
years ended December 31, 2000.

The differences between the actual income tax benefit and the amount computed by
applying the statutory federal tax rate to the loss before incomes taxes are as
follows:


                                                                 December 31,
                                                             2000                 1999
                                                             ----                 ----
                                                                         
   Benefit computed at federal statutory rate             $(6,016,300)         $(3,012,000)
   Permanent differences                                       60,591              167,000
   State income tax benefit, net of federal
    tax effect at state statutory rate                       (520,249)            (263,000)
   Increase in valuation reserve                            6,475,958            3,108,000
                                                          -----------          -----------
                                                          $        --                   --
                                                          ===========          ===========



                                      F-13



                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998


NOTE E--INCOME TAXES (CONTINUED)

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



                                                                    December 31,
                                                             2000                  1999
                                                             ----                  ----
                                                                         
         Deferred tax assets:
           Net operating loss carryforwards               $ 9,135,592          $ 6,058,525
           Intangible assets                                3,263,712                   --
           Fixed assets                                            --               29,738
           Allowance for doubtful accounts                     10,721                9,871
                                                          -----------          -----------
         Total deferred tax assets                         12,410,025            6,098,134
         Valuation allowance for deferred tax assets      (12,362,092)          (5,886,134)
                                                          -----------          -----------

         Deferred tax liabilities:
           Equipment and fixtures                             (47,933)            (212,000)
                                                          -----------          -----------
         Deferred income tax assets, net of
           deferred tax liabilities                       $        --          $        --
                                                          ===========          ===========


At December 31, 2000, the Company has approximately $24,700,000 of federal net
operating loss carryforwards, which begin to expire in 2011. The Company has
approximately $24,700,000 of state net operating losses as of December 31, 2000.

At December 31, 2000, the Company has recorded a valuation allowance against its
net deferred tax assets because management believes that, after considering all
the available objective evidence, the realization of the assets is not
reasonably assured.

As a result of stock issued during 2000, the Company may have experienced an
ownership change as defined in Internal Revenue Code section 382. As a result,
the Company's ability to use net operating loss carryforwards and certain other
deductions to offset future taxable income may be limited. The annual limit is
an amount equal to the value of the Company at the date of an ownership change
multiplied by approximately 5%.


                                      F-14



                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE F--RELATED PARTY TRANSACTIONS

In 2000, American Medical Finance, a related party, acquired 100,000 shares of
Claimsnet.com at $3.00 per share. As a result, American Medical Finance owns a
total 482,000 shares of the Company's common stock or 5.6% of the outstanding
shares at December 31, 2000.

In March 2001, the Company entered into a loan agreement in the amount of
$400,000 with American Medical Finance, Inc. Principal and interest, at 9.5% per
annum on the unpaid principal, are due in March 2002.

NOTE G--STOCKHOLDERS' EQUITY

In 2000, the Company sold 1,370,000 shares of common stock in private placements
to various accredited investors at prices between $3.00 and $3.50 per share for
proceeds of $4,227,000. In connection with the financings, the Company issued
warrants to purchase 270,000 shares of common stock at a price of $4.60 for a
period of one year and warrants to purchase 270,000 shares of common stock at a
price of $5.60 for a period of two years.

The Company also issued 1,200,000 shares valued at $6,376,000 for the purchase
of assets from VHx Company. Subsequent adjustments pursuant to provisions of the
asset purchase agreement resulted in the return of 888,000 shares to treasury
stock at a value of $1,415,000 and the issuance from treasury stock of 244,000
shares at a value of $389,000 to JDH in forgiveness of all the unpaid
obligations of VHx Company to JDH under a development agreement.

In October 2000, upon completion of the Company's annual meeting and pursuant to
the terms of the Directors' Plan, options exercisable for an aggregate of 25,000
shares of common stock were granted under the Directors' Plan. The option
exercise price of $2.375 was the fair market value of the common stock on the
date the options were granted.

In June 2000, the Company granted certain employees warrants to purchase 178,250
shares of common stock at $3.00 per share, the market price on the date of
grant. The warrants expire on the 10th anniversary of the grant, and become
exercisable one year from the grant date.

In 1999 the Company issued $1,000,000 of Series A 12% Subordinated Notes (see
Note C) along with 125,000 shares of common stock for net proceeds of
approximately $892,000 (net of closing fees and cash financing expenses). The
notes and all accrued interest were due upon the earlier of the first day
subsequent to the close of the Company's initial public offering or one year
from the date of issuance. The 125,000 shares of common stock issued with the
Notes were valued at $850,000 ($6.80 per share) and were recorded at that amount
with a corresponding charge to debt discount. The Notes were repaid in April
1999 from the proceeds of the initial public offering which occurred on April 6,
1999 and the debt discount was amortized over the period from issuance to
repayment, resulting in an $850,000 charge to interest expense. Debt issuance
costs of $108,000 were capitalized as deferred financing costs and amortized to
interest expense over the period the Notes were outstanding.

In connection with the Company's initial public offering ("IPO"), 2,875,000
shares of common stock were sold in April and May 1999 at a price of $8.00 per
share. The net proceeds to the Company (after deducting the underwriting
discounts and offering expenses payable by the Company) were approximately $19.5
million. The Company also issued underwriter warrants to purchase an aggregate
of 250,000 shares of common stock at a price of $13.20 per share, exercisable
between the first and fourth anniversaries of the date of grant.

In connection with the initial public offering, the Company granted employees
and non-employees options to purchase 420,000 shares of common stock under the
1997 Stock Option Plan, 27,000 of which were granted to non-employees. Total
shares authorized for grant under the 1997 Plan are 1,307,692. The options were
granted at a price of $8.00 or $8.80 per share, expire on the tenth anniversary
of the grant, and the employee options vest ratably over the first four


                                      F-15



                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE G--STOCKHOLDERS' EQUITY (CONTINUED)

anniversaries of the grant. The non-employee options were granted for past
services, are fully vested, and become exercisable ratably over the first four
anniversaries of the grant. The options granted to non-employees required a
charge to earnings equal to the imputed value of the options as of March 31,
1999, which was estimated at $5.73 per option using the Black-Scholes valuation
method (using the following assumptions: life of four years, risk free rate of 7
percent, no dividends during the term, and a volatility of 0.8). This resulted
in a one-time expense of $155,000.

The Company also granted non-employee directors options to purchase 80,000
shares of common stock under the Non-Employees and Director's Plan. The
non-employee director options were issued with an exercise price of $8.00 per
share. In May 1999, the board of directors voted to accelerate the vesting of
the directors' option shares from one year to immediate vesting. The Company did
not record a charge for the acceleration as it determined the modification
resulted in a de minimus change in fair value. All options expire on the tenth
anniversary of the date of the grant. Total shares authorized for grant under
this Plan are 111,538.

Also in connection with the initial public offering, the Company issued warrants
to purchase an aggregate of 20,000 shares of common stock at a price of $8.80
per share, exercisable between the first and fifth anniversaries of the date of
grant. The warrants are fully vested and were issued for past services and,
therefore, required a charge to earnings equal to the imputed value of the
warrants, which was estimated at $6.07 per share using the Black-Scholes
valuation method (using the following assumptions: life of four years, risk free
rate of 7 percent, no dividends during the term, and a volatility of 0.8).
Therefore, the Company recognized a one-time expense of $121,400 as of March 31,
1999 related to the issuance of warrants.

In November 1999, the Company granted certain employees and non-employees
options to purchase 62,500 shares of common stock under the 1997 Stock Option
Plan, 5,000 of which were granted to a non-employee. The options provide for an
exercise price of $8.00 per share, the market price on the date of grant, expire
on the tenth anniversary of the grant, and vest ratably over the first four
anniversaries of the grant. The options granted to the non-employee were valued
at $5.06 per share based on the Black-Scholes valuation method (using the
following assumptions: life of four years, risk free rate of 7 percent, no
dividends during the term, and a volatility of 0.8). The expense is being
recognized ratably over the four year vesting period.

In October 1999 Claimsnet.com entered into a Development and Services Agreement
(the "Agreement") with McKesson, whereby the Company has granted McKesson a
multi-year, non-exclusive, private label license for certain of the Company's
proprietary technology and has agreed to manage McKesson's operation of the
system on a fully outsourced basis. In connection with the Agreement, the
Company issued McKesson a warrant to purchase 819,184 shares of common stock at
an exercise price of $7.00 per share. The fair market value of the Company's
Common Stock on the date the warrant was granted was $4.25 a share. The warrant
is immediately exercisable and can be exercised at any time through October 27,
2002. The imputed value of the warrant, which was estimated at approximately
$1,700,000 using the Black-Scholes valuation method (using the following
assumptions: life of three years, risk free rate of 6 percent, no dividends
during the life, and a volatility of 0.76), is being amortized ratably over the
three year life of the agreement as a direct reduction of revenues generated by
the Agreement. (See Note J-Subsequent Events, for April 2001 restructuring of
the agreement.)

During 1998, the Company consummated a private offering of 20 units, each unit
consisting of 11,967 shares of common stock, for aggregate gross proceeds of
$1,000,000 in the form of $550,000 cash and $450,000 debt cancellation related
to a portion of the line of a credit-affiliate. Also, during the period from
July to October 1998, the Company consummated an additional private offering of
29.5 units, each unit consisting of 9,295 shares of the Company's common stock
for aggregate gross proceeds of $1,475,000.

In July 1998, the Company issued warrants to acquire an aggregate of 11,154
shares of common stock to a non-employee. Such warrants are exercisable for a
period of four years commencing one year following the initial public offering
at a price per share equal to 110% of the initial public offering price of $8.00
per share.


                                      F-16



                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998


NOTE G--STOCKHOLDERS' EQUITY (CONTINUED)

STOCK BASED COMPENSATION ARRANGEMENTS

The Company's 1997 stock option plan provides for the issuance to employees,
officers, directors, and consultants of incentive and/or non-qualified options
to acquire 1,307,692 shares of common stock. The options are to be issued at
fair market value, as defined, and generally vest 25% each year from the date of
the option grant. Options generally expire 10 years from the date of grant and
automatically expire on termination of employment.

The Company's Directors' Plan provides for the issuance to non-employee
directors of options to acquire 111,538 shares of common stock. The options are
to be issued at fair market value, as defined, and vest on the first anniversary
from the date of the option grant. Options generally expire 10 years from the
date of grant and automatically expire one year from the date upon which the
participant ceases to be a Director.

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



                                                       NUMBER OF         PER SHARE        WEIGHTED AVERAGE
                                                        SHARES            EXERCISE         EXERCISE PRICE
                                                       ---------         ---------        ----------------
                                                                                   
Outstanding options-January 1, 1999                        --           $       --           $     --
    Granted                                           562,500            7.00-8.80               8.03
    Cancelled                                         (41,500)                8.00               8.00
                                                      -------           ----------             ------
Outstanding options-December 31, 1999                 521,000            7.00-8.80               8.03
    Granted                                           220,000            2.38-8.00               7.36
    Expired                                          (213,462)           7.00-8.00               7.44
                                                     --------           ----------             ------
Outstanding options-December 31, 2000                 527,538           $2.38-8.80           $   7.67
                                                     ========           ==========           ========
Options exercisable-December 31, 2000                 150,463           $7.00-8.80           $   7.94
                                                     ========           ==========           ========


Outstanding options as of December 31, 2000, had a weighted average remaining
contractual life of approximately 8.7 years and a weighted average fair value at
issuance of $4.66 based on the Black-Scholes value method. Options available for
grant under the Company's 1997 Stock Option Plan at December 31, 2000, were
885,154, and under the Company's Directors' Plan were 6,538.

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




                                                       NUMBER OF         PER SHARE        WEIGHTED AVERAGE
                                                        SHARES            EXERCISE         EXERCISE PRICE
                                                       ---------         ---------        ----------------
                                                                                   
Outstanding employee warrants-January 1, 2000              --                   --                 --
    Granted                                           178,250           $     3.00           $   3.00
    Expired                                           (33,800)                3.00               3.00
                                                     --------           ----------           --------
Outstanding employee warrants-December 31, 2000       144,450           $     3.00           $   3.00
                                                     ========           ==========           ========
Employee warrants exercisable-December 31, 2000            --                   --                 --
                                                     ========           ==========           ========



                                      F-17



                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE G--STOCKHOLDERS' EQUITY (CONTINUED)

Outstanding employee warrants as of December 31,2000, had a weighted average
contractual life of approximately 9.4 years and a weighted average fair value at
issuance of $2.53 based on the Black-Scholes value method.

SFAS No. 123 requires the disclosure of pro forma net loss and net loss per
share as if the Company had adopted the fair value method since inception. The
Company's calculations for employee grants were made using a Black-Scholes model
using the following assumptions: expected life, four years; risk free rate of
5.64 to 7 percent; no dividends during the expected term; and a volatility of
0.8 to 1.355. If the computed values of all the Company's stock based awards
were amortized to expense over the vesting period of the awards as specified
under SFAS No. 123, net loss would have been $17,226,000 ($2.11 per basic and
diluted share) for the year ended December 31, 2000 and $9,200,000 ($1.58 per
basic and diluted share) for the year ended December 31, 1999.

NOTE H--COMMITMENTS AND CONTINGENCIES

The Company leases office space under a lease agreement that expires on December
31, 2001. Rent expense totaled $492,000, $248,000 and $116,000 for the years
ended December 31, 2000, 1999 and 1998, respectively. Rent expense commitments
for the year ended December 31, 2001 are $193,000.

From time to time in the normal course of business, the Company is a party to
various matters involving claims or possible litigation. One such dispute
relates to a $500,000 amount associated with the acquisition of HealthExchange
assets in April 2000, which is accrued in current liabilities as of December 31,
2000. Management believes the ultimate resolution of these matters will not have
a material adverse effect on the Company's financial position or results of
operations.

NOTE I--RETIREMENT PLAN

The Company utilizes a third party for the processing and administration of its
payroll and benefits. Under the agreement, the third party is legally a
co-employer of all of the Company's employees, which are covered by the third
party's 401(k) retirement plan. Under the plan, employer contributions are
discretionary. The Company has made no contributions to the plan through
December 31, 2000.

NOTE J--SUBSEQUENT EVENTS

In January 2001, the Company unveiled a refined business strategy focused on
existing partnerships and selective growth opportunities with near-term profit
potential and long-term benefit in order to improve near-term financial
performance and preserve capital. The Company's new business plan does not
allocate resources for the additional development of the HealthExchange(TM)
product at this time.

In January 2001, the Company granted employees options to purchase an aggregate
of 385,500 shares of common stock under the 1997 Stock Option Plan. The options
were issued at a price of $1.25 per share, the market price on the date of
grant, expire on the tenth anniversary of the grant, and vest on the first
anniversary of the grant.

In March 2001, the Company entered into a loan agreement with American Medical
Finance, Inc., a related party, in the amount of $400,000. Principal and
interest, at 9.5% per annum on the unpaid principal, are due in March 2002.

In March 2001, the Company completed the private placement of 400,000 shares of
common stock to an accredited investor at $1.75 per share for net proceeds of
$630,000.

On April 12, 2001, the Company entered into an agreement with McKessonHBOC
("McKesson") that superseded its October 1999 agreement. Under the new
agreement, McKesson acquired 1,514,285 shares of common stock at $1.75 per


                                      F-18



                        CLAIMSNET.COM INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE J--SUBSEQUENT EVENTS (CONTINUED)

share, for net proceeds of $2,650,000, and paid a one-time fee of $200,000. The
stock purchase warrant originally issued to McKesson in October 1999 was
cancelled in April 2001. Additionally, the new agreement eliminates certain
Claimsnet operating requirements to provide dedicated system hosting,
operations, and support services, and eliminates future McKesson license and
subscription fees. The new agreement retains provisions for the payment of
transaction fees by McKesson and expands the scope of transactions that may be
processed under the license and the scope of other business opportunities which
Claimsnet and McKesson may jointly pursue. No registration rights were granted
to McKesson for the shares acquired.

Pursuant to the October 1999 agreement, through March 31, 2001 the Company (a)
received payments in the aggregate amount of $2,202,000 (of which approximately
$1,200,000 was received in December 2000) related to development and license fee
provisions, which were recorded as deferred revenue and were being accounted for
by amortizing the total amount, received and to be received, of approximately
$4,500,000 ratably over the expected contract life of 65 months, (b) expended
$428,000 related to development and implementation costs, which was recorded as
software development costs on the balance sheet, and was being amortized ratably
over the expected contract period of 65 months, and (c)recorded in equity a
capital contribution and an offsetting deferred sales discount in the amount of
$1,700,000 for the imputed value of the warrant, which was being amortized
ratably over the expected contract period of 65 months. As of March 31, 2001 the
Company had amortized $1,187,000 of the deferred revenue into revenue, $112,000
of the deferred development costs into cost of revenues, and $445,000 of the
deferred sales discount as a reduction of revenues, leaving balances of
$1,015,000, $316,000 and $1,255,000, respectively. As of March 31, 2001, the
Company accrued the $200,000 payment, received in April in connection with the
contract modification, as additional deferred revenue. As a result of the April
2001 modification of the 1999 contract with McKesson, as of March 31, 2001 the
Company offset the remaining deferred sales discounts against the remaining
deferred revenue. Although the new agreement with McKesson permits them to
continue to use the software which the Company had developed specifically to
process their transactions, there was no requirement for them to use the system
and no ability to project future transaction revenues.


                                      F-19



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

On August 10, 1999 we discontinued the engagement of King Griffin & Adamson
P.C., which served as our independent auditors since 1996. The report issued by
King Griffin & Adamson P.C. on our financial statements for the year ended
December 31, 1998 did not contain an adverse opinion nor a disclaimer of
opinion, and was not qualified or modified as to uncertainty, audit scope or
accounting principles. Based on the recommendation of our Audit Committee of the
Board of Directors, the Board approved the decision to change independent
auditors. In connection with its audit for the year ended December 31, 1998 and
through August 10, 1999, there were no disagreements with King Griffin & Adamson
P.C. on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of King Griffin & Adamson P.C., would have caused King
Griffin & Adamson P.C. to make reference thereto in their Report on the
financial statements for such years or such interim periods. King Griffin &
Adamson P.C. furnished us with a letter addressed to the Commission stating
whether or not it agrees with the above statements. A copy of such letter, dated
August 16, 1999, is filed as Exhibit 16.1 to our Report on Form 8-K, dated
August 10, 1999.

We engaged Ernst & Young LLP as our new independent auditors as of August 10,
1999. Our Board of Directors approved the engagement on May 21, 1999. Through
August 10, 1999, we verbally consulted with Ernst & Young LLP only regarding
issues related to 1999 matters and, specifically, to matters related to a bridge
financing transaction, matters related to the issuance of stock options and
stock warrants to non-employees, and general matters related to the presentation
of interim financial results. The recommendations of Ernst & Young LLP were
adopted by us and disclosed in our Reports on Form 10-Q dated May 17, 1999 and
August 16,1999. The previous independent auditors were verbally consulted on the
matter related to a bridge financing transaction and were not in disagreement
with the views of management and Ernst & Young LLP. We had allowed Ernst & Young
LLP to review the aforementioned Report on Form 8-K before it was filed with the
Commission. Ernst & Young LLP has not furnished us with a letter containing any
new information, clarification, or disagreement with the information set forth
herein.


                                       32



                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

MANAGEMENT
Our directors and executive officers, their ages, and their positions held with
us are as follows:



NAME                                 AGE        POSITION
----                                 ---        --------
                                          
Bo W. Lycke ..................        55        Chairman of the Board of Directors, President, Chief Executive Officer, and
                                                Class I Director
Paul W. Miller ...............        45        Senior Vice President, Chief Operating Officer, and Chief Financial Officer
Patricia Davis ...............        45        Senior Vice President of Sales and Operations
Jeff P. Baird ................        39        Senior Vice President of Technology
Abbas R. Kafi ................        48        Senior Vice President and Chief Technology Officer
Ward L. Bensen  ..............        58        Class I Director, Treasurer
Robert H. Brown, Jr. .........        47        Class I Director
Sture Hedlund ................        62        Class II Director
John C. Willems, III .........        45        Class II Director
Wescott W. Price, III ........        61        Class II Director


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

BO W. LYCKE has served as our Chairman of the Board of Directors, President, and
Chief Executive Officer since our inception. In 1990, Mr. Lycke founded American
Medical Finance for the purpose of financing and processing medical accounts
receivable and, since such time, has served as the Chairman of the Board of
Directors thereof. During the period from 1983 to 1990, Mr. Lycke was involved
in a variety of entrepreneurial undertakings in the fields of satellite antenna
manufacturing, precious metal scrap recovery, and independent radio programming
production. He also has extensive experience as a director of several private
companies. In 1972, Mr. Lycke founded, and from 1973 to 1983, was president and
director, of Scanoil, Inc., a company engaged in domestic and international oil
futures trading, as well as chartering and operating ocean-going oil tankers.
From 1971 to 1983 Mr. Lycke also served as a President and director of various
domestic operating subsidiaries of the Volvo Automotive/Beijer Group, the
indirect owner of Scanoil, Inc.

PAUL W. MILLER is a Certified Public Accountant and has served as our Chief
Operating Officer since October 2000 and Chief Financial Officer since November
1997. From September 1995 to October 1997, Mr. Miller served as Chief Financial
Officer and Vice President of Quality Management Services for Sweetwater Health
Enterprises, Inc., a NCQA accredited credentials verification organization and
commercial software firm serving the managed healthcare industry. From April
1991 to May 1995, Mr. Miller served as Chief Financial Officer and Secretary of
Quantra Corporation, formerly, Melson Technologies, an information systems
company serving the commercial real estate industry. From January 1984 to
February 1991, Mr. Miller held a variety of financial and operations management
positions in the independent clinical laboratory industry with SmithKline
Beecham Clinical Laboratories, Inc. and Nichols Institute Laboratories North
Texas, Ltd. Mr. Miller began his career in 1978 in the audit division of Arthur
Andersen & Company.

PATRICIA DAVIS has served as our Senior Vice President of Business Development
and joined us in October 1999. She has over 15 years of health industry
management experience. From December 1996 to September 1999 Ms. Davis was the
director of quality management services for Caredata.com, a leading healthcare
intelligence provider and Internet content destination. From November 1993 to
November 1996, Ms. Davis was the region sales/service manager for Quest
Diagnostics, one of the leading clinical and research development laboratories.
Prior to Quest Diagnostics, Ms. Davis held positions managing operations, client
services, sales and multi-site information systems for several of the largest
companies in the $35 billion clinical laboratory industry, including Nichols
Institute and SmithKline Beecham Clinical Laboratories. Ms. Davis began her
career in 1980 at International Clinical Laboratories.

JEFF P. BAIRD has served as our Senior Vice President of Technology since
joining the Company in June 2001. He has over 15 years technical leadership
experience in health care technology business planning, product development,
systems engineering and integration, quality assurance, and IT infrastructure
design, implementation and operational support. From July 2000 to June 2001Mr.
Baird was Senior Manager of Web Architecture for First Consulting Group (FCG)
providing strategic technical leadership to large health delivery and health
plan organizations. From December 1995 to July 2000 Mr. Baird was Vice President
of Information Technology for Caredata.com, a leading healthcare intelligence
provider and Internet content destination. Other prior positions of Mr. Baird
include Director, Product Development for S2 Systems, a commercial software
development company specializing in Electronic Data Interchange (EDI), and
Director, Systems Development and Support for Equifax Healthcare Administrative
Services, a healthcare cost management company.


                                       33



ABBAS R. KAFI served as our Chief Technology Officer from August 2000 until his
cessation of employment in June 2001 and was our Vice President of Information
Systems from July 1998 until August 2000. Mr. Kafi has over 17 years of software
development and information systems management experience. From August 1996 to
July 1998 Mr. Kafi served as Senior Director, Business Systems Development and
Operations for Citizens Communications, Inc. in Dallas, Texas, where he was
responsible for supporting services for 1.2 million customers nationwide. From
September 1995 to August 1996, Mr. Kafi served as Executive Director of
Information Technology for PrimeCo Personal Communications, L.P., Dallas, Texas,
during its start up period. At PrimeCo, Mr. Kafi was responsible for designing,
developing, and implementing a state of the art client/server environment
capable of supporting 4.0 million subscribers nationwide. Mr. Kafi's prior
experience includes software development and management positions with
Value-Added Communication, USDATA Corporation, Harris Corporation, and American
Micro Products.

WARD L. BENSEN has been a director since April 1996 and has served as our
Treasurer since inception. He has served as a director, and since June 1994, as
Senior Vice President of American Medical Finance where he is primarily
responsible for its marketing efforts in the western United States and
receivables acquisitions nationwide. From March 1993 until September 1993, Mr.
Bensen was Vice President of Investment, and marketed investment programs for
both Prudential Securities and Shearson Lehman Brothers, and, from 1991 to 1993,
provided specialized investment banking services as a partner of John Casey and
Associates, a contract wholesale securities marketing firm. From 1984 to 1991,
he served as Division Vice President for Jones International Securities and
prior thereto, held various positions with Shearson American Express, The Safeco
Insurance Co. and Procter & Gamble.

ROBERT H. BROWN, JR. has served as a director of our Company since April 1996
and had been a director of American Medical Finance since 1990. Since January
1999, Mr. Brown has served as President and Chief Executive Officer of Frost
Securities, Inc. From July 1998 to January 1999, Mr. Brown served as President
and Chief Executive Officer of RHB Capital, LLC, a Dallas-based private
investment firm. From 1990 to 1998, Mr. Brown was employed by Dain Rauscher,
Inc., a regional investment banking and brokerage firm, as an Executive Vice
President. Mr. Brown was Senior Vice President of TM Capital Corporation during
1989. From 1985 to 1989, Mr. Brown was a Vice President of Thompson McKinnon
Securities, where he was responsible for all corporate finance activities in the
southwestern United States. Mr. Brown also serves as a director of Emerson Radio
Inc.

STURE HEDLUND has served as a director of our Company since 1998. Since January
1987, Mr. Hedlund has also served as Chairman of the board of directors of
Scandinavian Merchant Group AB, a Swedish corporation engaged in venture capital
investing. From 1993 to April 5, 2001, Mr. Hedlund served as a director of
Ortivus AB, a public company engaged in the business of medical technology, and
was a director of Ortivus Medical AB, a subsidiary of Ortivus AB, engaged in the
manufacture of heart monitoring devices.

JOHN C. WILLEMS, III has served as a director of our Company since 1998 and has
been our legal counsel since April 1996. Since September 1993, Mr. Willems has
been an attorney with the law firm of McKinley, Ringer & Zeiger, PC, in Dallas,
Texas, practicing in the area of business law. From January 1992 to August 1993,
Mr. Willems was an attorney in the law firm of Settle & Pou, PC, also located in
Dallas, Texas.

WESTCOTT W. PRICE, III has served as a director of our Company since April 1999.
Mr. Price is the former President, Chief Executive Officer and Vice Chairman of
the board of directors of FHP International Corporation ("FHP"), a publicly-held
managed healthcare company. During his fifteen-year tenure at FHP, it's annual
revenues grew from under $50 million to over $4 billion. In February 1997, FHP
was acquired for $2.1 billion. Before joining FHP in 1981, Mr. Price served as
President and Chief Executive Officer of Wm. Flaggs, Inc., a restaurant chain.
From 1970 to 1973, Mr. Price was the Chief Operating Officer of California
Medical Centers, a publicly-held long-term care and retail pharmacy-operating
company in Los Angeles. Mr. Price has in the past served on various boards,
including Health Maintenance Life Insurance Company and Talbert Medical
Management Company, a physician practice management company with revenues of
$460 million. He currently serves as a director of Scripps Health, a non-profit
hospital operating company, and of StorComm, Inc., as well as other private
companies. Mr. Price is a member of the Advisory Board for the School of
Medicine at the University of California-Irvine.

STRUCTURE OF THE BOARD OF DIRECTORS

The board of directors is divided into two classes with each class consisting
of, as nearly as possible, one-half of the total number of directors
constituting the entire board of directors. The board of directors currently
consists of three members in class I and three members in class II. The Class I
directors currently are Messrs. Lycke, Bensen, and Brown, whose terms of expire
at the 2002 annual meeting of stockholders. The Class II directors currently are
Messrs. Hedlund, Price, and Willems, whose terms expire at the 2001 annual
meeting of stockholders. Each class is elected for a term of two years.

There are no family relationships among our directors and executive officers.


                                       34



ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the compensation paid or accrued by us for
services rendered in all capacities during the years ended December 31, 2000,
1999 and 1998 by the chief executive officer and each of the other most highly
compensated executive officers of our Company who received compensation of at
least $100,000 during the year ended December 31, 2000.




                           SUMMARY COMPENSATION TABLE
                               ANNUAL COMPENSATION
                                                                                                                          SECURITIES
                                                                                                                          UNDERLYING
                                                                                                                           OPTIONS/
NAME AND PRINCIPAL POSITION                                           YEAR               SALARY             BONUS          WARRANTS
---------------------------                                           ----               ------             -----         ----------
                                                                                                              
Bo W. Lycke .................................................         2000              $263,173           $11,891          22,500
  Chairman of the Board of Directors, President,                      1999               258,390                --          20,000
  and Chief Executive Officer                                         1998               108,333                --              --
Terry A. Lee(1) ............................................          2000               231,729             3,868              --
  Former Executive Vice President and Chief Operating Officer         1999               140,865            15,000          20,000
                                                                      1998               125,000                --         109,189
Paul W. Miller(2)  .........................................          2000               130,192             7,723          12,000
  Senior Vice President, Chief Operating Officer, and Chief           1999               106,345            31,487          50,000
  Financial Officer                                                   1998               100,000           200,000              --
Abbas R. Kafi ..............................................          2000               139,462             2,759          32,000
  Senior Vice President and Chief Technology Officer                  1999               125,000            15,512          12,000
                                                                      1998                55,288               --               --
Patricia Davis(3) ...........................................         2000               109,680             3,482          12,000
  Senior Vice President of Sales and Operations                       1999               19,961                850           8,000


(1)  Mr. Lee served as Executive Vice President and Chief Operating Officer from
     September 1997 to June 2000. Mr. Lee's salary for the year ended December
     31, 2000 includes $162,500 pursuant to a severance agreement.
(2)  Mr. Miller was appointed Chief Operating Officer in October 2000.
(3)  Ms. Davis joined us in October 1999.


The following table provides information on the value of each of the named
executive officers' options at December 31, 2001:

AGGREGATED OPTION/WARRANT EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/WARRANT VALUES



                                                         NUMBER OF SECURITIES           VALUE OF UNEXERCISED
                                                        UNDERLYING UNEXERCISED          IN THE MONEY OPTIONS/
                                                         OPTIONS/WARRANTS AT                WARRANTS AT
                               SHARES                   DECEMBER 31, 2000 (#)           DECEMBER 31, 2000 ($)
                              ACQUIRED       VALUE     -----------------------          ---------------------
                            ON EXERCISE     REALIZED          EXERCISABLE/                   EXERCISABLE/
NAME                         (#)            ($)            UNEXERCISABLE                    UNEXERCISABLE
----                        -----------     --------   -----------------------          ----------------------
                                                                            
Bo W. Lycke                      --            --         5,000 / 37,500                      -- / --
Terry A. Lee                     --            --       114,189 / -- (1)                      -- / --
Paul W. Miller                   --            --        12,500 / 49,500                      -- / --
Abbas R. Kafi                    --            --         3,000 / 39,000                      -- / --
Patricia Davis                   --            --         2,000 / 18,000                      -- / --


(1)  Mr. Lee forfeited all unexercisable options upon termination of employment
     in June 2000.

Calculated based upon the fair market value share price of $1.25 on December,
2000, less the share price to be paid upon exercise. There is no guarantee that
if and when these options are exercised they will have this value.


                                       35



DIRECTOR COMPENSATION

During the year ended December 31, 2000, directors received no compensation for
their services other than reimbursement of expenses relating to attending
meetings of the board of directors.

DIRECTORS' STOCK OPTION PLAN (THE "DIRECTORS' PLAN")

In April 1998, we adopted the Directors' Plan to tie the compensation of outside
(non-employee) directors to future potential growth in our earnings, and
encourage them to remain on our board of directors, to provide them with an
increased incentive to make significant and extraordinary contributions to our
long-term performance and growth, and to align their interests through the
opportunity for increased stock ownership, with the interests of our
stockholders. Only outside directors are eligible to receive options under the
Directors' Plan.

An aggregate of 111,538 shares of common stock are reserved for issuance to
participants under the Directors' Plan. In the event of any changes in the
common stock by reason of stock dividends, split-ups, recapitalization, mergers,
consolidations, combinations, or other exchanges of shares and the like,
appropriate adjustments will be made by the board of directors to the number of
shares of common stock available for issuance under the Directors' Plan, the
number of shares subject to outstanding options, and the exercise price per
share of outstanding options, as necessary substantially to preserve option
holders' economics interests in their options.

In April 1999, upon the closing of the initial public offering, options
exercisable for an aggregate of 80,000 shares of common stock were granted under
the Directors' Plan. The option exercise price of $8.00 was not less than the
fair market value of a share of the issued common stock on the date the options
were granted. The options became fully vested in May 1999.

In October 2000, upon completion of our annual meeting, options exercisable for
an aggregate of 25,000 shares of common stock were granted under the Directors'
Plan. The option exercise price of $2.375 was the fair market value of a share
of the outstanding common stock on the date the options were granted.

The period for exercising an option ends ten years from the date the option is
granted. With the exception of those options issued in April 1999 which were
fully exercisable in May 1999, fifty percent of the options granted become
exercisable on the first anniversary of the date of grant with the remainder
becoming exercisable on the second anniversary of the date of grant. During the
period an option is exercisable, the option holder may pay the purchase price
for the share subject to the option in cash or, under some circumstances, make
this payment by surrender of shares of common stock, valued at their then fair
market value on the date of exercise, or by a combination of cash and shares.

Shares subject to an option which has not been exercised at the expiration,
termination, or cancellation of an option will be available for future grants
under the Directors' Plan, but shares surrendered as payment for an option, as
described above will not again be available for use under the Directors' Plan.

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

EMPLOYMENT AGREEMENTS

In April 1997, we entered into an employment agreement with Mr. Lycke providing
that, commencing with the public offering on April 6, 1999 and expiring on
December 31, 2002, Mr. Lycke will serve as our Chairman of the board of
directors, President, and Chief Executive Officer at a base salary equal to
$250,000, increasing by 5% per annum subject to increase by the board of
directors, and any bonuses as may be determined by the board of are directors.
In the event of a change in control of our Company, as defined in the employment
agreement, all options previously granted to Mr. Lycke which are unvested
automatically vest immediately. Upon a termination of Mr. Lycke's employment
following a change in control, unless Mr. Lycke voluntarily terminates his
employment for other than listed reasons described in the employment agreement,
we are required to pay Mr. Lycke a lump sum severance payment equal to one-half
his then current annual salary. In addition, if Mr. Lycke's employment is
terminated (1) upon his death, (2) by us due to disability, (3) by us without
cause, or (4) by Mr. Lycke upon our default or an unremedied adverse change in
duties, as defined in the agreement, we are required to pay Mr. Lycke a lump sum
severance payment equal to the balance of his salary for the remainder of the
term computed at the then current annual rate. Mr. Lycke may terminate his
employment at any time upon at least 30 days written notice to us. Upon the
termination of such agreement, Mr. Lycke is subject to a non-compete,
non-disturbance, and non-interference provisions for one year.

In September 1996, we entered into an employment agreement, which was amended in
March 1997, March 1998 and June 1999, with Mr. Lee, then our Executive Vice
President and Chief Operating Officer, providing that, for an initial


                                       36


term of two years subject to annual extension, Mr. Lee will devote his full
business time and efforts to our Company for a base salary per annum of $150,000
plus bonus for achieving designated milestones. In addition and according to
this agreement, Mr. Lee was issued 46,385 shares of common stock on March 26,
1997. Mr. Lee was entitled to participate in insurance and other benefit plans
established by us for our employees. In January 1998, Mr. Lee was granted an
option to purchase an aggregate of 109,189 shares of common stock at a price of
$3.89 per share from Messrs. Lycke and Brown and American Medical Finance. In
June 2000, pursuant to a severance agreement with Mr. Lee, Mr. Lee resigned as
an executive officer and member of the board of directors and provided us a
general release related to his employment. He received severance of $162,500 and
a general release. Mr. Lee was restricted from competing with us for a period of
six months from termination.

1997 STOCK OPTION PLAN

In April 1997, our board of directors and stockholders adopted the 1997 Plan.
The 1997 Plan provides for the grant of options to purchase up to 1,307,692
shares of common stock to our employees, officers, directors, and consultants.
Options may be either "incentive stock options" or non-qualified options under
the Federal tax laws. Incentive stock options may be granted only to our
employees, while non-qualified options may be issued to non-employee directors,
consultants, and others, as well as to our employees.

The 1997 Plan is administered by "disinterested members" of the board of
directors or the compensation committee, who determine, among other things, the
individuals who shall receive options, the period during which the options may
be exercised, the number of shares of common stock issuable upon the exercise of
each option, and the option exercise price.

Subject to some exceptions, the exercise price per share of common stock subject
to an incentive option may not be less than the fair market value per share of
common stock on the date the option is granted. The per share exercise price of
the common stock subject to a non-qualified option may be established by the
board of directors, but shall not, however, be less than 85% of the fair market
value per share of common stock on the date the option is granted. The aggregate
fair market value of common stock for which any person may be granted incentive
stock options which first become exercisable in any calendar year may not exceed
$100,000 on the date of grant.

No stock option may be transferred by an optionee other than by will or the laws
of descent and distribution, and, during the lifetime of an optionee, the option
will be exercisable only by the optionee. In the event of termination of
employment or engagement other than by death or disability, the optionee will
have no more than three months after such termination during which the optionee
shall be entitled to exercise the option to the extent exercisable at the time
of termination, unless otherwise determined by the board of directors. Upon
termination of employment or engagement of an optionee by reason of death or
permanent and total disability, the optionee's incentive stock options remain
exercisable for one year to the extent the options were exercisable on the date
of such termination. Options may not be granted under the 1997 Plan beyond a
date ten years from the effective date of the 1997 Plan. Subject to some
exceptions, holders of incentive stock options granted under the 1997 Plan
cannot exercise these options more than ten years from the date of grant.
Options granted under the 1997 Plan generally provide for the payment of the
exercise price in cash and may provide for the payment of the exercise price by
delivery to us of shares of common stock already owned by the optionee having a
fair market value equal to the exercise price of the options being exercised, or
by a combination of these methods.

Any unexercised options that expire or that terminate upon an employee's ceasing
to be employed by us become available again for issuance under the 1997 Plan.

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





                                          NUMBER OF      PER SHARE   WEIGHTED AVERAGE
                                           SHARES        EXERCISE     EXERCISE PRICE
                                         ----------      ---------   ----------------
                                                           
Outstanding options-January 1, 1999           --        $    --         $    --
    Granted                                562,500        7.00-8.80         8.03
    Cancelled                              (41,500)         8.00            8.00
                                          --------      -----------     --------
Outstanding options-December 31, 1999      521,000        7.00-8.80         8.03
    Granted                                220,000        2.38-8.00         7.36
    Expired                               (213,462)       7.00-8.00         7.44
                                          --------      -----------     --------
Outstanding options-December 31, 2000      527,538      $ 2.38-8.80     $   7.67
                                          ========      ===========     ========
Options exercisable-December 31, 2000      150,463      $ 7.00-8.80     $   7.94
                                          ========      ===========     ========





                                       37


Outstanding options as of December 31, 2000, had a weighted average remaining
contractual life of approximately 8.7 years and a weighted average fair value at
issuance of $4.66 based on the Black-Scholes value method.

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




                                                                                NUMBER OF          PER SHARE     WEIGHTED AVERAGE
                                                                                 SHARES             EXERCISE       EXERCISE PRICE
                                                                                --------           ---------     ----------------
                                                                                                        
Outstanding employee warrants-January 1, 2000
    Granted                                                                      178,250              $3.00            $ 3.00
    Expired                                                                      (33,800)              3.00              3.00
                                                                                 -------              -----            ------
Outstanding employee warrants-December 31, 2000                                  144,450              $3.00            $ 3.00
                                                                                 =======              =====            ======
Employee warrants exercisable-December 31, 2000                                      -                   -                 -
                                                                                 =======              =====            ======



Outstanding employee warrants as of December 31,2000, had a weighted average
contractual life of approximately 9.4 years and a weighted average fair value at
issuance of $2.53 based on the Black-Scholes value method. No options or
warrants were exercised during 2000. The following table sets forth information
with respect to options and warrants granted during 2000 to the individuals set
forth in the Summary Compensation Table above:

                                INDIVIDUAL GRANTS





                    Number of        % of Total                                                Potential Realizable
                   Securities       Options and                                               Value at Assumed Annual
                   Underlying         Warrants                                                 Rates of Stock Price
                  Options and        Granted to          Exercise                             Appreciation for Option    Alternative
                    Warrants        Employees in           Price                                 or Warrant Term(1)      Grant Date
Name                Granted          Fiscal Year         ($/Share)      Expiration Date          5%             10%       Value (2)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   
Bo W. Lycke          22,500              6.0%              $ 3.00         June 2, 2010       $ 42,450        $107,578       $     -

Terry A. Lee            -                 -                   -                  -               -               -                -

Paul W. Miller       12,000              3.2                 3.00         June 2, 2010         22,640          57,375             -

Abbas R. Kafi        20,000              5.4                 8.00         April 18, 2010      100,623         255,000             -
                     12,000              3.2                 3.00         June 2, 2010         22,640          57,375             -

Patricia Davis       12,000              3.2                 3.00         June 2, 2010         22,640          57,375             -




(1)    In accordance with the rules of the Securities and Exchange Commission
       (the "Commission"), shown are the gains or "option spreads" that would
       exist for the options or warrants granted, based on the assumed rates of
       annually compounded stock price appreciation of 5% and 10% from the date
       the option or warrant was granted over the full option or warrant term,
       without adjustment for the present valuation of such potential future
       option or warrant spread.

(2)    The alternative grant date value is based upon the actuarial value of the
       options at the date of grant as estimated using the Black-Sholes method.

Our calculations for employee grants were made using a Black Scholes valuation
model using the following average assumption: expected life, four years; risk
free rate of 5.64 to 7%; no dividends during the expected term; and a volatility
of 0.8 to 1.355.

We account for our stock based awards to employees using the intrinsic value
method in accordance with APB 25, "Accounting for Stock Issued to Employees,"
and its related interpretations.

DIRECTORS' LIMITATION OF LIABILITY

Our certificate of incorporation and by-laws include provisions to (1) indemnify
the directors and officers to the fullest extent permitted by the Delaware
General Corporation Law, including circumstances under which indemnification is




                                       38


otherwise discretionary and (2) eliminate the personal liability of directors
and officers for monetary damages resulting from breaches of their fiduciary
duty, except for liability for breaches of the duty of loyalty, acts, or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, violations under Section 174 of the Delaware General
Corporation Law, or for any transaction from which the director derived an
improper personal benefit. We believe that these provisions are necessary to
attract and retain qualified persons as directors and officers.

We provide directors and officers liability insurance coverage of $10,000,000.

Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to our directors, officers, and controlling persons as
stated in the foregoing provisions or otherwise, we have been advised that, in
the opinion of the Commission, this indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of December 31, 2000,

o each person who is known by us to be the beneficial owner of more than 5% of
  the outstanding common stock,
o each director and each of our executive officers, named in the compensation
  table under Item 11,
o all our directors and executive officers as a group, and
o the number of shares of common stock beneficially owned by each such person
  and such group and the percentage of the outstanding shares owned by each such
  person and such group.

As used in the table below and elsewhere in this report, the term BENEFICIAL
OWNERSHIP with respect to a security consists of sole or shared voting power,
including the power to vote or direct the vote, and/or sole or shared investment
power, including the power to dispose or direct the disposition, with respect to
the security through any contract, arrangement, understanding, relationship, or
otherwise, including a right to acquire such power(s). Except as otherwise
indicated, the stockholders listed in the table have sole voting and investment
powers with respect to the shares indicated. Beneficial ownership includes
shares issuable upon exercise of options exercisable within sixty days of
December 31, 2000.

Except as otherwise noted below, the address of each of the persons in the table
is c/o Claimsnet.com inc., 12801 N. Central Expressway, Suite 1515, Dallas,
Texas 75243.

Unless otherwise noted, beneficial ownership consists of sole ownership, voting,
and investment power with respect to all common stock shown as beneficially
owned by them.




                                                                                          SHARES BENEFICIALLY OWNED
                                                                                ----------------------------------------------
NAME AND ADDRESS                                                                     NUMBER OF             PERCENT
OF BENEFICIAL OWNER                                                                    SHARES               OWNED
-------------------                                                                  ----------            -------
                                                                                                    
Bo W. Lycke (1) (2) (6) .........................................................     1,737,993              20.3%
Terry A. Lee (6) (12) ...........................................................       160,573               1.9
Paul W. Miller (5) ..............................................................        14,100                *
Abbas R. Kafi  (8) ..............................................................         3,000                *
Ward L. Bensen (1) (3) ..........................................................       701,904               8.2
Robert H. Brown, Jr. (1) (4) (6)  ...............................................       802,354               9.4
Sture Hedlund (7) ...............................................................       117,008               1.4
John C. Willems, III (9) ........................................................        14,277                *
Westcott W. Price III (10) ......................................................        55,000                *
Patricia Davis (11) .............................................................         2,100                *
American Medical Finance ........................................................       481,603               5.6
12801 N. Central Expressway
Suite 1515, Dallas, Texas 75243
McKesson HBOC, Inc. (14) ........................................................       819,184               9.6
One Post Street
San Francisco, California 94104
Sinclair Restructuring Fund .....................................................     1,000,000              11.7
One Post Street
San Francisco, California 94104
All our directors and executive officers as a
group (10) persons) (13) ........................................................     2,416,638              29.0





                                       39



*     Less than one percent.
(1)   Includes 481,603 shares of common stock owned of record by American
      Medical Finance, 16,333 shares of which are subject to an option it
      granted to Terry A. Lee. Mr. Lycke serves as the Chairman of the Board of
      Directors of American Medical Finance. Messrs. Lycke, Bensen, and Brown
      are stockholders of American Medical Finance owning 71.1%, 11.2%, and
      17.7% of the outstanding capital stock of American Medical Finance,
      respectively. Therefore, Messrs. Lycke, Bensen, and Brown may be deemed to
      beneficially own the shares of common stock owned by American Medical
      Finance.
(2)   Consists of 1,246,390 shares of common stock owned of record by Mr. Lycke,
      74,325 shares of which are subject to an option he granted to Terry A.
      Lee, 10,000 shares which Mr. Lycke has the right to acquire, and 481,603
      shares of Common Stock owned of record by American Medical Finance.
(3)   Consists of 195,301 shares of common stock owned of record by Mr. Bensen,
      25,000 shares which Mr. Bensen has the right to acquire, and 481,603
      shares of common stock owned of record by American Medical Finance.
(4)   Consists of 310,751 shares of common stock owned of record by Mr. Brown,
      18,531 shares of which are subject to an option he granted to Terry A.
      Lee, 10,000 shares which Mr. Brown has the right to acquire, and 481,603
      shares of common stock owned of record by American Medical Finance.
(5)   Consists of 1,600 shares of common stock owned of record by Mr. Miller and
      12,500 shares which Mr. Miller has the right to acquire.
(6)   Includes options granted by Bo Lycke, Robert H. Brown, Jr. and American
      Medical Finance to Terry A. Lee to purchase an aggregate of 109,189 shares
      of common stock at an exercise price of $3.88 per share.
(7)   Consists of 82,157 shares of common stock owned of record by Mr. Hedlund,
      12,884 shares of common stock owned by Scandinavian Export Services, AB
      and 11,967 shares of common stock owned by Scandinavian Merchant Group,
      AB, and 10,000 shares which Mr. Hedlund has the right to acquire.
(8)   Consists of 3,000 shares which Mr. Kafi has the right to acquire.
(9)   Consists of 9,277 shares of common stock owned of record by Mr. Willems
      and 5,000 shares which Mr. Willems has the right to acquire.
(10)  Consists of 25,000 shares of common stock owned of record by Mr. Price and
      30,000 shares which Mr. Price has the right to acquire.
(11)  Consists of 100 shares of common stock owned of record by Ms. Davis and
      2,000 shares which Ms. Davis has the right to acquire.
(12)  Consists of 46,384 shares of common stock owned of record by Mr. Lee,
      5,000 shares which Mr. Lee has the right to acquire from the Company and
      109,189 shares which Mr. Lee has the right to acquire from Mr. Lycke, Mr.
      Brown and American Medical Finance.
(13)  Includes an aggregate of 115,275 shares which they have a right to
      acquire.
(14)  Consists of 819,184 shares which they have a right to acquire.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Bo W. Lycke, our Chairman of the Board, President, and Chief Executive Officer,
Ward L. Bensen, a Director, and Robert H. Brown, Jr., a Director, are,
respectively, the Chairman of the Board, a Director and Senior Vice President,
and a Director, and owners, respectively, of 71.1%, 11.2%, and 17.7% of the
outstanding capital stock of American Medical Finance. They devoted minimal time
to winding up the business and affairs of American Medical Finance for
approximately three months following the initial public offering.

On July 31, 1996, we acquired all of the Internet software, licenses,
intellectual property rights, and technology developed by American Medical
Finance in exchange for a promissory note in the amount of $3,740,000. On
September 19, 1997, American Medical Finance reduced the principal amount of the
note to $2,000,000 and contributed the remaining $1,740,000 in principal amount
of this note to our capital. The note accrued interest of 9.50% per annum and
was collateralized by all of our Internet software, intellectual property
rights, Internet technology and technology rights, including software
development costs. We utilized a portion of the net proceeds of the April 6,
1999 initial public offering to satisfy this obligation.

Upon the consummation of the acquisition transaction with American Medical
Finance, it agreed to provide us with a credit line of up to $2,000,000 to
facilitate additional development of our services and technology. During June
1998, American Medical Finance purchased nine units in our private placement,
each unit consisting of 11,967 shares of common stock, or an aggregate of
107,704 shares. As consideration for the purchase, American Medical Finance
cancelled $450,000 of the principal balance then outstanding under the credit
line. Part of the proceeds of the initial public offering was used to repay the
outstanding principal of $2,254,000 of the line of credit and $273,000 of
accrued interest.

In March 2001, we borrowed $400,000 pursuant to a loan agreement with American
Medical Finance, Inc. Principal and interest, at 9.5% per annum on the unpaid
principal, are due in March 2002.


                                       40


On April 12, 2001, we entered into an agreement with McKesson which superseded
our October 1999 agreement. Under the 1999 Development and Services Agreement we
(a) issued a three year warrant to McKesson to purchase 819,184 shares of common
stock at $7.00 per share, (b) received fees for the development of a private
label claims processing and statement processing internet application for
McKesson, (c) received one of three scheduled license fee payments for use of
the McKesson internet application, (d) received monthly support fees for
dedicated private label system hosting, operation and support services
commencing at the date of acceptance of the McKesson internet application, and
(e) received transaction fees for claims and statements processed by the
McKesson internet application. Under the new agreement, (a) McKesson acquired
1,514,285 shares of common stock at $1.75 per share for net proceeds of
$2,650,000, (b) McKesson paid a one-time fee of $200,000 to us, (c) the stock
purchase warrant originally issued to McKesson in October 1999 was cancelled,
(d) McKesson retained a license to use the McKesson internet application to
process statements and claims without additional license fee payments, (e)
McKesson agreed to eliminate the need for dedicated private label system
hosting, operation, and support services and we agreed to provide standard
system hosting, operation, and support serviced without the payment of future
monthly support fees, (f) we will receive fees for transactions processed by the
McKesson internet application, (g) we and McKesson agreed to use best efforts to
expand the scope of the license agreement to include additional claim types, and
(h) we and McKesson agreed to use best efforts to pursue other unspecified
business opportunities. Under a separate agreement, we have contracted for
McKesson processing services to print patient statements and submit claims to
payers for certain of our customers, for which we pay McKesson fees for some
transactions and share third party revenues for other transactions.

Pursuant to the 1999 Development and Services Agreement, we recorded cash
payments received for development and license fees as deferred revenue and
amortized the total expected contract payments to revenue ratably over the life
of the contract. We recorded, in shareholders' equity, the imputed value of the
warrant as deferred sales discount and amortized the amount as an offset to
revenues ratably over the life of the license. During the year ended December
31, 2000, we received cash payments of $2,004,000 and recorded net revenue of
$681,000 (net of $314,000 in deferred sales discount amortization). Pursuant to
the processing services agreement, we recorded $411,000 of expense related to
fees paid to McKesson and $79,000 of shared revenue for fees received from
McKesson during the year ended December 31, 2000. We have no other customers for
which we are providing services substantially similar to those under the
Development and Services Agreement. The fees paid to and received from McKesson
pursuant to the processing services agreement are similar to fees with
non-affiliates.

All future transactions between us and our officers, directors, and 5%
stockholders will be on terms no less favorable to us than can be obtained from
unaffiliated third parties and will be approved by a majority of our independent
and disinterested directors.




                                       41




                                 PART IV

ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE

The following documents are filed as part of this report:

(a)   Consolidated Financial Statements: See Index to Consolidated Financial
      Statements at Item 8 on page 28 of this report

(b)   Financial Statement Schedule: See page 43 of this report

The following exhibits are filed herewith:

              
2.1*             Asset purchase agreement, dated as of March 23, 2000, related to the acquisition of VHX.

3.1**            Certificate of Incorporation

3.1(a)**         Form of Certificate of Amendment to Certificate of Incorporation

3.2**            Bylaws, as amended

4.1**            Form of warrant issued to Cruttenden Roth Inc.

4.2**            Form of Common Stock Certificate

10.1**           Employment Agreement, dated as of April 8, 1997 between Claimsnet.com inc. and Bo W. Lycke

10.2**           1997 Stock Option Plan, as amended through October 19, 2000

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

10.3**           Form of Indemnification Agreement

10.4**           Agreement and Plan of Merger, dated June 2, 1997, among Claimsnet.com inc. (formerly, American NET
                 Claims), ANC Holdings, Inc., Medica Systems, Inc., and the stockholders of Medica Systems Inc.

10.5****         Employment Agreement, dated as of September 17, 1996, between Claimsnet.com inc. and Terry A. Lee,
                 as amended as of March 26, 1997, April 6, 1998 and June 7, 1999.

10.5(a)*****     Severance Agreement with Mr. Lee

10.6**           Service Agreement, dated August 5, 1997, between American Medical Finance and Claimsnet.com inc.

10.7**           Form of Agreement, dated September 14, 1998, between Claimsnet.com and BlueCross BlueShield of Louisiana

10.8**           Form of Non-Employee Director's Plan

10.9**           Service Agreement, dated November 1998, between Claimsnet.com and Southern Medical Association.

10.10            Development and Services Agreement, dated October 27, 1999, between Claimsnet.com and McKesson HBOC, Inc.

10.10(a)         Agreement, dated April 12, 2001, between Claimsnet.com and McKesson HBOC, Inc. superseding October 1999 Agreement.

10.11            Note dated March 9, 2001 between Claimsnet.com and American Medical Finance related to $400,000 loan.

16.1**           Letter from King Griffin & Adamson P.C. as to change in certifying accountant to Ernst & Young LLC, dated
                 August 16, 1999 and filed on Form 8K.




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

*     Incorporated by reference to the corresponding exhibit filed by the
      Registrant with its Current Report on Form 8-K, dated March 23, 2000.

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

***   Incorporated by reference to the corresponding exhibit filed by the
      Registrant with its Annual Report on Form 10-K for the year ended December
      31, 2000 filed on April 16, 2001.



                                       42


****  Incorporated by reference to the corresponding exhibit filed by the
      Registrant with its Annual Report on Form 10-K for the year ended December
      31, 1999.

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


                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                  Years ended December 31, 2000, 1999, and 1998
                                 (In Thousands)




                                                                                   Charge to Other
                                                Beginning of       Charge to          Accounts/                            End of
                                                  Period           Operations       Adjustments         Deductions         Period
                                                ------------       -------------   ---------------      ----------         ------
                                                                                                          
Allowance for doubtful accounts
   2000                                           $     26        $     27             $  --            $    (24)         $     29
   1999                                                 43              31                --                 (48)               26
   1998                                                 10              34                --                  (1)               43

Valuation allowance for deferred
  tax assets                                                            (1)
   2000                                              5,886           6,476                --                 --             12,362
   1999                                              2,778           3,108                --                 --              5,886
   1998                                                988           1,790                --                 --              2,778



Offset to deferred tax benefit created primarily by net losses.



                                       43







                                   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/ Bo W. Lycke
          -----------------------------
          Bo W. Lycke
          President and
          Chief Executive Officer, on
          behalf of the Registrant


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



October 2, 2001







                                       44

EX-10.10

                                                                   Exhibit 10.10

              CLAIMSNET.COM INC. DEVELOPMENT AND SERVICES AGREEMENT



         This Agreement, made as of this 27th day of October, 1999 (the
"Effective Date"), by and between Claimsnet.com inc., a Delaware corporation
(the "Company") having its principal place of business in Dallas, Texas, and
McKesson HBOC, Inc., a Delaware corporation (the "Customer"), having its
principal place of business in San Francisco, California, but whose relevant
business unit has a principal place of business in Dubuque, Iowa.

                               W I T N E S S E T H

         WHEREAS, Customer has an existing proprietary EDI system (the McKesson
EDI system or "MIE") permitting certain claims processing and other services.

         WHEREAS, Company has developed an existing Internet EDI offering (its
Services.now product) with a Web interface (collectively, the "Existing Company
Product"), which Company believes Company may readily adapt to integrate with
and be adapted to become Customer's MIE system.

         WHEREAS, Customer desires to provide an E-commerce solution that may be
sold directly by its general sales force, including, without limitation, through
sales to small physician offices with independent practice management systems,
and believes that integrating and customizing the Existing Company Product with
Customer's MIE offering, with a short implementation time, will allow Customer
to roll out its product offering in a timely fashion to take advantage of an
opportunity in the market.

         WHEREAS, Company will therefore provide development, customization,
electronic claims processing and other services to the Customer in accordance
with this Agreement

         NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, and intending to be legally bound,
the Parties hereby agree as follows:

                                    SECTION 1

                                   Definitions

         "Acceptance" shall mean either of the following: (1) Customer's
delivery to Company of a written notice of Acceptance of the Modifications in
Final Form; (2) Customer's commencement of "Live" Processing using the
Modifications in Final Form.

         "Acceptance Criteria" shall mean the following: (1) The Modifications
conform to the Design Specifications; and (2) the Modifications will
successfully provide seamlessly integrated services, and when installed on the
applicable Hardware will successfully perform in accordance with all service
levels specified in Design Specifications set forth on Exhibit A.



                                       1



         "Acceptance Testing Period" shall mean the period commencing upon
Customer's receipt of the Modifications in Final Form and ending 60 days
thereafter or upon Live Processing, whichever is earlier.

         "Acceptance Testing Procedures" shall mean testing procedures to be
performed by Customer for the purpose of establishing that the Modifications in
Final Form (as integrated with Customer's MIE software and installed on the
Hardware) conform to the Acceptance Criteria.

         "Additional Term" shall mean any period of extension or renewal of this
Agreement after the Initial Term pursuant to Section 8.1 of this Agreement.

         "Affiliate" of a Party means any entity that controls, is controlled
by, or is under common control with such Party or its Affiliates.

         "Agreement" shall mean this Development and Services Agreement,
including all exhibits and Schedules hereto, as the same may be amended or
supplemented from time to time.

         "Business Day" shall mean any day that is not a Saturday, Sunday, legal
holiday or other day on which national banks are authorized or obligated by law
or executive order to close.

         "Confidential Information" shall mean all source code, related
documentation, support materials and any confidential instructional and training
materials, customer lists, data reports, Financial Statements, interpretations,
forecasts and audit reports, as well as information concerning Company or the
Customer, which is not available to the general public and which has been
provided by one Party to another Party in connection with the services offered
under this agreement.

         "Final Form," as in "Modifications in Final Form," shall mean an entire
set of Modifications delivered or deliverable to Customer and indicated by
Company to be ready for Acceptance Testing Procedures.

         "Hardware" shall mean the servers and other hardware described in the
Design Specifications and provided by Company for hosting the Web site and
providing the Services as described in this Agreement.

         "Initial Term" shall mean the original term of this Agreement as set
forth in Section 8.1 of this Agreement.

         "Interim Testing Period" shall mean the period commencing upon
Customer's receipt of Sub-Milestone Deliveries and ending upon delivery of the
Modifications in Final Form.

         "Interim Testing Procedures" shall mean tests, trial runs, temporary
use guidelines, or other procedures agreed by Company and Customer with respect
to Sub-Milestone Deliveries of the Modifications.

         "Live Processing" shall mean the first day upon which the Modifications
in Final Form are brought fully on-line and used to process transactions for
Customer and Customer's clients. Live Processing shall not be deemed to occur
prior to Acceptance, however, if such transactions


                                       2


are processed primarily for testing purposes or if Customer, upon written notice
to Company, commences operation with the Modifications while testing is still in
progress or while deficiencies that provide a basis for rejection are still
being corrected.

         "Modifications" shall mean changes, additions, or corrections made by
Company to Existing Company Product pursuant to this Agreement. Where possible,
Modifications shall be divided into separately defined and deliverable
development projects, each of which is treated independently for purposes of
design and development, testing, acceptance, warranty, and payment terms under
and pursuant to this Agreement. Unless otherwise indicated, "Modifications" may
refer to any combination of Sub-Milestone Deliveries, Modifications in Test
Form, or Modifications in Final Form.

         "Parties" shall mean Company and the Customer. "Party" shall mean
Company or the Customer.

         "Person" shall mean any natural person, corporation (including
business, municipal, or not-for-profit corporation), trustee, executor,
administrator or other personal representative constituting a separate person as
a matter of law, business trust, limited liability company, general or limited
partnership, joint venture, unincorporated association, joint stock company, or
other entity of any kind and any government, including any agency, political
subdivision, or instrumentality of any government.

         "Program Error" shall mean any deviations in the Modifications from (1)
the Design Specifications; (2) any specifications that are mutually agreed upon
by the Parties; or (3) commonly accepted standards for normal and correct
operation of computer programs, such as any cases where the Modifications in
Final Form abnormally cease functioning, produce incorrect or misleading
information, or erroneously interprets information given to it.

         "Services" shall mean the electronic claims processing, hosting,
support and maintenance services to be provided in accordance with this
Agreement.

         "Sub-milestone Deliveries" shall mean separately defined and
deliverable portions of the Modifications, as indicated in the Design
Specifications.

         "Term" shall mean the period commencing on the Effective Date during
which this Agreement shall remain in full force and effect, and ending on the
Termination Date.

         "Termination Date" shall mean the date that this Agreement expires
pursuant to its terms or is terminated pursuant to Section 8 of this Agreement.

         "Test Form," as in "Modifications in Test Form," shall mean
Sub-Milestone Deliveries or Modifications delivered or deliverable to Customer
prior to Company's indication that an entire set of Modifications is complete
and ready for Acceptance Testing Procedures.

         "Testing Period" shall mean the combination of the Interim Testing
Period and the Acceptance Testing Period.



                                       3


         "Testing Procedures" shall mean the combination of the Interim Testing
Procedures and the Acceptance Testing Procedures.

         "Transaction" shall mean the transmission of business information
between two or more parties by means, in whole or in part, of electronic data
interchange. Transactions may be transmitted singly or in groups and may be
delivered in real-time or in periodic cycles during which transactions are
aggregated and transmitted in a batch. Types of Transactions shall include,
without limitation, paper or electronic physician or dental Claims, Eligibility
Query and Responses, Electronic Remittance Advices, Encounters, Referrals, Claim
Status Messages, Patient Statements and Enrollments.

                                    SECTION 2

             Development Services By Company, Testing and Acceptance

         2.1 Development Of The Modifications in Final Form. As more
specifically described in the design specifications set forth as Exhibit A (the
"Design Specifications") and incorporated herein by this reference, Company
shall convert the Existing Company Product to the MIE system with a unique look
and feel approved by Customer, including graphical changes and content provided
or approved by Customer.

         As provided more specifically in the Design Specifications, the
front-end Web site shall consist of a "public" site for basic information and
registration of the service, and a "private" site for actual transaction
processing, secured through digital certification provided by Company and its
software.

         2.2 Development Timetable. Company shall provide its development and
customization services in accordance with the milestone delivery schedule set
forth as attached Exhibit B (the "Milestone Schedule"). Company agrees that time
is of the essence in this Agreement and represents and warrants to Customer
that, conditioned upon receiving timely feedback and cooperation from Customer,
Company has the resources committed to this project to permit it to perform its
services and to customize and deliver the software in accordance with the
Milestone Schedule.

         2.3 Cooperation During Initial Development Phase. The Parties agree
that they shall cooperate in good faith and provide timely feedback to permit
rapid development and deployment of the Modifications in Final Form as set forth
in the Milestone Schedule. To further that cooperation, each Party agrees that
within 10 business days of the execution of this agreement that party shall
designate an individual in writing to the other Party who shall be responsible
for coordinating the design, development and approval process in connection with
the development and deployment of the Modifications.

         2.4 Testing and Acceptance. During the Testing Period and prior to
Acceptance, customer may install, execute, and test the Modifications subject to
any agreed guidelines provided in the Interim Testing Procedures. Until
Acceptance of the Modifications in Final Form, however, the Modifications are
subject to further testing and development, and Customer's use of such
Modifications are at Customer's risk. Company shall make good faith efforts to
test Sub-Milestone Deliveries prior to delivery, but until Acceptance, Company
gives


                                       4


no assurance that the Modifications have been tested, are error free, or will
perform in the prescribed manner in accordance with the Design Specifications.
During the Testing Period, Customer and Company shall cooperate to perform the
Testing Procedures and report the results to the other Party. Company will
provide to Customer, its representatives, and its consultants (if applicable)
such documentation and assistance as may be reasonably required by Customer to
perform any Testing Procedures. If Customer determines during the Testing Period
that the Modifications do not conform to applicable Design Specifications, or
otherwise demonstrate errors, Customer shall notify Company the nature and
specifics of the non-conformity. Company shall use all reasonable efforts to
correct or modify the Modifications so that they conform to the Design
Specifications, operate without error, and otherwise qualify for Acceptance.

         2.5 Notice of Acceptance or Non-Conformity. Upon satisfactory
completion of the Acceptance Testing Procedures after delivery of the
Modifications in Final Form, Customer shall issue to Company a notice of
Acceptance pertaining to the Modifications. If Customer determines that at any
time during the Acceptance Testing Period that the Modifications in Final Form
fail to qualify for Acceptance, Customer shall notify Company of the nature and
specifics of the non-conformity. If Customer notifies Company as to any such
non-conformity and does not provide its Acceptance of the Modifications by the
end of the Acceptance Testing Period set forth in the Milestone Schedule, and
the Parties do not agree on an extension of the Acceptance Testing Period to
permit further correction or modification of the Modifications by Company, or if
Customer otherwise reasonably determines that the Modifications will not qualify
for Acceptance despite Company's efforts, Customer shall be entitled to
terminate all further efforts relating to such Modifications, shall return all
Company Confidential Information, including such Modifications and all related
documents, to Company, and shall terminate this Agreement immediately.

         2.6 License. During the Term of this Agreement, Customer shall have a
license to use the Modifications in Final Form and derivative works thereof in
connection with providing the Services to end user customers. Customer may not
grant licenses of sublicenses to the Modifications of the Company Existing
Product to any party.

         The Modifications performed by the Company for the customer pertaining
to (i) user interface as outlined in the Design Specifications (Exhibit A) as of
the date hereof and (ii) any Confidential Information of Customer, shall be the
sole and exclusive property of, and title thereto shall be fully vested in and
held by, the Customer. Company agrees to cooperate reasonably to implement
Modifications requested by Customer, provided that Company is not hereby
required to perform any such Modification except as otherwise provided under
this or any other written agreement between the parties. Except as set forth in
Section 8.4, all remaining portions of the Modifications, including those in the
specific processing engine, including, but not limited to, real-time editing of
claims, system interface software from the practice management systems into the
processing engine, installation services including mapping technologies, shall
be the sole and exclusive property of, and the title thereto shall be fully
vested in and held by, the Company.

         2.7 Future Development Phases. In addition to the development and
delivery of the Modifications in Final Form, Company, upon receipt of a detailed
design specification from



                                       5


Customer, agrees to develop, for mutually agreed fees, the Phase II (Integration
with Physician Office Manager) and Phase III (Seamless Integration with
Physician Office Manager) tasks described generally in the Design
Specifications. For one year from the Effective Date, Company agrees not to
enter into any transaction or agreement that it reasonably believes would
interfere with or prevent it from performing the Phase II and Phase III
development tasks described.

                                    SECTION 3

                           Ongoing Services by Company

         3.1 Ongoing Services. During the Term of this Agreement, Company shall
provide the services more specifically described on Exhibit C attached to this
Agreement, including without limitation, claims processing services from a site
selected by Customer, together with providing all necessary hardware and
software to permit hosting of the Public Site, Private Site and processing
system as more specifically described in the Design Specification attached as
Exhibit A.

         3.2 Maintenance And Support. As more specifically described in Exhibit
D ("Support and Maintenance Agreement"), which is hereby incorporated by this
reference, Company agrees to provide maintenance services to Customer consisting
of delivery on a periodic basis of all releases improving the functionality or
features of, or correcting errors in, the Existing Company Product to the extent
licensed hereunder, its successors or similar software provided as part of the
Modifications. Company agrees that it shall provide Customer with such
enhancements or improvements in a timely fashion to permit Customer's site to
incorporate any such enhancements or improvements at the same time or within 90
days after the earlier of launch by other customers of Company or of Company's
incorporation of them as part of the Existing Company Product, its successors or
similar software. As set forth in the Support and Maintenance Agreement, Company
shall provide first level and second level support for all of Customer's users
and customers. At the reasonable request of Company, Customer shall make
available in an appropriate place on the Web site reasonably selected by
Customer, information or instructions that may assist end-user customers of
Customer in extraction of claims files from various systems and format
information. If Customer designates that the Hardware shall be located at
Customer's facility, Customer shall pay the reasonable increases in support and
maintenance costs caused by Customer's designation of a location separate from
other hardware maintained by Company or its designee.

         In the event that that Customer determines to locate the Hardware at
any facility other than a facility designated by Company, Customer (A) shall
indemnify, defend and hold harmless Company, and each of the respective
employees, officers and directors of Company, for and against all expenses and
costs, including, but not limited to, reasonable attorneys fees, judgments,
penalties and other payments in settlement or other disposition, in connection
with any claim or controversy brought or asserted by a third party in any type
of claim or proceeding relating to any Services rendered by means of the
Hardware located at such facility and the performance thereof and (B) waive all
warranties and covenants of Company with respect to the proper performance of
the Existing Company Product and the Modifications on such Hardware unless and
until such Hardware is approved by Company.



                                       6


         3.3 Marketing Plan. On or before the Live Processing date, Company and
Customer shall agree on a Marketing Plan to be attached as Exhibit E to this
Agreement.

         3.4 Source Code Escrow. On or prior to the Live Processing date,
Company and Customer shall enter into the Source Code Escrow Agreement attached
to this Agreement as Exhibit F, permitting access by Customer or its Consultants
to the source code for the Modifications in Final Form in the event Company
breaches its obligations to provide maintenance and support, or to correct
errors, or in the event the Company becomes insolvent, files for or is subject
to any insolvency or bankruptcy proceeding, makes an assignment for the benefit
of creditors, or is subject to receivership, conservatorship or liquidation.

                                    SECTION 4

                                      Fees

         Customer shall pay to Company the following fees, in accordance with
this Agreement:

         4.1 Development Fee. In return for Company's development of the
Modifications in Final Form, Customer shall pay Company a fee of $1,035,000 in
installments as provided in the Milestone Schedule attached as Exhibit B, upon
approval of the applicable milestone deliverables, including final Acceptance.

         4.2 Software and Site Licensing Fee. In return for Company's licensing
of the Modifications in Final Form, hosting the Web site at a facility
designated by Customer (if applicable), and providing the Hardware (if
applicable), Customer shall pay Company $3,500,000, divided into two
installments of $1,166,666.66 each and a final installment of $1,166,666.67
payable respectively (1) within 30 days of the commencement of Live Processing;
(2) and on the first and second anniversaries thereof.

         4.3 Monthly Subscription Fee. In return for Company's obligation to
provide all processing hardware and software maintenance and upgrades, including
payor edits, hosting hardware and system upgrades, and for providing the other
maintenance services set forth in the Maintenance and Support Agreement,
Customer shall pay Company a monthly subscription fee of $52,500 (a "Monthly
Fee"). This Monthly Fee shall be payable upon the commencement of Live
Processing and monthly thereafter during the term of this Agreement. Payment
shall be due within 30 days of invoice.

         4.4 Transaction Fees. In addition to the other fees set forth in this
Agreement, in return for Company's providing the Services, Customer shall pay a
transaction fee of $.15 per HCFA, $.15 per paper claim, $.05 per remittance
advice, and $.15 per statement (where Company has provided mapping and
translation prior to submission to Customer) as more specifically described in
Exhibit C, "Continuing Services to be Provided."

         4.5 Customer support. As described in, and in return for the customer
support services described in the Support and Maintenance Agreement attached as
Exhibit D, Customer shall pay Company a claim processing set up fee of $150, and
a statement processing set-up fee of $150 and may charge such set-up fees it
sets for the end user customers. All as more specifically described in the
Support and Maintenance Agreement, the Parties contemplate that



                                       7


Customer will provide first level phone consultation for end user customers
using its Physician Office Manager product, and Company will be responsible for
initial telephone support of other end user customers during the hours of 8:00
a.m. to 8:00 p.m. Eastern Time, for which Company may bill Customer an incident
fee/telephone of $60. Company shall provide free telephone support for 30 days
from the date an account is ready for production.

         4.6 Most Favored Pricing. Notwithstanding sections 4.2, 4.3, 4.4, and
4.5 of this Agreement, if during the term of this Agreement Company provides
substantially similar services to a third party at more favorable pricing,
Company shall reduce the price of the relevant services to Customer to ensure
that Customer shall receive a price as least as favorable as any other customer
of Company's, taking into account relevant volume and service requirements.

                                    SECTION 5

                         Representations and Warranties

         5.1 Representations and Warranties of Customer. Customer hereby
represents and warrants to Company as follows: Customer has all requisite
corporate power and authority to enter into, adopt and perform all of its
obligations under this Agreement and all Schedules and Exhibits hereto. The
execution, adoption and delivery of this Agreement (including all Schedules and
Exhibits hereto), have been duly and validly authorized by all necessary
corporate action on the part of Customer, and upon execution and delivery by the
other parties hereto and thereto, such agreements will constitute legal, valid
and binding obligations of Customer, enforceable against it in accordance with
their respective terms, subject as to enforceability, to bankruptcy, insolvency,
conservatorship, receivership and other laws of general applicability relating
to or affecting creditors' rights and to general equity principles.

         5.2 Representations and Warranties of Company. Company hereby
represents and warrants to Customer as follows: Company has all requisite
corporate power and authority to enter into, adopt and perform all of its
obligations under this Agreement and all Exhibits and Schedules hereto. The
execution, adoption and delivery of this Agreement (including all Exhibits and
Schedules hereto), have been duly and validly authorized by all necessary
corporate action on the part of Company, and upon execution and delivery by the
other parties hereto and thereto, such agreements will constitute legal, valid
and binding obligations of Company, enforceable against it in accordance with
their respective terms, subject as to enforceability, to bankruptcy, insolvency,
conservatorship, receivership and other laws of general applicability relating
to or affecting creditors' rights and to general equity principles. Company has
all necessary rights to its Existing Company Product to permit it to enter into
this Agreement and modify that software to create the Modifications in Final
Form, and has not entered into any agreement inconsistent with its grant of
rights and performance of its obligations herein. Except for the content of the
Web sites contributed by Customer, the Modifications in Final Form shall not
infringe the intellectual property, contract, or other rights of any third
party, and Company will not grant any rights to any portion of the Modifications
in Final Form that are inconsistent with the rights granted to Customer under
this Agreement. The Modifications in Final Form shall be free from Program
Errors, including without limitation date problems known commonly as "Y2K"
problems, and will operate in accordance with the Design Specifications. The
Modifications in Final Form and all interim deliverables and the media on which
they are


                                       8


delivered shall be free from viruses, undocumented features known as "Easter
eggs", or other harmful or dangerous programs. At Customer's request, Company
will promptly investigate and use best efforts to correct all significant
Program Errors reported by Customer and will deliver to Customer, at no
additional charge to Customer and as soon as practicable, an avoidance procedure
or work-around to solve or avoid any significant Program Error until a
correction is achieved. Company will continue to use its best efforts to develop
a correction for any material Program Error and when a correction is achieved,
Company will deliver to Customer all modifications necessary to implement this
correction. The Hardware and any other media delivered to Customer (or to any
entity providing hosting services at Customer's direction) by Company (or by
third party's at Company's direction) shall operate free from errors of
workmanship for 180 days from the date of its delivery. In addition to its
obligations under section 7.1 below, if any third party receives a binding
determination from a competent authority limiting Customer's right to use the
Modifications in Final Form because of any claimed intellectual property or
contract right to any portion of the Modification in Final Form, contrary to
Company's representations and warranties herein, and such determination is not
removed or stayed within thirty (30) days, Company shall be obligated, at
Company's sole expense either to modify the Modification in Final Form to
eliminate the claimed problem or to obtain a license to the necessary rights for
Customer from the third party claiming an interest.

                                    SECTION 6

                            Confidential Information

         6.1 Preservation of Confidential Information. During the Term of this
Agreement, both Parties may be exposed to the Confidential Information of the
other party, and each of them agrees to preserve this Confidential Information
as confidential, and agrees to use at least the same level of safeguards and
protection to preserve this Confidential Information as it uses to protect its
own Confidential Information; provided that Confidential Information may be
disclosed as required by clearly applicable law, rules, regulations or judicial,
administrative or similar process, including, without limitation, the
requirements of the Federal securities laws and the rules and regulations
thereunder, after seeking protective orders or other similar means to prevent
public disclosure and after notice to the other party with an opportunity for
the other party to seek an injunction to avoid such disclosure. Upon Customer's
request, Company shall execute any further documents reasonably necessary to
protect transactional information and other confidential information of
Customer's clients and customers.

         6.2 Return or Destruction of Confidential Information on Termination.
Upon expiration or termination of this Agreement, any written Confidential
Information originally provided by one of the Parties (including all copies
thereof and extracts therefrom) still in the possession of the other Party, its
agents, employees and representatives, will be returned to the Party originally
providing such Confidential Information promptly upon written request of the
originating Party. Any written Confidential Information not so requested, any
oral Confidential Information, and any joint Confidential Information about the
Parties, obtained or created by the Parties will be either held and kept
confidential by the Parties hereto or destroyed.

         6.3 Press Releases and Public Announcements. Company agrees not to make
any public announcement or press release regarding this Agreement, the product
to be developed


                                       9


under this Agreement or the products to be offered by Customer without the prior
written consent of Customer, which consent will not be unreasonably withheld.
Except as required by clearly applicable law, rules, regulations or judicial,
administrative or similar process, including, without limitation, the
requirements of the Federal securities laws and the rules and regulations
thereunder, and after seeking protective orders or other similar means to
prevent public disclosure and after notice to Customer with an opportunity for
Customer to seek an injunction to avoid such disclosure, Company shall not
disclose the terms of this Agreement.

         6.4 Non-Solicitation. Each Party hereby agrees that for the term
commencing on the date hereof and terminating on the date which is one year
following the date of termination of this Agreement it shall not employ, solicit
for employment, or retain, or cause others to employ, solicit or retain, any
employee of the other Party hereto.

                                    SECTION 7

                                 Indemnification

         7.1 Indemnification. Each of the parties hereto (the "Indemnifying
Party") shall indemnify, defend and hold harmless the other party hereto. and
each of the respective employees, officers and directors of such other party
hereto ("Indemnified Parties") for and against all reasonable expenses and
reasonable costs, including, but not limited to, reasonable attorneys fees,
judgments, penalties and other payments in settlement or other disposition, in
connection with (1) any claim or controversy brought or asserted by a third
party in any type of claim or proceeding relating to this Agreement and its
performance to the extent allowable by law, other than any claims or
controversies brought or asserted solely because of any willful acts or
omissions of the Indemnified Parties; and (2) any claim or controversy arising
out of breach or claimed breach of the Indemnifying Party's representations or
warranties under this Agreement.

         7.2 Notification. Promptly after receipt by an Indemnified Party of
notice of any threatened or commenced claim or proceeding, the Indemnified
Parties shall so notify the Indemnifying Party in writing; provided, however,
that unless materially prejudicial to the defense of such action, the omission
to notify the Indemnifying Party shall not relieve the Indemnifying Party of any
liability which it may have to the Indemnified Party otherwise than under this
Section. The Indemnifying Party shall be entitled to participate in the defense
of such action, and may assume the defense thereof with counsel satisfactory to
such Indemnified Party (which consent shall not be unreasonably withheld);
provided, however, that the Indemnified Party shall be entitled to participate
in any such action with counsel of its own choice at the expense of the
Indemnifying Party if, in the good faith judgment of the Indemnified Party's
counsel, representation by Indemnifying Party's counsel may present a conflict
of interest or that there may be defenses available to the Indemnified Party
which are different from or in addition to those available to Indemnifying
Party. If Indemnifying Party assumes the defense of such action in accordance
with the preceding sentence and subject thereto, Indemnifying Party shall not be
liable to such Indemnified Party for any legal expenses subsequently incurred by
such Indemnified Party in connection with the defense of such claim or
proceeding, other than reasonable costs of investigation and review and approval
of any settlement. If Indemnifying Party shall not assume the defense of any
such action, the Indemnified Party may defend against such action in such manner
as it may deem appropriate, at the expense of Indemnifying Party-,



                                       10


provided that an Indemnified Party shall not settle any action which would give
rise to Indemnifying Party's liability under this indemnity without the prior
written consent of Indemnifying Party, which consent shall not be unreasonably
withheld. Indemnifying Party shall not, without the prior written consent of
each Indemnified Party that is not released as described in this sentence,
settle or compromise any action, or permit a default or consent to the entry of
judgment or otherwise seek to terminate any pending or threatened action, in
respect of which indemnity may be sought hereunder (whether or not any
Indemnified Party is a party thereto), unless (A) such settlement, compromise,
consent or termination includes an unconditional release of each indemnified
party from all liability in respect of such action and (B) such settlement,
compromise, consent or termination is solely for money damages.

         7.3 Reimbursement. Subject to Section 7.2, Indemnifying Party shall
reimburse the Indemnified Parties for all reasonable costs and expenses incurred
with respect to any claim or threatened claim described in Section 7.1 as such
costs and expenses are incurred. All claims for reimbursement for such costs and
expenses shall be paid within 10 days of the Indemnified Party furnishing to
Indemnifying Party written evidence of any costs or expenses incurred by the
Indemnified Party, which evidence may be in the form, among other things, of a
canceled check or receipt. Any such request for reimbursement by the Indemnified
Party shall be made no more frequently than at 30-day intervals.

                                    SECTION 8

                              Term and Termination

         8.1 Term and Termination of Agreement. The Initial Term of this
Agreement shall commence on the Effective Date and continue until the third
anniversary of the commencement of Live Processing. In the event that this
Agreement is not sooner terminated as provided for herein, upon the expiration
of the Initial Term, Customer may renew this Agreement for up to two additional
one year periods, commencing on the third and fourth anniversaries of Live
Processing (each, an "Additional Term") provided that it continues to pay the
Monthly Fee as provided in Section 4.3.

         8.2 Termination. This Agreement may be terminated by either Party for a
material breach of this Agreement, which is not cured within 30 days after
written notice of the breach. In the event of termination, Company shall return
the proportionate amount of any remaining maintenance and support fees
attributable to any time after the termination date. Either Party may terminate
this Agreement immediately in the event the other Party becomes insolvent in
that its liabilities exceed its assets, is adjudicated insolvent, files for or
is subject to any insolvency or bankruptcy proceeding, makes an assignment for
the benefit of creditors prior to bankruptcy or is subject to receivership,
conservatorship or liquidation. In the event Company proposes to (1) sell all or
substantially all of its assets, or (2) be acquired, merged into another entity
or otherwise undergo a change in ownership and control such that the holders of
the Company's voting securities prior to the transaction hold less than fifty
percent (50%) of the total voting power represented by the voting securities of
the surviving or successor corporation or entity immediately following such
transaction, the Company shall promptly deliver to Customer a notice of such
proposed transaction, which notice shall specify that it is a notice pursuant to
this Section 8.2 and shall identify the purchaser or purchasers of such assets
or other party or parties



                                       11


to such transaction. Within twenty (20) days after the delivery of such notice
to Customer, Customer shall deliver to Company a notice which shall either (i)
consent to such transaction or (ii) advise Company of Customer's intention to
terminate this Agreement in the event of the consummation of such sale of assets
or such transaction. In the event that Customer shall fail to deliver such
notice to Company within such twenty (20) day period, Customer shall be deemed
to have delivered such notice to Company to the effect of clause (i) in the
immediately preceding sentence. In the event that Customer shall deliver to
Company such notice within such period to the effect of clause (ii) of the
second preceding sentence, upon the consummation of such asset sale or
transaction, this Agreement shall terminate. Upon such termination, at
Customer's request, Company shall continue to provide services under this
Agreement for an additional period of up to twelve months in return for the fees
payable under this Agreement, prorated for such time period. Customer may
terminate its subscription pursuant to this Agreement by (A) delivering to
Company at any point after the first anniversary of the Live Processing date
notice of such termination, which notice shall become effective one hundred
twenty (120) days following such date of notice and (B) by paying to Company all
Monthly Fees through the date of such termination and all license fees then
remaining under this Agreement.

         8.3 Survival. In the event a Party gives notice of termination of this
Agreement pursuant to Section 8.1 hereof, this Agreement shall become void and
have no effect, except that (i) the provisions relating to the confidentiality,
indemnification, the payment of any outstanding amounts hereof and future
competition, respectively, shall survive any such termination and (ii) any
termination shall not relieve any party from any liability that may arise from a
breach of the terms of this Agreement or otherwise.

         8.4 Future Competition. Notwithstanding any other provision of this
Agreement, including without limitation, the confidentiality provisions of
Section 6, the Parties agree that nothing in this Agreement prevents Customer
from developing or deploying any other Web-based claims processing service or
other EDI service, even one which competes with the Existing Company Product and
which has similar functionality and a similar look and feel, but Customer is
prohibited from directly incorporating any of Company's Confidential Information
to create such service. Modifications which, pursuant to Section 2.6, are the
property of Customer shall be deemed to not contain any of Company's
Confidential Information.

         8.5 Payment of Fees. As soon as practicable after the Termination Date
(but not later than 30 days thereafter), each Party shall pay to the other any
fees or other payments due pursuant to the Agreement or otherwise in connection
with the Program.

                                    SECTION 9

                                    Amendment

         9.1 Complete Agreement. This Agreement (including the Exhibits and
Schedules hereto) expresses the entire agreement of the Parties with respect to
the subject matter hereof, and supersedes all prior agreements, written or oral,
with respect to such subject matter. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the Parties hereto and their
respective successors and assigns. Nothing in this Agreement, expressed




                                       12


or implied, is intended to confer upon any party, other than the Parties hereto
and their respective successors and assigns, any rights, remedies, obligations
or liabilities.

         9.2 Amendment. This Agreement may be amended or supplemented (including
by adding or amending the Exhibits and Schedules hereto) at any time by mutual
agreement of the Parties hereto. Any such amendment or supplement must be in
writing and executed by the Parties' duly authorized officers.

                                   SECTION 10

                                  Miscellaneous

         10.1 Notices. Any notices required or permitted to be given to any
Party in connection with this Agreement shall be in writing, shall be deemed
delivered when received and sufficient if delivered personally; deemed delivered
the next Business Day if sent by Federal Express or similar overnight courier
service for next Business Day delivery; shall be effective if delivered during
the Business Day by telecopier or similar means with written confirmation of
receipt during business hours (or, otherwise, effective the next Business Day);
or deemed delivered and effective three Business Days after deposit in first
class mail, Express Mail, or registered or certified mail, postage prepaid,
addressed as follows:

If to Company:                         If to Customer:

  Claimsnet.com inc.                      McKesson HBOC, Inc.
  12801 N. Central Expressway             One Post Street
  Suite 1515                              San Francisco, California  94104-5296
  Dallas, Texas 75243                     Fax:  (415) 983-8826
  Fax:  (972) 458-1737
                                          ATTENTION:
  ATTENTION:                              William Dawson
  Terry A. Lee                            Corporate Senior Vice President,
  Executive Vice President                Business Development




                                       13


 With a copy (which shall not constitute        With a copy (which shall not
 notice) to:                                    constitute notice) to:

 Brock Silverstein, LLC                           McKesson HBOC, Inc.
 800 Third Avenue, 21st Floor                     Law Department
 New York, NY 10022                               One Post Street, 34th Fl.
                                                  San Francisco, CA 94104-5296

ATTENTION:                                        ATTENTION:

Robert Steven Brown, Esq.                         General Counsel
Fax: 212-371-5500                                 Fax:  415-983-9369


         10.2 Assignment. No Party may assign its rights or obligations under
this Agreement without the written consent of the other, except that either
Party may assign its rights and obligations hereunder to any Affiliate without
the consent of the other Party hereto, such consent not to be unreasonably
withheld.

         10.3 Further Assurances. The Parties hereto agree to do such further
acts and to execute and deliver such additional assignments, agreements,
instruments and other documents as may be required to carry into effect the
purposes contemplated by this Agreement.

         10.4 No Implied Waivers; Remedies. No failure or delay on the part of
either Party in exercising any right, privilege, power, or remedy under this
Agreement, and no course of dealing between the Parties shall operate as a
waiver of any such right, privilege, power, or remedy; nor shall any single or
partial exercise of any right, privilege, power, or remedy under this Agreement
preclude any other or further exercise of such right, privilege, power, or
remedy or the exercise of any other right, privilege, power or remedy. No waiver
shall be asserted against any Party unless signed in writing by such Party. The
rights, privileges, powers, and remedies available to the Parties are cumulative
and not exclusive of any other rights, privileges, powers, or remedies provided
by statute, at law, in equity, or otherwise. Except as provided in this
Agreement, no notice to or demand on either Party in any case shall entitle such
Party to any other or further notice or demand in any similar or other
circumstances or constitute a waiver of the right of the Party giving such
notice or making such demand to take any other or further action in any
circumstances without notice or demand.

         10.5 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California applicable to agreements
made and entirely to be performed within such jurisdiction, without regard to
the conflict of laws principles thereof.

         10.6 Headings. The headings contained in this Agreement are for
convenience only and shall not affect the construction of any provision of this
Agreement.

         10.7 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.


                                       14


         10.8 Warranty; Disclaimer and Limitation of Damages. In no event shall
any party be permitted to claim any consequential or special damages, (other
than payment of indemnification claims asserted by third parties)
notwithstanding their foreseeable disclosure by one party to the other.


                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

















                                       15



         IN WITNESS WHEREOF, the Parties hereby have caused this Agreement to be
duly executed by their respective officers or authorized agents, and attested by
their officers duly authorized, as of the day and year first above written.

                                 CLAIMSNET.COM INC.


                                 By:  /s/ Bo W. Lycke
                                      -------------------------------------
                                      Name:  Bo W. Lycke
                                      Title: Chairman

                                 Attested to:


                                 By:  /s/ Sharon Larkin
                                      -------------------------------------
                                      Name:  Sharon Larkin
                                      Title: Corporate Controller


                                 MCKESSON HBOC, INC.


                                 By:  /s/ William J. Dawson
                                      -------------------------------------
                                      Name:  William J. Dawson
                                      Title: Senior Vice President

                                 Attested to:


                                 By:  /s/ Dana C. Chiu
                                      -------------------------------------
                                      Name:  Dana C. Chiu
                                      Title: Counsel





                                       16



                                    EXHIBIT A

                              Design Specifications

         Company shall convert its existing Claimsnet.com Internet EDI offering
known as Services.now to become the front end and an integrated part of the
Customer's Internet EDI system for HCFA 1500 claims, Electronic Remittance
Advice ("ERA") and Statements with a unique look and feel approved by the
Customer. These services shall be maintained on a server dedicated to the
Customer. Company Modifications in Final Form include:

         A private public website developed to carry all Internet HCFA 1500,
Statements and Electronic Remittance Advice ("ERA") transactions for Customer's
physician office manager ("POM") product and all capabilities available in the
Company's claims processing and statement processing system.

         Private and public websites will support Internet HCFA 1500 and
Statement transactions for third party practice management systems customers
with all capabilities available in the Company's claims processing and statement
processing system.

         The public and private website may link from Customer's existing Web
sites, and will have an independent URL as selected by Customer.

         Capabilities to house `links' to other Web sites as directed by
Customer.

         "Real time" edits with errors returned to the "message center" and
accurate claims passed on to Customer's processing system in Dubuque, Iowa.

         Payor specific claims edits will be created and maintained by Company
and reside within the new system created for Customer.

         Initially, the following system interfaces are to be created for
Customer by Company to allow easy and quick installation of those systems for
claims: IDX, Medic, Physician Office Manager (McKessonHBOC), Physician Practice
Manager (McKessonHBOC), Medical Manager and Millbrook.

         Training and demo capabilities as in the current Services.now.

         Registration of users as they are in the Services.now system with
registration information available electronically to the Customer designated
contact for update.

         "Look and Feel" shall include the public site developed for Customer
(the "Public Site with the same basic inverted "L" tabs used by Company on its
Services.now product, and will provide access to a limited demonstration area,
Frequently Asked Questions, the registration process and general information.
This Public Site for basic information and registration of the service shall
retain the basic design used by the existing Company site, with changes to the
graphical interface and certain additional content provided by Customer to
maintain a consistent Customer-selected look and feel. The private site (the
"Private Site") will be a site secured for actual transaction processing through
digital certification provided through Company. The Private Site will be


                                       17



developed to keep the same basic inverted "L" tabs and will provide access to
HCFA 1500 claims, statements and remittance processing, together with service
for Customer's customers in the initial release. Company shall include a message
center for payor reports, online tutorials and processing status, which shall
indicate completion of editing. The Public Site will be developed to enable the
addition of other services to be provided by Company and Customer in the future,
such as payor report sorting.

         Hosting of the Public Site, Private Site and processing system at the
current location of the Company production servers.

         Installation services for the Internet services to include mapping for
claims and statements for each PMSV that has agreed to services as sold by
Customer.

         Maintaining sample statement form or forms on the server for preview as
directed by Customer

         Customer Modifications in Final Form include:

         Additional content, software and development resources required to add
additional services or features in the public or private site.

         Output files from the POM and other third party practice management
systems, as available, to minimize customer mapping requirements and facilitate
installation and set-up provided by Company. This includes instructions on
extraction of files from named third party practice management vendors for
posting in customer care and the website, if available.

         Customer will provide the required statement format that Company will
need to map all statements to prior to sending to Customer for printing.

         Timely account set-up and effort to automate set-up for claim and
statement customers in the McKessonHBOC system.



                                       18




                                    EXHIBIT B

                     Milestone Delivery And Payment Schedule

The following are high points in the development and delivery of new Customer
Internet system:

Contract signing. FIRST INSTALLMENT DEVELOPMENT FEE DUE COMPANY - $250,000

Agreement of specifications, screen presentation, test plan, support plan,
escalation procedures, and workflow. SECOND INSTALLMENT DEVELOPMENT FEE DUE
COMPANY - $250,000

Programming of agreed specifications completed.

Internal testing between Company and Customer completed upon Customer signoff.
FINAL INSTALLMENT DEVELOPMENT FEE DUE COMPANY - $535,000

Beta site testing complete upon Customer signoff.

System generally available upon Customer signoff. FIRST INSTALLMENT SOFTWARE AND
SITE LICENSE FEE DUE COMPANY WITHIN 30 DAYS - $1,166,666.66 PLUS $52,500
SUBSCRIPTION FEE PAID MONTHLY

First anniversary of System generally available. SECOND INSTALLMENT SOFTWARE AND
SITE LICENSE FEE DUE COMPANY WITHIN 30 DAYS - $1,166,666.66 PLUS $52,500
SUBSCRIPTION FEE PAID MONTHLY

Second anniversary of System generally available. THIRD INSTALLMENT SOFTWARE AND
SITE LICENSE FEE DUE COMPANY WITHIN 30 DAYS - $1,166,666.67 PLUS $52,500
SUBSCRIPTION FEE PAID MONTHLY





                                       19



                                    EXHIBIT C

                       Continuing Services To Be Provided

Company agrees to provide the following on an ongoing basis at no additional
charge unless otherwise indicated:

Enhancements and new releases. Customer will be consulted on new release
content.

Corrections to programming errors at no charge with a mutually agreed escalation
and resolution plan.

Optional custom programming at $120/hour

80 hours of training time annually that can be used at the Customer's discretion
for sales, customer service (POM), etc.

Installation with a backlog not to exceed 2 months.

Addition of new links to other Customer designated sites.

Sales support questions from Customer.







                                       20



                                    EXHIBIT D

                        Support And Maintenance Agreement

The following are support and maintenance areas:

Company will provide first line support for PMSV who are not POM. Company will
provide PMSV support for the first 30 days free of charge and then may bill
Customer an incident fee of $60 thereafter.

Company will provide second line support for Customer's POM support group.

Support hours to be set at 8 am EST - 8pm EST M-F

Criteria of a live customer site to be determined by Customer with mutual
agreement by the Company.

Release plans and upgrade procedures will be mutually agreed to for release for
minimum impact to end-users and operations.

The Company will strive for 80% first call resolution and will mutually
determine with the Customer escalation and resolution standards for Level 1 -
Level 2 security levels.














                                    EXHIBIT E

                                 Marketing Plan



















                                    EXHIBIT F

                          Source Code Escrow Agreement

EX-10.10(A)

                                                                Exhibit 10.10(a)

         AGREEMENT, dated as of April 12, 2001, between CLAIMSNET.COM INC., a
Delaware corporation (the "Company") having its principal place of business in
Dallas, Texas, and McKESSON HBOC, INC., a Delaware corporation (the "Customer")
having its principal place of business in Dubuque, Iowa.


                               W I T N E S S E T H


         WHEREAS, as of October 27, 1999, the Company and the Customer entered
into the Claimsnet.com inc. Development and Services Agreement, dated as of such
date (the "Development Agreement"); and

         WHEREAS, simultaneously with the execution thereof, the Company and the
Customer executed and delivered the Securities Purchase Agreement, dated as of
October 27, 1999 (the "Securities Purchase Agreement"), between the Company and
the Customer; and

         WHEREAS, simultaneously with the execution thereof and pursuant to the
terms thereof, the Company executed and delivered to the Customer warrants (the
"Warrants"), representing the right to acquire up to an 819,184 shares of Common
Stock; and

         WHEREAS, simultaneously with the execution thereof, the Company and the
Customer executed and delivered the Registration Rights Agreement, dated as of
October 27, 1999 (the "Registration Rights Agreement") between the Company and
the Customer relating to the registration under the Securities Act of 1933, as
amended (the "Securities Act"), of the resale of the shares of Common Stock
issuable upon the exercise of the Warrants; and

         WHEREAS, the parties hereto and to the Development Agreement desire to
amend and/or supersede the Development Agreement, the Securities Purchase
Agreement, the Warrants, and the Registration Rights Agreement; and

         WHEREAS, the Customer desires to acquire, and the Company desires to
sell to the Customer, shares of common stock, par value $.001 per share (the
"Common Stock"), of the Company as set forth herein; and

         WHEREAS, all capitalized terms used, but not otherwise defined, herein
shall have the respective definitions assigned thereto in the Development
Agreement.

         NOW THEREFORE, in consideration of the mutual covenants contained in
this Amendment and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
the parties hereby agree as follows:




                                    SECTION 1

                       Amendments to Development Agreement

         1.1 Limitation on Amendments; Compliance. Except as otherwise set forth
herein, the Development Agreement shall continue in full force and effect. Each
party hereby acknowledges that all obligations of the other party under the
Development Agreement which, in accordance with the terms thereof, was required
to be performed on or prior to the date hereof, has been performed in all
respects.

         1.2 Cessation of Development Activities; Acceptance of Modifications.
At the date hereof, the Company shall discontinue all development activities by
the Company referenced in the Development Agreement, including, without
limitation, those set forth in Milestone Schedule attached to the Development
Agreement as Exhibit B and shall not be obligated under the Development
Agreement to engage in any additional development activities under the
Development Agreement, including Section 2.7 thereof. The Customer hereby agrees
that the Testing Period has ended and that Acceptance of the Modifications by
the Customer has taken place.

         1.3 License. The license set forth in Section 2.6 of the Development
Agreement (the "License") relating to the use of the Modifications shall
continue in full force and effect, provided, however, that that in lieu of the
fees set forth in Sections 4.1, 4.2, and 4.3 of the Development Agreement, the
Customer shall pay to the Company simultaneously with the execution hereof, the
amount of $200,000 by electronic wire transfer in accordance with the
instructions set forth in Schedule 1.3 hereof.

         1.4 Dedicated Server. Customer hereby waives the requirement set forth
in Exhibit A to the Development Agreement that the services described therein
shall be maintained on a dedicated server.

         1.5 Continuing Services; Support and Maintenance. The agreements set
forth in Exhibits C and D to the Development Agreement shall remain in full
force and effect. The manner of the performance of the obligations set forth in
such Exhibits, and the course of dealing between the parties with respect
thereto, to date by the parties hereto shall be deemed sufficient to satisfy
such obligations, notwithstanding such agreements.

         1.6 Termination. Section 8.2 of the Development Agreement is herby
amended to read as follows:

       This agreement may be terminated by (a) either Party for a material
       breach of this Agreement, which is not cured within 30 days after written
       notice of the breach; (b) either Party immediately in the event the other
       Party becomes insolvent in that its liabilities exceed its assets, is
       adjudicated insolvent, files for or is subject to any insolvency or
       bankruptcy proceeding, makes an assignment for the benefit of creditors
       prior to bankruptcy or is subject to receivership, conservatorship, or




       liquidation; (c) Customer upon thirty (30) days prior written notice. In
       the event Company proposes to (1) sell all or substantially all of its
       assets, or (2) be acquired, merged into another entity or otherwise
       undergo a change of ownership and control such that the holders of the
       Company's voting securities prior to the transaction hold less than fifty
       percent (50%) of the total voting power represented by the voting
       securities of the surviving or successor corporation or entity
       immediately following such transaction, the Company shall promptly
       deliver to Customer a notice of such proposed transaction, which notice
       shall specify that it is a notice pursuant to this Section 8.2 and shall
       identify the purchaser or purchasers of such assets or other party or
       parties to such transaction.


                                    SECTION 2

                 Warrants and the Registration Rights Agreement

         2.1 Termination. Each of the Warrants and the Registration Rights
Agreement are hereby terminated and of no further force or effect.

                                    SECTION 3

                        Additional Business Relationship

         3.1 Additional License. The Company and the Customer shall use
commercially reasonable best efforts to enter into an agreement mutually
agreeable thereto pursuant to which the scope of the License shall be amended to
include UB-92 claims.

         3.2 Other Opportunities. The Company and the Customer hereby agree to
use commercially reasonable best efforts to discuss and pursue agreed upon
opportunities.

                                    SECTION 4

                                   Investment

         4.1 Acquisition of Shares of Common Stock. In accordance with Section
7.1 hereof, (i) the Company shall deliver to the Customer stock certificates,
registered in the name of the Customer or its designees, representing an
aggregate of 1,514,285 shares (the "Shares") of Common Stock, and (ii) the
Customer deliver to the Company, by electronic wire transfer in accordance with
the instructions set forth in Schedule 1.3 hereto, the aggregate purchase price
of $ 2,649,998.75, representing payment in full for the Shares.





                                    SECTION 5

                  Representations and Warranties of the Company

         5.1 Organization and Qualification. Each of the Company, ANC Holdings,
Inc., a Texas corporation ("ANC"), and HealthExchange.com Inc., a Delaware
corporation ("HealthExchange" and, together with ANC, the "Subsidiaries") has
been duly organized and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, with full power and
authority (corporate and otherwise) to own its properties and conduct its
business as described in the SEC Materials (as hereinafter defined) and is duly
qualified or licensed to do business as a foreign corporation and is in good
standing in each other jurisdiction in which the nature of its business or the
character or location of its properties requires such qualification, except
where the failure to so qualify will not materially affect the condition
(financial or otherwise), business, properties, prospects, net worth or results
of operations of the Company and the Subsidiaries, taken as a whole. Except for
the stock of its Subsidiaries, the Company does not control, directly or
indirectly, any corporation, partnership, joint venture, association or other
business organization. For purposes of this Agreement, the term "SEC Materials"
shall mean the Company's Prospectus, dated April 6, 1999, the Annual Report on
Form 10-K for the year ended December 31, 1999, the Quarterly Report on Form
10-Q of the Company for the three months ended March 31, 2000, the Quarterly
Report on Form 10-Q of the Company for the three months ended June 30, 2000, the
Quarterly Report on Form 10-Q of the Company for the three months ended
September 30, 2000, the proxy statement of the Company, dated September 14,
2000, Current Reports on Form 8-K of the Company dated March 23, 2000 (including
amendments thereto), March 24, 2000, July 11, 2000, November 14, 2000, December
18, 2000, January 4, 2001, March 20, 2001, and April 5, 2001, collectively, all
as filed with the United States Securities and Exchange Commission.

         5.2 Capitalization. As of the date hereof, the authorized capital stock
of the Company consists of 40,000,000 shares of Common Stock, par value $.001
per share, of which 8,951,229 shares are outstanding, and 4,000,000 shares of
preferred stock, par value $.001 per share, of which 27,534 shares are
outstanding. Each of such outstanding shares of capital stock of the Company is
validly authorized, validly issued, fully paid, and nonassessable, has not been
issued and is not owned or held in violation of any preemptive or similar right
of stockholders, and is owned, to the best knowledge of the Company, free and
clear of all liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts. Except as set forth in the SEC
Materials, there is no commitment, plan, or arrangement to issue, and no
outstanding option, warrant, or other right calling for the issuance of, any
share of capital stock of the Company or any security or other instrument
convertible into, exercisable for, or exchangeable for capital stock of the
Company. There is outstanding no security or other instrument convertible into
or exchangeable for capital stock of the Company.




         5.3 Enforceability; Validity. The Shares, when issued and delivered
pursuant hereto against payment therefor will be duly authorized and issued,
fully paid, and nonassessable and free of preemptive rights of any security
holder of the Company.

         5.4 Authorization. This Agreement has been duly and validly authorized,
executed, and delivered by the Company and, assuming due execution by the other
party hereto and thereto, as applicable, constitutes the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency or other laws affecting the rights of creditors generally and the
discretion of the courts in granting equitable remedies. The Company has full
power and lawful authority to authorize and issue the Shares against payment
therefor on the terms and conditions set forth herein. No consent, approval,
authorization, or order of, or any filing or declaration with, any governmental
authority is required for the consummation of the transactions contemplated by
this Agreement or in connection with the issuance of the Shares by the Company,
except such as may be required under Federal or state securities or blue sky
laws.

         5.5 Conflicts. Except as described in the SEC Materials, neither the
Company nor any Subsidiary is in violation, breach, or default (which includes
any event that has occurred which, with notice or lapse of time or both, would
constitute a default) of or under, and consummation of the transactions herein
contemplated and the fulfillment of the terms of this Agreement will not
conflict with, or result in a breach of, any of the terms or provisions of, or
constitute a default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any of the property or assets of the Company or any
Subsidiary pursuant to the terms of any indenture, mortgage, deed of trust, loan
agreement, or other agreement or instrument to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary may be bound or
to which any of the property or assets of the Company or any Subsidiary is
subject, nor will such action result in any violation of the provisions of the
articles of incorporation or any order, rule, or regulation applicable to the
Company or any Subsidiary of any court or any regulatory authority or other
governmental body having jurisdiction over the Company or any Subsidiary.

         5.6 Properties. Subject to the qualifications set forth in the SEC
Materials, the Company and each Subsidiary has good and marketable title to all
properties and assets described in the SEC Materials as owned by them, free and
clear of all liens, charges, encumbrances or restrictions, except such as are
not materially significant or important in relation to its business; all of the
material leases and subleases under which the Company or any Subsidiary is the
lessor or sublessor of properties or assets or under which the Company or any
Subsidiary holds properties or assets as lessee or sublessee as described in the
SEC Materials are in full force and effect, and, except as described in the SEC
Materials, neither the Company nor any Subsidiary is in default in any material
respect with respect to any of the terms or provisions of any of such leases or
subleases, and no claim has been asserted by anyone adverse to rights of the
Company or any Subsidiary as lessor, sublessor, lessee or sublessee under any of
the leases or subleases mentioned above, or affecting or questioning the right
of the Company or the subsidiary to continued




possession of the leased or subleased premises or assets under any such lease or
sublease, except as described or referred to in the SEC Materials; and each of
the Company and each Subsidiary owns or leases all such properties described in
SEC Materials as are necessary to its operations as now conducted and, except as
otherwise stated in the SEC Materials, as proposed to be conducted as set forth
in the SEC Materials.

         5.7 Financial Condition; Financial Matters.

         (a) The consolidated financial statements and the related notes of the
Company, any supplementary financial information, any related schedules and the
pro forma financial statements of the Company set forth in the SEC Materials
present fairly the consolidated financial position and results of operations and
changes in stockholder's equity and cash flows of the Company on a consistent
basis at the respective dates and for the respective periods to which they
apply. The consolidated financial statements and the related notes of Medica
Systems, Inc., any supplementary financial information and any related schedules
set forth in the SEC Materials present fairly the consolidated financial
position and results of operations and changes in stockholders' equity and cash
flows of Medica Systems, Inc. on the basis stated in the SEC Materials at the
respective dates and for the respective periods to which they apply. Said
financial statements and notes, supplementary financial information, related
schedules, and pro forma financial statements have been prepared in accordance
with generally accepted accounting principles applied on a basis which is
consistent during the periods involved. The pro forma financial information
included in the SEC Materials has been prepared in accordance with the
applicable requirements of Regulation S-X and the assumptions used in the
preparation of such pro forma information are, in the opinion of the Company,
reasonable. There has been no material adverse change in the condition
(financial or otherwise), business, properties, prospects, net worth or results
of operations of the Company and the Subsidiaries, taken as a whole, from the
latest information set forth in the SEC Materials, except as properly described
in the SEC Materials, and there is no fact known to the Company or any of its
Subsidiaries which could reasonably be expected to have a material and adverse
effect on the future prospects of the Company and the Subsidiaries (other than
political or economic matter of general applicability or as properly described
in the SEC Materials).

         (b) Subsequent to the respective dates as of which information is given
in the SEC Materials and except as described therein, the Company has not paid
or declared any dividends or other distributions of any kind on any class of its
capital stock nor has it incurred any liabilities or obligations, direct or
contingent, not in the ordinary course of business, or entered into any
transaction not in the ordinary course of business, which is material to the
business of the Company, and there has not been any change in the capital stock
of, or any material incurrence of long-term debt by the Company or any of its
Subsidiaries or any material issuance of options, warrants, or other rights to
purchase the capital stock of the Company or any of its Subsidiaries or any
material adverse change or any material development involving, so far as the
Company or any Subsidiaries can now reasonably foresee, a prospective adverse
change in the condition




(financial or otherwise), net worth, results of operations, business, key
personnel, or properties of the Company or any Subsidiary which would be
material to the business or condition (financial or otherwise) of the Company
and its Subsidiaries, taken as a whole, none of the Company or any Subsidiary
has become a party to, and neither the business nor the property of the Company
or any Subsidiary has become the subject of, any material litigation or other
legal or administrative proceedings whether or not in the ordinary course of
business.

         (c) The books, records and accounts and systems of internal accounting
controls of the Company currently comply in all material respects with the
requirements of Section 13(b)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (1)
transactions are executed in accordance with management's general or specific
authorizations; (2) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (3) access to assets is
permitted only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

         5.8 Litigation. Except as set forth in the SEC Materials, there is not
now pending or threatened, any action, suit, or proceeding to which the Company
or any Subsidiary is a party before or by any court or governmental agency or
body, which might result in any material adverse change in the condition
(financial or otherwise), business, properties, prospects, net worth, or results
of operations of the Company and the Subsidiaries, taken as a whole, nor are
there any actions, suits, or proceedings related to environmental matters or
related to discrimination on the basis of age, sex, religion, or race; and no
labor disputes involving the employees of the Company or any Subsidiary exist or
are threatened which might be expected to materially adversely affect the
condition (financial or otherwise), business, properties, prospects, net worth,
or results of operations of the Company and the Subsidiaries, taken as a whole.

         5.9 Permits. Except as disclosed in the SEC Materials, the Company and
each Subsidiary has sufficient licenses, permits, certificates, and other
governmental authorizations as are required for the conduct of its business or
the ownership of its property as described in the SEC Materials and are in all
material respects complying therewith. Neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization, or permit nor, to the
knowledge of the Company or any Subsidiary, do any of the activities or business
of the Company or any Subsidiary cause the Company or any Subsidiary to be in
violation of, or cause the Company or any Subsidiary to violate, any law, rule,
regulation, or order of the United States, any state, county, or locality, or of
any agency or body of the United States or of any state, county, or locality,
the violation of which would have a material adverse impact upon the condition
(financial or otherwise), business, properties, prospects, net worth, or results
of operations of the Company and the Subsidiaries, taken as a whole.

         5.10 Questionable Payments. Neither the Company nor any Subsidiary has
directly or indirectly, at any time (i) made any contributions to any candidate
for political




office, or failed to disclose fully any such contribution in violation of law or
(ii) made any payment to any state, federal, or foreign governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments or contributions required or allowed by applicable law. The
Company's internal accounting controls and procedures are sufficient to cause
the Company to comply in all material respects with the Foreign Corrupt
Practices Act of 1977, as amended.

         5.11 Transfer Taxes. At the date of this Agreement, all transfer or
other taxes (including franchise, capital stock, or other tax, other than income
taxes, imposed by any jurisdiction), if any, which are required to be paid in
connection with the issuance and delivery of the Shares to the Customer
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been fully complied with in all material respects.

         5.12 Brokers; Finders. The Company has not entered into any agreement
pursuant to which any person is entitled, either directly or indirectly, to
compensation from the Company for services as a finder in connection with the
public offering referred to herein.

         5.13 Employment Matters.

         (a) The Company has entered into an employment contract with its
principal executive officer, Bo W. Lycke, and the description of such employment
agreements in the SEC Materials is true, correct, and complete in all material
respects.

         (b) No labor dispute with the employees of the Company exists or is
threatened or imminent that could result in a material adverse change in the
condition (financial or otherwise), business, properties, prospects, net worth
or results of operations of the Company or any Subsidiary, except as described
in or contemplated by the SEC Materials.

         5.14 Intellectual Property. The Company owns or possesses, or can
acquire on reasonable terms, all material patents, patent applications,
trademarks, service marks, trade names, licenses, copyrights and proprietary or
other confidential information currently employed by them in connection with its
businesses, and neither the Company nor any Subsidiary has received any notice
of infringement of or conflict with asserted rights of any third party with
respect to any of the foregoing, which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or funding, would result in a
material adverse change in the condition (financial or otherwise), business,
properties, prospects, net worth or results of operations of the Company and the
Subsidiaries, taken as a whole, except as described in or contemplated by the
SEC Materials.

         5.15 Insurance. The Company and its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amount as the Company and its Subsidiaries believe are prudent and
customary in the businesses in which they are engaged; neither the Company nor
any Subsidiary has been refused any insurance coverage sought or applied for;
and neither the Company nor any Subsidiary




has no reason to believe that they will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business at a
cost that would not materially and adversely affect the condition (financial or
otherwise), business, properties, prospects, net worth, or results of operations
of the Company and the Subsidiaries, taken as a whole, except as described in or
contemplated by the SEC Materials.

         5.16 Investment Company. The Company is not an investment company under
the Investment Company Act of 1940, as amended. The Company will conduct its
operations in a manner that will not subject it to registration as an investment
company under such act, and this transaction will not cause the Company to
become an investment company subject to registration under such Act.

         5.17 Tax Returns. The Company and its Subsidiaries have filed all
foreign, federal, state, and local tax returns that are required to be filed or
have requested extensions thereof (except in any case in which the failure so to
file would not have a material adverse effect on the Company and the
Subsidiaries, taken as a whole) and have paid all taxes required to be paid and
any other assessment, fine, or penalty levied, to the extent that any of the
foregoing is due and payable, except for any such assessment, fine or penalty
that is currently being contested in good faith or as described in or
contemplated by the SEC Materials.

         5.18 Quotation of Common Stock. The Common Stock is currently included
for quotation on the Nasdaq SmallCap Market under the symbol "CLAI," and for
listing on the Boston Stock Exchange under the symbol "CLA."

         5.19 Filings, Taxes, and Financial Statements.

        (a) The Company has filed the SEC Materials with the Securities and
Exchange Commission, the Nasdaq SmallCap Market, Inc. and any other required
person or entity (governmental or otherwise) in a timely manner and as otherwise
required by applicable laws and regulations, including the federal securities
laws. The audited financial statements of the Company for the fiscal year ended
December 31, 1999 and the Company's unaudited balance sheet for the period
ending September 30, 2000, together with the accompanying statements of
operations and cash flows included in the SEC Materials are accurate and
complete in all material respects and fairly present the financial condition of
the Company as at the dates thereof and have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as may be otherwise indicated in such
financial statements or the notes thereto).

         (b) Except as disclosed in the SEC Materials which sets forth a true
and accurate list and description of any employee benefit plans maintained or
sponsored by the Company or to which the Company is required to make
contributions, the Company does not maintain, sponsor, and is not required to
make contributions to or otherwise to have any liability with respect to any
pension, profit sharing, thrift, or other retirement plan, employee stock
ownership plan, deferred compensation, stock ownership, stock





purchase performance share, bonus or other incentive plan, severance plan,
health or group insurance plan, welfare plan, or other similar plan, agreement,
policy, or understanding (whether written or oral), whether or not such plan is
intended to be qualified under Section 401(a) of the Code, within the meaning of
Section 3(8) of the Employee Retirement Income Security Act of 1974, as amended,
which plan covers any employee or former employee of the Company.

         5.20 SEC Materials. None of the information disclosed or set forth in
any of the SEC Materials, as of the date they were filed with the Securities and
Exchange Commission and as of the date hereof, contained or contains any untrue
statement of material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein) in light of the
circumstances under which they were made, not misleading.

                                    SECTION 6

                 Representations And Warranties Of The Customer

         6.1 Organization and Qualification. The Customer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with all requisite power and authority (corporate and otherwise), and
all necessary consents, authorizations, approvals, orders, licenses,
certificates, and permits of and from, and declarations and filings with, all
federal, state, local, and other governmental authorities and all courts and
other tribunals, to own, lease, license, and its properties and assets and to
carry on the business in which it is now engaged. The Customer is duly qualified
to transact the respective business in which it is engaged and is in good
standing as a foreign corporation in every jurisdiction in which its ownership,
leasing, licensing, or use of property or assets or the conduct of its business
makes such qualification necessary.

         6.2 Authorization. This Agreement has been duly and validly authorized
by the Customer. This Agreement has been duly executed and delivered by the
Customer and, assuming due execution by the other party hereto and thereto, as
applicable, constitutes the valid and binding obligation of the Customer
enforceable against the Customer in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, or other
laws affecting the rights of creditors generally and the discretion of the
courts in granting equitable remedies. No consent, approval, authorization, or
order of, or any filing or declaration with, any governmental authority is
required for the consummation of the transactions contemplated hereby, except
such as may be required under Federal or state securities or Blue Sky Laws.

         6.3 Completeness of Disclosure. No representation or warranty by the
Customer in this Agreement contains an untrue statement of material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements made therein not misleading.





         6.4 Accredited Investor.

        (a) The Customer is an "accredited investor" as defined in Rule 501(a)
of Regulation D under the Securities Act of 1933, as amended. The Customer is
sophisticated in transactions of this type and capable of evaluating the merits
and risks of the transactions described herein, has the capacity to protect its
own interests, has reviewed the SEC Materials, and is aware of the risk factors
relating to an investment in the Company, as disclosed in such filings. The
Customer has not been formed solely for the purpose of entering into the
transaction described here in and is acquiring the Shares for investment for its
own account, not as a nominee or agent, and not with the view to distribute or
sell any part thereof; provided, that the Customer shall be permitted to
transfer the Shares as permitted under the applicable law. The Customer has been
afforded the opportunity to ask questions of, and receive information about, the
Company and its business and prospects, from management and representatives of
the Company, and has relied on its own independent judgment in making a judgment
about an investment in the Company.

        (b) The Customer has not retained any investment banker, broker, or
finder in connection with the transaction contemplated by this Agreement.

          6.5 No Conflicts. The execution, delivery and performance by the
Customer of this Agreement, the purchase and acceptance of the Shares, and
compliance with provisions hereof by the Customer will not (a) violate any
provisions of applicable law, statute, rule, or regulation applicable to the
Customer or any ruling, writ, injunction, order, judgment, or decree of any
court, arbitration, administrative agency, or other governmental body applicable
to the Customer or any of its properties or assets or (b) conflict with or
result in any breach of any of the terms, conditions, or provisions of, or
constitute (with notice or lapse of time to both) a default (or give rise to any
right of termination, cancellation, or acceleration) under , or result in the
creation of any encumbrance upon any of the properties or assets of the Customer
under its Certificate of Incorporation or By-laws or any material contract to
which the Customer is party, except where such violation, conflict, or breach
would not, individually or in the aggregate, have a material adverse effect on
the Customer.

          6.6 Approvals. No permit, authorization, consents, or approval of or
by, or any notification of or filing with, any person or entity (governmental or
otherwise) is required in connection with the execution, delivery, or
performance of the Agreement (including the funding and acceptance thereof) by
the Customer.





                                   SECTION 7

                                  The Exchange

         7.1 Terms of the Exchange. On the basis of the representations,
warranties, covenants, and agreements contained in this Agreement and subject to
the terms and conditions of this Agreement:

         (a) The Company shall simultaneously (i) issue to the Customer the
Shares and (ii) execute and deliver to the Customer this Agreement.

         (b) The Customer shall simultaneously execute shall deliver to the
Company this Agreement.

         7.2 The Closing. The closing of the transactions contemplated by
Sections 7.1 and 7.2 shall take place at the offices of Reitler Brown LLC, 800
Third Avenue, 21st Floor, New York, New York 10022, at 10:00 a.m., local time,
on the date of this Agreement or at such different place, such different time,
or such different date or a combination thereof as the Company and Customer
agrees in writing. The closing of the transactions contemplated by Sections
7.1(a) and 7.1(b) is herein called the "Closing."

         7.3 Indemnity Against Liabilities. Each party hereto agrees to
indemnify and hold harmless the other and their respective officers, directors,
employees, counsel, agents, and stockholders, in each case past, present, or as
they may exist at any time after the date of this Agreement, and each person, if
any, who controls, controlled, or will control any of them within the meaning of
Section 15 of the Securities Act or Section 20(a) of the Exchange Act (the
"Indemnitees"), against any and all losses, liabilities, damages, and expenses
whatsoever (which shall include, for all purposes of this Section 7.3, but not
be limited to, reasonable counsel fees and any reasonable expenses whatsoever
incurred in investigation, preparing, or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all amounts paid
in settlement of any claim or litigation) as and when incurred arising out of,
based upon, or in connection with (a) any breach of any representation,
warranty, covenant, or agreement of the indemnifying party contained in this
Agreement and (b) any act, alleged act, omission, or alleged omission occurring
at or prior to the Closing (including without limitation any which arise out of
, are based upon, or are in connection with any of this Agreement or any of the
transactions contemplated hereby).

         The foregoing agreement to indemnify shall be in addition to any
liability the parties hereto may otherwise have, including liabilities arising
under this Agreement.

                                    SECTION 8

                     Covenants and Agreements of the Parties

         Each of the Company and Customer covenants and agrees as follows:





         8.1 Public Statements. Before the Company or Customer shall release any
information concerning this Agreement or the transactions contemplated hereby
which is intended for or may result in public dissemination thereof, it shall
cooperate with the other party , shall furnish drafts of all documents or
proposed oral statements to the other party, for comments, and shall not release
any such information without the prior written consent of the other party.
Nothing contained herein shall prevent the Company or Customer from releasing
any information to any governmental authority if required to do so by law.

         8.2 Confidentiality. The parties hereto shall insure that all
confidential information which either party, any of its respective officers,
directors, employees, counsel, agents, investment bankers, or accountants may
now possess or may hereafter create or obtain relating to the financial
condition, results of operations, business, properties, assets, liabilities, or
future prospects of the Company, any affiliate thereof, or any customer or
supplier thereof or any such affiliate shall not be published, disclosed, or
made accessible by any of them to any other person or entity at any time or used
by any of them. Notwithstanding the foregoing, the restrictions of the
immediately preceding sentence shall not apply (a) as may otherwise be required
by law, (b) as may be necessary or appropriate in connection with the
enforcement of the Agreement, or (c) to the extent such information shall have
otherwise become publicly available. The Customer shall, and shall cause all
other such persons and entities to, deliver to the Company all tangible evidence
of such confidential information to which the restrictions of the foregoing
sentence apply at the Closing or the earlier termination of this Agreement.


                                    SECTION 9

                                  Miscellaneous

         9.1 Further Actions. At any time and from time to time, each party
agrees, at its or his expense, to take such actions and to execute and deliver
such documents as may be reasonably necessary to effectuate the purposes of this
Agreement.

         9.2 Availability of Equitable Remedies. Since a breach of the
provisions of this Agreement could not adequately be compensated by money
damages, any party shall be entitled, either before or after the Closing, in
addition to any other right or remedy available to it, to an injunction
restraining such breach or a threatened breach and to specific performance of
any such provision of this Agreement, and in either case no bond or other
security shall be required in connection therewith, and the parties hereby
consent to the issuance of such an injunction and to the ordering of specific
performance.

         9.3 Survival. The covenants, agreements, representations, and
warranties contained in or made pursuant to this Agreement shall survive the
Closing and any delivery of the Shares to the Customer, irrespective of any
investigation made by or on behalf of any party. The statements contained in any
statement, certificate, or other instrument executed by the Company and relating
hereto or delivered to the Customer in connection with the transactions
contemplated hereby or thereby shall be deemed representations and warranties,
covenants and agreements, or conditions, as the case may be, of the Company
hereunder for all purposes of this Agreement (including all statements,
certificates, or other






instruments delivered pursuant hereto or thereto or delivered in connection with
the transactions contemplated hereby or thereby). The statements contained in
any statement, certificate, or other instrument executed by the Customer and
relating hereto or delivered to the Company in connection with the transactions
contemplated hereby or thereby shall be deemed representations and warranties,
covenants and agreements, or conditions, as the case may be, of the Customer
hereunder for all purposes of this Agreement (including all statements,
certificates, or other instruments delivered pursuant hereto or thereto or
delivered in connection with the transactions contemplated hereby or thereby).

         9.4 Modification. This Agreement and the Schedule hereto set forth the
entire understanding of the parties with respect to the subject matter hereof
(except as provided in Section 9.3), supersede all existing agreements among
them concerning such subject matter (except as otherwise provided herein), and
may be modified only by a written instrument duly executed by each party with
the approval of an authorized officer or partner of each party.

         9.5 Notices. Any notices required or permitted to be given to any party
hereto in connection with this Agreement shall be in writing, shall be deemed
delivered when received and sufficient if delivered personally; deemed delivered
the next Business Day if sent by Federal Express or similar overnight courier
service for next Business Day delivery; shall be effective if delivered during
the Business Day by telecopier or similar means with written confirmation of
receipt during business hours (or, otherwise, effective the next Business Day);
or deemed delivered and effective three Business Days after deposit in first
class mail, Express Mail, or registered or certified mail, postage prepaid,
addressed as follows:

If to Company:                               If to Customer:

Claimsnet.com inc.                           McKesson HBOC, Inc.
12801 N. Central Expressway                  5995 Windward Parkway
Suite 1515                                   Alpharetta, Georgia 30003
Dallas, Texas 75243                          Fax:  (404) 338-5154
Fax:  (972) 458-1737

ATTENTION:                                   ATTENTION:

Bo W. Lycke                                  J.R. Hughes
Chief Executive Officer                      President, Provider Solutions Group

With a copy (which shall not constitute      With a copy (which shall not
constitute notice) to:                       notice) to:




Reitler Brown, LLC                           McKesson HBOC, Inc.
800 Third Avenue                             Law Department
21st Floor                                   One Post Street
New York, New York 10022                     San Francisco,
                                             California 94104-5296

ATTENTION:                                   ATTENTION:

Robert Steven Brown, Esq.                    General Counsel
Fax:  (212) 371-5500                         Fax:  (415) 983-8826


         9.6 Waiver. Any waiver by any party of a breach of any term of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of that term or of any breach of any other term of this Agreement. The
failure of a party to insist upon strict adherence to any term of this Agreement
on one or more occasions will not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that term or any
other term of this Agreement. Any waiver must be in writing.

         9.7 Binding Effect. The provisions of this Agreement shall be binding
upon and inure to the benefit of the Company and the Customer and their
respective successors and assigns.

         9.8 No Third Party Beneficiaries. This Agreement does not create, and
shall not be construed as creating, any rights enforceable by any person not a
party to this Agreement.

         9.9 Separability. If any provision of this Agreement is invalid,
illegal, or unenforceable, the balance of this Agreement shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.

         9.10 Headings. The headings in this Agreement are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.

         9.11 Counterparts; Governing Law. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. It shall be
governed by and construed in accordance with the laws of Delaware, without
giving effect to conflict of laws.


               [THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]














         IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.

                                CLAIMSNET.COM INC.


                                By:  /s/ Bo W. Lycke
                                     ----------------------------------------
                                     Bo W. Lycke
                                     Chairman of the Board of Directors,
                                       President, and Chief Executive Officer


                                McKESSON HBOC, INC.


                                By:  /s/ J.R. Hughes
                                     ----------------------------------------
                                     J. R. Hughes
                                     President Provider Solutions Group











                                  SCHEDULE 1.3


Wire to:

         Bank: Bank of America
         ABA#: 111000025
         Account Name: Claimsnet.com
         Account#: 4770647184

EX-10.11

                                                                   Exhibit 10.11


                                      NOTE



Date:                March 9, 2001

Maker:               Claimsnet.com, Inc.

Payee:               American Medical Finance, Inc.

Place for Payment:   12801 N. Central Expressway, Suite 1515, Dallas, Dallas
                     County, Texas 75243

Principal Amount:    Four Hundred Thousand Dollars ($400,000,00)


Annual Interest Rate on Unpaid Principal from Date of Funding: NINE AND ONE HALF
PERCENT (9.5%)

Terms of Payment: Principal and interest shall be due and payable March 9, 2002,
interest being calculated on the unpaid principal balance to the date of each
installment paid, and the payment made credited first to the discharge of
interest accrued and the balance to the reduction of the principal. Accrued and
unpaid interest shall be computed on the basis of the actual days elapsed in a
year consisting of 360 days on the principal.

Annual Interest Rate on Matured, Unpaid Amounts: The highest rate allowed by
law.

Security for Payment: None

Maker promises to pay to the order of Payee at the place for payment and
according to the terms of payment the principal amount plus interest at the
rates stated above. All unpaid amounts shall be due by the final scheduled
payment date.

On default in the payment of this note or in the performance of any obligation
in any instrument securing or collateral to it, this note and all obligations in
all instruments securing or collateral to it shall become immediately due at the
election of Payee. Maker and each surety, endorser, and guarantor waive all
demands for payment, presentations for payment, notices of intention to
accelerate maturity, notices of acceleration of maturity, protest, and notices
of protest.

If this note or any instrument securing or collateral to it is given to an
attorney for collection or enforcement, or if suit is brought for collection or
enforcement, or if it is collected or enforced through probate, bankruptcy, or
other judicial proceeding, then Maker shall pay Payee reasonable attorney's fees
in addition to other amounts due. Reasonable attorney's fees shall be 10.0% of
all amounts due unless either party pleads otherwise.

Nothing in this note shall authorize the collection of interest in excess of the
highest rate allowed by law.

Maker reserves the right to prepay the outstanding principal balance of this
Note, in whole or in part,






at any time and from time to time, without premium or penalty. Any such
pre-payment shall be made together with payment of interest accrued on the
amount of principal being prepaid through the date of such prepayment, and shall
be applied to the installments of principal due hereunder in the inverse order
of maturity.

Each Maker is responsible for the entire amount of this note.

The terms Maker and Payee and other nouns and pronouns include the plural if
more than one.

Maker shall not be deemed to be in default of this note unless and until Maker
shall have been given seven (7) days written notice and opportunity to cure such
default, via certified mail return receipt requested.


                                       Claimsnet.com, Inc.


                                       By:  /s/ Paul W. Miller
                                            -----------------------------------
                                            Paul W. Miller, Chief Operating
                                            Officer
                                            MAKER