Payment Data Systems Inc – ‘DEFR14A’ on 5/3/04

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Revised Definitive Proxy Solicitation Material   —   Schedule 14A
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Document/Exhibit                   Description                      Pages   Size 

 1: DEFR14A     Revised Definitive Proxy Solicitation Material        33    174K 

Document Table of Contents

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SCHEDULE 14A INFORMATION

 Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

Filed by the Registrant |X|                                                     
Filed by a Party other than the Registrant |_|                                  

Check the appropriate box:                                                      

|_|  Preliminary Proxy Statement                                                
|_|  Confidential, for Use of the Commission only (as permitted by Rule         
14a-6(e)(2))                                                          
|X|  Definitive Proxy Statement                                                 
|_|  Definitive Additional Materials                                            
|_|  Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12        

Payment Data Systems, Inc.
(Name of Registrant as Specified in its Charter)
 ---------------------------------------------------------------------
 (Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box): |x| No fee required.         
|_|  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.   
1.   Title of each class of securities to which transaction applies:  
2.   Aggregate number of securities to which transaction applies:     
3.   Per unit price or other underlying value of transaction computed 
pursuant to Exchange Act Rule 0-11:                         
4.   Proposed maximum aggregate value of transaction:                 
5.   Total fee paid:                                                  
|_|  Fee paid previously with preliminary materials.                            
|_|  Check box if any part of the fee is offset as provided by Exchange Act Rule
  0-11(a)(2) and identify the filing for which the offsetting fee was paid
    previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.                   
1.   Amount Previously Paid:                                          
2.   Form, Schedule or Registration Statement No.:                    
3.   Filing Party:                                                    
4.   Date Filed:                                                      

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PAYMENT DATA SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
 JUNE 22, 2004

The annual meeting of stockholders of Payment Data Systems, Inc. (the "Company")
will be held at the principal offices of the Company located at 12500 San Pedro,
Suite 120, San Antonio, Texas, 78216, on Tuesday, June 22, 2004, at 10:00 a.m., 
Central Time, (the "Annual Meeting") for the following purposes:                

1.   To elect one director to serve until the 2007 annual meeting of  
stockholders.                                               

     2.   To approve an amendment to the 1999 Comprehensive Employee Stock Plan.

3.   To approve an amendment to the 1999 Non-Employee Director Plan.  

    4.   To ratify the appointment of the independent auditors of the Company.

     5.   To transact any other business that properly comes before the meeting.

Stockholders of record at the close of business on April 23, 2004 are entitled  
to notice of, and to vote at, the Annual Meeting or any adjournment thereof (the
"Record Date").                                                                 

If you cannot attend the Annual Meeting in person, please sign and date the     
accompanying Proxy and return it promptly to the Company. This way, your shares 
will be voted as you direct even if you can't attend the meeting.               

MICHAEL R. LONG                                                                 
Chief Executive Officer                                                         

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE PROVIDE YOUR PROXY 
BY COMPLETING, SIGNING, DATING, AND PROMPTLY MAILING THE ACCOMPANYING PROXY IN  
THE ENCLOSED ENVELOPE SO THAT YOUR SHARES WILL BE REPRESENTED.                  

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 GENERAL INFORMATION

Q.   WHO IS SOLICITING MY PROXY?                                                

A.   The Board of Directors of Payment Data Systems, Inc.                       

Q.   WHERE AND WHEN IS THE ANNUAL MEETING?                                      

A.   10:00 a.m., Central Time, Tuesday, June 22, 2004, at the principal offices 
   of the Company located at 12500 San Pedro, Suite 120, San Antonio, Texas,
78216.                                                                

Q.   WHAT AM I VOTING ON?                                                       

A.   Management of the Company is seeking the authorization of the stockholders 
    to elect one Director to the Board of Directors of the Company, approve an
 amendment to the 1999 Comprehensive Employee Stock Plan to increase the
   number of shares of Common Stock available under that plan to 10,000,000,
     approve an amendment to the 1999 Non-Employee Director Plan to increase the
     number of shares of Common Stock available under that plan to 1,500,000 and
ratify the appointment of the Company's independent auditors.         

Q.   WHAT SHOULD STOCKHOLDERS DO NOW?                                           

A.   Stockholders should mail their signed and dated proxy card in the enclosed 
    envelope, as soon as possible, so that their shares will be represented at
the Annual Meeting.                                                   

Q.   CAN STOCKHOLDERS CHANGE THEIR VOTE AFTER THEY HAVE MAILED A SIGNED PROXY   
CARD?                                                                 

A.   Yes. Stockholders can change their vote in one of three ways at any time   
     before their proxies are used. First, stockholders can revoke their proxies
     by written notice. Second, stockholders can complete new, later-dated proxy
     cards. Third, stockholders can attend the stockholders' meeting and vote in
person.                                                               

Q.   WHOM SHOULD STOCKHOLDERS CALL WITH QUESTIONS?                              

     Stockholders who have questions about the materials in this Proxy Statement
should call Michael R. Long, the Company's Chief Executive Officer, at
(210) 249-4040.                                                       

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 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Proxy Statement contains forward-looking statements including statements   
containing the words "believes," "anticipates," "expects," "intends" and words  
of similar import. These statements involve known and unknown risks and         
uncertainties that may cause the Company's actual results or outcomes to be     
materially different from those anticipated and discussed herein. Important     
factors that the Company believes might cause such differences include: (1)     
concentration of the Company's assets into one industry segment; (2) the nature 
of the Company's business (as defined herein); (3) the impact of changing       
economic conditions; (4) the actions of competitors, including pricing and new  
product introductions; and (5) those specific risks that are discussed in the   
cautionary statements accompanying the forward-looking statements in this Proxy 
Statement and in the Risk Factors detailed in the Company's previous filings    
with the Securities and Exchange Commission. In assessing forward-looking       
statements contained herein, stockholders are urged to read carefully all       
cautionary statements contained in this Proxy Statement and in those other      
filings with the Securities and Exchange Commission.                            

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PAYMENT DATA SYSTEMS, INC.
PROXY STATEMENT INTRODUCTION

THIS PROXY STATEMENT IS FURNISHED IN CONNECTION WITH THE SOLICITATION OF PROXIES
BY AND ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY FOR USE AT THE ANNUAL 
MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 22, 2004 (THE "ANNUAL MEETING") OR   
ANY ADJOURNMENT THEREOF. This Proxy Statement, the Notice of the Annual Meeting 
and the accompanying Proxy are being mailed to stockholders on or about May 3,  
2004.                                                                           

The Company's principal executive offices are located at 12500 San Pedro, Suite 
120, San Antonio, Texas, 78216.                                                 

As to all matters that may come before the Annual Meeting, each stockholder will
be entitled to one vote for each share of the Company's Common Stock held by him
or her at the close of business on the Record Date. A majority of the issued and
outstanding Common Stock present in person or by proxy at the Annual Meeting,   
regardless of whether the proxy has authority to vote on all matters,           
constitutes a quorum for the transaction of business at the Annual Meeting. As  
of the Record Date, there were 21,495,181 shares of Common Stock issued and     
outstanding. The nominee for Director will be approved by a plurality of the    
votes cast at the Annual Meeting. All other matters subject to a vote of        
stockholders at the Annual Meeting shall be approved upon receiving the vote of 
10 percent of the quorum at the Annual Meeting entitled to vote on that matter. 
If you sign, date, and return your proxy but do not mark your voting preference,
the individuals named as proxies herein will vote your Common Stock FOR (1) the 
election of the nominee for Director, (2) the approval of the amendment to the  
1999 Employee Comprehensive Stock Plan, (3) the approval of the amendment to the
1999 Non-Employee Director Plan, (4) the ratification of Akin, Doherty, Klein & 
Feuge, P.C. as the independent auditors of the Company for the year ending      
December 31, 2004, as applicable.                                               

The purpose of the Annual Meeting is to (a) elect one individual to serve as a  
Class I Director of the Board of Directors whose term will expire at the 2007   
Annual Meeting of the Stockholders of the Company, (b) approve an amendment to  
the 1999 Comprehensive Employee Stock Plan, as amended, to increase the number  
of shares of Common Stock available under that plan to 10,000,000, (c) approve  
an amendment to the 1999 Non-Employee Director Plan, as amended, to increase the
number of shares of Common Stock available under that plan to 1,500,000, and (d)
ratify the appointment of Akin, Doherty, Klein & Feuge, P.C. as the independent 
auditors of the Company for the year ending December 31, 2004. The Company is   
not aware at this time of any other matters that will come before the Annual    
Meeting.                                                                        

All shares of Common Stock represented by properly executed Proxies that are    
returned and not revoked will be voted in accordance with the instructions, if  
any, given therein or as otherwise specifically indicated herein. A stockholder 
may revoke any such Proxy at any time before it is exercised by either giving   
written notice of such revocation to the Secretary of the Company or submitting 
a later-dated Proxy to the Company prior to the Annual Meeting. A stockholder   
attending the Annual Meeting may revoke his or her Proxy and vote in person if  
he or she desires to do so, but attendance at the Annual Meeting will not of    
itself revoke the Proxy.                                                        

 VOTING SECURITIES

SECURITIES OUTSTANDING                                                          

On the Record Date there were 21,495,181 shares of the Common Stock of the      
Company issued, outstanding and entitled to vote at the Annual Meeting. The     
Company has no other voting securities outstanding. Each stockholder of record  
is entitled to one vote per share of Common Stock held on all matters submitted 
to a vote of stockholders. Cumulative voting is prohibited.                     

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                  

The following table sets forth, to our knowledge, certain information concerning
the beneficial ownership of our Common Stock as of April 5, 2004 by each        
stockholder known by us to be (i) the beneficial owner of more than 5% of the   
outstanding shares of Common Stock, (ii) each current director, (iii) each of   
the executive officers named in                                                 

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the Summary Compensation Table who were serving as executive officers at the end
of the 2003 fiscal year and (iv) all of our directors and current executive     
officers as a group:                                                            

          AMOUNT AND NATURE OF
NAME                               BENEFICIAL OWNERSHIP     PERCENT OF CLASS (1)
--------------------              ----------------------    --------------------
5% STOCKHOLDERS                                                                 
CheckFree Investment Corporation          3,168,242(2)             14.8%        
2920 Green Valley Road                                                    
Building 3, Suite 321-19                                                  
Henderson, NV  89014                                                      

NAMED EXECUTIVE OFFICERS AND DIRECTORS                                          
Michael R. Long                           1,490,001(3)              6.9%        
Louis A. Hoch                             1,468,034(4)              6.8%        
Peter G. Kirby                              118,600(5)              0.6%        
All executive officers and                                                      
directors as a group (3 people)           3,076,635(6)             14.3%        

(1)  Based on a total of 21,445,181 shares of Common Stock issued and           
outstanding on April 5, 2004.                                         

(2)  Based on a Schedule 13(g)/A filed on February 2, 2003, the most recent date
for which information is available.                                   

(3)  Includes 898,334 shares that Mr. Long has the right to acquire upon the    
exercise of stock options.                                            

(4)  Includes 765,000 shares that Mr. Hoch has the right to acquire upon the    
exercise of stock options.                                            

(5)  Includes 118,000 shares that Mr. Kirby has the right to acquire upon the   
exercise of stock options.                                            

(6)  The address of all individual directors and executive officers is c/o      
    Payment Data Systems, Inc., 12500 San Pedro, Suite 120, San Antonio, Texas
78216.                                                                

PROPOSAL 1
ELECTION OF DIRECTOR

As established by the Company's Bylaws, the Directors are divided into three    
classes serving staggered three-year terms. As of April 23, 2004, Michael R.    
Long, Louis A. Hoch and Peter G. Kirby are the only members of the Board of     
Directors of the Company. Terri A. Hunter resigned her position on the Board of 
Directors in August 2003, in connection with her resignation as Executive Vice  
President and Chief Financial Officer of the Company. Michael R. Long is the    
only nominee for election to the Board of Directors of the Company. Mr. Long 's 
term on the Board of Directors, if elected thereto, will expire on the 2007     
Annual Meeting of the Stockholders of the Company.                              

The individuals named as proxies will vote the enclosed Proxy FOR the election  
of the nominee unless you direct them to withhold your vote. If the nominee     
becomes unable to serve as a Director before the Annual Meeting (or decides not 
to serve), the individuals named as proxies may vote for a substitute or may    
reduce the number of members of the Board.                                      

Below are the names and ages of the Directors and the nominee for Director, the 
years they became Directors, their principal occupations or employment for at   
least the past five years and certain of their other directorships, if any.     

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CLASS I DIRECTOR NOMINEE FOR ELECTION TO A THREE-YEAR TERM ENDING WITH THE 2007 
ANNUAL MEETING OF THE STOCKHOLDERS OF THE COMPANY                               

MICHAEL R. LONG. Age 59. Mr. Long has been our Chief Executive Officer, Chairman
of the Board and Director since July 1998. In addition, Mr. Long has been our   
Chief Financial Officer since September 2003. Mr. Long has more than thirty     
years of senior executive management and systems development experience in six  
publicly traded companies, as well as operating a systems consulting business.  
Before assuming the top position at Payment Data Systems, Mr. Long was Vice     
President of Information Technology at Billing Concepts, Inc., the largest third
party billing clearinghouse for the telecommunications industry. Mr. Long's     
career experience also includes financial services industry business development
for Anderson Consulting and several executive positions in publicly traded      
telecommunications and financial services companies.                            

CLASS III DIRECTORS WITH A THREE-YEAR TERM ENDING WITH THE 2005 ANNUAL MEETING  
OF THE STOCKHOLDERS OF THE COMPANY                                              

PETER G. KIRBY, PH.D. SPHR CM. Age 64. Mr. Kirby has been our Director since    
June 2001. Mr. Kirby distinguished himself in professional and community        
activities in a career that spans thirty-five years. He is an accomplished      
public speaker and has provided consulting services to Fortune 100 firms. Mr.   
Kirby has published numerous works in the fields of management, decision-making 
and human resources. He has been a director on many university advisory councils
and boards and has served on many charitable committees and foundations. Mr.    
Kirby is currently a tenured professor of Management at Our Lady of the Lake    
University in San Antonio, Texas, where he has taught for the past fourteen     
years.                                                                          

CLASS II DIRECTOR WITH A THREE-YEAR TERM ENDING WITH THE 2006 ANNUAL MEETING OF 
THE STOCKHOLDERS OF THE COMPANY                                                 

LOUIS A. HOCH. Age 38. Mr. Hoch has been our President, Chief Operating Officer,
and Director since July 1998. Mr. Hoch has more than fourteen years of          
management experience in large systems development; earning him national        
recognition as an expert in call centers, voice-systems and computer telephony  
integration. Mr. Hoch has held various key management positions with U.S. Long  
Distance, Billing Concepts, Inc. and Anderson Consulting. Mr. Hoch holds a BBA  
in Computer Information Systems and an MBA in International Business Management,
both from Our Lady of the Lake University Business School. In 2000 and 2001, he 
served as a board member of Office e-procure, which provides branded office     
supply e-commerce sites for businesses.                                         

RECOMMENDATION OF BOARD OF DIRECTORS                                            

The Board of Directors of the Company recommends a vote FOR the nominee for     
election to the Board of Directors.                                             

 COMPENSATION OF DIRECTORS

Mr. Long and Mr. Hoch receive no compensation for serving on the Board of       
Directors of the Company due to their status as officers of the Company.        

In 2003, we did not pay any cash compensation to our independent Directors for  
their services on our Board of Directors. However, on December 30, 2003, we     
granted options to purchase 175,000 shares of our Common Stock at an exercise   
price of $0.14 per share to our independent director, Peter G. Kirby, as        
compensation for his service as a Director.                                     

PROCEEDINGS WITH DIRECTORS, OFFICERS, AND AFFILIATES

Beginning in December 2000, the Company pledged certain funds held as money     
market funds and certificates of deposit to collateralize certain margin loans  
of four executive officers of the Company (only two of which are currently      
employed by the Company). These funds were classified as Cash pledged as        
collateral for related party obligations on the Company's balance sheet at      
December 31, 2002. The margin loans were from institutional lenders and were    
secured by shares of the Company's common stock held by these officers. The     
Company's purpose in                                                            

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collateralizing the margin loans was to prevent the sale of the Company's common
stock held by these officers while the Company was pursuing efforts to raise    
additional capital through private equity placements. The sale of the Company's 
common stock could have hindered the Company's ability to raise capital in such 
a manner and compromised the Company's continuing efforts to secure additional  
financing. The total balance of the margin loans guaranteed by the Company was  
approximately $1.3 million at December 31, 2002. The Company believed it had the
unrestricted legal right to use the pledged funds for its operations, if        
necessary, based on (i) its interpretation of the loan guarantee agreements,    
(ii) the market price of the Company's stock at the time of the pledge, and     
(iii) assurances the Company received from one of the institutional lenders that
funds would be made available if needed. During the fourth quarter of 2002, the 
Company sought partial release of the funds for operating purposes, which was   
denied by the institutional lender, based upon their interpretation of the loan 
guarantee agreements. In light of this action, the Company recognized a loss on 
the guarantees of $1,278,138 in the fourth quarter of 2002 and recorded a       
corresponding payable under related party guarantees on the Company's balance   
sheet at December 31, 2002. During the quarter ended March 31, 2003, the lenders
applied the pledged funds to satisfy the outstanding balances of the loans. The 
total balance of the margin loans guaranteed by the Company was zero at December
31, 2003. The Company may institute litigation or arbitration concerning these  
matters, which may result in the assertion of claims by these officers under    
their employee agreements. The ultimate outcome of this matter cannot presently 
be determined.                                                                  

On July 25, 2003, certain stockholders of the Company (such stockholders being  
Mike Procacci, Jr., Mark and Stefanie McMahon, Anthony and Lois Tedeschi, Donna 
and James Knoll, John E. Hamilton, III, William T. Hagan, Samuel A. Fruscione,  
Dana Fruscione-Penzone, Gia Fruscione, Alicia Fruscione, Joseph Fruscione,      
Robert Evans, John Arangio, Gary and JoAnne Gardner, Lee and Margaret Getson, G.
Harry Bonham, Jr., Gary Brewer, Bob Lastowski, Robert Filipe, Mitchell D.       
Hovendick, Dr. John Diephold, Joseph Maressa, Jr., and Charles Brennan          
(collectively, the "Plaintiffs")) commenced legal action against the Company,   
Ernst & Young, LLP and certain of the Company's current and former directors    
(such directors being Louis A. Hoch, Michael R. Long, David S. Jones, Roger     
Hemminghaus, E. Scott Crist, Peter Kirby, Richard Bergman, and Terri A. Hunter  
(the "Defendant Directors")) in the District Court of the 45th Judicial         
District, Bexar County, Texas (the "Suit"). The Plaintiffs allege, as the Suit  
pertains to the Company, that the Company, acting through the Defendant         
Directors, misstated in the Company's 2000 and 2001 Form 10-Ks the Company's    
ability to use for operational purposes the funds pledged as security for margin
loans of certain officers of the Company, as discussed above. The Plaintiffs    
seek economic and exemplary damages, rescission, interest, attorneys' fees and  
costs of court.                                                                 

The Company believes the Suit to be without merit, and intends to vigorously    
defend itself and the Defendant Directors.                                      

 COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS

THE AUDIT COMMITTEE                                                             

The Audit Committee, established in accordance with Section 3(a)(58)(A) of the  
Securities Exchange Act of 1934, as amended, is currently comprised of our only 
independent director, Mr. Kirby, and it operates under a written charter adopted
by the Board of Directors. Mr. Kirby meets the independence standards for       
independent directors under the rules of the Nasdaq Stock Market published in   
the Nasdaq Marketplace Rules. The composition of the Audit Committee, the       
attributes of its members and the responsibilities of the Committee, as         
reflected in its charter, are intended to be in accordance with applicable      
requirements for corporate audit committees. The Committee reviews and assesses 
the adequacy of its charter on an annual basis.                                 

As set forth in more detail in its charter, the Audit Committee's purpose is to 
assist the Board of Directors in its general oversight of the Company's         
financial reporting, internal control and audit functions. Management is        
responsible for the preparation, presentation and integrity of the Company's    
financial statements, accounting and financial reporting principles and internal
controls and procedures designed to ensure compliance with accounting standards,
applicable laws and regulations. Akin, Doherty, Klein & Feuge, P.C., the        
Company's independent auditing firm, is responsible for performing an           
independent audit of the consolidated financial statements in accordance with   
generally accepted auditing standards.                                          

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The Audit Committee members are not professional accountants or auditors, and   
their functions are not intended to duplicate or to certify the activities of   
management and the independent auditor, nor can the Audit Committee certify that
the independent auditor is "independent" under applicable rules. The Audit      
Committee serves a board-level oversight role, in which it provides advice,     
counsel and direction to management and the auditors on the basis of the        
information it receives, discussions with management and the auditors and the   
experience of the Audit Committee's members in business, financial and          
accounting matters.                                                             

Among other matters, the Audit Committee monitors the activities and performance
of the Company's internal and external auditors, including the audit scope,     
external audit fees, auditor independence matters and the extent to which the   
independent auditor may be retained to perform non-audit services. The Audit    
Committee and the Board of Directors have ultimate authority and responsibility 
to select, evaluate and, when appropriate, replace the Company's independent    
auditor. The Audit Committee also reviews the results of the internal and       
external audit work with regard to the adequacy and appropriateness of the      
Company's financial, accounting and internal controls. Management and           
independent auditor presentations to and discussions with the Audit Committee   
also cover various topics and events that may have significant financial impact 
or are the subject of discussions between management and the independent        
auditor. In addition, the Audit Committee generally oversees the Company's      
internal compliance programs.                                                   

In overseeing the preparation of the Company's financial statements, the Audit  
Committee has had access to the Company's management to review and discuss all  
financial statements prior to their issuance and to discuss significant         
accounting issues. Management advised the Audit Committee that all financial    
statements were prepared in accordance with U.S. generally accepted accounting  
principles. The Audit Committee has met with the Company's independent auditors 
with regard to the audited financial statements of the Company for the year     
ended December 31, 2003. For the year ended December 31, 2003, the Audit        
Committee did receive the independent auditor's letter and written disclosures  
required by the Independence Standards Board Standard No. 1 (Independence       
Discussions with Audit Committees).                                             

For the year ended December 31, 2003, the only member of the Audit Committee was
Mr. Kirby. The Audit Committee met one time in relation to the year ended       
December 31, 2003. The Company does not have an audit committee financial expert
serving on its Audit Committee because the Company has been unable to replace   
the independent director serving as the audit committee financial expert after  
his resignation during 2003.                                                    

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION                         

NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S      
PREVIOUS FILINGS UNDER THE SECURITIES ACT OR THE SECURITIES EXCHANGE ACT OF     
1934, AS AMENDED (THE "EXCHANGE ACT"), THAT MIGHT INCORPORATE FUTURE FILINGS,   
INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THIS COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY
SUCH FILINGS.                                                                   

GENERAL. The Company's Board of Directors has established a Compensation        
Committee with authority to set all forms of compensation of the Company's      
executive officers, including the grant of stock options and restricted shares. 
Mr. Kirby is the sole member of the Compensation Committee.                     

COMPENSATION PHILOSOPHY. The Board of Director 's compensation philosophy is to 
reward executive officers for the achievement of short and long-term corporate  
and individual performance, as measured by the attainment of specific goals for 
the creation of long-term shareholder value. Also, to ensure that the Company is
strategically and competitively positioned for the future, the Compensation     
Committee has the discretion to attribute significant weight to other factors in
determining executive compensation, such as maintaining competitiveness,        
expanding markets, pursuing growth opportunities and achieving other long-range 
business and operating objectives. The level of compensation should also allow  
the Company to attract, motivate, and retain talented executive officers that   
contribute to the long-term success of the Company. The compensation of the     
Chief Executive Officer and other executive officers of the Company is comprised
of cash compensation and long-term incentive compensation in the form of base   
salary and stock options.                                                       

TOTAL COMPENSATION FOR EXECUTIVES. For 2003, the Company's total compensation   
for executive officers consisted                                                

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of base salary and stock options. In setting 2003 compensation, the Compensation
Committee considered the specific factors discussed below:                      

BASE SALARY. In setting the executive officers base salaries, the     
Compensation Committee considers the performance of the executive officers'     
respective business units, as well as individual performance. Base salaries are 
targeted to approximate the average base salaries paid to executives of similar 
companies for each position. To ensure that each executive is paid              
appropriately, the Compensation Committee considers the executive's level of    
responsibility, prior experience, overall knowledge, contribution to business   
results, executive pay for similar positions in other companies, and executive  
pay within the Company.                                                         

OPTION PLANS. In addition to the foregoing, executive officers of the 
Company may be compensated through awards of options to purchase Common Stock of
the Company.                                                                    

CHIEF EXECUTIVE OFFICER COMPENSATION                                            

Mr. Long's annual base salary for 2003 was $190,000. He received a total stock  
option award of 400,000 options granted on December 30, 2003.                   

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION                     

For the year ended December 31, 2003, Mr. Kirby was the only member of the      
Compensation Committee. To carry out its responsibilities, the Compensation     
Committee met one time during 2003.                                             

THE NOMINATING COMMITTEE                                                        

The Company considers recommendations for Director candidates from its          
Directors, officers, employees, shareholders, customers, and vendors. The Board 
of Directors selects the Director candidates slated for election. The Company   
does not have a Nominating Committee in light of resource allocations made by   
the Board of Directors in its business judgment.                                

THE ENTIRE BOARD                                                                

During 2003, the entire Board of Directors of the Company met two times for     
regular and Annual meetings. During this period, each Director attended all     
meetings of the Board of Directors and any committee on which he or she served. 
In all other instances in 2003, the Board of Directors acted by unanimous       
written consent.                                                                

PROPOSAL 2
 APPROVAL OF AMENDMENT TO THE 1999 COMPREHENSIVE EMPLOYEE STOCK PLAN

GENERAL                                                                         

The Board of Directors proposes to increase the number of shares of Common Stock
available under the 1999 Employee Comprehensive Stock Plan (the "Comprehensive  
Plan")by 5,000,000 for a total of 10,000,000 shares. The material features of   
the Comprehensive Plan are discussed below, but the description is subject to   
and is qualified in its entirety by the full text of the Comprehensive Plan,    
which is attached as ANNEX A to this Proxy Statement.                           

The purpose of the Comprehensive Plan is to advance the interests of the Company
by providing additional incentives to attract and retain qualified and competent
officers and employees, upon whose efforts and judgment the success of the      
Company (including its subsidiaries) is largely dependent. In furtherance of    
this purpose, the Comprehensive Plan authorizes the granting of incentive and   
non-qualified stock options ("Comprehensive Options") to purchase common stock  
to qualifying officers, employees and consultants of the Company (the           
"Participants"). In addition, the Comprehensive Plan authorizes the issuance of 
restricted Common Stock ("Restricted Shares") to Participants. Currently, a     
total of 5,000,000 shares of Common Stock are reserved for issuance upon the    
exercise of Comprehensive Options. However, the Board of Directors proposes to  
amend the Comprehensive Plan to increase the number of shares available to      
10,000,000 shares so that the Company can                                       

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continue to use the Comprehensive Plan to attract and retain Participants.      
Information about the number of shares of Common Stock authorized for issuance  
under the Comprehensive Plan as of December 31, 2003, is as follows:            

                                                        [Enlarge/Download Table]

                                                         Weighted-average    Number of securities  
                             Number of securities to be   exercise price    remaining available for
                              issued upon exercise of     of outstanding     future issuance under 
                                outstanding options          options          Comprehensive Plan   
                             --------------------------  -----------------  -----------------------
                                                                                                   
Comprehensive Plan approved                                                                        
by shareholders                       4,018,767               $ 0.63                704,233        

TERMS AND CONDITIONS                                                            

The Comprehensive Plan provides that the Company's Board of Directors shall     
appoint a committee of two or more directors appointed to administer the        
Comprehensive Plan. The committee may, at any time during the term of the       
Comprehensive Plan, grant any Participant an option exercisable for such number 
of shares of Common Stock as it shall deem to be in the best interest of the    
Company and which will serve to further the purposes of the Comprehensive Plan. 
No Participant shall receive any grant of options under the Comprehensive Plan  
exercisable for more than 500,000 shares of Common Stock during one fiscal year 
of the Company. Options granted to Participants under the Comprehensive Plan    
will vest according to the vesting schedule provided in the applicable option   
agreement executed between the Company and the employee.                        

Under the Comprehensive Plan, options must be granted at an exercise price per  
share that is no less than the fair market value of the Common Stock at the date
of grant. The exercise price of an option may be paid in cash, certified or     
cashier's check, money order, or by delivery of already owned shares of Common  
Stock having a fair market value equal to the exercise price (to the extent such
shares have been owned by the optionee for at least six months and only if      
permitted by the applicable option agreement), or by delivery of a combination  
of such methods.                                                                

The options are not assignable or transferable other than by will or by the laws
of descent and distribution or pursuant to a qualified domestic relations order.
During the lifetime of an optionee, the Comprehensive option is exercisable only
by him, his guardian or legal representative.                                   

The expiration date of each option shall be fixed by the Committee, but such    
expiration date shall not exceed 10 years from the date of the grant.The        
Comprehensive Plan will automatically terminate on January 4, 2009, and any     
option outstanding on such date will remain outstanding until it has either     
expired or been exercised. The Board may terminate, amend or suspend the        
Comprehensive Plan from time to time as the Board deems advisable.              

RESTRICTED STOCK                                                                

The committee, in its sole discretion, may make awards of restricted stock to   
selected Participants, which awards shall be evidenced by an award agreement    
that contains such terms and conditions, including vesting, as the committee may
determine. As a condition to any award of restricted stock, the committee may   
require a Participant to pay to the Company the amount (such as the par value of
such shares) required to be received by the Company in order to assure          
compliance with applicable state law. Any award of restricted stock for which   
such requirement is established shall automatically expire if not purchased in  
accordance with the committee's requirements within sixty (60) days after the   
date of grant.                                                                  

Subject to the terms and conditions of the respective award agreement, the      
Participant, as the owner of the Common Stock issued as restricted stock and any
retained distributions with respect thereto, shall have the rights of a         
stockholder, including, but not limited to, voting rights as to such Common     
Stock and the right to receive cash dividends or distributions thereon when, as 
and if paid.                                                                    

Within the limits set forth in the Comprehensive Plan, an award of restricted   
stock may be subject to such vesting requirements as may be fixed by the        
committee. Vesting may be accelerated by a change of control. Vesting may also  
be accelerated upon death, permanent disability or retirement.                  

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Restricted stock and any retained distributions with respect thereto may not be 
sold, assigned, transferred, pledged, or otherwise encumbered during the        
restricted period, which shall be determined by the committee and shall not be  
more than two years from the date such restricted stock was awarded. The        
committee may, at any time, reduce the restricted period with respect to any    
outstanding shares of restricted stock and any retained distributions with      
respect thereto awarded under the Plan.                                         

FEDERAL INCOME TAX CONSEQUENCES                                                 

The federal income tax consequences summarized below are based upon current tax 
laws and thus are subject to change. Moreover, this summary is not intended to  
be a complete description of all federal, state and local tax consequences of   
the Comprehensive Plan.                                                         

The Comprehensive Plan permits Participants to receive grants of non-qualified  
stock options and qualified stock options. The Company has been advised that    
under the Internal Revenue Code, an optionee will not recognize any income for  
federal income tax purposes at the time a stock option is granted, nor will the 
Company be entitled to a tax deduction at that time. At the time of exercise,   
however, the optionee will recognize ordinary income in an amount equal to the  
excess of the fair market value of the shares at the time of exercise over the  
option price of such shares. The Company generally will be entitled to a federal
income tax deduction in an amount equal to the ordinary income recognized by the
optionee upon exercise of a stock option.                                       

The Board of Directors believes that the Comprehensive Plan assists in          
attracting and retaining qualified employees and officers and has the effect of 
more significantly aligning the interests of the officers and directors with the
Company's stockholders. The Board of Directors believes that increasing the     
number of shares under the Comprehensive Plan to 10,000,000 will permit the     
Company to continue utilizing the benefits of the Comprehensive Plan.           

RECOMMENDATION OF BOARD OF DIRECTORS                                            

The Board of Directors of the Company recommends a vote FOR the approval of the 
amendment to the Comprehensive Plan.                                            

PROPOSAL 3
APPROVAL OF AMENDMENT TO THE 1999 NON-EMPLOYEE DIRECTOR PLAN

GENERAL                                                                         

The Board of Directors proposes to increase the number of shares of Common Stock
available under the 1999 Non-Employee Director Plan (the "Non-Employee Director 
Plan") by 700,000, for a total of 1,500,000 shares. The material features of the
Non-Employee Director Plan are discussed below, but the description is subject  
to and is qualified in its entirety by the full text of the Non-Employee        
Director Plan, which is attached as ANNEX B to this Proxy Statement.            

The purpose of the Non-Employee Director Plan is to advance the interests of the
Company by providing additional incentives to attract and retain qualified and  
competent non-employee directors, upon whose efforts and judgment the success of
the Company (including its subsidiaries) is largely dependent. In furtherance of
this purpose, the Non-Employee Director Plan authorizes the granting of         
non-qualified stock options to purchase Common Stock to such directors.         
Currently, a total of 800,000 shares of Common Stock are authorized for issuance
upon the exercise of the options. However, the Board of Directors proposes to   
amend the Non-Employee Director Plan to increase the number of shares available 
to 1,500,000 shares so that the Company can continue to use the Non-Employee    
Director Plan to attract and retain non-employee directors. Information about   
the number of shares of Common Stock authorized for issuance under the          
Non-Employee Director Plan as of December 31, 2003, is as follows:              

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                                                        [Enlarge/Download Table]


                                                                           Number of securities  
                                                        Weighted-average  remaining available for
                            Number of securities to be   exercise price    future issuance under 
                             issued upon exercise of     of outstanding        Non-Employee      
                               outstanding options           options           Director Plan     
                            --------------------------  ----------------  -----------------------
                                                                                                 
Non-Employee Director Plan                                                                       
approved by shareholders              533,003                $ 1.88               266,997        

TERMS AND CONDITIONS                                                            

Under the Non-Employee Director Plan, options must be granted at an exercise    
price per share that is no less than the fair market value of the Common Stock  
at the date of grant. The exercise price of an option may be paid in cash,      
certified or cashier's check, money order, or by delivery of already owned      
shares of Common Stock having a fair market value equal to the exercise price   
(to the extent such shares have been owned by the optionee for at least six     
months and only if permitted by the applicable option agreement), or by delivery
of a combination of such methods. The options are excisable only by the optionee
or the optionee's legal representative and are not assignable or transferable   
other than by will or by the laws of descent and distribution or pursuant to a  
qualified domestic relations order.                                             

The expiration date of each option shall not exceed ten (10) years from the date
of the grant. The Non-Employee Director Plan will automatically terminate on    
July 10, 2009, and any option outstanding on such date will remain outstanding  
until it has either expired or been exercised.                                  

The Board of Directors believes that the Non-Employee Director Plan assists in  
attracting and retaining qualified non-employee directors and has the effect of 
more significantly aligning the interests of the non-employee directors with the
Company's stockholders. The Board of Directors believes that increasing the     
number of shares under the Non-Employee Director Plan to 1,500,000 will permit  
the Company to continue utilizing the benefits of the Non-Employee Director     
Plan.                                                                           

RECOMMENDATION OF THE BOARD OF DIRECTORS                                        

The Board of Directors of the Company recommends a vote FOR the approval of the 
amendment to the Non-Employee Director Plan.                                    

PROPOSAL 4
RATIFICATION OF AKIN, DOHERTY, KLEIN & FEUGE, P.C. AS INDEPENDENT AUDITORS

The Board of Directors, upon recommendation of its Audit Committee, appointed   
Akin, Doherty, Klein & Feuge, P.C. as independent auditors to examine the       
Company's consolidated financial statements for the fiscal year ending December 
31, 2004 and to render other professional services as required.                 

The Company is submitting the appointment of Akin, Doherty, Klein & Feuge, P.C. 
to stockholders to obtain your ratification. Representatives of Akin, Doherty,  
Klein & Feuge, P.C. will be present at the Annual Meeting, will have the        
opportunity to make a statement if they desire to do so, and are expected to be 
available to respond to questions.                                              

RECOMMENDATION OF THE BOARD OF DIRECTORS                                        

The Board of Directors of the Company believes that ratification of Akin,       
Doherty, Klein & Feuge, P.C. as the Company's independent auditors for the      
fiscal year ended December 31, 2004 is in the best interests of the Company and 
its stockholders. Accordingly, the Board recommends a vote FOR the ratification 
of Akin, Doherty, Klein & Feuge, P.C. as the Company's independent auditors for 
the fiscal year ended December 31, 2004.                                        

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 SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Under U.S. securities laws, directors, certain executive officers and persons   
holding more than 10% of the Company's Common Stock must report their initial   
ownership of the Common Stock, and any changes in that ownership, to the        
Securities and Exchange Commission. The Securities and Exchange Commission has  
designated specific due dates for these reports. Based solely on its review of  
copies of the reports filed with the Securities and Exchange Commission and     
written representations of its directors and executive officers, the Company    
believes all persons subject to reporting timely filed the required reports in  
2003, except that Mr. Kirby filed a Form 4 on January 6, 2004 with respect to a 
stock option grant occurring on December 30, 2003.                              

DIRECTORS AND EXECUTIVE OFFICERS

The names and ages of all of our directors and executive officers, along with   
their respective positions, term of office and period such position(s) was held,
is as follows:                                                                  

--------------------------------------------------------------------------------
      NAME                          POSITION HELD                        AGE
--------------------------------------------------------------------------------
Michael R. Long     Chief Executive Officer, Chief Financial Officer,           
                  Chairman of the Board and Director                      59
Louis A. Hoch       President and Chief Operating Officer and Director      38  
Peter G. Kirby      Director                                                64  

BIOGRAPHIES OF OFFICERS AND DIRECTORS                                           

MICHAEL R. LONG.  See biography of Mr. Long on page 7.                          

LOUIS A. HOCH.  See biography of Mr. Hoch on page 7.                            

PETER G. KIRBY.  See biography of Mr. Kirby on page 7.                          

EXECUTIVE COMPENSATION

The following table sets forth the compensation earned during each of the years 
ended December 31, 2003, 2002 and 2001 to our Chief Executive Officer and each  
other executive officer that earned over $100,000 during the year ended December
31, 2003.                                                                       

                                                        [Enlarge/Download Table]

                                                -----------------------------------------------------------
                                                      ANNUAL                                               
                                                 COMPENSATION (1)          LONG TERM COMPENSATION          
-----------------------------------------------------------------------------------------------------------
                                                                           AWARDS            ALL OTHER     
-------------------------------------------------------------------------------------------  ALL OTHER     
     NAME AND PRINCIPAL POSITION(S)       YEAR        SALARY       SECURITIES UNDERLYING    COMPENSATION   
                                                                        OPTIONS (#)             (2)        
-----------------------------------------------------------------------------------------------------------
                                                                                                           
Michael R. Long.......................... 2003       $190,000             400,000             $11,529      
     Chairman, Chief Executive Officer    2002       $190,000             340,000             $11,130      
     and Chief Financial Officer          2001       $190,000             325,000             $11,074      

Louis A. Hoch............................ 2003       $175,000             425,000                $900      
     President and Chief Operating        2002       $175,000             340,000              $1,950      
     Officer                              2001       $175,000             250,000              $1,596      

Terri A. Hunter.......................... 2003       $152,499                   -                $540      
     Executive Vice President and Chief   2002       $145,000             350,000              $1,560      
     Financial Officer                    2001       $145,000             150,000              $1,368      

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(1)  Each of the named executives except for Ms. Hunter has entered into        
   employment agreements expiring on July 25, 2004, which provide for annual
    salary and bonuses at the discretion of the Board of Directors. Ms. Hunter
resigned her position as Executive Vice President and Chief Financial 
   Officer effective August 31, 2003. In 2004, each of the named officers is
to receive salary compensation as follows: Mr. Long, $190,000; and Mr.
Hoch, $175,000.                                                       

(2)  Reflects premiums paid for term life insurance coverage.                   

OPTION GRANTS                                                                   

The following table provides information regarding the grant of stock options   
during fiscal year 2003 to the named executive officers pursuant to our Employee
Comprehensive Stock Plan.                                                       

                                                        [Enlarge/Download Table]

                    Number of Securities   % of Total Options                                  
                     Underlying Options   Granted to Employees  Exercise Price                 
        Name               Granted           in Fiscal 2003       ($/Share)     Expiration Date
------------------  --------------------  --------------------  --------------  ---------------
                                                                                               
Michael R. Long            400,000                22.8%             $ 0.14          12/30/13   

Louis A. Hoch              425,000                24.2%             $ 0.14          12/30/13   

Terri A. Hunter (1)              -                   -                   -                 -   

(1)  We did not grant any stock options to Ms. Hunter during fiscal year 2003.  

OPTION EXERCISES AND YEAR-END VALUES                                            

The following table provides certain information related to the exercise of     
options during the year ended December 31, 2003 by the named executive officers 
and the number and value of options held by the named executive officers at     
December 31, 2003.                                                              

                                                        [Enlarge/Download Table]

                           AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES   
                          -------------------------------------------------------------------------------------
                                                         NUMBER OF SECURITIES          VALUE OF UNEXERCISED    
                              SHARES                    UNDERLYING UNEXERCISED        IN-THE-MONEY OPTIONS AT  
                             ACQUIRED      VALUE     OPTIONS AT FISCAL YEAR-END (#)   FISCAL YEAR-END ($) (1)  
--------------------------  ON EXERCISE   REALIZED  -----------------------------------------------------------
           NAME                (#)          ($)      EXERCISABLE    UNEXERCISABLE   EXERCISABLE  UNEXERCISABLE 
---------------------------------------------------------------------------------------------------------------
                                                                                                               
Michael R. Long                 -           $ 0        898,334         400,000          $ 0         $ 8,000    

Louis A. Hoch                   -           $ 0        765,000         425,000          $ 0         $ 8,500    

(1)  Calculated using the year-end per share price of $0.16.                    

DIRECTORS COMPENSATION

In 2003, we did not pay any cash compensation to our independent directors for  
their services on our Board of Directors. However, on December 30, 2003, we     
granted options to purchase 175,000 shares of our Common Stock at an exercise   
price of $0.14 per share to our independent director, Peter G. Kirby, as        
compensation for his service as a Director.                                     

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EMPLOYMENT CONTRACTS                                                            

We have employment agreements with our executive officers. The employment       
agreements provide for an annual salary, bonuses at the discretion of the Board 
of Directors and health benefits. In 2004, each of the named officers is to     
receive salary compensation as follows: Mr. Long, $190,000 and Mr. Hoch,        
$175,000.                                                                       

Our agreements with our executive officers provide for change in control        
protection for each executive. We may terminate any such agreement not later    
than thirty days after a change of control. In such event, the executive would  
be entitled to deferred compensation. Deferred compensation is calculated as the
greater of (A) the base salary payments the executive would have received had   
his or her employment continued for the remaining term of the agreement         
(including yearly increases calculated at the maximum increase for the prior two
years); or (B) an amount equal to 2.95 times the highest annual compensation    
earned by the executive in the past two years.                                  

In addition, the executive would be entitled to all of the benefits otherwise   
provided in the agreement during a certain period of time defined in the        
agreement as the greater of the remaining term of the agreement or one year. The
executive may also be entitled to an amount equal to the pro rata portion of the
bonus compensation for the year in which the executive's employment is          
terminated determined on the basis of the number of days elapsed in such year   
prior to such termination. Upon termination of employment, each employee is     
prohibited from competing with us for a period of two years. The employment     
agreements were supposed to terminate upon the change of control that occurred  
on July 25, 2003, but were extended at our option for a period of one year. If  
an extended agreement is not renewed for a period of one year prior to the      
expiration of that extended agreement on July 25, 2004, such executive officer  
shall be entitled to the deferred compensation as provided above.               

ANNUAL MEETING ADVANCE NOTICE REQUIREMENTS

A stockholder may recommend a nominee to become a Director of the Company by    
giving Michael R. Long, the Chief Executive Officer of the Company, a written   
notice mailed to 12500 San Pedro, Suite 120, San Antonio, Texas, 78216 and      
setting forth certain information, including: (1) the name, age, and business   
and residence addresses of the person intended to be nominated, (2) a           
representation that the nominating stockholder is in fact a holder of record of 
Common Stock of the Company entitled to vote at the meeting and that he or she  
intends to be present at the meeting to nominate the person specified, (3) a    
description of all arrangements between the nominating stockholder, the nominee 
and other persons concerning the nomination, (4) any other information about the
nominee that must be disclosed in proxy solicitations under Rule 14(a) of the   
Securities Exchange Act of 1934, and (5) the nominee's written consent to serve,
if elected. Such nominations must be made pursuant to the same advance notice   
requirements for stockholder proposals.                                         

The Company's 2005 Annual Meeting of Stockholders is currently scheduled for May
2005. Copies of the Company's Bylaws are available upon written request made to 
Michael R. Long, the Chief Executive Officer of the Company, at 12500 San Pedro,
Suite 120, San Antonio, Texas, 78216. The requirements described above do not   
supersede the requirements or conditions established by the Securities and      
Exchange Commission for stockholder proposals to be included in the Company's   
proxy materials for a meeting of stockholders. The Chairman of the meeting may  
refuse to bring before a meeting any business not brought in compliance with    
applicable law and the Company's Bylaws.                                        

INDEPENDENT PUBLIC ACCOUNTANTS

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL       
DISCLOSURE                                                                      

On February 10, 2004, our Board of Directors, upon recommendation of the Audit  
Committee, dismissed Ernst & Young LLP as our independent accountants and       
appointed the firm of Akin, Doherty, Klein & Feuge, P.C., a professional        
corporation, to serve as our independent public accountants for the fiscal year 
ending December 31, 2003.                                                       

Ernst & Young's report on our consolidated financial statements for the fiscal  
year ended December 31, 2002 contained a qualified opinion as to the uncertainty
of our ability to continue as a going concern.                                  

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During the years ended December 31, 2002 and 2001 and through the date hereof,  
there were no disagreements with Ernst & Young on any matter of accounting      
principle or practice, financial statement disclosure, or auditing scope or     
procedure which, if not resolved to Ernst & Young's satisfaction, would have    
caused them to make reference to the subject matter of such disagreements in    
connection with their report on our consolidated financial statements for such  
years; and there were no reportable events as defined in Item 304(a)(1)(iv) of  
Regulation S-K. Ernst & Young's letter confirming this to the Securities and    
Exchange Commission pursuant to Item 304(a)(3) of Regulation S-K is incorporated
herein by reference to Exhibit 16.1 to the Company's 2003 Annual Report on Form 
10-K as filed with the Securities and Exchange Commission.                      

During the years ended December 31, 2002 and 2001 and through February 10, 2004,
we did not consult with Akin Doherty with respect to the application of         
accounting principles to a specified transaction, either completed or proposed, 
or the type of audit opinion that might be rendered on our consolidated         
financial statements, or any other matters or reportable events as set forth in 
Items 304(a)(2)(i) and (ii) of Regulation S-K.                                  

FEES PAID TO THE INDEPENDENT ACCOUNTANTS                                        

The aggregate fees billed to us for professional accounting services, including 
the audit of our annual consolidated financial statements by our principal      
accountant for the fiscal years ended December 31, 2003 and 2002 included in our
Form 10-K, are set forth in the table below. These amounts include approximately
$35,800 and $100,820 of fees billed to us by Ernst & Young LLP, our former      
independent auditor, for 2003 and 2002, respectively, related to audit and      
non-audit services.                                                             

                          2003                2002
                         -------------       -------------
Audit fees                 $     48,800        $     88,320 
Audit-related fees                    -               4,000 
Tax fees                          7,000               8,500 
                         -------------       -------------

Total fees                 $     55,800        $    100,820 
                         =============       =============

For purposes of the preceding table, the professional fees are classified as    
follows:                                                                        

     o Audit Fees--These are fees for professional services billed for the audit
     of the consolidated financial statements included in our Form 10-K filings,
   the review of consolidated financial statements included in our Form 10-Q
filings, comfort letters, consents and assistance with and review of  
   documents filed with the SEC. The fees in the 2003 column include amounts
  billed to us through the date of this Proxy Statement for the year ended
     December 31, 2003 and the fees in the 2002 column include amounts billed to
  us through the date of this Proxy Statement for the years ended December
31, 2002.                                                             

 o Audit-Related Fees--These are fees for assurance and related services
that traditionally are performed by our independent accountant. More  
specifically, in 2002 these professional services were provided in    
    connection with the review and evaluation of financial information systems
and related controls for purposes of obtaining a SAS 70 certification.

o Tax Fees--These are fees for professional services rendered by our  
     independent accountant for tax compliance, tax planning and tax advice. Tax
  compliance involves preparation of original and amended tax returns. Tax
  planning and tax advice encompass a diverse range of subjects, including
     assistance with tax audits and appeals, tax advice related to dispositions,
and requests for rulings or technical advice from taxing authorities. 

All of the services performed by our independent accountant described above were
approved in advance by our Audit Committee.                                     

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FINANCIAL STATEMENTS

The Company's audited financial statements for the fiscal year ended December   
31, 2003 and Management's Discussion and Analysis of Financial Condition and    
Results of Operations are incorporated herein by reference to the Company's 2003
Annual Report on Form 10-K as filed with the Securities and Exchange Commission,
which is being mailed to stockholders with this Proxy Statement.                

 PROPOSALS BY STOCKHOLDERS

In accordance with rules established by the Securities Exchange Commission, any 
stockholder proposal submitted pursuant to Rule 14a-8 intended for inclusion in 
the proxy statement and form of proxy for next year's Annual Meeting must be    
received by the Company no later than December 31, 2004. Proposals should be    
submitted to Michael R. Long, the Company's Chief Executive Officer, at 12500   
San Pedro, Suite 120, San Antonio, Texas 78216. To be included in the proxy     
statement, the proposal must comply with the requirements as to form and        
substance established by the Securities Exchange Commission and must be a proper
subject for stockholder action under Nevada law. No shareholder proposals will  
be considered for the 2005 Annual Meeting after December 31, 2004.              

 OTHER MATTERS

As of the date of this Proxy Statement, the Board of Directors of the Company   
does not know of any business that will be presented for consideration at the   
Annual Meeting other than that specified herein and in the Notice of Annual     
Meeting of Stockholders. If other matters are presented, it is the intention of 
the persons designated as proxies to vote in accordance with their judgment on  
such matters.                                                                   

SOLICITATION

The cost of soliciting Proxies in the accompanying form will be borne by the    
Company. In addition to the solicitation of Proxies by the use of the mails,    
certain officers and associates (who will receive no compensation therefore in  
addition to their regular salaries) may be used to solicit Proxies personally   
and by telephone or fax. In addition, banks, brokers and other custodians,      
nominees and fiduciaries will be requested to forward copies of the Proxy       
materials to their principals and to request authority for the execution of     
Proxies. The Company will reimburse such persons for their expenses in so doing.

A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER  
31, 2003, INCLUDING THE FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES  
THERETO, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WILL BE FURNISHED
WITHOUT CHARGE TO ANY STOCKHOLDER OF THE COMPANY WHOSE PROXY IS SOLICITED BY    
THIS PROXY STATEMENT, UPON THE WRITTEN REQUEST OF ANY SUCH PERSON ADDRESSED TO  
MR. MICHAEL R. LONG, CHIEF EXECUTIVE OFFICER, PAYMENT DATA SYSTEMS, INC., 12500 
SAN PEDRO, SUITE 120, SAN ANTONIO, TEXAS 78216. SUCH A REQUEST FROM A BENEFICIAL
OWNER OF THE COMPANY'S COMMON STOCK MUST CONTAIN A GOOD FAITH REPRESENTATION BY 
SUCH PERSON THAT, AS OF THE RECORD DATE, HE OR SHE WAS A BENEFICIAL OWNER OF THE
COMPANY'S COMMON STOCK.                                                         

Please SIGN and RETURN the enclosed Proxy promptly.                             

By Order of the Board of Directors:                                             

MICHAEL R. LONG                                                                 
Chief Executive Officer                                                         

IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY                               

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 ANNEX A

PAYMENT DATA SYSTEMS, INC.
AMENDED AND RESTATED
1999 EMPLOYEE COMPREHENSIVE STOCK PLAN

1.   PURPOSE. The purpose of this Amended and Restated 1999 Employee  
Comprehensive Stock Plan (the "Plan") is to further the success of Payment Data 
Systems, Inc., formerly billserv.com, Inc., and Billserv, Inc., a Nevada        
corporation (the "Company"), and certain of its affiliates by making available  
Common Stock of the Company to certain Employees and Consultants of the Company 
and its affiliates, and thus to provide an additional incentive to such         
individuals to continue in the service of the Company or its affiliates and to  
give them a greater interest as stockholders in the success of the Company.     
Subject to compliance with the provisions of the Plan and the Code, Incentive   
Stock Options as authorized by Section 422 of the Code and stock options which  
do not qualify under Section 422 of the Code are authorized and may be granted  
under the Plan. Further, the Company may grant Restricted Stock, as defined     
below.                                                                          

   2.   DEFINITIONS. As used in this Plan the following terms shall have the
meanings indicated:                                                             

 (a)  "Award" means an award of stock options (including Incentive Stock
Options) or Restricted Stock, on a stand alone, combination or tandem basis, as 
described in or granted under this Plan.                                        

     (b)  "Award Agreement" means a written agreement setting forth the terms of
an Award, in the form prescribed by the Committee.                              

(c)  "Board" means the Board of Directors of the Company.             

(d)  "Cause" shall mean, in the context of the termination of a       
Participant, as determined by the Board, in the reasonable exercise of its      
business judgment, the occurrence of one of the following events as they relate 
(1) to an Employee: (i) conviction of or a plea of nolo contendere to a charge  
of a felony (which, through lapse of time or otherwise, is not subject to       
appeal); (ii) willful refusal without proper legal cause to perform, or gross   
negligence in performing, Participant's duties and responsibilities; (iii)      
material breach of fiduciary duty to the Company through the misappropriation of
Company funds or property or otherwise; or (iv) the unauthorized absence of     
Participant from work (other than for sick leave or disability) for a period of 
thirty working days or more during any period of forty-five working days, and   
(2) to a Contractor: (i) conviction of or a plea of nolo contendere to a charge 
of a felony (which, through lapse of time or otherwise, is not subject to       
appeal), (ii) serious misconduct in connection with performance of his services 
to the Company, a Parent, or any Subsidiary, or (iii) a material breach of any  
contractual agreement or other arrangement between the Contractor and the       
Company, its Parent, or any Subsidiary; provided, further, within one year      
following a Change of Control, "Cause," with respect to an Employee, shall be   
limited to the conviction of or a plea of nolo contendere to the charge of a    
felony (which, through lapse of time or otherwise, is not subject to an appeal),
or a material breach of fiduciary duty to the Company through the               
misappropriation of Company funds or property or otherwise.                     

(e)  "Change of Control" shall be deemed to have occurred if (i) any  
"Person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) 
is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange 
Act), directly or indirectly, of securities of the Company representing more    
than 40% of the combined voting power of the Company's then outstanding voting  
securities, or (ii) at any time during the 24-month period after a tender offer,
merger, consolidation, sale of assets or contested election, or any combination 
of such transactions, at least a majority of the Board shall cease to consist of
"continuing directors" (meaning directors of the Company who either were        
directors prior to such transaction or who subsequently became directors and    
whose election, or nomination for election by the Company's stockholders, was   
approved by a vote of at least two thirds of the directors then still in office 
who were directors prior to such transaction), or (iii) the stockholders of the 
Company approve a merger or consolidation of the Company with any other         
corporation, other than a merger or consolidation that would result in the      
voting securities of the Company outstanding immediately prior thereto          
continuing to represent (either by remaining outstanding or by being converted  
into voting securities of the surviving entity) at least 40% of the total voting
power represented by the voting securities of the Company or such surviving     

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entity outstanding immediately after such merger or consolidation, or (iv) the  
stockholders of the Company approve a plan of complete liquidation of the       
Company or an agreement of sale or disposition by the Company of all or         
substantially all of the Company's assets.                                      

(f)  "Code" means the Internal Revenue Code of 1986, as amended.      

  (g)  "Committee" means the Committee administering the Plan described in
Section 3 hereof.                                                               

   (h)  "Common Stock" means the Company's common stock, par value $.001 per
share.                                                                          

(i)  "Consultant" means any person, except an Employee, engaged by the
Company or a Parent or any Subsidiary of the Company to render personal services
to such entity. The term "Consultant" as used in this Plan is limited to persons
eligible to receive Common Stock from the Company or a Parent or any Subsidiary 
of the Company registered under Form S-8 of the Securities and Exchange         
Commission. As provided in Rule 405 promulgated under the Securities Act of     
1933, as amended from time to time, or other applicable law, Consultants must be
natural persons who provide bona fide services to the Company, which services   
may not be in connection with the offer or sale of securities in a              
capital-raising transaction or directly or indirectly related to promoting or   
maintaining a market for the Company's securities.                              

   (j)  "Continuous Status as a Participant" means (1) for an Employee, that
the employment relationship with the Company or a Parent, or any Subsidiary of  
the Company has not been terminated or interrupted, and (2) for a Consultant,   
the absence of any interruption, expiration, or termination of such person's    
consulting or advisory relationship with the Company or a Parent or any         
Subsidiary of the Company or the occurrence of any termination event as set     
forth in such person's Award Agreement.                                         

   (k)  "Date of Grant" means the date on which an Award is granted under an
Award Agreement executed by the Company and a Participant pursuant to the Plan. 

    (l)  "Disinterested Person" means a "disinterested person" as such term is
defined in Rule 16b-3 promulgated under the Exchange Act or any successor       
provision.                                                                      

  (m)  "Effective Date" means the effective date of this Plan specified in
Section 14 hereof.                                                              

     (n)  "Employee" means any person, including an officer, who is a common law
employee of, receives remuneration for personal services to, is reflected on the
official human resources database as an employee of, and is on the payroll of   
the Company or a Parent or any Subsidiary of the Company. A person is on the    
payroll if he is paid from the payroll department of the Company or a Parent or 
any Subsidiary of the Company. Persons providing services to the Company or a   
Parent or any Subsidiary of the Company pursuant to an agreement with a staff   
leasing organization, temporary workers engaged through or employed by temporary
or leasing agencies, and workers who hold themselves out to the Company or a    
Parent or any Subsidiary of the Company to which they are providing services as 
being independent contractors, or as being employed by or engaged through       
another company while providing the services to the Company or a Parent or any  
Subsidiary of the Company are not Employees for purposes of the Plan, whether or
not such persons are, or may be, reclassified by the courts, the Internal       
Revenue Service, the U.S. Department of Labor, or other person or entity as     
common law employees of the Company or a Parent or any Subsidiary of the        
Company, either solely or jointly with another person or entity.                

     (o)  "Exchange Act" means the Securities Exchange Act of 1934, as it may be
amended from time to time.                                                      

(p)  "Good Reason" shall mean the occurrence of any of the following  
events: (a) removal from the principal office held by the Employee on the date  
of the most recent Award, or a material reduction in the Employee's authority or
responsibility, including, without limitation, involuntary removal from the     
Board, but not including termination of the Employee for Cause; or (b) the      
Company otherwise commits a material breach of this Plan or the Employee's      
employment agreement or the Contractor's service agreement, if applicable;      
provided, however, that within one year following a Change of Control, "Good    
Reason" shall mean (i) removal from the                                         

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principal office held by the Employee on the date of the most recent Award, (ii)
a material reduction in the Employee's authority or responsibility, including,  
without limitation, involuntary removal from the Board, but not including       
termination of the Employee for Cause; (iii) relocation of the Company's        
headquarters from the San Antonio, Texas metropolitan area, (iv) a material     
reduction of Employee's compensation, or (v) the Company otherwise commits a    
material breach of this Plan or the Employee's employment agreement or the      
Contractor's service agreement, if applicable.                                  

    (q)  "Incentive Stock Option" means an option qualifying under Section 422
of the Code.                                                                    

(r)  "Parent" means a parent corporation of the Company as defined in 
Section 424(e) of the Code.                                                     

(s)  "Participants" means Employees or Consultants of the Company, its
Subsidiaries and its Parent (including those directors of the Company who are   
also employees of the Company, its Parent or one or more of its Subsidiaries).  

    (t)  "Restricted Period" shall mean the period designated by the Committee
during which Restricted Stock may not be sold, assigned, transferred, pledged,  
or otherwise encumbered, which period shall not be more than two years from the 
Date of Grant.                                                                  

(u)  "Restricted Stock" shall mean those shares of Common Stock issued
pursuant to an Award that remain subject to the Restricted Period.              

   (v)  "Retained Distributions" shall mean any securities or other property
(other than cash dividends) distributed by the Company or otherwise received by 
the holder in respect of Restricted Stock during any Restricted Period.         

   (w)  "Retirement" shall mean retirement of an Employee from the employ of
the Company, its Parent, or its Subsidiaries, as the case may be, in accordance 
with the then existing employment policies of any such employer.                

    (x)  "Subsidiary" means a subsidiary corporation of the Company as defined
in Section 424(f) of the Code.                                                  

   3.   ADMINISTRATION OF THE PLAN. The Board shall appoint a committee (the
"Committee") comprised of two or more directors to administer the Plan. Only    
directors who are Disinterested Persons shall be eligible to serve as members of
the Committee. The Committee shall report all action taken by it to the Board,  
which shall review and ratify or approve those actions that are by law required 
to be so reviewed and ratified or approved by the Board. The Committee shall    
have full and final authority in its discretion, subject to the provisions of   
the Plan, to make determinations with respect to the participation of           
Participants in this Plan, to prescribe the form of Award Agreements embodying  
Awards made under the Plan, and, except as otherwise required by law or this    
Plan, to set the size and terms of Awards (which need not be identical or       
consistent with respect to each Participant) including vesting schedules, price,
whether stock options granted hereunder shall constitute an Incentive Stock     
Option, restriction or option period, post-retirement and termination rights,   
payment alternatives such as cash, stock or other means of payment consistent   
with the purposes of this Plan, and such other terms and conditions as the      
Committee deems appropriate. Except as otherwise required by this Plan, the     
Committee shall have authority to interpret and construe the provisions of this 
Plan and the Award Agreements, to correct any defect or supply any omission or  
reconcile any inconsistency in the Plan or in any Award Agreement in the manner 
the Committee deems advisable for the administration of the Plan and make       
determinations pursuant to any Plan provision or Award Agreement, which shall be
final and binding on all persons. The Committee may authorize any one or more of
their number or any officer of the Company to execute and deliver documents on  
behalf of the Committee.                                                        

     4.   COMMON STOCK SUBJECT TO PROVISIONS OF THIS PLAN. Upon approval of this
Plan by the directors and shareholders of the Company, the total number of      
shares to be subject to options under this Plan shall be 10,000,000 of the      
authorized and unissued Common Stock of the Company. Thereafter, an amount of   
additional shares to be subject to options shall automatically be available for 
award under this Plan, such that at no                                          

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time shall the total number of shares subject to options under this Plan be less
than five percent (5%) of the then issued and outstanding Common Stock of the   
Company. In all events, the total number of shares shall be subject to          
appropriate increase or decrease in the event of a stock dividend, split or     
reclassification of shares subject to this Plan.                                

    5.   ELIGIBILITY. Except as hereinafter provided, Awards may be granted to
any Participant as the Committee shall determine from time to time. In          
determining the Participants to whom Awards shall be granted and the number of  
shares to be covered by each such Award, the Committee may take into account the
nature of the services rendered by the respective Participants, their present   
and potential contributions to the Company's success and such other factors as  
the Committee in its sole discretion shall deem relevant. A Participant who has 
been granted an Award under the Plan may be granted an additional Award or      
Awards under the Plan, in the Committee's sole discretion.                      

 6.   AWARDS UNDER THIS PLAN. The Committee, in its sole discretion, may
make Awards of stock options (including Incentive Stock Options and stock       
options that do not qualify as Incentive Stock Options) as described in Sections
7 and 8 hereof, and of Restrictive Stock, as described in Section 10 hereof.    

   7.   OPTIONS AUTHORIZED. The options subject to Award under this Plan may
be Incentive Stock Options or stock options that do not qualify as Incentive    
Stock Options (sometimes referred to herein as "nonqualified options" or        
"nonqualified stock options"). The Committee shall have the full power and      
authority to (i) determine which options shall be nonqualified stock options and
which shall be Incentive Stock Options, (ii) grant only Incentive Stock Options 
or, alternatively, only nonqualified stock options, and (iii) in its sole       
discretion, grant to the holder of an outstanding option, in exchange for the   
surrender and cancellation of such option, a new option having a purchase price 
lower than that provided in the option so surrendered and canceled and/or       
containing such other terms and conditions as the Committee may prescribe in    
accordance with the provisions of the Plan. Under no circumstances may          
nonqualified stock options be granted where the exercise of such nonqualified   
stock options may affect the exercise of Incentive Stock Options granted        
pursuant to the Plan. In addition to any other limitations set forth herein, (1)
no Participant shall receive any grant of options, whether Incentive Stock      
Options or nonqualified stock options, exercisable for more than five hundred   
thousand (500,000) shares of Common Stock during any one fiscal year of the     
Company, and (2) the aggregate fair market value (determined in accordance with 
Paragraph 8(a) of the Plan as of the time the option is granted) of the Common  
Stock with respect to which Incentive Stock Options are exercisable for the     
first time by a Participant in any calendar year (under all plans of the Company
and of any Parent or Subsidiary) shall not exceed one hundred thousand dollars  
($100,000.00).                                                                  

     8.   TERMS AND CONDITIONS OF OPTIONS. The grant of an option under the Plan
shall be evidenced by an Award Agreement executed by the Company and the        
applicable Participant and shall contain such terms and be in such form as the  
Committee may from time to time approve, subject to the following limitations   
and conditions:                                                                 

     (a)  OPTION PRICE. The option exercise price per share with respect to each
option shall be determined by the Committee, but shall in no instance be less   
than the par value of the shares subject to the option. In addition, the option 
exercise price per share with respect to Incentive Stock Options granted        
hereunder shall in no instance be less than the fair market value of the shares 
subject to the option as determined by the Committee. For the purposes of this  
Paragraph 8(a), fair market value shall be, where applicable, the closing price 
of the Common Stock on the Date of Grant of such option as reported on any      
national securities exchange on which the Common Stock may be listed. If the    
Common Stock is not listed on a national securities exchange but is publicly    
traded on the Nasdaq Stock Market's National Market or on another automated     
quotation system, the fair market value shall be the closing price of the Common
Stock on the Date of Grant, or if traded on the Nasdaq Small Cap or Nasdaq      
Over-The-Counter market, the fair market value shall be the mean between the    
closing bid and ask prices on any such system or market. If the Common Stock was
not traded on the Date of Grant of such option, the nearest preceding date on   
which there was a trade shall be substituted. Notwithstanding the foregoing,    
however, fair market value shall be determined consistent with Code Section     
422(b)(4) or any successor provisions. The Committee may permit the option      
exercise price to be payable by transfer to the Company of Common Stock owned by
the option holder with a fair market value at the time of the exercise equal to 
the option exercise price.                                                      

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     (b)  PERIOD OF OPTION. The expiration date of each option shall be fixed by
the Committee, but notwithstanding any provision of the Plan to the contrary,   
such expiration date shall not be more than ten (10) years from the Date of     
Grant of the option.                                                            

    (c)  VESTING OF STOCKHOLDER RIGHTS. Neither the optionee nor his successor
in interest shall have any of the rights of a stockholder of the Company until  
the shares relating to the option hereunder are issued by the Company and are   
properly delivered to such optionee, or successor.                              

     (d)  EXERCISE OF OPTION. Each option shall be exercisable from time to time
(but not less than six (6) months after the Date of Grant) over such period and 
upon such terms and conditions as the Committee shall determine, but not at any 
time as to less than one hundred (100) shares unless the remaining shares that  
have become so purchasable are less than twenty five (25) shares. After the     
death of the optionee, an option may be exercised as provided in Section 9(c)   
hereof.                                                                         

(e)  DISQUALIFYING DISPOSITION. The Award Agreement evidencing any    
Incentive Stock Options granted under this Plan shall provide that if the       
optionee makes a disposition, within the meaning of Section 424(c) of the Code  
and regulations promulgated thereunder, of any share or shares of Common Stock  
issued to him pursuant to exercise of the option within the two-year period     
commencing on the day after the Date of Grant of such option or within the      
one-year period commencing on the day after the date of issuance of the share or
shares to him pursuant to the exercise of such option, he shall, within ten (10)
days of such disposition date, notify the Company of the sales price or other   
value ascribed to or used to measure the disposition of the share or shares     
thereof and immediately deliver to the Company any amount of federal income tax 
withholding required by law.                                                    

(f)  LIMITATION ON GRANTS TO CERTAIN STOCKHOLDERS. An Incentive Stock 
Option may be granted only to an Employee Participant, and only if such         
Participant, at the time the option is granted, does not own, after application 
of the attribution rules of Code Section 424, stock possessing more than ten    
percent (10%) of the total combined voting power of all classes of Common Stock 
of the Company or of its Parent or Subsidiaries. The preceding restrictions     
shall not apply to an Employee Participant if at the time the option is granted 
the option price is at least one hundred ten percent (110%) of the fair market  
value (as defined in Section 8(a) above) of the Common Stock subject to the     
option and such option by its terms is not exercisable after the expiration of  
five (5) years from the Date of Grant.                                          

  (g)  RESTRICTION ON ISSUING SHARES. The exercise of each option shall be
subject to the condition that if at any time the Company shall determine in its 
discretion that the satisfaction of withholding tax or other withholding        
liabilities, or that the listing, registration, or qualification of any shares  
otherwise deliverable upon such exercise upon any securities exchange or under  
any state or federal law, or that the consent or approval of any regulatory     
body, is necessary or desirable as a condition of, or in connection with, such  
exercise or the delivery or purchase of shares pursuant thereto, then in any    
such event, such exercise shall not be effective unless such withholding,       
listing, registration, qualification, consent, or approval shall have been      
effected or obtained free of any conditions not acceptable to the Company.      

 (h)  CONSISTENCY WITH CODE. Notwithstanding any other provision in this
Plan to the contrary, the provisions of all Award Agreements relating to        
Incentive Stock Options pursuant to the Plan shall not violate the requirements 
of the Code applicable to the Incentive Stock Options authorized hereunder.     

9.   EXERCISE OF OPTION.                                              

 (a)  Any option granted hereunder shall be exercisable according to the
terms of the Plan and at such times and under such conditions as determined by  
the Committee and set forth in the Award Agreement. An option shall be deemed   
exercised when (i) the Company has received written notice of such exercise in  
accordance with the terms of the Award Agreement, (ii) full payment of the      
aggregate option exercise price of the shares as to which the option is         
exercised has been made and (iii) arrangements that are satisfactory to the     
Committee in its sole discretion have been made for the Participant's payment to
the Company of the amount, if any, that the Committee determines to be necessary
for the Company to withhold in accordance with applicable federal or state      
income tax withholding requirements.                                            

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   (b)  Unless otherwise provided in the Award Agreement and as permitted by
applicable law, upon Retirement or other termination of the Participant's       
Continuous Status as a Participant, other than (a) a termination that is either 
(i) for Cause, or (ii) voluntary on the part of a Participant and without the   
written consent of the Company, a Parent, or any Subsidiary, or (b) a           
termination by reason of death, the Participant may (unless otherwise provided  
in his Award Agreement) exercise his option at any time within three (3) months 
after such termination of the Participant's Continuous Status as a Participant  
(or within one (1) year after termination of the Participant's Continuous Status
as a Participant due to permanent and total disability within the meaning of    
Code Section 22(e)(3)), or within such other time as the Committee shall        
authorize, but in no event may the Participant exercise his Option after ten    
(10) years from the Date of Grant thereof (or such lesser period as may be      
specified in the Award Agreement), and only to the extent of the number of      
shares for which his options were exercisable by him at the date of the         
termination of the Participant's Continuous Status as a Participant. In the     
event of the termination of the Continuous Status as a Participant of a         
Participant to whom an option has been granted under the Plan that is either (i)
for Cause or (ii) voluntary on the part of the Participant and without written  
consent, any option held by him under the Plan, to the extent not previously    
exercised, shall forthwith terminate on the date of such termination of the     
Participant's Continuous Status as a Participant. Options granted under the Plan
shall not be affected by any change of employment so long as the Employee holder
continues to be an Employee of the Company, a Subsidiary or a Parent. The Award 
Agreement may contain such provisions as the Committee shall approve with       
respect to the effect of approved leaves of absence.                            

   (c)  Unless otherwise provided in the Award Agreement and as permitted by
applicable law, in the event a Participant to whom an option has been granted   
under the Plan dies during, or within three (3) months after the Retirement or  
other termination of, the Participant's Continuous Status as a Participant, such
option (unless it shall have been previously terminated pursuant to the         
provisions of the Plan or unless otherwise provided in his Award Agreement) may 
be exercised (to the extent of the entire number of shares covered by the option
whether or not purchasable by the Participant at the date of his death) by the  
executor or administrator of the optionee's estate or by the person or persons  
to whom the optionee shall have transferred such option by will or by the laws  
of descent and distribution, at any time within a period of one (1) year after  
his death, but not after the exercise termination date set forth in the relevant
Award Agreement.                                                                

(d)  If as of the date of termination of the Participant's Continuous 
Status a Participant (other than as a result of the Participant's death) the    
Participant is not entitled to exercise his or her entire options, the shares of
Common Stock covered by the unexercisable portion of the option shall revert to 
the Plan. If the Participant (or his or her designee or estate as provided in   
Section 9(c) above) does not exercise his or her options within the time        
specified in the Plan and the Award Agreement, the unexercised options shall    
terminate and the shares of Common Stock covered by such options shall revert to
the Plan.                                                                       

10.  TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS.                 

 (a)  GENERAL. The Committee, in its sole discretion, may make Awards of
Restricted Stock to selected Participants, which Awards shall be evidenced by an
Award Agreement that contains such terms and conditions, including vesting, as  
the Committee may determine. As a condition to any Award of Restricted Stock    
hereunder, the Committee may require a Participant to pay to the Company the    
amount (such as the par value of such shares) required to be received by the    
Company in order to assure compliance with applicable state law. Any Award of   
Restricted Stock for which such requirement is established shall automatically  
expire if not purchased in accordance with the Committee's requirements within  
sixty (60) days after the Date of Grant.                                        

          Subject to the terms and conditions of the respective Award Agreement,
the Participant, as the owner of the Common Stock issued as Restricted Stock and
any Retained Distributions with respect thereto, shall have the rights of a     
stockholder, including, but not limited to, voting rights as to such Common     
Stock and the right to receive cash dividends or distributions thereon when, as 
and if paid.                                                                    

         Within the limits set forth in the Plan, an Award of Restricted Stock
may be subject to such vesting requirements as may be fixed by the Committee.   
Vesting may be accelerated by a Change of Control. Vesting may also be          
accelerated upon death, permanent disability or Retirement.                     

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          Unless otherwise provided in the Award Agreement, in the event that an
Award of Restricted Stock is made to a Participant whose employment or service  
is subsequently terminated by reason of death, permanent disability or          
Retirement or for such other reason as the Committee may provide, such          
Participant (or his estate or beneficiary) will be entitled to receive such     
additional portion of his Restricted Stock and any Retained Distributions with  
respect thereto that the Participant would have received had the Participant    
continued services or remained in the employment of the Company, Parent, or     
Subsidiary, as applicable, through the date on which the next portion of the    
shares of non-vested Restricted Stock subject to the Award of Restricted Shares 
would have vested.                                                              

     Unless otherwise provided in the Award Agreement, in the event an
award of Restricted Stock is made to a Participant whose Continuous Status as a 
Participant is subsequently terminated by the Participant for Good Reason or by 
the Company, Parent or Subsidiary as applicable, other than for Cause, then in  
any such event, the Participant will be entitled to receive such additional     
portion of his or her shares of Restricted Stock and any Retained Distributions 
with respect thereto that the Participant would have received had the           
Participant remained in Continuous Status as a Participant through the date on  
which the next portion of the shares of unvested Restricted Stock subject to the
Award of Restricted Stock would have vested.                                    

          Unless otherwise provided in the Award Agreement, in the event that an
Award of Restricted Stock is made to a Participant whose Continuous Status as a 
Participant is terminated by voluntary resignation or for Cause, then all such  
Restricted Stock and any Retained Distributions with respect thereto as to which
the Restricted Period still applies shall be forfeited by such Participant and  
shall again become available for grant under the Plan.                          

    (b)  TRANSFERABILITY. Restricted Stock and any Retained Distributions with
respect thereto may not be sold, assigned, transferred, pledged, or otherwise   
encumbered during the Restricted Period, which shall be determined by the       
Committee and shall not be more than two years from the date such Restricted    
Stock was awarded. The Committee may, at any time, reduce the Restricted Period 
with respect to any outstanding shares of Restricted Stock and any Retained     
Distributions with respect thereto awarded under the Plan.                      

     Shares of Restricted Stock, when issued, will be represented by a
stock certificate or certificates registered in the name of the Participant to  
whom such Restricted Stock shall have been granted and shall bear a restrictive 
legend to the effect that ownership of such Restricted Stock (and any related   
Retained Distributions) and the enjoyment of all rights appurtenant thereto are 
subject to the restrictions, terms and conditions provided in the Plan and the  
applicable Award Agreement. Each certificate shall be deposited by the          
Participant with the Company, together with stock powers or other instruments of
assignment, each endorsed in blank, which will permit transfer to the Company of
all or any portion of the Restricted Stock and any securities constituting      
Retained Distributions that shall be forfeited or that shall not become vested  
in accordance with the respective Award Agreement. The certificate or           
certificates issued for the Restricted Stock may bear such legend or legends as 
the Committee may, from time to time, deem appropriate to reflect the           
restrictions under the Plan for such Restricted Stock.                          

(c)  STOCK CERTIFICATES; ADDITIONAL RESTRICTIONS. Shares of Restricted
Stock shall constitute issued and outstanding shares of Common Stock for all    
corporate purposes. Each Participant will have the right to vote the Restricted 
Stock held by such Participant, to receive and retain all cash dividends and    
distributions thereon and exercise all other rights, powers and privileges of a 
holder of Common Stock with respect to such Restricted Stock, with the exception
that:                                                                           

       (i)   the Participant will not be entitled to delivery of the stock
certificate or certificates representing such Restricted Stock until the        
Restricted Period applicable to such shares or portion thereof shall have       
expired and unless all other vesting requirements with respect thereto shall    
have been fulfilled;                                                            

   (ii)  other than cash dividends and distributions and rights to
purchase stock which might be distributed to stockholders of the Company, the   
Company will retain custody of all Retained Distributions made, paid, declared  
or otherwise received by the holder thereof with respect to Restricted Stock    
(and such Retained Distributions will be subject to the same restrictions, terms
and conditions as are applicable to the Restricted Stock with respect to which  
they were made, paid or declared) until such time, if ever, as the Restricted   
Period applicable                                                               

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to the shares with respect to which such Retained Distributions shall have been 
made, paid, declared or received shall have expired, and such Retained          
Distributions shall not bear interest or be segregated in separate accounts; and

  (iii) upon the breach of any restrictions, terms or conditions
provided in the Plan or the respective Award Agreement or otherwise established 
by the Committee with respect to any Restricted Stock or Retained Distributions,
such Restricted Stock and any related Retained Distributions shall thereupon be 
automatically forfeited.                                                        

    (d)  MERGERS AND OTHER CORPORATE CHANGES. Unless otherwise provided in the
Award Agreement, upon the occurrence of a Change of Control, all restrictions   
imposed on the Participant's Restricted Stock and any Retained Distributions    
shall automatically terminate and lapse and the Restricted Period shall         
automatically terminate; provided, however, that if the Change of Control occurs
within six months of the Date of Grant the restrictions and Restricted Period   
shall terminate on the six month anniversary of the Date of Grant.              

11.  ADJUSTMENTS. The Committee, in its discretion, may make such     
adjustments in the option price, the number or kind of shares and other         
appropriate provisions covered by outstanding Awards that are required to       
prevent any dilution or enlargement of the rights of the holders of such options
that would otherwise result from any reorganization, recapitalization, stock    
split, stock dividend, combination of shares, merger, consolidation, issuance of
rights or any other change in the capital structure of the Company. The         
Committee, in its discretion, may also make such adjustments in the aggregate   
number and class of shares that may be the subject of Awards which are          
appropriate to reflect any transaction or event described in the preceding      
sentence.                                                                       

   12.  AMENDMENT, SUSPENSION, AND TERMINATION OF THE PLAN. The Board may at
any time suspend or terminate the Plan or may amend it from time to time in such
respects as the Board may deem advisable in order that the Awards granted       
thereunder may conform to any changes in the law or in any other respect that   
the Board may deem to be in the best interests of the Company; provided,        
however, that without approval by the stockholders of the Company voting the    
proper percentage of its voting power, no such amendment shall make any change  
in the Plan for which stockholder approval is required in order to comply with  
(i) Rule 16b-3, as amended, promulgated under the Exchange Act, (ii) the Code or
regulatory provisions dealing with Incentive Stock Options, (iii) any rules for 
listed companies promulgated by any national stock exchange on which the        
Company's Common Stock is traded or (iv) any other applicable rule or law.      
Unless sooner terminated hereunder, the Plan shall terminate ten (10) years     
after the Effective Date. No amendment, suspension, or termination of the Plan  
shall, without a Participant's consent, impair or negate any of the rights or   
obligations under any Award theretofore granted to such Participant under the   
Plan.                                                                           

     13.  TAX WITHHOLDING. The Company shall have the right to withhold from any
payments made under this Plan, or to collect as a condition of payment, any     
taxes required by law to be withheld. At any time when a Participant is required
to pay to the Company an amount required to be withheld under applicable income 
tax laws in connection with a distribution of shares of Common Stock pursuant to
this Plan, the Participant may satisfy this obligation in whole or in part by   
electing to have the Company withhold from such distribution shares of Common   
Stock having a value equal to the amount required to be withheld. The value of  
the shares of Common Stock to be withheld shall be based on the fair market     
value, as determined pursuant to Section 8(a) hereof, of the Common Stock on the
date that the amount of tax to be withheld shall be determined (the "Tax Date").
Any such election is subject to the following restrictions: (i) the election    
must be made on or prior to the Tax Date; (ii) the election must be irrevocable;
and (iii) the election must be subject to the disapproval of the Committee. To  
the extent required to comply with rules promulgated under Section 16 of the    
Exchange Act, elections by Participants who are subject to Section 16 of the    
Exchange Act are subject to the following additional restrictions: (i) no       
election shall be effective for a Tax Date which occurs within six (6) months of
the grant of the Award; and (ii) the election must be made either (a) six (6)   
months or more prior to the Tax Date or (b) during the period beginning on the  
third business day following the date of release for publication for the        
Company's quarterly or annual summary statements of sales and earnings and      
ending on the twelfth business day following such date.                         

  14.  EFFECTIVE DATE OF THE PLAN. This Plan shall become effective on the
date (the "Effective Date") of the last to occur of (i) the adoption of the Plan
by the Board and (ii) the approval, within twelve (12) months of such adoption, 
by a majority (or such other proportion as may be required by state law) of the 
outstanding                                                                     

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voting shares of the Company, voted either in person or by proxy, at a duly held
stockholders meeting or by written stockholder consent but in any event not     
before the effectiveness of the Company's Form 10 Registration Statement filed  
under the Exchange Act.                                                         

15.  SPECIAL PROVISIONS REGARDING CHANGE OF CONTROL. The Board or the 
Committee may, from time to time, make special provisions for one or more       
Participants respecting a possible Change of Control of the Company, a          
Subsidiary, or Parent, and, to the extent that any such special provisions made 
with the consent of the affected Employee or Consultant may have the effect of  
accelerating vesting of stock options granted under the Plan or removal of      
restrictions on Restricted Stock allotted under the Plan or the effect of       
preventing a termination or dilution of benefits, such special provisions shall 
be controlling over and shall be deemed to be an amendment of any inconsistent  
terms of the applicable Award Agreement.                                        

16.  MISCELLANEOUS PROVISIONS.                                        

    (a)  If approved by the Board, the Company or any Parent or Subsidiary may
lend money or guarantee loans by third parties to an individual to finance the  
exercise of any option granted under the Plan to continue to hold Common Stock  
thereby acquired. No such loans to finance the exercise of an Incentive Stock   
Option shall have an interest rate or other terms that would cause any part of  
the principal amount to be characterized as interest for purposes of the Code.  

   (b)  This Plan is intended and has been drafted to comply in all respects
with Rule 16b-3, as amended, under the Exchange Act ("Rule 16b-3"). If any      
provision of this Plan does not comply with Rule 16b-3, this Plan shall be      
automatically amended to comply with Rule 16b-3.                                

  (c)  No person shall have any claim or right to be granted an Award, and
the grant of an Award shall not be construed as giving a Participant the right  
to continue in service as an Employee or Consultant of or for the Company, a    
Parent, or any Subsidiary for any period of specific duration. Nothing in this  
Plan shall interfere with or limit in any way the right of the Company, a       
Parent, any Subsidiary to terminate any Participant's service as an Employee or 
Consultant at any time, with or without cause, nor confer upon any Participant  
any right to continue service as an Employee or Consultant for the Company, a   
Parent, or any Subsidiary.                                                      

  (d)  To the extent that federal laws do not otherwise control, this Plan
shall be construed in accordance with and governed by the laws of the State of  
Nevada or the property laws of any particular state.                            

   (e)  In case any one or more of the provisions of this Plan shall be held
invalid, illegal or unenforceable in any respect under applicable law and       
regulation (including Rule 16b-3), the validity, legality and enforceability of 
the remaining provisions shall not in any way be affected or impaired thereby   
and the invalid, illegal or unenforceable provisions shall be deemed null and   
void; however, to the extent permissible by law, any provision which could be   
deemed null and void shall first be construed, interpreted or revised           
retroactively to permit this Plan to be construed in compliance with all        
applicable laws (including Rule 16b-3) so as to foster the intent of this Plan. 
Notwithstanding anything in this Plan to the contrary, the Committee, in its    
sole and absolute discretion, may bifurcate this Plan so as to restrict, limit  
or condition the use of any provision of this Plan to Participants who are      
subject to Section 16 of the Exchange Act without so restricting, limiting or   
conditioning this Plan with respect to other Participants.                      

(f)  None of a Participant's rights or interests under the Plan may be
assigned or transferred in whole or in part, either directly or by operation of 
law or otherwise (except pursuant to a qualified domestic relations order or, in
the event of a Participant's death, by will or the laws of descent and          
distribution), including, but not by way of limitation, execution, levy,        
garnishment, attachment, pledge, bankruptcy or in any other manner, and no such 
right or interest of any Participant in the Plan shall be subject to any        
obligation or liability of such individual.                                     

(g)  No Restricted Stock or any Retained Distributions shall be issued
hereunder unless counsel for the Company shall be satisfied that such issuance  
will be in compliance with applicable federal, state, or other securities laws. 

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(h)  The expenses of the Plan shall be borne by the Company.          

     (i)  By accepting any Award under the Plan, each Participant or beneficiary
claiming under or through him shall be conclusively deemed to have indicated his
acceptance ratification of, and consent to, any action taken under the Plan by  
the Company, the Committee or the Board.                                        

   (j)  Awards granted under the Plan shall be binding upon the Company, its
successors and assigns.                                                         

  (k)  The appropriate officers of the Company shall cause to be filed any
reports, returns, or other information regarding Awards hereunder or any Common 
Stock issued pursuant hereto as may be required by Section 13 or 15(d) of the   
Exchange Act, or any other applicable statute, rule or regulation.              

  (1)  Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to         
stockholder approval if such approval is required.                              

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 ANNEX B

PAYMENT DATA SYSTEMS, INC.
AMENDED AND RESTATED
 1999 NON-EMPLOYEE DIRECTOR PLAN

     1.     PURPOSE. The purpose of this Plan is to advance the interests of
Payment Data Systems, Inc., formerly billserv.com, Inc., and Billserv, Inc., a  
Nevada corporation (the "Company"), by providing an additional incentive to     
attract and retain qualified and competent directors, upon whose efforts and    
judgment the success of the Company is largely dependent, through the           
encouragement of stock ownership in the Company by such persons.                

    2.     DEFINITIONS. As used herein, the following terms shall have the
meaning indicated:                                                              

       (a)    "Board" shall mean the Board of Directors of Payment Data Systems,
Inc.                                                                            

   (b)    "Committee" shall mean the committee, if any, appointed by the
Board pursuant to Section 12 hereof.                                            

      (c)    "Date of Grant" shall mean the date on which an Option is granted
to an Eligible Person pursuant to Section 4 or Section 5 hereof.                

   (d)    "Director" shall mean a member of the Board or a member of the
board of directors of a Parent on the date of adoption of the Plan.             

       (e)    "Eligible Person(s)" shall mean those persons who are Directors of
the Company or a Parent and who are not employees of the Company or a           
Subsidiary.                                                                     

     (f)    "Fair Market Value" of a Share on any date of reference shall be
the closing price on the business day immediately preceding such date. For this 
purpose, the closing price of the Shares on any business day shall be (i) if the
Shares are listed or admitted for trading on any United States national         
securities exchange, the last reported sales price of Shares on such exchange,  
as reported in any newspaper of general circulation, (ii) if actual transactions
in the Shares are included in the Nasdaq National Market or are reported on a   
consolidated transaction reporting system, the closing price of the Shares on   
such system, (iii) if Shares are otherwise quoted on the Nasdaq system, or any  
similar system of automated dissemination of quotations of securities prices in 
common use, the mean between the closing high bid and low asked quotations for  
such day of Shares on such system, and (iv) if none of clause (i), (ii) or (iii)
is applicable, the mean between the high bid and low asked quotations for Shares
as reported by the National Daily Quotation Service if at least two securities  
dealers have inserted both bid and asked quotations for Shares on at least five 
(5) of the ten (10) preceding days.                                             

      (g)    "Internal Revenue Code" or "Code" shall mean the Internal Revenue
Code of 1986, as it now exists or may be amended from time to time.             

    (h)    "Nonqualified Stock Option" shall mean an option that is not an
incentive stock option as defined in Section 422 of the Internal Revenue Code.  

   (i)    "Option" shall mean any option granted under Section 4 or 5 of
this Plan.                                                                      

      (j)    "Optionee" shall mean a person to whom an Option is granted under
this Plan or any successor to the rights of such person under this Plan by      
reason of the death of such person.                                             

       (k)    "Parent" shall mean a parent corporation of the Company as defined
in Section 424(c) of the Code, if any.                                          

     (l)    "Payment Date" shall have the meaning set forth in Section 2(a).

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      (m)    "Plan" shall mean this 1999 Non-Employee Director Plan of Payment
Data Systems, Inc.                                                              

  (n)    "Prior Plan" shall mean any plan which may have been in place
prior to the execution of this plan.                                            

 (o)    "Share(s)" shall mean a share or shares of the common stock,
($0.001 per value, of the Company.                                              

       (p)    "Subsidiary" shall mean a subsidiary corporation of the Company as
defined in Section 424(f) of the Code.                                          

  3.     SHARES AND OPTIONS. The maximum number of Shares to be issued
pursuant to Options under this Plan shall be Eight Hundred Thousand (800,000)   
Shares. Shares issued pursuant to Options granted under this Plan may be issued 
from Shares held in the Company's treasury or from authorized and unissued      
Shares. If any Option granted under this Plan shall terminate, expire, or be    
canceled or surrendered as to any Shares, new Options may thereafter be granted 
covering such Shares. Any Option granted hereunder shall be a Nonqualified Stock
Option.                                                                         

   4.     AUTOMATIC GRANT OF OPTIONS. (a) Options shall automatically be
granted to Directors as provided in this Section 4. Each Option shall be        
evidenced by an option agreement (an "Option Agreement") and shall contain such 
terms as are not inconsistent with this Plan or any applicable law. Any person  
who files with the Committee, in a form satisfactory to the Committee, a written
waiver of eligibility to receive any Option under this Plan shall not be        
eligible to receive any Option under this Plan for the duration of such waiver. 

   (b)    The Options automatically granted to Directors under this Plan
shall be in addition to regular director's fees and other benefits with respect 
to the Director's position with the Company or its Subsidiaries. Neither the    
Plan nor any Option granted under the Plan shall confer upon any person any     
right to continue to serve as a Director.                                       

     (c)    No Options shall otherwise be granted hereunder, and neither the
Board nor the Committee, if any, shall have any discretion with respect to the  
grant of Options within the meaning of Rule 16b-3 promulgated under the         
Securities Exchange Act of 1934, as amended, or any successor rule.             

       5.     OPTION PRICE. (a) The Option price per Share of any Option granted
pursuant to this Plan shall be one hundred percent (100%) of the Fair Market    
Value per Share on the Date of Grant.                                           

    6.     EXERCISE OF OPTIONS. Options may be exercised at any time after
the date on which the Options, or any portion thereof, are vested until the     
Option expires pursuant to Section 7; provided, however, that no Option shall be
exercisable prior to six (6) months from the Date of Grant. An Option shall be  
deemed exercised when (i) the Company has received written notice of such       
exercise in accordance with the terms of the Option Agreement, (ii) full payment
of the aggregate Option price of the Shares as to which the Option is exercised 
has been made and (iii) arrangements that are satisfactory to the Committee in  
its sole discretion have been made for the Optionee's payment to the Company of 
the amount, if any, that the Committee determines to be necessary for the       
Company to withhold in accordance with applicable federal or state income tax   
withholding requirements. Pursuant to procedures approved by the Committee, tax 
withholding requirements, at the option of an Optionee, may be met by           
withholding Shares otherwise deliverable to the Optionee upon the exercise of an
Option. Unless further limited by the Committee in any Option Agreement, the    
Option price of any Shares purchased shall be paid solely in cash by certified  
or cashier's check, by money order, with Shares (but with Shares only if        
permitted by the Option Agreement or otherwise permitted by the Committee in its
sole discretion at the time of exercise) or by a combination of the above;      
provided, however, that the Committee in its sole discretion may accept a       
personal check in full or partial payment of any Shares. If the exercise price  
is paid in whole or in part with Shares, the value of the Shares surrendered    
shall be their Fair Market Value on the date the Shares are received by the     
Company.                                                                        

       7.     TERMINATION OF OPTION PERIOD. The unexercised portion of an Option
shall automatically and without notice terminate and become null and void at the
time of the earliest to occur of the following:                                 

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(a)    one (1) year after the date that an Optionee ceases to be a
Director (including for this purpose a Director of a Parent) by reason of death 
of the Optionee, or;                                                            

     (b)    the tenth (10th) anniversary of the Date of Grant of the Option.

   8.     ADJUSTMENT OF SHARES. (a) If at any time while this Plan is in
effect or unexercised Options are outstanding, there shall be any increase or   
decrease in the number of issued and outstanding Shares through the declaration 
of a stock dividend or through any recapitalization resulting in a stock        
split-up, combination or exchange of Shares, then and in such event:            

  (i)    appropriate adjustment shall be made in the maximum number of
Shares then subject to being optioned under this Plan, so that the same         
proportion of the Company's issued and outstanding Shares shall continue to be  
subject to being so optioned; and                                               

     (ii)   appropriate adjustment shall be made in the number of Shares and
the exercise price per Share thereof then subject to any outstanding Option, so 
that the same proportion of the Company's issued and outstanding Shares shall   
remain subject to purchase at the same aggregate exercise price.                

         In addition, the Committee shall make such adjustments in the
Option price and the number of shares covered by outstanding Options that are   
required to prevent dilution or enlargement of the rights of the holders of such
Options that would otherwise result from any reorganization, recapitalization,  
stock split, stock dividend, combination of shares, merger, consolidation,      
issuance of rights, spin-off or any other change in capital structure of the    
Company.                                                                        

       (b)    Except as otherwise expressly provided herein, the issuance by the
Company of shares of its capital stock of any class, or securities convertible  
into shares of capital stock of any class, either in connection with a direct   
sale or upon the exercise of rights or warrants to subscribe therefor, or upon  
conversion of shares or obligations of the Company convertible into such shares 
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number of or exercise price of Shares then subject 
to outstanding Options granted under this Plan.                                 

       (c)    Without limiting the generality of the foregoing, the existence of
outstanding Options granted under this Plan shall not affect in any manner the  
right or power of the Company to make, authorize or consummate (i) any or all   
adjustments, recapitalizations, reorganizations or other changes in the         
Company's capital structure or its business; (ii) any merger or consolidation of
the Company; (iii) any issue by the Company of debt securities, or preferred or 
preference stock that would rank above the Shares subject to outstanding        
Options; (iv) the dissolution or liquidation of the Company; (v) any sale,      
transfer or assignment of all or any part of the assets or business of the      
Company; or (vi) any other corporate act or proceeding, whether of a similar    
character or otherwise.                                                         

    9.     TRANSFERABILITY OF OPTIONS. Each Option Agreement shall provide
that such Option shall not be transferable by the Optionee other than by will or
the laws of descent and distribution or pursuant to a qualified domestic        
relations order and that, so long as an Optionee lives, only such Optionee or   
his guardian or legal representative shall have the right to exercise the       
related Option.                                                                 

      10.    ISSUANCE OF SHARES. No person shall be, or have any of the rights
or privileges of, a stockholder of the Company with respect to any of the Shares
subject to an Option unless and until certificates representing such Shares     
shall have been issued and delivered to such person. As a condition of any      
transfer of the certificate for Shares, the Committee may obtain such agreements
or undertakings, if any, as it may deem necessary or advisable to assure        
compliance with any provision of this Plan, any Option Agreement or any law or  
regulation, including, but not limited to, the following:                       

   (i)    A representation, warranty or agreement by the Optionee to the
Company, at the time any Option is exercised, that he or she is acquiring the   
Shares to be issued to him or her for investment and not with a view to, or for 
sale in connection with, the distribution of any such Shares; and               

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       (ii)   A representation, warranty or agreement to be bound by any legends
that are, in the opinion of the Committee, necessary or appropriate to comply   
with the provisions of any securities law deemed by the Committee to be         
applicable to the issuance of the Shares and are endorsed upon the Share        
certificates.                                                                   

          Share certificates issued to an Optionee who is a party to any
stockholder agreement or a similar agreement shall bear the legends contained in
such agreements.                                                                

       11.    ADMINISTRATION OF THE PLAN. (a) This Plan shall be administered by
a stock option committee (the "Committee") consisting of not fewer than two (2) 
members of the Board; provided, however, that if no Committee is appointed, the 
Board shall administer this Plan and in such case all references to the         
Committee shall be deemed to be references to the Board. The Committee shall    
have all of the powers of the Board with respect to this Plan. Any member of the
Committee may be removed at any time, with or without cause, by resolution of   
the Board, and any vacancy occurring in the membership of the Committee may be  
filled by appointment by the Board.                                             

      (b)    The Committee, from time to time, may adopt rules and regulations
for carrying out the purposes of this Plan. The determinations and the          
interpretation and construction of any provision of this Plan by the Committee  
shall be final and conclusive.                                                  

      (c)    Any and all decisions or determinations of the Committee shall be
made either (i) by a majority vote of the members of the Committee at a meeting 
or (ii) without a meeting by the written approval of a majority of the members  
of the Committee.                                                               

   (d)    This Plan is intended and has been drafted to comply with Rule
16b-3, as amended, under the Securities Exchange Act of 1934, as amended. If any
provision of this Plan does not comply with Rule 16b-3, as amended, this Plan   
shall be automatically amended to comply with Rule 16b-3, as amended.           

(e)    This Plan shall not be amended more than once every six (6)
months, other than to comport with applicable changes to the Internal Revenue   
Code, the Employee Retirement Income Security Act of 1974, as amended, or the   
rules thereunder.                                                               

      12.    INTERPRETATION. (a) If any provision of this Plan is held invalid
for any reason, such holding shall not affect the remaining provisions hereof,  
but instead this Plan shall be construed and enforced as if such provision never
been included in this Plan.                                                     

   (b)    THIS PLAN SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEVADA
EXCEPT TO THE EXTENT SUPERSEDED BY THE LAWS OF THE UNITED STATES OR THE PROPERTY
LAWS OF ANY STATE.                                                              

       (c)    Headings contained in this Plan are for convenience only and shall
in no manner be construed as part of this Plan.                                 

       (d)    Any reference to the masculine, feminine or neuter gender shall be
a reference to such other gender as is appropriate.                             

      13.    SECTION 83(B) ELECTION. If as a result of exercising an Option an
Optionee receives Shares that are subject to a "substantial risk of forfeiture" 
and are not "transferable" as those terms are defined for purposes of Section   
83(a) of the Code, then such Optionee may elect under Section 83(b) of the Code 
to include in his gross income, for his taxable year in which the Shares are    
transferred to such Optionee, the excess of the Fair Market Value of such Shares
at the time of transfer (determined without regard to any restriction other than
one which by its terms will never lapse), over the amount paid for the Shares.  
If the Optionee makes the Section 83(b) election described above, the Optionee  
shall (i) make such election in a manner that is satisfactory to the Committee, 
(ii) provide the Company with a copy of such election, (iii) agree to promptly  
notify the Company if any Internal Revenue Service or state tax agent, on audit 
or otherwise, questions the validity or correctness of such election or of the  
amount of income reportable on account of such election, and (iv) agree to such 
withholding as the Committee may reasonably require in its sole and absolute    
discretion.                                                                     

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    14.    EFFECTIVE DATE AND TERMINATION DATE. This Plan is adopted as of
January 4, 1999, but shall only become effective upon effectiveness of the      
Company's Registration Statement filed under the Securities Exchange Act of     
1934, as amended. The effective date of any amendment to the Plan is the date on
which the Board adopted such amendment; provided, however, if this Plan is not  
approved by the stockholders of the Company within twelve (12) months after the 
effective date, then, in such event, this Plan and all Options granted pursuant 
to this Plan shall be null and void. This Plan shall terminate on July 10, 2009,
and any Option outstanding on such date will remain outstanding until it has    
either expired or has been exercised.                                           

33. 

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘DEFR14A’ Filing		Date		First		Last			Other Filings
		7/10/09		13		33
		1/4/09		11
		12/31/04		5		18			10KSB
		7/25/04		15		16
		6/22/04		2		5			DEF 14A
Filed on / Effective on:		5/3/04		5
		4/23/04		2		6
		4/5/04		5		6
		2/10/04		16		17			8-K
		1/6/04		14					3,  4
		12/31/03		8		18			10-K
		12/30/03		7		15			3,  4,  4/A
		8/31/03		15
		7/25/03		8		16			8-K/A
		3/31/03		8					10-Q,  NT 10-K
		2/2/03		6
		12/31/02		7		17			10-K,  4,  NT 10-K
		12/31/01		14		17			10-K,  10-K/A,  4,  5
		1/4/99		33
									List all Filings